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| ERGs | | Employee Resource Groups |
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| ESPP | | Employee Stock Purchase Plan |
| EVP | | Employee Value Proposition |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
| E.U. | | European Union |
| FAR | | Federal Acquisition Regulation |
| FASB | | Financial Accounting Standards Board |
| FCA | | False Claims Act |
| FCPA | | United States Foreign Corrupt Practices Act |
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| FKTC | | First Kuwaiti Trading Company |
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| G&A | | General and administrative |
| GAAP | | Generally Accepted Accounting Principles |
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| GS | | Government Solutions |
| HETs | | Heavy equipment transporters |
| HR | | Human Resources |
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| I&D | | Inclusion & Diversity |
| IRS | | Internal Revenue Service |
| JKC | | JKC Australia LNG, an Australian joint venture executing the Ichthys LNG Project |
| LIBOR | | London interbank offered rate |
| LNG | | Liquefied natural gas |
| MD&A | | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| MoD | | Ministry of Defence |
| NCI | | Noncontrolling interests |
| NYSE | | The New York Stock Exchange |
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| OAW | | Operation Allies Welcome |
| PCAOB | | Public Company Accounting Oversight Board |
| PFIs | | Private financed initiatives and projects |
| PIC | | Paid-in capital in excess of par |
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| Acronym | | Definition |
| PPE | | Property, Plant and Equipment |
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| RPA | | Master Accounts Receivable Purchase Agreement |
| SEC | | U.S. Securities and Exchange Commission |
| Securities Act | | Securities Act of 1933, as amended |
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| SOFR | | Secured Overnight Financing Rate |
| SONIA | | Sterling Overnight Index Average |
| STS | | Sustainable Technology Solutions |
| Tax Act | | Tax Cuts and Jobs Act |
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| U.K. | | United Kingdom |
| U.S. | | United States |
| U.S. GAAP | | Accounting principles generally accepted in the United States |
| UKMFTS | | U.K. Military Flying Training System |
| VIEs | | Variable interest entities |
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We also own or lease numerous small facilities that include sales, administrative and offices as well as warehouses and equipment yards located throughout the world. Our owned Leatherhead property is pledged to secure certain pension obligations in the U.K., and we believe all properties that we currently occupy are suitable for their intended use.
Item 3.Legal Proceedings
Information relating to various commitments and contingencies is described in “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K and in Notes 6, 13 and 14 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part I, Item 3.
Item 4.Mine Safety Disclosures
Not applicable.
PART II
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the NYSE and trades under the symbol “KBR.” We have declared a dividend in each quarter during the years ended December 29, 2023 and December 31, 2022, and we currently expect that comparable quarterly cash dividends will continue to be paid for the foreseeable future. The declaration, payment and amount of future cash dividends will be at the discretion of our Board of Directors. On February 19, 2024, the Board of Directors declared a dividend of $0.15 per share, which will be paid on April 15, 2024.
At January 31, 2024, there were 59 shareholders of record. In calculating the number of shareholders, we consider clearing agencies and security position listings as one shareholder for each agency or listing.
Share Repurchases
On February 25, 2014, the Board of Directors authorized a $350 million share repurchase program. On October 18, 2022, the Board of Directors authorized an increase to the total authorization level to $500 million. As of December 29, 2023, $326 million remains available for repurchase under this authorization. On February 19, 2024, the Board of Directors authorized $174 million of share repurchases to be added to the prior authorizations. After the authorization on February 19, 2024, $500 million remains authorized and available for repurchase under this program. The authorization does not obligate the Company to acquire any particular number of shares of common stock and may be commenced, suspended or discontinued without prior notice. The share repurchases are intended to be funded through the Company’s current and future cash flows and the authorization does not have an expiration date.
The following is a summary of share repurchases of our common stock settled during the three months ended December 29, 2023, and the amount available to be repurchased under the authorized share repurchase program:
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| Purchase Period | Total Shares Repurchased (1) | | Average
Price Paid
per Share | |
Shares Repurchased
as Part of Publicly
Announced Plan | | Dollar Value of Maximum Number of Shares that May Yet Be
Purchased Under the Plan |
| September 30, 2023 | — | | | $ | — | | | — | | | $ | 326,215,513 | |
| October 1 - 31, 2023 | 72 | | | $ | 58.15 | | | — | | | $ | 326,215,513 | |
| November 1 - 30, 2023 | 10,088 | | | $ | 58.24 | | | — | | | $ | 326,215,513 | |
| December 1 - 29, 2023 | 11,096 | | | $ | 53.30 | | | — | | | $ | 326,215,513 | |
| Total | 21,256 | | | $ | — | | | — | | | $ | 326,215,513 | |
(1)Included within the shares repurchased herein are 21,256 shares acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from issuance of share-based equity awards under the KBR Stock and Incentive Plan at an average price of $55.66 per share.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
The following performance graph compares the cumulative total shareholder return on shares of our common stock for the five-year period ended December 29, 2023, with the cumulative total return on the S&P 1500 IT Consulting & Other Services Index, the Russell 1000 Index, the S&P MidCap 400 Index and the Dow Jones Heavy Construction Industry Index for the same period. The comparisons assume the investment of $100 on December 31, 2018 and reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.
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| 12/31/2018 | | 12/31/2019 | | 12/31/2020 | | 12/31/2021 | | 12/31/2022 | | 12/29/2023 |
| KBR | $ | 100.00 | | | $ | 203.62 | | | $ | 210.06 | | | $ | 327.00 | | | $ | 366.03 | | | $ | 387.71 | |
| S&P 1500 IT Consulting & Other Services | $ | 100.00 | | | $ | 130.23 | | | $ | 147.73 | | | $ | 203.78 | | | $ | 155.69 | | | $ | 197.65 | |
| Russell 1000 | $ | 100.00 | | | $ | 131.43 | | | $ | 158.98 | | | $ | 201.03 | | | $ | 162.58 | | | $ | 205.72 | |
| S&P MidCap 400 | $ | 100.00 | | | $ | 126.20 | | | $ | 143.44 | | | $ | 178.95 | | | $ | 155.58 | | | $ | 181.15 | |
| Dow Jones Heavy Construction | $ | 100.00 | | | $ | 134.15 | | | $ | 162.88 | | | $ | 243.89 | | | $ | 280.60 | | | $ | 337.69 | |
Item 6.[Reserved]
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The purpose of the MD&A is to provide our stockholders and other interested parties with information necessary to gain an understanding of our financial condition and disclose changes in our financial condition since the most recent fiscal year-end and results of operations during the current fiscal period as compared to the corresponding period of the preceding fiscal year. The MD&A should be read in conjunction with Part I of this Annual Report on Form 10-K as well as the consolidated financial statements and related notes included in Part II, Item 8 of this Annual Report on Form 10-K.
Company Overview
KBR Inc., a Delaware corporation ("KBR"), delivers science, technology, engineering and logistics support solutions to governments and companies around the world. Drawing from its rich 100-year history and culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full life cycle capabilities to help clients meet their most pressing challenges. Our capabilities and offerings include the following:
•Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences;
•Defense systems engineering such as rapid prototyping; test and evaluation; aerospace acquisition support; systems and platform integration; and sustainment engineering;
•Operational support such as space domain awareness; C5ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support;
•Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; and artificial intelligence and machine learning;
•Professional advisory services across the defense, renewable energy and critical infrastructure sectors; and
•Sustainable decarbonization solutions that accelerate and enable energy transition and climate change solutions such as proprietary, sustainability-focused process licensing; advisory services focused on energy transition; high-end engineering, design and management program offerings; and digitally-enabled asset optimization solutions.
KBR's strategic growth vectors include:
•Defense modernization;
•Space superiority;
•Health and human performance;
•Sustainable technology;
•High-end engineering;
•Energy transition and security; and
•Technology-led asset optimization
Key customers include U.S. DoD agencies such as the U.S. Army, U.S. Navy and U.S. Air Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; the U.K. MoD, London Metropolitan Police, and other U.K. Crown Services; the Royal Australian Air Force, Navy and Army; other national governments; and a wide range of commercial and industrial companies.
Our deployment priorities are to fund organic growth, maintain responsible leverage, maintain an attractive dividend, make strategic, accretive acquisitions and repurchase shares. As demonstrated by our acquisitions of Frazer Nash Consultancy Limited, VIMA Group and others in the past few years, our acquisition thesis is centered around moving upmarket, expanding capabilities and broadening customer sets across strategic growth vectors. KBR also develops and prioritizes investment in technologies that are disruptive, innovative and sustainability- and safety-focused. These technologies and engineering solutions enable clients to achieve a cleaner, greener, more energy efficient global future.
Our Business Segments
KBR's business is organized into two core business segments and one non-core business segment as follows:
Core business segments
•Government Solutions
•Sustainable Technology Solutions
Non-core business segment
•Other
See additional information on our business segments in Note 2 to our consolidated financial statements and under "Item 1. Business" in this Annual Report on Form 10-K.
Business Environment and Trends
Government Outlook
On June 3, 2023, President Biden signed into law the Fiscal Responsibility Act of 2023, which suspends the public debt ceiling limit through January 2, 2025. This law includes provisions that will impact future fiscal year budgets for the United States. Key provisions in this law include statutory caps on discretionary funding in 2024 and 2025 and limits on discretionary funding for the years 2026 through 2029. The 2024 statutory cap on discretionary funding totals $1.6 trillion, which included $886 million for defense spending and $704 million for non-defense spending. The 2024 statutory cap on defense spending does not impact President Biden's proposed fiscal 2024 budget; however, the 2024 statutory cap on non-defense spending is 14% lower than President Biden's proposed fiscal 2024 budget. The effect of the non-defense discretionary spending statutory cap on individual programs or KBR cannot be predicted at this time.
In December 2023, President Biden signed into law the National Defense Authorization Act ("NDAA") for fiscal year 2024. The NDAA authorizes programs, projects and policies to be carried out with funds appropriated by Congress as part of the annual budgetary process. The NDAA supports approximately $874 billion in fiscal year 2024 funding for national defense, $841 billion of which is for the DoD. The requested amount is an increase of $27 billion when compared to the authorized defense spending for fiscal year 2023.
The U.S. government has not yet enacted an annual budget for fiscal year 2024; these proposed 2024 budgetary amounts are subject to change. To avert a government shutdown, three continuing resolution funding measures have been enacted to finance all U.S. government activities. The most recent "laddered" continuing resolution passed in January 2024 funds the government through March 2024, depending on the appropriation bill. Under the continuing resolution, partial-year funding at amounts consistent with appropriated levels for fiscal year 2023 are available, subject to certain restrictions, but new spending initiatives are not authorized. Uncertainty continues to exist regarding whether a divided Congress will be able to pass appropriation bills or additional continuing resolutions once the current continuing resolutions expire in March 2024. We believe our key programs will continue to be supported and funded in the continuing resolution financing mechanism. The effect of a potential government shutdown or the finalized fiscal year 2024 budget on KBR or our individual programs cannot be predicted at this time. However, if a government shutdown were to occur and were to continue for an extended period, we could be at risk of program cancellations, schedule delays and other disruptions and nonpayment, which could adversely affect our results of operations. We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly and our programs.
Internationally, our Government Solutions work is performed primarily for the U.K. MoD and the Australian Department of Defence. In March 2023, the U.K. government announced its intent to increase its defense budget by £11 billion over the next five years, increasing the defense budget to 2.25% of GDP by 2025. Recognizing the importance of strong defense and the role the U.K. plays across the globe, the U.K. has prioritized investment in military research and investment in key areas to advance and develop capabilities around artificial intelligence, cyber security and space superiority. It is expected the next general election in the United Kingdom will occur in 2024 (and no later than January 28, 2025). The effect of the next general election in the United Kingdom on KBR or our individual programs cannot be predicted at this time. The Australian government continues to invest in defense spending, with particular focus on enhancing regional security, modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability. The fiscal year budget for Australia for the
2023 - 2024 financial year was finalized, with the Australian government increasing defense spending by 5% to AUD 51.0 billion, or approximately 2.00% of GDP.
In 2021, the U.S., U.K. and Australia announced AUKUS, a security pact that will promote a free and open Indo-Pacific through a shared long-term investment to strengthen their combined capabilities and enhance their ability to deter aggression. AUKUS’ first major initiative (Pillar 1) is a joint effort to provide Australia with conventionally armed, nuclear powered submarine ("NPS") capability and strengthen the capacity of the submarine workforce and industrial base. In 2023, these countries announced an arrangement for Australia to acquire a NPS through the AUKUS security pact. This arrangement outlines an approach that will provide Australia with the capability to operate and maintain a NPS before the expected sale of these submarines from the United States to Australia in the early 2030s (subject to Congressional approval). Pillar 2 of this security pact will focus on enabling technologies to maintain a secure and stable trade through the region including undersea technologies, quantum technologies, advanced cyber, artificial intelligence and autonomy, hypersonic research and development, electronic warfare and innovation.
With defense and civil budgets driven in part by political instability, military conflicts, aging platforms and infrastructure and the need for technology advances, we expect continued opportunities to provide solutions and technologies to mission critical work aligned with our customers’ and our nation’s critical priorities.
Sustainable Technology Outlook
Long-range commercial market fundamentals are supported by global population growth, expanding global development and an acceleration of demand for energy transition, renewable energy sources and climate change solutions. The globe is in search of the solution to the energy trilemma, the balance between energy affordability, ensuring energy security and achieving environmental sustainability. Clients are prioritizing their efforts to solve the energy trilemma by investing in digital solutions to optimize operations, increase end-product flexibility and energy efficiency, reduce unplanned downtime and minimize environmental footprint. As the global focus on energy security intensifies and companies continue to commit to near-term carbon neutrality and longer-range net-zero carbon emissions, we expect spending to continue in areas such as decarbonization; carbon capture, utilization and sequestration; biofuels; and circular economy. Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia which complements KBR's proprietary process technologies, solutions and capabilities.
We expect climate change and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a cleaner future. Specifically, on August 16, 2022, the President signed the Inflation Reduction Act into law which includes provisions intended to, among other things, incentivize domestic clean energy, manufacturing and production. Additionally, in March 2023, the Canadian government announced its federal budget which includes billions of dollars for investment in the transition to a low-carbon economy.
Change in Fiscal Year End
On December 13, 2022, the Board of Directors approved a change in the fiscal year end from a calendar year ending on December 31 to a 52 – 53 week year ending on the Friday closest to December 31, effective as of the commencement of the Company's fiscal year on January 1, 2023. 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 made the fiscal year change on a prospective basis and will not adjust operating results for prior periods. The change will impact the prior year comparability of each of the fiscal quarters and the annual period for the year ending December 29, 2023; however, the impact will not be material. The Company believes this change will improve comparability between periods by eliminating the year-over-year variability in calendar month productive days and provide a more consistent reporting cadence for operational leaders to aid in strategic decision making.
Due to this change in fiscal year, our fiscal year ended on December 29 in 2023 as compared to December 31 in 2022. The years ended December 29, 2023 and December 31, 2022 contained 363 days and 365 days, respectively.
Overview of 2023 Financial Results and Significant Bookings
2023 was a year of significant achievement for KBR as we continued to execute toward our long-term vision. The Company benefits from a significant base of long-term enduring contracts in our government business, a diverse portfolio of high quality proprietary process technologies, market tailwinds that benefit our capabilities and technologies in areas such as defense modernization, energy transition, energy security and high-end engineering and a truly global client base. Together, these attributes distinguish KBR and have contributed directly to the Company’s growth in earnings during the year.
In 2023, revenues and operating income increased for KBR when compared to 2022. These increases were driven by both our GS and STS business segments. Our GS business segment increased revenues in 2023 with contract growth and increased activity to support exercises, training and other activities within the European Command during the year, despite being partially offset by revenue recognized in the previous year related to the OAW program. Our STS business segment increased revenues in 2023 due to increases in technology sales and engineering and professional services. Our teams continued to deliver operational performance, healthy profitability and strong cash flow. Importantly, we drove innovation and extended our footprint through new program wins and technology advances, developments and investments, such as our additional investment in Mura Technology in 2023. 2023 was also an important year for KBR with multiple obligations resolved during the year including the settlement of a legacy legal matter and the maturity and settlement of our Convertible Notes. Our outstanding warrants were also terminated in 2023, with final payment for the warrant terminations being made in January 2024.
Our GS business landed new awards, including a $1.9 billion ceiling, 5-year Integrated Mission Operations Contract for the continued support of NASA's human spaceflight programs which includes the International Space Station, Artemis and Low Earth Orbit Commercialization. Additional new awards included an award to a KBR joint venture for the Omnibus Multidiscipline Engineering Services III contract, worth up to $719 million, to aid NASA's development of space orbital systems in its Engineering and Technology Directorate at Goddard Space Flight Center in Maryland. Our STS business landed various awards during the year, including an award for modifications to the Pluto LNG facility in Australia and numerous projects across the ammonia landscape and various projects spanning carbon capture, utilization and storage, hydrogen, biofuels and renewables.
Results of Operations
The following tables set forth our results of operations for the periods presented, including by segment. A discussion regarding our financial condition and results of operations for the years ended December 31, 2022 and 2021 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 17, 2023.
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| Consolidated Results |
| Year Ended | | Change |
| December 29, | | December 31, | | December 31, | | 2023 vs. 2022 | | 2022 vs. 2021 |
| Dollars in millions | 2023 | | 2022 | | 2021 | | $ | | % | | $ | | % |
| Revenues | $ | 6,956 | | | $ | 6,564 | | | $ | 7,339 | | | $ | 392 | | | 6 | % | | $ | (775) | | | (11) | % |
| Cost of revenues | $ | (5,979) | | | $ | (5,736) | | | $ | (6,533) | | | $ | 243 | | | 4 | % | | $ | (797) | | | (12) | % |
| Gross profit | $ | 977 | | | $ | 828 | | | $ | 806 | | | $ | 149 | | | 18 | % | | $ | 22 | | | 3 | % |
| Equity in earnings (losses) of unconsolidated affiliates | $ | 114 | | | $ | (80) | | | $ | (170) | | | $ | 194 | | | n/m | | $ | 90 | | | 53 | % |
| Selling, general and administrative expenses | $ | (488) | | | $ | (420) | | | $ | (393) | | | $ | 68 | | | 16 | % | | $ | 27 | | | 7 | % |
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| Legal settlement of legacy matter | $ | (144) | | | $ | — | | | $ | — | | | $ | 144 | | | n/m | | $ | — | | | — | % |
| Gain (loss) on disposition of assets and investments | $ | (7) | | | $ | 19 | | | $ | 2 | | | $ | (26) | | | n/m | | $ | 17 | | | n/m |
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| Other | $ | (4) | | | $ | (4) | | | $ | (14) | | | $ | — | | | — | % | | $ | (10) | | | (71) | % |
| Operating income | $ | 448 | | | $ | 343 | | | $ | 231 | | | $ | 105 | | | 31 | % | | $ | 112 | | | 48 | % |
| Interest expense | $ | (115) | | | $ | (87) | | | $ | (80) | | | $ | 28 | | | 32 | % | | $ | 7 | | | 9 | % |
| Unrealized gain on other investment | $ | — | | | $ | 16 | | | $ | 4 | | | $ | (16) | | | n/m | | $ | 12 | | | 300 | % |
Charges associated with Convertible Notes
| $ | (494) | | | $ | — | | | $ | — | | | $ | 494 | | | n/m | | $ | — | | | — | % |
| Other non-operating income (expense) | $ | (5) | | | $ | 12 | | | $ | (9) | | | $ | (17) | | | n/m | | $ | 21 | | | n/m |
| Income (loss) before income taxes | $ | (166) | | | $ | 284 | | | $ | 146 | | | $ | (450) | | | n/m | | $ | 138 | | | 95 | % |
| Provision for income taxes | $ | (95) | | | $ | (92) | | | $ | (111) | | | $ | 3 | | | 3 | % | | $ | (19) | | | (17) | % |
| Net income (loss) | $ | (261) | | | $ | 192 | | | $ | 35 | | | $ | (453) | | | n/m | | $ | 157 | | | 449 | % |
Less: Net income attributable to noncontrolling interests | $ | 4 | | | $ | 2 | | | $ | 8 | | | $ | 2 | | | 100 | % | | $ | (6) | | | (75) | % |
| Net income (loss) attributable to KBR | $ | (265) | | | $ | 190 | | | $ | 27 | | | $ | (455) | | | n/m | | $ | 163 | | | 604 | % |
n/m - not meaningful
Revenues. Revenues increased by $392 million, or 6%, to $6,956 million in 2023, compared to $6,564 million in 2022. The increase was primarily attributed to contract growth across our GS business and increased revenues from technology sales and engineering and professional services in our STS business. Additionally, there was increased activity to support exercises, training and other activities within the European Command. These increases in revenue were offset by approximately $313 million of revenue recognized in 2022 from contingency work associated with the OAW program that wound down and substantially completed in early 2022 and decreases in revenue due to the ramp down of construction work for the Aspire program.
Gross profit. The increase in overall gross profit of $149 million, or 18%, was primarily driven by items increasing revenues discussed above, favorable STS licensing mix and resolutions on various legacy matters in the current year. These increases were offset by reduced volume from contingency work associated with the OAW program.
Equity in earnings (losses) of unconsolidated affiliates. Equity in earnings (losses) of unconsolidated affiliates increased by $194 million to $114 million in earnings for the year ended December 29, 2023 compared to $80 million in losses for the year ended December 31, 2022. In 2022, a non-cash charge in the amount of $137 million was recorded associated with the settlement agreement with the consortium of subcontractors of the Combined Cycle Power Plant for the Ichthys LNG Project that did not recur in 2023. In 2022, we also recorded a charge on a joint venture in our GS business segment that did not recur in 2023. Further, the increase in 2023 is attributed to equity in earnings from services on an LNG project that commenced in the second quarter of 2022.
Selling, general and administrative expenses. Selling, general and administrative expenses were $68 million higher in 2023 compared to 2022, which was primarily driven by growth in the business and favorable settlements and credits received in the first quarter of 2022 that did not recur in 2023.
Legal settlement of legacy matter. In 2023 we recorded a charge of $144 million related to the settlement of a legacy legal matter.
Gain (loss) on disposition of assets and investments. In 2023, we recognized a loss on disposition of assets and investments of $7 million related to the sale of our operations in Russia. This loss was primarily due to $10 million in accumulated foreign currency adjustments that were reclassified from AOCL. In 2022, we recognized a gain on disposition of assets and investments of $16 million primarily from the sale of our investment interest in three U.K. Road investments.
Interest Expense. The increase in interest expense was primarily driven by increases in the U.S. federal reserve funds rate from 2022 to 2023.
Unrealized gain on other investment. In 2022, we recognized an unrealized gain on other investment of $16 million related to the appreciation in the fair value of our Mura Technology investment as a result of a revaluation triggered by our incremental investment commitment. We did not record an unrealized gain on other investment in 2023.
Charges associated with Convertible Notes. In 2023, we recognized a loss of $494 million related to the cash election and repurchase of Convertible Notes and Warrant Unwind Agreements.
Other non-operating income (expense). Other non-operating income (expense) includes interest income, foreign exchange gains and losses and other non-operating income or expense items. The net decrease is primarily driven by foreign exchange gains and losses. In 2023, we recorded approximately $6 million in net foreign exchange losses. In 2022, we recorded approximately $8 million in net foreign exchanges gains primarily related to foreign exchange impacts from the Australian dollar tranche of Term Loan A that was redenominated into U.S. dollars following the execution of an amendment to our existing Credit Agreement in the fourth quarter of 2022.
Provision for income taxes. The provision for income taxes for the year ended December 29, 2023 reflects a (57)% tax rate as compared to a 32% tax rate for the year ended December 31, 2022. The effective tax rate of (57)%, as compared to the U.S. statutory rate of 21%, for the year ended December 29, 2023 was primarily impacted by the non-deductible portion of a legal settlement on a legacy matter and the non-deductible charge associated with the cash election and Convertible Notes repurchase discussed in Note 22. The implication of these non-deductible items were partially offset by the release of a previously reserved position based on developments associated with the ongoing IRS examination and appeals process for certain years. The effective tax rate of 32% for the year ended December 31, 2022 was primarily driven by the non-deductibility of losses incurred with respect to the settlement of outstanding matters related to the Ichthys LNG project to which KBR is a JV partner. Excluding the tax impact of these items, our tax rate would be 26% and 24% for the year ended December 29, 2023 and December 31, 2022, respectively. See Note 12 "Income Taxes" to our consolidated financial statements for further discussion on income taxes, including our reconciliation of the U.S. statutory tax rate to our effective tax rate.
Results of Operations by Business Segment
We analyze the financial results of our two core business segments and one non-core business segment. The business segments presented are consistent with our reportable segments discussed in Note 2 to our consolidated financial statements.
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| Years Ended | | Change |
| December 29, | | December 31, | | December 31, | | 2023 vs. 2022 | | 2022 vs. 2021 |
| Dollars in millions | 2023 | | 2022 | | 2021 | | $ | | % | | $ | | % |
| Revenues | | | | | | | | | | | |
| Government Solutions | $ | 5,353 | | | $ | 5,320 | | | $ | 6,149 | | | $ | 33 | | | 1 | % | | $ | (829) | | | (13) | % |
| Sustainable Technology Solutions | 1,603 | | | 1,244 | | | 1,190 | | | 359 | | | 29 | % | | 54 | | | 5 | % |
| Total revenues | $ | 6,956 | | | $ | 6,564 | | | $ | 7,339 | | | $ | 392 | | | 6 | % | | $ | (775) | | | (11) | % |
| | | | | | | | | | | | | |
| Operating income | | | | | | | | | | | | | |
| Government Solutions | $ | 285 | | | $ | 441 | | | $ | 414 | | | $ | (156) | | | (35) | % | | $ | 27 | | | 7 | % |
| Sustainable Technology Solutions | 324 | | | 47 | | | (30) | | | 277 | | | n/m | | 77 | | | n/m |
| Other | (161) | | | (145) | | | (153) | | | (16) | | | (11) | % | | 8 | | | 5 | % |
| Operating income | $ | 448 | | | $ | 343 | | | $ | 231 | | | $ | 105 | | | 31 | % | | $ | 112 | | | 48 | % |
n/m - not meaningful
Government Solutions
GS revenues increased by $33 million, or 1%, to $5,353 million in 2023 compared to $5,320 million in 2022. This increase was primarily attributable to activity to support exercises, training and other activities within the European Command and continued contract growth across our GS business segment. These increases were partially offset by approximately $313 million of revenue recognized in 2022 from contingency work associated with the OAW program that was wound down and substantially completed in early 2022. Additionally, the increase was offset by the ramp down of construction work for the Aspire program.
GS operating income decreased by $156 million, or 35%, to $285 million in 2023 compared to $441 million in 2022. The decrease was primarily driven by the $144 million charge recorded in the second quarter of 2023 related to the settlement of a legacy legal matter. Additionally, operating income decreased $19 million primarily due to the gain on sale of our investment interest in three U.K. Road investments.
Sustainable Technology Solutions
STS revenues increased by $359 million, or 29%, to $1,603 million in 2023 compared to $1,244 million in 2022. The increase from 2022 to 2023 was primarily driven by increased revenues from technology sales and engineering and professional services.
STS operating income increased by $277 million to $324 million in 2023 compared to $47 million in 2022. The increase was primarily related to the Ichthys LNG project. In 2022, a non-cash charge in the amount of $137 million was recorded for the settlement agreement with the consortium of subcontractors of the Combined Cycle Power Plant that did not recur in 2023. Additionally, the increase was related to increased technology sales and engineering and professional services, increased equity in earnings from services on an LNG project, a favorable resolution on a legacy matter in 2023 and a non-cash impact in 2022 that did not recur in 2023. The increases in 2023 were offset by a $7 million loss related to the sale of our operations in Russia. This loss was primarily due to $10 million in accumulated foreign currency adjustments that were reclassified from AOCL.
Other
Other operating loss remained materially consistent between the years ended December 29, 2023 and December 31, 2022.
Backlog of Unfilled Orders
Backlog represents the estimated dollar amount of revenues we expect to realize in the future as a result of performing work on contracts and our pro-rata share of work to be performed by our unconsolidated joint ventures. We include total estimated revenues in backlog when a contract is awarded under a legally binding agreement. In many instances, arrangements included in backlog are complex, nonrepetitive and may fluctuate over the contract period due to the release of contracted work in phases by the customer. Additionally, nearly all contracts allow customers to terminate the agreement at any time for convenience, and from time to time customers may dispute or try to renegotiate existing contracts. These and other factors may result in delays in our recognition of revenue from our backlog, and in differences between the amounts we book as backlog and the amounts we recognize as revenue. Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements, only the amounts authorized are included in backlog. For projects where we act solely in a project management capacity, we only include the expected value of our services in backlog.
We define backlog, as it relates to U.S. government contracts, as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period (including customer approved option periods) for which work scope and price have been agreed with the customer. We define funded backlog as the portion of backlog for which funding currently is appropriated, less the amount of revenue we have previously recognized. We define unfunded backlog as the total backlog less the funded backlog. Our GS backlog does not include any estimate of future potential delivery orders that might be awarded under our government-wide acquisition contracts, agency-specific indefinite delivery/indefinite quantity contracts or other multiple-award contract vehicles, nor does it include option periods that have not been exercised by the customer.
Within our GS business segment, we calculate estimated backlog for long-term contracts associated with the U.K. government's PFIs based on the aggregate amount that our client would contractually be obligated to pay us over the life of the project. We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary.
Refer to "Item 1A. Risk Factors" contained in Part 1 of this Annual Report on Form 10-K for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.
We have included in the table below our proportionate share of unconsolidated joint ventures' estimated backlog. As these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our results of operations. Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled $4.1 billion at December 29, 2023, and $3.9 billion at December 31, 2022.
As a result of U.S. Transportation Command lifting the stop work order on the HomeSafe contract in November 2022, we have recognized $54 million and $39 million in backlog as of December 29, 2023 and December 31, 2022, respectively, for our transition work. Additionally, for the year ended December 29, 2023, we recognized $0.8 billion for our proportionate share of KZJV's backlog and for KBR services to be provided to KZJV as a result of receiving a full notice to proceed with Phase 2 of the Plaquemines LNG project.
The following table summarizes our backlog by business segment for the years ended December 29, 2023 and December 31, 2022, respectively:
| | | | | | | | | | | |
| Dollars in millions | December 29, 2023 | | December 31, 2022 |
| Government Solutions | $ | 12,790 | | | $ | 11,543 | |
| Sustainable Technology Solutions | 4,545 | | | 4,012 | |
| Total backlog | $ | 17,335 | | | $ | 15,555 | |
We estimate that as of December 29, 2023, 30% of our backlog will be executed within one year. Of this amount, we estimate that 87% will be recognized in revenues on our consolidated statement of operations and 13% will be recorded by our unconsolidated joint ventures. As of December 29, 2023, $164 million of our backlog relates to active contracts that are in a loss position.
As of December 29, 2023, 10% of our backlog was attributable to fixed-price contracts, 39% was attributable to PFIs, 36% was attributable to cost-reimbursable contracts and 15% was attributable to time-and-materials contracts. For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or time-and materials according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of December 29, 2023, $9.2 billion of our GS backlog was currently funded by our customers.
As of December 29, 2023, we had approximately $4.4 billion of priced option periods not yet exercised by the customer for U.S. government contracts that are not included in the backlog amounts presented above.
The difference between backlog of $17.3 billion and the remaining performance obligations as defined by ASC 606 of $12.7 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. See Note 3 "Revenue" to our consolidated financial statements for discussion of the remaining performance obligations.
Liquidity and Capital Resources
Liquidity is provided by available cash and cash equivalents, cash generated from operations, our Senior Credit Facility (as defined below) and access to capital markets. Our operating cash flow can vary significantly from year to year and is affected by the mix, terms, timing and stage of completion of our projects. We often receive cash in advance on certain of our sustainable technology projects. On time-and-material and cost reimbursable contracts, we may utilize cash on hand or availability under our Senior Credit Facility to satisfy any periodic operating cash requirements for working capital, as we incur costs and subsequently invoice our customers.
Certain STS services projects may require us to provide credit support for our performance obligations to our customers in the form of letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our ability to maintain or increase our letter of credit and surety bonding capacity, which may be further dependent on the timely release of existing letters of credit and surety bonds. As the need for credit support arises, letters of credit may be issued under the Revolver (as defined below) or with lending counterparties on a bilateral, syndicated or other basis.
As discussed in Note 11 "Debt and Other Credit Facilities" of our consolidated financial statements, we entered into Amendment No. 8 on February 6, 2023, to our existing Credit Agreement, dated as of April 25, 2018, as amended ("Credit Agreement"), consisting of a $1 billion revolving credit facility (the "Revolver"), a Term Loan A ("Term Loan A") with debt tranches denominated in U.S. dollars and British pound sterling and a Term Loan B ("Term Loan B" and together with the Revolver and Term Loan A, the "Senior Credit Facility"). Amendment No. 8 (i) replaces 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 Revolver and (ii) implements 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.
We entered into Amendment No. 9 to our Credit Agreement on June 6, 2023. Amendment No. 9 replaces the LIBOR-based reference borrowing rate with a SOFR-based reference borrowing rate for Term Loan B. We entered into Amendment No. 10 to our Credit Agreement on July 26, 2023. Amendment No. 10 provided for an additional $200 million loan tranche under Term Loan A. We borrowed the full $200 million principal amount available under this additional loan tranche, and this $200 million borrowing was applied as a partial repayment of the outstanding amounts of principal and accrued interest under the Revolver.
We entered into Amendment No.11 to our Credit Agreement on January 19, 2024. This amendment provides for an incremental Term Loan B facility in an aggregate principal amount of $1 billion and extends the Term Loan B maturity date to January 2031. We borrowed the full $1 billion principal amount available under this loan and primarily used the proceeds to repay all amounts of outstanding principal and accrued interest under the Company’s Term Loan B facility at December 29, 2023 and to partially repay outstanding principal and accrued interest under the Company’s Revolver. We entered into Amendment No.12 to our Credit Agreement on February 7, 2024. This amendment consolidated the USD denominated Term A-1, Term A-2 and Term A-4 loan facilities under our Credit Agreement into the amended USD denominated Term A-1 loan facility and continued the GBP denominated Term A-3 loan facility outstanding at December 29, 2023. Additionally, this amendment extended the maturity date of the $1 billion Revolver, amended Term A-1 loan facility and Term A-3 loan facility to February 2029. Immediately following execution of Amendment No. 12, we had approximately $500 million outstanding related to the remaining Term Loan A facilities and $117 million outstanding on our Revolver.
We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months. As of December 29, 2023, we were in compliance with all financial covenants related to our debt agreements.
Cash and cash equivalents totaled $304 million at December 29, 2023 and $389 million at December 31, 2022 and consisted of the following:
| | | | | | | | | | | |
| | December 29, | | December 31, |
| Dollars in millions | 2023 | | 2022 |
| Domestic U.S. cash | $ | 44 | | | $ | 27 | |
| International cash | 128 | | | 255 | |
| Joint venture and Aspire Defence project cash | 132 | | | 107 | |
| Total | $ | 304 | | | $ | 389 | |
Our cash balances are held in numerous accounts throughout the world to fund our global activities, including acquisitions, joint ventures and other business partnerships. Domestic cash relates to cash balances held by U.S. entities and is largely used to support project activities of those businesses as well as general corporate needs such as the payment of dividends to shareholders, repayment of debt and potential repurchases of our outstanding common stock.
Our international cash balances may be available for general corporate purposes but are subject to local restrictions, such as capital adequacy requirements and maintaining sufficient cash balances to support our U.K. pension plan and other obligations incurred in the normal course of business by those foreign entities. Repatriations of our undistributed foreign earnings are generally free of U.S. tax but may incur withholding and/or state taxes. We consider our future non-U.S. cash needs 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, which may include acquisitions, joint ventures and other business partnerships around the world, including whether foreign earnings are permanently reinvested. If management were to completely remove the indefinite investment assertion on all foreign subsidiaries, the exposure to local withholding taxes would be less than $7 million.
Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes. These amounts are limited to those entities' activities and are not readily available for general corporate purposes; however, portions of such amounts may become available to us in the future should there be a distribution of dividends to the joint venture partners. We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture purposes or for paying dividends.
As of December 29, 2023, substantially all of our excess cash was held in interest bearing operating accounts or short-term investment accounts with the primary objectives of preserving capital and maintaining liquidity.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | | Years ended, |
| | December 29, | | December 31, | | December 31, |
| Dollars in millions | | 2023 | | 2022 | | 2021 |
| Cash flows provided by operating activities | | $ | 331 | | | $ | 396 | | | $ | 278 | |
| Cash flows provided by (used in) investing activities | | (70) | | | 37 | | | (428) | |
| Cash flows provided by (used in) financing activities | | (359) | | | (399) | | | 87 | |
| Effect of exchange rate changes on cash | | 13 | | | (15) | | | (3) | |
| Increase (decrease) in cash and cash equivalents | | $ | (85) | | | $ | 19 | | | $ | (66) | |
Operating Activities. Cash provided by operations totaled $331 million and $396 million in 2023 and 2022, respectively, as compared to a net loss of $261 million and net income of $192 million in 2023 and 2022, respectively. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by the Company's volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world.
The decrease in operating cash flows in 2023 compared to 2022 is primarily attributed to the $144 million payment made in the third quarter of 2023 related to the settlement of a legacy legal matter. This decrease was offset by increases in operating cash flows from changes in our pension funding amounts in the 2023. In 2022, we made an advance payment in October 2022 to our U.K. pension plan for approximately £29 million of the £33 million required minimum annual contributions. No similar advance payments were made in 2023. Additionally, there were increases in operating cash flows from changes in the primary components of our working capital. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. These components are impacted by the size and changes in the mix of our cost-reimbursable and time-and-materials projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business.
Investing Activities. Cash used in investing activities totaled $70 million in 2023 and was primarily related to the second payment for an additional investment of $39 million in Mura Technology and capital expenditures of $80 million. This was offset by a return of investment of approximately $61 million from JKC resulting from the receipt of the second payment from the Subcontractor Settlement Agreement. See Note 9 "Equity Method Investments and Variable Interest Entities" for further details.
Cash provided by investing activities totaled $37 million in 2022 and was primarily due to a return of investment of approximately $190 million from JKC resulting from the receipt of the first payment from the Subcontractor Settlement Agreement, a return of investment from BRIS of $10 million as our cumulative distributions from inception of the joint venture exceeded our cumulative earnings and proceeds of $55 million from the sale of our investment interest in three U.K. Road Projects. See Note 9 "Equity Method Investments and Variable Interest Entities" for further details. This was partially offset by our first payment related to an additional investment of $61 million in Mura Technology, $71 million in capital expenditures, $13 million net cash paid upon divestiture of a joint venture acquired as part of a historical GS acquisition and $73 million net cash used for the acquisition of VIMA. See Note 4 "Acquisitions" for further details
Financing activities. Cash used in financing activities totaled $359 million in 2023 and was primarily due to a net cash outflow of $567 million for the settlement and maturity of our outstanding Convertible Notes, corresponding Note Hedge and warrants settled and paid during the year. Cash used in financing activities also included $72 million of dividend payments to common shareholders, $125 million for the repurchase of common stock under our share repurchase program, $13 million for the repurchase of common stock under our "withhold to cover" program, $340 million in payments on our revolving credit facility and $17 million of principal payments related to our Senior Credit Facility. These decreases were partially offset by $785 million in borrowings related to our revolving credit facility and $5 million in net proceeds from the issuance of common stock. See Note 11 "Debt and Other Credit Facilities" for further discussion of our Senior Credit Facility.
Cash used in financing activities totaled $399 million in 2022 and was primarily due to $193 million of repurchases of common stock under our share repurchase program, $66 million of dividend payments to common shareholders, $116 million in net payments on borrowings related to our Senior Credit Facility, $11 million repayment on our finance lease obligations, $10 million for the repurchase of common stock under our "withheld to cover" program and dividends paid to NCI shareholders of $4 million. These decreases were partially offset by $5 million in net proceeds received from the issuance of common stock and $3 million in investments from NCI shareholders.
Future sources of cash. We believe that future sources of cash include cash flows from operations (including accounts receivable monetization arrangements), cash derived from working capital management and cash borrowings under the Senior Credit Facility.
Future uses of cash. We believe that future uses of cash include working capital requirements, joint venture capital calls, capital expenditures, dividends, pension funding obligations, repayments of borrowings, share repurchases, legal settlements of any currently outstanding legal matter or any future legal proceeding and strategic investments including acquisitions, joint ventures and other business partnerships. Our capital expenditures will be focused primarily on facilities and equipment to support our businesses. In addition, we will use cash to make payments under leases and various other obligations, including potential litigation payments, as they arise.
Other factors potentially affecting liquidity
Ichthys LNG Project. As part of the settlement agreement between JKC and Ichthys LNG, Pty, Ltd (collectively, “the Parties”) in October 2021, KBR’s letters of credit were reduced to $82 million from $164 million. Additionally, as part of this 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 deterioration of paint and insulation on certain exterior areas of the plant. 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. 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.
U.K. pension obligation. We have recognized on our consolidated balance sheets a funding deficit of approximately $15 million (calculated as the excess of the projected benefit obligations over the fair value of plan assets) as of December 29, 2023) for our frozen U.K. defined benefit pension plan. The total amount of employer pension contributions paid for the year ended December 29, 2023 is $9 million for our defined benefit plan in the U.K. 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 29, 2023. The funding requirements for our U.K. pension plan are determined based on the U.K. Pensions Act 1995. Annual minimum funding requirements are based on a binding agreement with the Trustee of the U.K. pension plan that is negotiated on a triennial basis. In June 2022, KBR and the Trustee executed an agreement requiring minimum annual contributions of approximately £33 million (approximately $42 million at current exchange rates) for the period through March 2028. This schedule of contributions will be reviewed by the Trustee and KBR no later than 15 months after the effective date of each actuarial valuation, due every three years. In the future, pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan asset return performance and other factors. A significant increase in our funding requirements for the U.K. pension plan could result in a material adverse impact on our financial position.
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. We plan to continue to utilize these programs to ensure we have flexibility in regards to meeting our capital needs. Refer to Note 20 "Fair Value of Financial Instruments and Risk Management" to our consolidated financial statements for further discussion on our sales of receivables.
Credit Agreement and Senior Credit Facility
Information relating to our Senior Credit Facility is described in Note 11 "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Senior Notes
Information relating to our Senior Notes is described in Note 11 "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
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. 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. In 2023, we settled our outstanding Convertible Notes and corresponding Note Hedge and unwound the warrants.
For more information relating to our Convertible Notes, Note Hedge Transactions and Warrant Transactions, refer to Note 11 "Debt and Other Credit Facilities" and Note 22 "Cash Election and Repurchase of Convertible Notes and Warrant Unwind Agreements" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Off-Balance Sheet Arrangements
Letters of credit, surety bonds and guarantees. In the ordinary course of business, we may enter into various arrangements providing financial or performance assurance to customers on behalf of certain consolidated and unconsolidated subsidiaries, joint ventures and other jointly executed contracts. Such off-balance sheet arrangements include letters of credit, surety bonds and corporate guarantees to support the creditworthiness or project execution commitments of these entities and typically have various expiration dates ranging from mechanical completion of the project being constructed to a period beyond completion in certain circumstances such as for warranties. We 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. 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 fixed-price contracts, the performance guarantee amount is the cost to complete the contracted work, less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete the project. If costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, subcontractors or vendors for claims.
In our joint venture arrangements, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically, each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects and the terms of the related contracts. See “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K for information regarding our fixed-price contracts and operations through joint ventures and partnerships.
In certain limited circumstances, we enter into financial guarantees in the ordinary course of business, with financial institutions and other credit grantors, which generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation. We account for both financial and performance guarantees at fair value at issuance in accordance with ASC 460-10 Guarantees and, as of December 29, 2023, we had no material guarantees of the work or obligations of third parties recorded.
As of December 29, 2023, we had $1 billion in a committed line of credit on the Revolver under our Senior Credit Facility and $392 million of bilateral and uncommitted lines of credit to support the issuance of letters of credit. As of December 29, 2023, with respect to our Revolver, we had $505 million of outstanding borrowings. We also have $14 million of outstanding letters of credit on our Senior Credit Facility. With respect to our $392 million of bilateral and uncommitted lines of credit, we utilized $298 million for letters of credit as of December 29, 2023. The total remaining capacity of these committed and uncommitted lines of credit was approximately $575 million. Information relating to our letters of credit is described in Note 11 "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7. Other than as discussed in this report, we have not engaged in any material off-balance sheet financing arrangements through special purpose entities.
Contractual Obligations and Commitments
Significant contractual obligations and commercial commitments as of December 29, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due |
| Dollars in millions | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
Debt obligations (a) | $ | 31 | | | $ | 31 | | | $ | 1,054 | | | $ | 485 | | | $ | 250 | | | $ | — | | | $ | 1,851 | |
Interest (a) (b) | 95 | | | 107 | | | 95 | | | 13 | | | 12 | | | — | | | 322 | |
| Operating leases | 55 | | | 49 | | | 36 | | | 31 | | | 30 | | | 70 | | | 271 | |
| Finance leases | 12 | | | 7 | | | 1 | | | 1 | | | 1 | | | — | | | 22 | |
Pension funding obligation (c) | 42 | | | 41 | | | 41 | | | 41 | | | 15 | | | — | | | 180 | |
Purchase obligations (d) | 51 | | | 35 | | | 11 | | | 6 | | | — | | | — | | | 103 | |
| | | | | | | | | | |
Total (e) | $ | 286 | | | $ | 270 | | | $ | 1,238 | | | $ | 577 | | | $ | 308 | | | $ | 70 | | | $ | 2,749 | |
(a)Subsequent to December 29, 2023, we entered into Amendment No.11 and Amendment No.12 to our Credit Agreement. See Note 11 "Debt and Other Credit Facilities" for additional information.
(b)Determined based on long-term debt borrowings outstanding at the end of 2023 using the interest rates in effect for the individual borrowings as of December 29, 2023, including the effects of interest rate swaps. The payments due for interest reflect the cash interest that will be paid, which includes interest on outstanding borrowings and commitment fees. These amounts exclude the amortization of discounts or debt issuance costs.
(c)Included in our pension funding obligations are payments related to our agreement with the trustees of our U.K. pension plan. The agreement for this plan calls for minimum annual contributions of £33 million ($42 million at current exchange rates) from 2024 through the next valuation.
(d)In the ordinary course of business, we enter into commitments to purchase software and related maintenance, materials, supplies and similar items. The purchase obligations disclosed above do not include purchase obligations that we enter into with vendors in the normal course of business that support direct project costs on existing contracting arrangements with our customers. We expect to recover such obligations from our customers.
(e)We have excluded uncertain tax positions totaling $74 million as of December 29, 2023. The ultimate timing of settlement of these obligations cannot be determined with reasonable assurance. See Note 12 to our consolidated financial statements for further discussion on income taxes.
Transactions with Joint Ventures
In the normal course of business, we form incorporated and unincorporated joint ventures to execute projects. In addition to participating as a joint venture partner, we often provide engineering, procurement, construction, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our subcontractor revenues or expenses, however, we recognize profit on our subcontractor scope of work only to the extent the joint venture's scope of work to the end customer is complete. We recognize revenue over time on our services provided to joint ventures that we consolidate and our services provided to joint ventures that we record under the equity method of accounting. See Note 9 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information. The information discussed therein is incorporated by reference into this Part II, Item 7.
Recent Accounting Pronouncements
Information relating to recent accounting pronouncements is described in Note 21 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
U.S. Government Matters
Information relating to U.S. government matters commitments and contingencies is described in Note 14 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Legal Proceedings
Information relating to various commitments and contingencies is described in Notes 6, 13 and 14 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in conformity with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the determination of financial positions, results of operations, cash flows and related disclosures. Our significant accounting policies are described in Note 1 to our consolidated financial statements. The following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements and to provide a better understanding of our significant accounting estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements. Significant accounting estimates are important to the representation of our financial position and results of operations and involve our most difficult, subjective or complex judgments. We base our estimates on historical experience and various other assumptions we believe to be reasonable according to the current facts and circumstances through the date of the issuance of our financial statements.
Contract Revenue and Contract Estimates. Our policy on revenue recognition is provided in Note 1 to our consolidated financial statements for the year ended December 29, 2023 and is also applied to the revenues of our equity method investments included in equity in earnings of unconsolidated affiliates. We recognize revenue on substantially all of our contracts over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Our contracts are generally accounted for as a single performance obligation and are not segmented between types of services provided. We recognize revenue on those contracts over time using the cost-to-cost method, based primarily on contract costs incurred to date compared to total estimated contract costs at completion. Contract costs include all direct materials, labor and subcontractors costs and indirect costs related to contract performance. We believe this method is the most accurate measure of contract performance because it directly measures the value of the goods and services transferred to the customer. For all other contracts we recognize revenue when services are performed which generally coincides with our ability to bill.
The cost-to-cost method of revenue recognition requires us to prepare estimates of cost to complete for contracts in progress. Due to the nature of the work performed on many of our performance obligations, the estimates of total revenue and cost at completion is complex, subject to many variables and require significant judgment. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials, labor and productivity, the impact of change orders, liability claims, contract disputes and achievement of contractual performance standards. As a significant change in one or more of these estimates could affect the profitability of our contracts, we routinely review and update our significant contract estimates through a disciplined project review process in which management reviews the progress and execution of our performance obligations and estimates at completion. We have a long history of working with multiple types of projects and in preparing cost estimates. However, there are many factors that impact future cost as outlined in “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K. These factors can affect the accuracy of our estimates and materially impact our future reported earnings. Changes in total estimated contract costs and losses, if any, are recognized on a cumulative catch-up basis in the period in which the changes are identified at the contract level. 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 a prior period. Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs from the previous estimate.
It is common for our contracts to contain variable consideration in the form of incentive fees, performance bonuses, award fees, liquidated damages or penalties that may increase or decrease the transaction price. Variable consideration may be tied to our performance, cost targets, or achievement of milestones. 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 we expect to be entitled and include in the transaction price when it is probable that a significant reversal of cumulative revenue recognized will not occur. 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 suppliers and subcontractors 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.
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. 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, including the types of costs that are allowable, for non-U.S. government agencies and commercial customers is based on specific negotiations with each customer. We recognize revenue on cost-reimbursable contracts to the extent it is not probable a significant reversal will occur.
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.
Goodwill and Intangible Assets. Goodwill is tested annually for possible impairment as of the first day of the fourth fiscal quarter within our fiscal year, and on an interim basis when indicators of possible impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on our current 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.
While we have the option to proceed directly to the quantitative test, for 2023, 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 2023.
Deferred Taxes, Valuation Allowances and Tax Contingencies. As discussed in Note 12 to our consolidated financial statements, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. We record a valuation allowance to reduce certain deferred tax assets to amounts that are more likely than not to be realized. We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of the timing and character of future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences, income available from carryback years and available tax planning strategies that could be implemented to realize the net deferred tax assets. To arrive at our forecast of the timing and character of future taxable income, we use estimates of economic and market assumptions, including growth rates in revenues, costs and estimates of future operating margins. These estimates can entail varying degrees of judgment based upon the amount of deferred tax assets assessed and length of the carryforward period.
We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred tax assets in accordance with ASC 740. Available evidence includes historical financial information supplemented by currently available information about future years. Generally, historical financial information is more objectively verifiable than projections of future income and is therefore given more weight in our assessment. We consider cumulative losses in the most recent twelve quarters to be significant negative evidence that is difficult to overcome in considering whether a valuation allowance is required. Conversely, we consider a cumulative income position over the most recent twelve quarters to be significant positive evidence that a valuation allowance may not be required. Changes in the amount, timing and character of our forecasted taxable income could have a significant impact of our ability to utilize deferred tax assets and related valuation allowance.
Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate future taxable income of at least $333 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 future taxable income of at least $933 million. 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.
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 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.
Legal, Investigation and Other Contingent Matters. We record liabilities for loss contingencies when it is probable that a liability has been incurred and the amount is reasonably estimable. We disclose matters when we believe a material loss is at least reasonably possible but not probable or if the loss is not reasonably estimable but probable and is expected to be material to our financial statements. Generally, our estimates related to these matters are developed in consultation with internal and external legal counsel. Our estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. The precision of these estimates and the likelihood of future changes depend on a number of underlying assumptions and a range of possible outcomes. When possible, we attempt to resolve these matters through settlements, mediation and arbitration proceedings. If the actual settlement costs, final judgments or fines differ from our estimates, our future financial results may be materially and adversely affected. We record adjustments to our initial estimates of these types of contingencies in the periods when the change in estimate is identified. All legal expenses associated with these matters are expensed as incurred. See Notes 6, 13 and 14 to our consolidated financial statements for further discussion of our significant legal, investigation and other contingent matters.
Pensions. Our pension benefit obligations and expenses are calculated using actuarial models and methods. The most 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 assumptions and estimates are evaluated periodically 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 or economic environment.
The discount rate used to calculate the projected benefit obligation at the measurement date for our U.S. pension plan decreased to 4.70% at December 29, 2023 from 4.91% at December 31, 2022. The discount rate used to determine the projected benefit obligation at the measurement date for our U.K. pension plan, which constitutes 96% of all pension plans, decreased to 4.79% at December 29, 2023 from 5.00% at December 31, 2022. Our expected long-term rates of return on plan assets utilized at the measurement date increased to 6.64% from 6.63% for our U.S. pension plans and increased to 6.79% from 6.00% for our U.K. pension plans, for the years ended December 29, 2023 and December 31, 2022, respectively.
The following table illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for our pension plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Effect on |
| Pretax Pension Cost in 2024 | | Pension Benefit Obligation at December 29, 2023 |
| Dollars in millions | U.S. | | U.K. | | U.S. | | U.K. |
| 25-basis-point decrease in discount rate | $ | — | | | $ | — | | | $ | 1 | | | $ | 38 | |
| 25-basis-point increase in discount rate | $ | — | | | $ | — | | | $ | (1) | | | $ | (37) | |
| 25-basis-point decrease in expected long-term rate of return | $ | — | | | $ | 4 | | | N/A | | N/A |
| 25-basis-point increase in expected long-term rate of return | $ | — | | | $ | (4) | | | N/A | | N/A |
Unrecognized actuarial gains and losses are 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. Our pretax unrecognized net actuarial loss in accumulated other comprehensive loss at December 29, 2023 was $872 million.
The actuarial assumptions used in determining our pension benefits may differ materially from actual results due to changing market and economic conditions, changes in the legislative or regulatory environment, higher or lower withdrawal rates and longer or shorter life spans of participants. While we believe that the assumptions used are appropriate, differences in actual experience, expectations or changes in assumptions may materially affect our financial position or results of operations. Our actuarial estimates of pension expense and expected return on plan assets are discussed in Note 10 in the accompanying consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Market Risk. Cash and cash equivalents are deposited with major banks throughout the world. We invest excess cash and cash equivalents in short-term securities, primarily money market funds, which carry a fixed rate of return. We have not incurred any credit risk losses related to deposits of our cash and cash equivalents.
Foreign Currency Risk. Because of the global nature of our business, we are exposed to market risk associated with changes in foreign currency exchange rates. We have historically attempted to limit exposure to foreign currency fluctuations through provisions requiring the client to pay us in currencies corresponding to the currency in which cost is incurred. In addition to this natural hedge, we may use foreign exchange forward contracts and options to hedge material exposures when forecasted foreign currency revenues and costs are not denominated in the same currency and when efficient markets exist. These derivatives are generally designated as cash flow hedges and are carried at fair value.
We use derivative instruments, such as foreign exchange forward contracts, to hedge foreign currency risk related to non-functional currency assets and liabilities on our consolidated balance sheets. We do not enter into derivative financial instruments for trading purposes or make speculative investments in foreign currencies. Each period, these balance sheet hedges are marked to market through earnings and the change in their fair value is largely offset by remeasurement of the underlying assets and liabilities. Within other non-operating income (expense) on our consolidated statements of operations, we recorded a net loss of $6 million for the year ended December 29, 2023, a net gain of $4 million for the year ended December 31, 2022 and a net loss of $8 million for the year ended December 31, 2021 . The fair value of these derivatives was not material to our consolidated balance sheet for the periods presented. For more information, see Note 20 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7A.
Interest Rate Risk. We are exposed to market risk for changes in interest rates for the Revolver and term loan borrowings under the Senior Credit Facility. We had $505 million of borrowings issued under the Revolver as of December 29, 2023. Additionally, we had $1,096 million outstanding under the term loan portions of the Senior Credit Facility as of December 29, 2023. Borrowings under the Senior Credit Facility bear interest at variable rates as described in Note 11 "Debt and Other Credit Facilities" to our consolidated financial statements.
We use interest rate swaps to reduce interest rate risk and to manage net interest expense by converting our variable rate debt under our Senior Credit Facility into fixed-rate debt. During the year ended December 29, 2023, we amended all of our existing interest rate swap agreements to term SOFR effective March 2023. In March 2023, we entered into additional USD denominated interest rate swap agreements with a notional value of $205 million effective April 2023 and expiring January 2027. We will receive SOFR and pay a fixed rate of 3.61%. We also entered into GBP denominated amortizing swaps with an initial notional value of £118 million that are effective April 2023 and expire in November 2026. As of December 29, 2023, the notional value of the GBP denominated amortizing swaps was £116 million. We will receive SONIA and pay a fixed rate of 3.81% for the term of the swaps. Additionally, in November 2023, the notional value of our September 2022 interest rate swap agreement expiring January 2027 increased to $350 million. We will receive SOFR and pay a fixed rate of 3.43%. The swap agreements were designated as cash flow hedges at inception in accordance with ASC Topic 815 Derivative and Hedging. The fair value of the interest rate swaps at December 29, 2023 was a $36 million net asset, of which $24 million is included in other current assets, $18 million is included in other assets and $6 million is included in other liabilities. Information relating to our portfolio of interest rate swaps is described in Note 20 "Fair Value of Financial Instruments and Risk Management" to our consolidated financial statements, which is incorporated by reference into this Item 7A.
At December 29, 2023, we had fixed rate debt aggregating $1,353 million and variable rate debt aggregating $498 million, after taking into account the effects of the interest rate swaps that were effective at December 29, 2023. Our weighted average interest rate for the year ended December 29, 2023 was 5.81%. If interest rates were to increase by 50 basis points, pre-tax interest expense would increase by approximately $2 million in the next twelve months net of the impact from our swap agreements, based on outstanding borrowings as of December 29, 2023.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
KBR, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of KBR, Inc. and subsidiaries (the Company) as of December 29, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended December 29, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 29, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 20, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.
Contract revenue and contract cost estimates
As described in Note 1 to the consolidated financial statements, a portion of the Company’s revenue and equity in earnings of unconsolidated affiliates is derived from contracts with revenue recognized over time using the cost-to-cost method to measure progress. Revenue recognition under this method requires judgments to prepare estimates of total contract costs, specifically assumptions related to estimated labor costs, and total contract revenue, including amounts related to contractually allowable costs.
We identified the evaluation of total contract costs and total contract revenues for certain contracts as a critical audit matter. Evaluating the Company’s estimates of total contract costs for certain contracts involves auditor judgment given the variability and uncertainty associated with estimating costs, including estimated labor costs, to be incurred over the contract period. Evaluating the Company’s estimates of total contract revenue for certain contracts requires an evaluation of subjective assumptions, including those related to contractually allowable costs.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for estimating total contract costs, specifically assumptions related to estimated labor costs, and total contract revenue, including amounts related to contractually allowable costs. We evaluated the Company’s ability to estimate these amounts by comparing the Company’s previous estimated project margins to actual results. To assess the reasonableness of these estimates, we performed audit procedures including:
•obtaining and reading contractual documents with customers;
•inquiring of financial and operational personnel of the Company to identify factors that should be considered within the estimated costs at completion or indications of potential management bias;
•analyzing underlying documentation for a selection of labor costs;
•performing sensitivity analyses on labor costs; and
•comparing allowable cost assumptions to contract terms and considering historical results and trends
Election to use cash as the method to settle Convertible Notes and Note Hedge
As discussed in Notes 11 and 22 to the consolidated financial statements, in April 2023, the Company elected cash as the settlement method (the election) to settle the Convertible Notes and Note Hedge. The election caused the Convertible Notes’ conversion option to be recognized at fair value separate from the Convertible Notes, caused a discount to be recognized on the Convertible Notes, and caused the Note Hedge to be recognized at fair value outside of permanent equity.
We identified the evaluation of the Company’s determination of the accounting treatment associated with the election as a critical audit matter. Specifically, complex auditor judgment was required to evaluate the Company’s accounting treatment due to the complexity of the relevant accounting guidance.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s determination of the accounting treatment associated with the election. We assessed the Company’s accounting treatment by:
•obtaining and reading the underlying agreements, related amendments, and cash election notice to understand the contractual requirements and features requiring accounting analysis;
•inquiring of management to obtain an understanding of the scope of the election and to understand the election’s business purpose; and
•evaluating whether the contractual requirements, including those established by the cash election notice, were properly accounted for pursuant to the relevant accounting guidance.
/s/
We have served as the Company’s auditor since 2005.
February 20, 2024
KBR, Inc.
Consolidated Statements of Operations
(In millions, except for per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | |
| December 29, | | December 31, | | December 31, | | |
| | 2023 | | 2022 | | 2021 | | |
| | | | | | | |
| Revenues | $ | | | | $ | | | | $ | | | | |
| Cost of revenues | () | | | () | | | () | | | |
| Gross profit | | | | | | | | | | |
| Equity in earnings (losses) of unconsolidated affiliates | | | | () | | | () | | | |
| Selling, general and administrative expenses | () | | | () | | | () | | | |
| Legal settlement of legacy matter | () | | | | | | | | | |
| Gain (loss) on disposition of assets and investments | () | | | | | | | | | |
| | | | |
| Other | () | | | () | | | () | | | |
| | | | |
| Operating income | | | | | | | | | | |
| Interest expense | () | | | () | | | () | | | |
| Unrealized gain on other investment | | | | | | | | | | |
| Charges associated with Convertible Notes | () | | | | | | | | | — | |
| Other non-operating income (expense) | () | | | | | | () | | | |
| Income (loss) before income taxes | () | | | | | | | | | |
| Provision for income taxes | () | | | () | | | () | | | |
| Net income (loss) | () | | | | | | | | | |
| Less: Net income attributable to noncontrolling interests | | | | | | | | | | |
| Net income (loss) attributable to KBR | $ | () | | | $ | | | | $ | | | | |
| Net income (loss) attributable to KBR per share | | | | | | | |
| Basic | $ | () | | | $ | | | | $ | | | | |
| Diluted | $ | () | | | $ | | | | $ | | | | |
| Basic weighted average common shares outstanding | | | | | | | | | | |
| Diluted weighted average common shares outstanding | | | | | | | | | | |
| Cash dividends declared per share | $ | | | | $ | | | | $ | | | | |
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See accompanying notes to consolidated financial statements.
KBR, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended, |
| December 29, | | December 31, | | December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
| Net income (loss) | $ | () | | | $ | | | | $ | | |
| Other comprehensive income (loss): | | | | | |
| Foreign currency translation adjustments | | | | () | | | () | |
| Pension and post-retirement benefits | () | | | | | | | |
| Changes in fair value of derivatives | () | | | | | | | |
| Other comprehensive (loss) income | () | | | | | | | |
| Income tax (expense) benefit: | | | | | |
| Foreign currency translation adjustments | | | | | | | () | |
| Pension and post-retirement benefits | | | | () | | | () | |
| Changes in fair value of derivatives | | | | () | | | () | |
| Income tax (expense) benefit | | | | () | | | () | |
| Other comprehensive (loss) income, net of tax | () | | | () | | | | |
| Comprehensive income (loss) | () | | | | | | | |
Less: Comprehensive income attributable to noncontrolling interests | | | | | | | | |
| Comprehensive income (loss) attributable to KBR | $ | () | | | $ | | | | $ | | |
See accompanying notes to consolidated financial statements.
KBR, Inc.
Consolidated Balance Sheets
(In millions, except share data)
| | | | | | | | | | | |
| December 29, | | December 31, |
| | 2023 | | 2022 |
| | | |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
Accounts receivable, net of allowance for credit losses of $ and $ | | | | | |
| Contract assets | | | | | |
|
| Other current assets | | | | | |
| Total current assets | | | | | |
|
| Pension assets | | | | | |
Property, plant, and equipment, net of accumulated depreciation of $ and $ (including net PPE of $ and $ owned by a variable interest entity) | | | | | |
| Operating lease right-of-use assets | | | | | |
| Goodwill | | | | | |
Intangible assets, net of accumulated amortization of $ and $ | | | | | |
| Equity in and advances to unconsolidated affiliates | | | | | |
| Deferred income taxes | | | | | |
| Other assets | | | | | |
| Total assets | $ | | | | $ | | |
| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | | | | $ | | |
| Contract liabilities | | | | | |
| Accrued salaries, wages and benefits | | | | | |
| Current maturities of long-term debt | | | | | |
|
| Other current liabilities | | | | | |
| Total current liabilities | | | | | |
|
| Employee compensation and benefits | | | | | |
| Income tax payable | | | | | |
| Deferred income taxes | | | | | |
|
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Long-term debt | | | | | |
| Operating lease liabilities | | | | | |
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| Other liabilities | | | | | |
| Total liabilities | | | | | |
Commitments and Contingencies (Notes 6, 13 and 14) | | | |
| KBR shareholders’ equity: | | | |
Preferred stock, $ par value, shares authorized, issued | | | | | |
Common stock, $ par value shares authorized, and shares issued, and and shares outstanding, respectively | | | | | |
| Paid-in capital in excess of par | | | | | |
| Retained earnings | | | | | |
Treasury stock, shares and shares, at cost, respectively | () | | | () | |
| Accumulated other comprehensive loss | () | | | () | |
| Total KBR shareholders’ equity | | | | | |
| Noncontrolling interests | | | | | |
| Total shareholders’ equity | | | | | |
| Total liabilities and shareholders’ equity | $ | | | | $ | | |
.
See accompanying notes to consolidated financial statements.
KBR, Inc.
Consolidated Statements of Shareholders’ Equity
(In millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in millions | Total | | PIC | | Retained
Earnings | | Treasury
Stock | | AOCL | | NCI |
| Balance at December 31, 2020 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | |
| | | | | | | | |
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| Share-based compensation | | | | | | | — | | | — | | | — | | | — | |
| | | | | | | | |
| Common stock issued upon exercise of stock options | | | | | | | — | | | — | | | — | | | — | |
Dividends declared to shareholders ($/share) | () | | | — | | | () | | | — | | | — | | | — | |
| Repurchases of common stock | () | | | — | | | — | | | () | | | — | | | — | |
| Issuance of ESPP shares | | | | | | | — | | | | | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| Distributions to noncontrolling interests | () | | | — | | | — | | | — | | | — | | | () | |
| Other | | | | | | | — | | | — | | | — | | | — | |
Net income | | | | — | | | | | | — | | | — | | | | |
Other comprehensive income, net of tax | | | | — | | | — | | | — | | | | | | — | |
| Balance at December 31, 2021 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | |
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| Share-based compensation | | | | | | | — | | | — | | | — | | | — | |
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| Common stock issued upon exercise of stock options | | | | | | | — | | | — | | | — | | | — | |
Dividends declared to shareholders ($/share) | () | | | — | | | () | | | — | | | — | | | — | |
| Repurchases of common stock | () | | | — | | | — | | | () | | | — | | | — | |
| Issuance of ESPP shares | | | | | | | — | | | | | | — | | | — | |
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| Investments by noncontrolling interests | | | | — | | | — | | | — | | | — | | | | |
| Distributions to noncontrolling interests | () | | | — | | | — | | | — | | | — | | | () | |
| Other noncontrolling interests activity | () | | | — | | | — | | | — | | | — | | | () | |
| Net income | | | | — | | | | | | — | | | — | | | | |
Other comprehensive loss, net of tax | () | | | — | | | — | | | — | | | () | | | — | |
| Balance at December 31, 2022 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | |
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| Share-based compensation | | | | | | | — | | | — | | | — | | | — | |
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| Common stock issued upon exercise of stock options | | | | | | | — | | | — | | | — | | | — | |
Dividends declared to shareholders ($/share) | () | | | — | | | () | | | — | | | — | | | — | |
| Repurchases of common stock | () | | | — | | | — | | | () | | | — | | | — | |
| Issuance of ESPP shares | | | | | | | — | | | | | | — | | | — | |
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| Distributions to noncontrolling interests | () | | | — | | | — | | | — | | | — | | | () | |
| Convertible Notes Transactions | | | | | | | — | | | — | | | — | | | — | |
| Other noncontrolling interests activity | | | | — | | | — | | | () | | | — | | | | |
| Net income | () | | | — | | | () | | | — | | | — | | | | |
| Other comprehensive income (loss), net of tax | () | | | — | | | — | | | — | | | () | | | — | |
| Balance at December 29, 2023 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.
KBR, Inc.
Consolidated Statements of Cash Flows
(In millions)
| | | | | | | | | | | | | | | | | |
| Year Ended, |
| December 29, | | December 31, | | December 31, |
| | 2023 | | 2022 | | 2021 |
| | |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | () | | | $ | | | | $ | | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
| Charges associated with Convertible Notes | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Equity in (earnings) losses of unconsolidated affiliates | () | | | | | | | |
| Deferred income tax (benefit) expense | | | | | | | | |
| Loss (gain) on disposition of assets | | | | () | | | () | |
| | |
| | |
| | |
| Unrealized gain on other investment | | | | () | | | () | |
| Other | | | | | | | | |
| Changes in operating assets and liabilities, net of acquired businesses: | | | | | |
| Accounts receivable, net of allowance for credit losses | () | | | | | | () | |
| Contract assets | | | | () | | | () | |
| | |
| Accounts payable | () | | | () | | | | |
| Contract liabilities | | | | () | | | () | |
| Accrued salaries, wages and benefits | | | | | | | | |
| Payments on operating lease liabilities | () | | | () | | | () | |
| | |
| Payments from unconsolidated affiliates, net | | | | | | | | |
| Distributions of earnings from unconsolidated affiliates | | | | | | | | |
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| Pension funding | () | | | () | | | () | |
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| Restructuring reserve | () | | | () | | | () | |
| Other assets and liabilities | () | | | () | | | () | |
| Total cash flows provided by operating activities | $ | | | | $ | | | | $ | | |
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | () | | | () | | | () | |
| Net proceeds from sale of assets or investments | | | | | | | | |
| Return of (investments in) equity method joint ventures, net | | | | | | | () | |
| Acquisitions of businesses, net of cash acquired | | | | () | | | () | |
| Funding in other investment | () | | | () | | | () | |
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|
| | |
| | |
| Total cash flows (used in) provided by investing activities | $ | () | | | $ | | | | $ | () | |
| | | | | | | | | | | | | | | | | |
| Year Ended, |
| December 29, | | December 31, | | December 31, |
| 2023 | | 2022 | | 2021 |
| Cash flows from financing activities: | | | | | |
Borrowings on short-term and long-term debt | | | | | | | | |
| | |
| Payments on short-term and long-term debt | () | | | () | | | () | |
| Payments on settlement of warrants | () | | | | | | | |
| Proceeds from the settlement of note hedge | | | | | | | | |
| Payments to settle Convertible Notes | () | | | | | | | |
| Payments on revolving credit facility | () | | | () | | | () | |
| Debt issuance costs | | | | () | | | () | |
| | |
| | |
| | |
| Payments of dividends to shareholders | () | | | () | | | () | |
| Net proceeds from issuance of common stock | | | | | | | | |
| Payments to reacquire common stock | () | | | () | | | () | |
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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 18 to our consolidated financial statements for our discussion on share-based compensation and incentive plans.
| | $ | | | | Value-added tax receivable | | | | | |
| Advances to subcontractors | | | | | |
| Other miscellaneous assets | | | | | |
| Total other current assets | $ | | | | $ | | |
Other Current Liabilities.
| | $ | | | | Operating lease liabilities | | | | | |
| Dividend payable | | | | | |
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| Derivative Liability - Warrants | | | | | |
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| Other miscellaneous liabilities | | | | | |
| Total other current liabilities | $ | | | | $ | | |
Note 2.
core business segments, Government Solutions and Sustainable Technology Solutions and 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, operations readiness and support and professional advisory services across the defense, renewable energy and critical infrastructure sectors.
Sustainable Technology Solutions. Our Sustainable Technology Solutions business segment is anchored by our portfolio of over innovative, proprietary, sustainability-focused process technologies that accelerate and enable energy transition across the industrial base in 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 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.
| | $ | | | | $ | | | | $ | | | | Equity in earnings (losses) of unconsolidated affiliates | | | | | | | | | | | |
| Operating income (loss) | | | | | | | () | | | | |
| | | | |
| Depreciation and amortization | | | | | | | | | | | |
| | | | |
| | | | |
| Total Assets | | | | | | | | | | | |
| December 31, 2022 | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | |
| Equity in earnings (losses) of unconsolidated affiliates | | | | () | | | | | | () | |
| Operating income (loss) | | | | | | | () | | | | |
| | | | |
| Depreciation and amortization | | | | | | | | | | | |
| | | | |
| | | | |
| Total Assets | | | | | | | | | | | |
| December 31, 2021 | | | | | | | |
| Revenue | $ | | | | $ | | | | $ | | | | $ | | |
| Equity in earnings (losses) of unconsolidated affiliates | | | | () | | | | | | () | |
| Operating income (loss) | | | | () | | | () | | | | |
| | | | |
| Depreciation and amortization | | | | | | | | | | | |
Selected Geographic Information
| | $ | | | | United Kingdom | | | | | |
| Other | | | | | |
| Total | $ | | | | $ | | |
Note 3.
| | $ | | | | $ | | | | | | | | | | | | | | | |
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| | | | $ | | | | $ | | | | | |
| Year Ended December 29, 2023 |
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| Year Ended December 31, 2022 |
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| Year Ended December 31, 2021 |
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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.
| | $ | | | | $ | | | | Time-and-Materials | | | | | | | $ | | |
Fixed-Price | | | | | | | $ | | |
| Total revenue | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| | |
| Dollars in millions | Government Solutions | | Sustainable Technology Solutions | | Total |
Cost-Reimbursable | $ | | | | $ | | | | $ | | |
| Time-and-Materials | | | | | | | | |
Fixed-Price | | | | | | | | |
| Total revenue | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | Time-and-Materials | | | | | | | | |
| Fixed Price | | | | | | | | |
| Total revenue | $ | | | | $ | | | | $ | | |
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 $ million, $ million and $ million for the years ended December 29, 2023, December 31, 2022 and December 31, 2021, respectively.
On December 29, 2023, we had $ billion of transaction price allocated to remaining performance obligations. We expect to recognize approximately % of our remaining performance obligations as revenue within , % in years two through five and % thereafter. Revenue associated with our remaining performance obligations to be recognized beyond one year includes performance obligations primarily related to the Aspire Defence project, which has contract terms extending through 2041. Remaining performance obligations do not include variable consideration that was determined to be constrained as of December 29, 2023.
Contract Assets and Contract Liabilities
Contract assets were $ million and $ million and contract liabilities were $ million and $ million, at December 29, 2023 and December 31, 2022, respectively. The decrease in contract assets was primarily attributed to revenue recognized on certain contracts partially offset by the timing of billings. The increase in contract liabilities was due to the timing of advance payments and revenue recognized during the period. We recognized revenue of $ million for the year ended December 29, 2023, which was previously included in the contract liability balance at December 31, 2022.
Accounts Receivable
| | $ | | | | Trade & other | | | | | |
| Accounts receivable, net | $ | | | | $ | | |
Note 4.
million. The purchase price consisted of cash paid at closing of $ million, subject to certain working capital and other closing adjustments, $ million of deferred consideration and contingent consideration with an estimated fair value of $ million that was contingent upon the achievement of certain performance targets from closing through December 31, 2022. As the targets were not met, consideration was paid and we recorded a benefit of $ million in our consolidated statements of operations for the year ended December 31, 2022. We recognized $ million as an intangible backlog asset, $ million in customer relationships, $ million in net working capital, $ million in deferred income tax liability and $ million of goodwill arising from the acquisition, which relates primarily to
deductible for tax purposes.
Note 5.
| | $ | | | | $ | | | | Short-term investments (c) | | | | | | | | |
| Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities (d) | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| Dollars in millions | International (a) | | Domestic (b) | | Total |
| Operating cash and cash equivalents | $ | | | | $ | | | | $ | | |
| Short-term investments (c) | | | | | | | | |
| Cash and cash equivalents held in consolidated joint ventures and Aspire Defence subcontracting entities (d) | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | |
(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.
million and $ million as of December 29, 2023 and December 31, 2022, respectively.
Note 6.
| | $ | | | | Net increase (decrease) in project estimates | | | | () | |
| Approved change orders | | | | () | |
| Foreign currency impact | | | | | |
|
Amounts included in project-related estimates-at-completion at end of fiscal year | $ | | | | $ | | |
The balance as of December 29, 2023 primarily relates to projects in our Government Solutions segment.
million as a result of changes in estimates on the Ichthys LNG Project in connection with a settlement agreement (the "Subcontractor Settlement Agreement") entered into to resolve outstanding claims and disputes between JKC and the consortium of subcontractors. Additionally, during the year ended December 31, 2022, within our GS business segment, we recorded a charge to equity in earnings of unconsolidated affiliates on a joint venture acquired from a historical GS acquisition of $ million based on our funding obligations of projected losses. This joint venture was divested in the fourth quarter of 2022.
million in gross profit and incurred $ million in severance and asset impairments costs associated with our winding down of operations in Russia. During the year ended December 29, 2023, we recognized a loss on disposition of assets and investments of $ million related to the sale of our operations in Russia. This loss was primarily due to $ million in accumulated foreign currency adjustments that were reclassified to the statement of operations from AOCL.
Note 7.
| | $ | | | | Buildings and property improvements | - | | | | | | |
| Equipment and other | - | | | | | | |
| Total | | | | | | | |
| Less accumulated depreciation | | | () | | | () | |
| Net property, plant and equipment | | | $ | | | | $ | | |
million and $ million of equipment and other assets under finance lease obligations as of December 29, 2023, and December 31, 2022, respectively. Depreciation expense, including amortization expense for finance ROU assets, was $ million, $ million and $ million for the years ended December 29, 2023, December 31, 2022 and December 31, 2021, respectively.
Note 8.
| | $ | | | | $ | | | Goodwill acquired during the period (Note 4) | | | | | | | | |
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| Foreign currency translation | () | | | () | | | () | |
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| Balance as of January 1, 2023 | $ | | | | $ | | | | $ | | |
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| Foreign currency translation | | | | | | | | |
| Balance as of December 29, 2023 | $ | | | | $ | | | | $ | | |
Intangible Assets
Intangible assets are comprised of customer relationships, trade names, licensing agreements and other.
| | $ | — | | | $ | | | | Customer relationships | | | | | | () | | | | |
| Developed technologies | | | | | | () | | | | |
| Contract backlog | | | | | | () | | | | |
| Other | | | | | | () | | | | |
| Total intangible assets | | | $ | | | | $ | () | | | $ | | |
| | | | | | | |
| December 31, 2022 |
| Weighted Average Remaining Useful Lives | | Intangible Assets, Gross | | Accumulated Amortization | | Intangible Assets, Net |
| Trademarks/trade names | Indefinite | | $ | | | | $ | — | | | $ | | |
| Customer relationships | | | | | | () | | | | |
| Developed technologies | | | | | | () | | | | |
| Contract backlog | | | | | | () | | | | |
| Other | | | | | | () | | | | |
| Total intangible assets | | | $ | | | | $ | () | | | $ | | |
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 29, 2023, December 31, 2022 and December 31, 2021, impairments related to our intangible assets were recorded.
| | $ | | | | $ | | |
| | 2025 | $ | | |
| 2026 | $ | | |
| 2027 | $ | | |
| 2028 | $ | | |
| Beyond 2028 | $ | | |
Note 9.
| | $ | | | |
|
| Equity in earnings (losses) of unconsolidated affiliates (a) | | | | () | |
| Distributions of earnings of unconsolidated affiliates (b) | () | | | () | |
| Payments from unconsolidated affiliates, net | () | | | () | |
(Return of) investments in equity method investment, net (c) | () | | | () | |
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| Sale of equity method investment (d) (a) | | | | () | |
| Foreign currency translation adjustments | | | | () | |
| Other (e) | | | | | |
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| Ending balance | $ | | | | $ | | |
(a)During 2022, a non-cash charge of $ million was 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 $ 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 $ million. The remaining equity in earnings (losses) of unconsolidated affiliates in 2023 and 2022 is related to normal activities within our other joint ventures.
(b)In the normal course of business, our joint ventures will declare a distribution in the current quarter that is not paid until the subsequent quarter. As such, the distributions declared during the current quarter may not agree to the distributions of earnings from unconsolidated affiliates on our consolidated statements of cash flows.
(c)During the year ended December 29, 2023, we received a return of investment from JKC of approximately $ million related to the second payment received from the Subcontractor Settlement Agreement. For the year ended December 31, 2022, we received a return of investment from JKC of approximately $ million related to the first payment from the Subcontractor Settlement Agreement and from BRIS of $ million as our cumulative distributions from inception of the joint venture exceeded our cumulative earnings.
(d)During the first quarter of 2022, we sold of our U.K. Road investments. The carrying value of our investment was $ million. We received $ million in cash proceeds and the purchaser agreed to assume the $ million of consortium relief. In the second quarter of 2022, we sold an additional U.K. Road investment with a carrying value of $ million and recorded a gain of approximately $ million upon receipt of $ million in cash proceeds, in addition to receipt of $ million of deferred consideration from the first quarter 2022 sales.
(e)During the year ended December 29, 2023, Other included the reclassification of the net liability position of $ million related to our investment in JKC. The net liability position is attributed to our proportionate share of the provision that JKC continues to maintain for the paint and insulation claims against the insurer and paint manufacturer, partially offset by certain tax benefits.
Equity Method Investments
Brown & Root Industrial Services Joint Venture. 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 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.
| | $ | | | | Noncurrent assets | | | | | |
| Total assets | $ | | | | $ | | |
| | | |
| Current liabilities | $ | | | | $ | | |
| Noncurrent liabilities | | | | | |
| Total liabilities | $ | | | | $ | | |
Statements of Operations
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| | Years Ended |
| December 29, | | December 31, | | December 31, |
| Dollars in millions | 2023 | | 2022 | | 2021 |
| Revenues | $ | | | | $ | | | | $ | | |
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% interest in Affinity. In addition, KBR owns a % 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 % 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 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 29, 2023.
Aspire Defence project. We indirectly own a % interest in Aspire Defence Limited, the contracting company that is the holder of the -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. 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 29, 2023.
Ichthys LNG project. The Ichthys LNG project, a project to construct the Ichthys Onshore LNG Export Facility in Darwin, Australia, is being executed through two entities (collectively, "JKC"), which are VIEs, in which we own a % equity interest. We account for our investments using the equity method of accounting. At December 29, 2023, our assets and liabilities associated with our investment in JKC recorded in our consolidated balance sheets under our STS business segment were $ and $ million, respectively. The liability of $ million is primarily related to the net liability position associated with our investment in JKC. 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.
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 % 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 29, 2023, December 31, 2022 and December 31, 2021, our revenues included $ million, $ million and $ 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.
| | $ | | |
|
| Other current assets | $ | | | | $ | | |
| Contract liabilities (a) | $ | | | | $ | | |
| (a)Accounts receivable and contract liabilities primarily related to joint ventures within our STS business segment.
| | $ | | |
| Aspire Defence subcontracting entities (Aspire Defence project) | $ | | | | $ | | |
| HomeSafe | $ | | | | $ | | |
| | | | | | | | | | | |
Dollars in millions | December 31, 2022 |
| Total Assets | | Total Liabilities |
|
| Fasttrax Limited (Fasttrax project) | $ | | | | $ | | |
| Aspire Defence subcontracting entities (Aspire Defence project) | $ | | | | $ | | |
| HomeSafe | $ | | | | $ | | |
Fasttrax Limited project. The Fasttrax joint venture ("Fasttrax") was created to provide to the U.K. MoD a fleet of 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 current project includes operating and service contracts related to the MoD HET fleet through 2023. Fasttrax's entity structure includes a parent entity and its % owned subsidiary, Fasttrax Limited. KBR and its partner each own a % 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 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 $ million and net property, plant and equipment of approximately $ million as of December 29, 2023. The total amount of debt outstanding at December 29, 2023 related to our nonrecourse project-finance debt of this VIE consolidated by KBR was $ 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 % 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.
Note 10.
million in 2023, $ million in 2022 and $ million in 2021.
frozen defined benefit pension plans in the U.S., frozen and active plan in the U.K. and 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 December 29 as the measurement date for all plans in 2023 and December 31 as the measurement date for all plans in 2022.
| | $ | | | | $ | | | | $ | | | | Service cost | | | | | | | | | | | |
| Interest cost | | | | | | | | | | | |
| Foreign currency exchange rate changes | | | | | | | | | | | |
Actuarial (gain) loss (1) | | | | () | | | | | | | |
| Other | | | | | | | | | | | |
| Benefits paid | | | | () | | | () | | | () | |
| | | | |
| Projected benefit obligations at end of period | $ | | | | $ | | | | $ | | | | $ | | |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of period | $ | | | | $ | | | | $ | | | | $ | | |
| Actual return on plan assets | | | | | | | | | | | |
| Employer contributions | | | | | | | | | | | |
| Foreign currency exchange rate changes | | | | | | | | | | | |
| Benefits paid | | | | () | | | () | | | () | |
| Other | | | | | | | () | | | | |
| Fair value of plan assets at end of period | $ | | | | $ | | | | $ | | | | $ | | |
| Funded status | $ | | | | $ | | | | $ | () | | | $ | () | |
(1) Actuarial (gains) losses primarily driven by change in discount rates.
| | $ | | | | $ | | | | $ | | | | | | | |
| Service cost | | | | | | | | | | | |
| Interest cost | | | | | | | | | | | |
| Foreign currency exchange rate changes | | | | () | | | | | | () | |
Actuarial gain(1) | | | | () | | | () | | | () | |
| Other | | | | () | | | | | | | |
| | | | |
| Benefits paid | | | | () | | | () | | | () | |
| Projected benefit obligations at end of period | $ | | | | $ | | | | $ | | | | $ | | |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of period | $ | | | | $ | | | | $ | | | | $ | | |
| | | | |
| Actual return on plan assets | | | | () | | | () | | | () | |
| Employer contributions | | | | | | | | | | | |
| Foreign currency exchange rate changes | | | | () | | | | | | () | |
| Benefits paid | | | | () | | | () | | | () | |
| Other | | | | () | | | | | | | |
| Fair value of plan assets at end of period | $ | | | | $ | | | | $ | | | | $ | | |
| Funded status | $ | | | | $ | | | | $ | () | | | $ | () | |
(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 $ million and $ million as of December 29, 2023 and December 31, 2022, respectively. The ABO for our international pension plans was $ million and $ million as of December 29, 2023 and December 31, 2022, respectively.
| | $ | | | | $ | | | | $ | | | Other Liabilities | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Interest cost | | | | | | | | | | | | | | | | | |
| Expected return on plan assets | () | | | () | | | () | | | () | | | () | | | () | |
| Prior service cost amortization | | | | | | | | | | | | | | | | | |
| | | | | | | | |
|
|
| United States | | Int'l | | United States | | Int'l |
| 2023 | | 2022 |
| Discount rate | | % | | | % | | | % | | | % |
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.
% | | | % | | Fixed income funds and securities | | % | | | % |
| Hedge funds | | % | | | % |
| Real estate funds | | % | | | % |
| Other | | % | | | % |
| Total | | % | | | % |
The range of targeted asset allocations for our International plans for 2024 and 2023, by asset class, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| International Plans | 2024 Targeted | | 2023 Targeted |
| | Percentage Range | | Percentage Range |
| | Minimum | | Maximum | | Minimum | | Maximum |
| Equity funds and securities | | % | | | % | | | % | | | % |
| Fixed income funds and securities | | % | | | % | | | % | | | % |
| Hedge funds | | % | | | % | | | % | | | % |
| Real estate funds | | % | | | % | | | % | | | % |
| Other | | % | | | % | | | % | | | % |
% | | | % | | | % | | | % | | Fixed income funds and securities | | % | | | % | | | % | | | % |
| Real estate funds | | % | | | % | | | % | | | % |
| Other | | % | | | % | | | % | | | % |
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 20 "Financial Instruments and Risk Management" for a description of the primary valuation methodologies and classification used for assets measured at fair value.
| | $ | — | | | $ | — | | | $ | — | | | Cash and equivalents | | | | | | | | | | | |
| Total United States plan assets | $ | | | | $ | | | | $ | | | | $ | | |
| International plan assets | | | | | | | |
| Equities | $ | | | | $ | | | | $ | | | | $ | | |
| Fixed income | | | | | | | | | | | |
| Real estate | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | | | | | |
| Other | | | | | | | | | | | |
| Investments measured at net asset value (a) | | | | — | | | — | | | — | |
| Total international plan assets | $ | | | | $ | | | | $ | | | | $ | | |
| Total plan assets at December 29, 2023 | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | — | | | $ | — | | | $ | — | | | Cash and equivalents | | | | | | | | | | | |
| Total United States plan assets | $ | | | | $ | | | | $ | | | | $ | | |
| International plan assets | | | | | | | |
| Equities | $ | | | | $ | | | | $ | | | | $ | | |
| Fixed income | | | | | | | | | | | |
| Real estate | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | | | | | | |
| Other | | | | | | | | | | | |
| Investments measured at net asset value (a) | | | | — | | | — | | | — | |
| Total international plan assets | $ | | | | $ | | | | $ | | | | $ | | |
| Total plan assets at December 31, 2022 | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | | | $ | | | | Return on assets held at end of year | | | | | | | | | | | | | | |
| Return on assets sold during the year | | | | | | | | | | | | | | |
Purchases, sales and settlements, net | () | | | () | | | | | | | | | | |
| | | | | | |
| Foreign exchange impact | () | | | () | | | | | | | | | () | |
| Balance as of December 31, 2022 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Return on assets held at end of year | () | | | () | | | | | | | | | () | |
| Return on assets sold during the year | | | | | | | | | | | | | | |
| Purchases, sales and settlements, net | | | | () | | | | | | | | | | |
| | | | | | |
| Foreign exchange impact | | | | | | | | | | | | | | |
| Balance as of December 29, 2023 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
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 $ million to our pension plans in 2024. On October 17, 2022, we made an advance payment to our U.K. pension plan for approximately £ million of the £ million required minimum annual contributions for the year ending December 29, 2023.
| | $ | | | | 2025 | $ | | | | $ | | |
| 2026 | $ | | | | $ | | |
| 2027 | $ | | | | $ | | |
| 2028 | $ | | | | $ | | |
| Years 2029 - 2033 | $ | | | | $ | | |
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 $ million and $ million of mutual funds designated for a portion of our employee deferral plan included in other assets on our consolidated balance sheets at December 29, 2023 and December 31, 2022, 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 $ million and $ million as of December 29, 2023 and December 31, 2022, respectively, and are included in employee compensation and benefits in our consolidated balance sheets.
Note 11.
bps Credit Spread Adjustment and the British pound sterling tranche is SONIA plus bps Credit Spread Adjustment
Term Loan A provides for quarterly principal payments of % of the aggregate principal amount that commenced with the fiscal quarter ended March 31, 2022, increasing to % starting with the quarter ending March 29, 2024. Term Loan B provides for quarterly principal payments of % of the initial aggregate principal amounts that commenced with the fiscal quarter ended June 30, 2020. Term Loan A and the Revolver mature in February 2029 and Term Loan B matures in January 2031.
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 to 1 through 2022, reducing to to 1 in 2023 and to 1 in 2024 and thereafter. Our consolidated interest coverage ratio may not be less than to 1 as of the last day of any fiscal quarter. As of December 29, 2023, we were in compliance with our financial covenants related to our debt agreements.
million of % Convertible Senior Notes due 2023 (the "Convertible Notes") pursuant to an indenture between us and Citibank, N.A., as trustee. The Convertible Notes were senior unsecured obligations and bore interest at % per year, and interest was payable on May 1 and November 1 of each year.
In April 2023, we elected cash as the settlement method to settle the principal and any excess value upon early conversion or maturity of the Convertible Notes. On June 1, 2023, we entered into privately negotiated transactions to repurchase $ million in principal amount of the outstanding Convertible Notes (the “Convertible Notes repurchase”), using funds borrowed under our Revolver to pay the purchase price. Concurrent with the Convertible Notes repurchase, we entered into agreements with the option counterparties to terminate the corresponding portions of the Note Hedge Transactions and Warrant Transactions (collectively, the "Unwind Agreements"). See Note 22 "Cash Election and Repurchase of Convertible Notes and Warrant Unwind Agreements" for additional information regarding these transactions.
On August 23, 2023, we declared a quarterly cash dividend of $ per Common Share, which exceeded our per share dividend threshold and adjusted the conversion rate to 39.6890 Common Shares per $1,000 principal amount of Convertible Notes at a strike price of $. This was the conversion rate upon maturity of the Convertible Notes on November 1, 2023.
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. See Note 22 "Cash Election and Repurchase of Convertible Notes and Warrant Unwind Agreements" for information regarding the unwind agreements for our outstanding warrants. No warrants were outstanding as of December 29, 2023.
The Note Hedge Transactions and the Warrant Transactions were separate transactions, in each case entered into by us with the option counterparties, and were not part of the terms of the Convertible Notes and did not affect any holder's rights under the Convertible Notes.
Convertible Notes Maturity. The Convertible Notes matured November 1, 2023, and were settled in cash for $ million of which $ million related to the remaining principal and $ million related to the value of the conversion option. Concurrently with the maturity of the Convertible Notes, the Note Hedge Transactions were settled with payments to the Company totaling $ million. The aggregate cash conversion consideration of $ million was fulfilled with proceeds received from Note Hedge Transactions totaling $ million, a $ million borrowing on our Revolver and $ million in available cash. Prior to maturity and settlement on November 1, 2023, any changes related to the fair value of the derivative asset were directly offset by the change in fair value of the embedded derivative liability. No amounts were recognized on our statement of operations as a result of the maturity of the Convertible Notes on November 1, 2023.
Senior Notes
On September 30, 2020, we issued and sold $ million aggregate principal amount of % 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. 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 could have redeemed all or part of the Senior Notes at a redemption price equal to % 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 could have redeemed up to % 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 % 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
% 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 29, 2023, we had $ billion in a committed line of credit on the Revolver under our Senior Credit Facility and $ million of bilateral and uncommitted lines of credit to support the issuance of letters of credit. As of December 29, 2023, with respect to our Revolver, we had $ million of outstanding borrowings. We also have $ million of outstanding letters of credit on our Senior Credit Facility. With respect to our $ million of bilateral and uncommitted lines of credit, we utilized $ million for letters of credit as of December 29, 2023. The total remaining capacity of these committed and uncommitted lines of credit was approximately $ 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 under our bilateral facilities, $ 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 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.
Note 12.
) | | $ | | | | $ | | | | Foreign: | | | | | |
| United Kingdom | | | | | | | | |
| Australia | | | | () | | | () | |
| Canada | | | | | | | () | |
| Middle East | | | | | | | | |
| Africa | | | | | | | | |
| Other | | | | | | | | |
| Subtotal | | | | | | | () | |
| Total | $ | () | | | $ | | | | $ | | |
) | | $ | () | | | $ | () | | | Shareholders' equity, foreign currency translation adjustment | | | | | | | () | |
| Shareholders' equity, pension and post-retirement benefits | | | | () | | | () | |
| Shareholders' equity, changes in fair value of derivatives | | | | () | | | () | |
| Total income taxes | $ | () | | | $ | () | | | $ | () | |
| | $ | () | | | $ | () | | | Foreign | () | | | () | | | () | |
| State and other | () | | | | | | () | |
| Provision for income taxes | $ | () | | | $ | () | | | $ | () | |
| | |
| Year ended December 31, 2022 | | | | | |
| Federal | $ | () | | | $ | () | | | $ | () | |
| Foreign | () | | | () | | | () | |
| State and other | () | | | () | | | () | |
| Provision for income taxes | $ | () | | | $ | () | | | $ | () | |
| | |
| Year ended December 31, 2021 | | | | | |
| Federal | $ | () | | | $ | () | | | $ | () | |
| Foreign | () | | | () | | | () | |
| State and other | () | | | | | | () | |
| Provision for income taxes | $ | () | | | $ | () | | | $ | () | |
) | | $ | () | | | $ | () | | | Australia | () | | | () | | | () | |
| | |
| Middle East | () | | | () | | | () | |
| | |
| Other | () | | | () | | | () | |
| Foreign provision for income taxes | $ | () | | | $ | () | | | $ | () | |
% | | | % | | | % | | Increase (reduction) in tax rate from: | | | | | |
| Tax impact from foreign operations | | % | | | % | | | % |
| Noncontrolling interests and equity earnings | () | % | | | % | | | % |
| State and local income taxes, net of federal benefit | | % | | | % | | | % |
| Other permanent differences, net | | % | | | % | | | % |
Other non-deductible expenditures | | % | | | % | | | % |
| U.S. taxes on foreign unremitted earnings | | % | | | % | | | % |
| Change in federal and foreign valuation allowance | () | % | | () | % | | () | % |
| Research and development credits, net of provision | | % | | () | % | | | % |
| Release of previously reserved position | () | % | | | % | | | % |
| U.K. statutory rate change | | % | | | % | | | % |
Non-Deductible portion associated with legal settlement of legacy matter | () | % | | | % | | | % |
| Non-Deductible portion of Charges associated with Convertible Notes | () | % | | | % | | | % |
| Effective tax rate on income from operations | () | % | | | % | | | % |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | $ | | |
| Foreign tax credit carryforwards | | | | | |
|
| Loss carryforwards | | | | | |
| Research and development and other credit carryforwards | | | | | |
| Insurance accruals | | | | | |
| Allowance for credit losses | | | | | |
| Lease obligation and accrued liabilities | | | | | |
| Contract liabilities | | | | | |
| Capitalized research expenditures | | | | | |
| Other | | | | | |
| Total gross deferred tax assets | | | | | |
| Valuation allowances | () | | | () | |
| Net deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
|
|
| Dollars in millions | December 29, 2023 | | Expiration |
| Foreign tax credit carryforwards | $ | | | | 2024-2029 |
| Foreign net operating loss carryforwards | $ | | | | 2024-2043 |
| Foreign net operating loss carryforwards | $ | | | | Indefinite |
| State net operating loss carryforwards | $ | | | | Various |
| Research and development and other credit carryforwards | $ | | | | 2024-2043 |
We provide for taxes on accumulated and current E&P on certain foreign subsidiaries. As of December 29, 2023, the cumulative amount of permanently reinvested foreign earnings is $ 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 we 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 Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective January 1, 2024 and other aspects effective January 1, 2025. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. We do not expect Pillar 2 to have a material impact on our effective tax rate or our consolidated results of operation, financial position, and cash flows.
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.
| | $ | | | | $ | | | | Increases related to current year tax positions | | | | | | | | |
| | |
| Increases related to prior year tax positions | | | | | | | | |
| Decreases related to prior year tax positions | () | | | () | | | () | |
| Settlements | () | | | | | | | |
| Lapse of statute of limitations | () | | | () | | | () | |
| Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions | | | | () | | | () | |
| Ending Balance | $ | | | | $ | | | | $ | | |
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $ million as of December 29, 2023. 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 $ million due to settlements with tax authorities and the expirations of statutes of limitations. The settlements of $ million in 2023 are related to the release of a previously reserved IRS audit position based on developments associated with the ongoing IRS examination and appeals process for certain years.
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 $ million and $ million as of December 29, 2023 and December 31, 2022, respectively. During the years ended December 29, 2023, 2022 and 2021, we recognized net interest and penalty charges of $ million, $ million and $ 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.
Note 13.
million, comprised of $ million included in accrued salaries, wages and benefits, $ million included in other current liabilities and $ million included in other liabilities all on our consolidated balance sheets. As of December 31, 2022, liabilities for anticipated claim payments and incurred but not reported claims for all insurance programs totaled approximately $ million, comprised of $ million included in accrued salaries, wages and benefits, $ million included in other current liabilities and $ million included in other liabilities all on our consolidated balance sheets.
Note 14.
million and $ million for the years ended December 29, 2023, and December 31, 2022, respectively, which are recorded in other liabilities on our consolidated balance sheets.
Legacy U.S. Government Matters
Between 2002 and 2011, we provided significant support to the U.S. Army and other U.S. government agencies in support of the war in Iraq under the LogCAP III contract. We have been 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 administratively closing the individual task orders issued under the contract. We continue to work with the U.S. government to resolve the issues to close the remaining task orders, which includes ongoing litigation of third-party vendor disputes. 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.
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
million in KBR’s favor plus post-judgment interest. FKTC sought to offset amounts awarded to KBR with amounts FKTC claimed it was owed based on unpaid principal and post award interest on the awards issued in its favor in the prior arbitration proceedings, totaling $ million. KBR disagreed with FKTC’s interest claim and calculation. On September 22, 2023, the Court issued a decision finding the net amount due in favor of KBR from FKTC is $ million. FKTC has appealed this ruling. In addition, in March 2022, FKTC filed a civil action in Kuwait civil court against KBR seeking $ million in damages. This action is duplicative of the claims decided in arbitration. In September 2022, we filed a motion to dismiss this action for lack of jurisdiction due to the arbitration agreement between KBR and FKTC. On December 7, 2023, the Kuwait Court of Cassation issued a ruling ordering KBR to pay an immaterial provisional damage award and requiring FKTC to refile its case in the Court of First Instance for adjudication. Based on our assessment of existing law and precedent, the opinions or views of legal counsel and the facts available to us, no amounts were accrued as of December 29, 2023.
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 $ million for unnecessary materials and equipment in violation of the FCA. 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, which was denied. Fact discovery and expert reports were completed. We also filed a motion for summary judgment and motions to exclude relators' experts. At the request of the parties, the court ordered a stay of the proceedings on December 28, 2022, which was later extended several times. Although we believe the allegations of fraud by the relators are without merit, we participated in mediation and discussions with the relators while continuing to prepare for trial. Any proposed framework for resolving the litigation required agreements on damages and attorneys' fees, as well as necessary determinations by the Department of the Army and approval by the DOJ. On June 30, 2023, KBR executed a settlement agreement with the relators and the Department of Justice. Under the terms of the settlement, KBR denies any liability or wrongful conduct. Pursuant to the settlement, KBR paid $ million, of which $ million comprised restitution damages, and $ million to the relators as attorney’s fees. Payment of the settlement was made on July 10, 2023, and KBR recorded the associated charge of $ million during the year ended December 29, 2023.
Note 15.
% of our lease obligations at December 29, 2023. 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 months or less. Many of our equipment leases, primarily associated with the performance of projects for U.S. government customers, include or more renewal option periods, with renewal terms that can extend the lease term in 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.
| | $ | | | | $ | | | | Short-term lease cost | | | | | | | | |
| | |
| | |
| Total lease cost | $ | | | | $ | | | | $ | | |
Operating lease cost includes operating lease ROU asset amortization of $ million, $ million and $ million for the years ended December 29, 2023, December 31, 2022 and December 31, 2021, respectively, and other noncash operating lease costs related to the accretion of operating lease liabilities and straight-line lease accounting of $ million, $ million and $ million for the years ended December 29, 2023, December 31, 2022 and December 31, 2021, respectively.
Total short-term lease commitments as of December 29, 2023 were approximately $ million.
| | $ | | | | $ | | | | Financing cash flows from finance leases | $ | | | | $ | | | | $ | | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | | | | $ | | | | $ | | |
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | | | | $ | | | | $ | | |
| Weighted-average remaining lease term-operating (in years) | years | | years | | years |
| Weighted-average remaining lease term-finance (in years) | years | | years | | years |
| Weighted-average discount rate-operating leases | | % | | | % | | | % |
| Weighted-average discount rate-finance leases | | % | | | % | | | % |
| | | | | 2025 | | | | | |
| 2026 | | | | | |
| 2027 | | | | | |
| 2028 | | | | | |
| Thereafter | | | | | |
| Total future payments | | | | | |
| Less imputed interest | () | | | () | |
| Present value of future lease payments | | | | | |
| Less current portion of lease obligations | () | | | () | |
| Noncurrent portion of lease obligations | $ | | | | $ | | |
Note 16.
) | | $ | () | | | $ | () | | | $ | () | | | Other comprehensive income (loss) adjustments before reclassifications | () | | | () | | | | | | () | |
Amounts reclassified from AOCL | | | | | | | | | | | |
| Net other comprehensive income (loss) | () | | | | | | | | | () | |
| Balance at December 31, 2022 | $ | () | | | $ | () | | | $ | | | | $ | () | |
| Other comprehensive income (loss) adjustments before reclassifications | | | | () | | | | | | () | |
Amounts reclassified from AOCL | | | | | | | () | | | () | |
| Net other comprehensive income (loss) | | | | () | | | () | | | () | |
| Balance at December 29, 2023 | $ | () | | | $ | () | | | $ | | | | $ | () | |
) | | $ | () | | | Net income attributable to noncontrolling interests and Gain (loss) on disposition of assets and investments | Tax benefit | | | | | | | Provision for income taxes |
Net accumulated foreign currency | $ | () | | | $ | () | | | |
| | | | | |
| Accumulated pension liability adjustments | | | | | |
| Amortization of prior service cost | $ | () | | | $ | () | | | See (a) below |
| Recognized actuarial loss | () | | | () | | | See (a) below |
Tax benefit | | | | | | | Provision for income taxes |
Net pension and post-retirement benefits | $ | () | | | $ | () | | | Net of tax |
| | | | | |
| Changes in fair value for derivatives | | | | | |
Foreign currency hedge and interest rate swap settlements | $ | | | | $ | () | | | Other non-operating income (expense) |
Tax benefit | () | | | | | | Provision for income taxes |
Net changes in fair value of derivatives | $ | | | | $ | () | | | Net of tax |
(a)This item is included in the computation of net periodic pension cost. See Note 10 to our consolidated financial statements for further discussion.
Note 17.
million of our outstanding shares of common stock, which replaced and terminated the August 26, 2011 share repurchase program. On October 18, 2022, the Board of Directors authorized an increase to the total authorization level to $ million. As of December 29, 2023, $ million remains available for repurchase under this authorization. On February 19, 2024, the Board of Directors authorized $ million of share repurchases to be added to the prior authorizations. After the authorization on February 19, 2024, $ million remains authorized and available for repurchase under this program. 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 % of their earnings, subject to some limitations, to purchase shares of KBR common stock. These shares are issued from our treasury share account.
million authorized share repurchase program | | | $ | | | | $ | | | | | |
Withhold to cover shares | | | | | | | | |
| Total | | | | $ | | | | $ | | |
| | | | | |
| Year Ended December 31, 2022 |
| Number of Shares | | Average Price per Share | | Dollars in Millions |
Repurchases under the $ million authorized share repurchase program | | | | $ | | | | $ | | |
| | |
|
|
|
|
|
|
|
|
|
| | | | | | |
|
|
|
|
| | | | | | |
Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosures
Not applicable.
Item 9A. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 29, 2023 at the reasonable assurance level.
Management does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of one or more persons. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed by management, under the supervision of our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 29, 2023. In conducting this evaluation, our management used the criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management has determined our internal control over financial reporting was effective as of December 29, 2023.
The effectiveness of our internal control over financial reporting as of December 29, 2023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control procedures over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended December 29, 2023.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
KBR, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited KBR, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 29, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended December 29, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 20, 2024 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Houston, Texas
February 20, 2024
Item 9B. Other Information
During the three months ended December 29, 2023, none of our officers or directors or any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of SEC Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement for our 2024 Annual Meeting of Stockholders.
KBR has adopted a “code of ethics,” as defined in Item 406(b) of SEC Regulation S-K. KBR’s code of ethics, known as the Code of Business Conduct, applies to all directors, officers and employees of KBR, including our principal executive officer, principal financial officer, principal accounting officer and controllers and also applies to all employees of KBR’s agents. The Code of Business Conduct is available on our website, www.kbr.com. KBR intends to satisfy the disclosure requirements regarding amendments to, or waivers from, any provision of the Code of Business Conduct by posting such information on our website.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement for our 2024 Annual Meeting of Stockholders, except as to information required pursuant to Item 402(v) of SEC Regulation S-K relating to pay versus performance.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement for our 2024 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement for our 2024 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement for our 2024 Annual Meeting of Stockholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| | | | | |
| (a) | The following documents are filed as part of this report or incorporated by reference: |
| 1. | The consolidated financial statements of KBR listed on page 65 of this annual report on Form 10-K. (The report of KBR Inc.'s independent registered public accounting firm (PCAOB ID: ) with respect to the above referenced financial statements are included in Item 8 and Item 9A of this Form 10-K. Their consent appears as Exhibit 23 of this Form 10-K. |
| 2. | The exhibits of KBR listed below under Item 15(b); all exhibits are incorporated herein by reference to a prior filing as indicated, unless designated by a * or **. |
| (b) | Exhibits: |
EXHIBIT INDEX
| | | | | | | | |
Exhibit
Number | | Description |
| | |
| 3.1 | | |
| | |
| 3.2 | | |
| | |
| 4.1 | | |
| | |
| 4.2 | | |
| | |
| 4.3 | | |
| | |
| 4.4 | | |
| | |
| 4.5 | | |
| | |
| 10.1 | | |
| | |
| 10.2 | | |
| | |
| 10.3 | | |
| | |
| 10.4 | | |
| | |
| 10.5 | | Credit Agreement, dated as of April 25, 2018, by and among KBR, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K filed April 27, 2018; File No. 001-33146) |
| | |
| 10.6 | | First Amendment to Credit Agreement, dated November 12, 2018, among KBR, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and a Letter of Credit Issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K filed November 13, 2018; File No. 001-33146) |
| | |
| 10.7 | | |
| | |
| 10.8 | | |
| | |
| 10.9 | | |
| | |
| | | | | | | | |
| 10.10 | | |
| | |
| 10.11 | | |
| | |
| 10.12 | | |
| | |
| 10.13 | | |
| | |
| 10.14 | | |
| | |
| 10.15 | |
|
| | |
10.16 | | |
| | |
| 10.17 | | |
| | |
10.18 | | |
| | |
10.19 | | |
| | |
10.20 | | |
| | |
*10.21 | | |
| | |
*10.22 | | |
| | |
*10.23 | | |
| | |
| 10.24+ | | |
| | |
| 10.25+ | | |
| | |
| 10.26+ | | |
| | |
| 10.27+ | | |
| | |
| 10.28+ | | |
| | |
| | | | | | | | |
10.29+ | | |
| | |
10.30+ | | |
| | |
10.31+ | | |
| | |
10.32+ | | |
| | |
10.33+ | | |
| | |
10.34+ | | |
| | |
10.35+ | | |
| | |
10.36+ | | |
| | |
10.37+ | | |
| | |
10.38+ | | |
| | |
10.39+ | | |
| | |
10.40+ | | |
| | |
10.41+ | | |
| | |
*10.42+ | | |
| | |
10.43+ | | |
| | |
10.44+ | | |
| | |
10.45+ | | |
| | |
10.46+ | | |
| | |
10.47+ | | |
| | |
10.48+ | | |
| | |
| | | | | | | | |
10.49+ | | |
| | |
10.50+ | | |
| | |
10.51+ | | |
| | |
10.52+ | | |
| | |
10.53+ | | |
| | |
10.54+ | | |
| | |
10.55+ | | |
| | |
10.56+ | | |
| | |
10.57+ | | |
| | |
10.58+ | | |
| | |
10.59+ | | |
| | |
10.60+ | | |
| | |
10.61+ | | |
| | |
10.62+ | | |
| | |
10.63+ | | |
| | |
10.64+ | | |
| | |
| *21.1 | | |
| | |
| *23.1 | | |
| | |
| *31.1 | | |
| | |
| *31.2 | | |
| | |
| **32.1 | | |
| | |
| | | | | | | | |
| **32.2 | | |
| | |
| *97.1 | | |
| | |
| ***101 | | The following materials from KBR annual report on Form 10-K for the period ended December 29, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements |
| | |
| ***104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| | |
| | | | | | | | |
| + | Management contracts or compensatory plans or arrangements |
| | |
| * | Filed with this annual report on Form 10-K |
| | |
| ** | Furnished with this annual report on Form 10-K |
| | |
| *** | Interactive data files | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
| KBR, INC. |
| (Registrant) |
| |
| By: | /s/ Stuart J. B. Bradie |
| | Stuart J. B. Bradie |
| President and Chief Executive Officer |
Dated: February 20, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | | | | | |
| Signature | | Title |
| | |
| /s/ Stuart J. B. Bradie | | Principal Executive Officer, |
| Stuart J. B. Bradie | | President, Chief Executive Officer and Director |
| |
| /s/ Mark W. Sopp | | Principal Financial Officer, |
| Mark W. Sopp | | Executive Vice President and Chief Financial Officer |
| |
| /s/ Shad E. Evans | | Principal Accounting Officer, |
| Shad E. Evans | | Senior Vice President of Finance Operations and Chief Accounting Officer |
| | |
| /s/ Mark E. Baldwin | | Director |
| Mark E. Baldwin | | |
| | |
| /s/ Lynn A. Dugle | | Director |
| Lynn A. Dugle | | |
| | |
| /s/ Lester L. Lyles | | Director |
| Lester L. Lyles | | |
| | |
| /s/ John A. Manzoni | | Director |
| John A. Manzoni | | |
| | |
| /s/ Wendy M. Masiello | | Director |
| Wendy M. Masiello | | |
| | |
| /s/ Jack B. Moore | | Director |
| Jack B. Moore | | |
| | |
| /s/ Ann D. Pickard | | Director |
| Ann D. Pickard | | |
| | |
| /s/ Carlos A. Sabater | | Director |
| Carlos A. Sabater | | |
| | |
|
Dated: February 20, 2024
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