FinanceLooker

Excrept from filing document 2025-01-03

The aggregate market value of the voting stock held by non affiliates on June 28 2024 was approximately 8 5 billion determined using the closing price of shares of the registrant s common stock on the New York Stock Exchange on that date of 64 14
This Annual Report on Form 10 K contains certain statements that are or may be deemed to be forward looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward looking information Some of the statements contained in this Annual Report on Form 10 K are forward looking statements All statements other than statements of historical fact are or may be deemed to be forward looking statements The words believe may estimate continue anticipate intend plan expect and similar expressions are intended to identify forward looking statements Forward looking statements include information concerning our possible or assumed future financial performance and results of operations
We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends current conditions expected future developments and other factors we believe are appropriate in the circumstances Forward looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results and actual future results could differ materially from those described in such statements While it is not possible to identify all factors factors that could cause actual future results to differ materially include the
Many of these factors are beyond our ability to control or predict Any of the following factors as well as the risks and uncertainties disclosed under Item 1A Risk Factors contained in Part I of this Annual Report on Form 10 K and the risk factors and other cautionary statements contained in our other filings with the SEC or a combination of these factors could materially and adversely affect our future financial condition or results of operations and the ultimate accuracy of the forward looking statements These forward looking statements are not guarantees of our future performance and our actual results and future developments may differ materially and adversely from those projected in the forward looking statements We caution against putting undue reliance on forward looking statements or projecting any future results based on such statements or on present or prior earnings levels In addition each forward looking statement speaks only as of the date of the particular statement and we undertake no obligation to publicly update or revise any forward looking statement
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business financial condition and results of operations This summary should be read together with the more detailed description of each risk factor disclosed under Item 1A Risk Factors contained in Part I of this Annual Report on Form 10 K
Global pandemics epidemics outbreaks of infectious diseases or public health crises have disrupted our business and could have a material adverse effect on our future results of operations and financial performance
We may use artificial intelligence machine learning data science and similar technologies in our business and challenges with properly managing such technologies could result in reputational harm competitive harm and legal liability and adversely affect our business financial condition and results of operations
If we are unable to attract and retain senior management and key technical professionals with elite skills and appropriate government qualifications our ability to pursue and compete for projects to grow our business may be adversely affected
Internal or external cybersecurity or privacy breaches or systems and information technology interruption or failure could adversely impact our ability to operate or expose us to significant financial losses and reputational harm
Current or future economic conditions including recession or inflation in the credit markets may negatively affect the ability to operate our or our customers businesses finance working capital implement our acquisition strategy and access our cash and short term investments
Drawing from its 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
Leading national security and defense systems engineering rapid prototyping test and evaluation aerospace acquisition support data analytics and systems and platform integration and sustainment engineering
Advanced digital artificial intelligence machine learning and information operations solutions in areas such as cyber analytics and cybersecurity space and air dominance connected battlespace national security intelligence data analytics mission planning systems virtual augmented reality and technical training and artificial intelligence and machine learning
Engineering and project management solutions to advance energy security sustainable decarbonization energy transition and asset optimization proprietary sustainability focused process licensing energy transition and security advisory services and digitally enabled asset optimization solutions and
Our people make the difference We leverage dynamic teams that combine deep mission understanding market leading technical expertise and an unwavering operational focus to deliver solutions to solve our clients most complex issues In the fiscal year ended January 3 2025 fiscal 2024 KBR s operating model continued to shift toward agile technology driven solutions oriented delivery and was streamlined to increase strategic focus and to move upmarket into differentiated areas that we believe will provide attractive returns and consistent growth with favorable cash conversion
KBR delivers full life cycle support solutions to defense intelligence space aviation and other programs and missions to military and other government agencies primarily in the U S the U K and Australia under long term programs with key technical scientific or mission specific differentiation KBR s full spectrum digitally enabled services span research and development advanced prototyping acquisition support systems engineering systems assurance and technology C5ISR cyber analytics cybersecurity space domain awareness test and evaluation data analytics and integration systems integration and program management global supply chain management digital transformation and operations readiness and support Key customers include U S Department of Defense agencies such as the U S Army Navy Air Force Space Force Missile Defense Agency National Geospatial Intelligence Agency National Reconnaissance Office and other intelligence agencies U S civilian agencies such as NASA U S Geological Survey and National Oceanic and Atmospheric Administration the U K Ministry of Defence other U K Crown Services the Royal Australian Air Force Navy and Army and
We design and bring to market patented proprietary process technology which we license to enable safe energy efficient and cost competitive production of energy and special chemical products to meet growing global consumer demand With our proprietary technology we also offer proprietary equipment integration services and catalysts that enable our clients to convert their raw material to valuable end products We market high end advisory and consulting services focused on broad based energy transition and net zero carbon emission solutions high end engineering design and program management centered around energy security decarbonization energy efficiency environmental impact and asset optimization and digitally enabled operating and monitoring solutions Key customers include governments and commercial and industrial companies Areas of long term strategic focus include sustainable technology solutions energy transition energy security and technology led asset optimization
Our deployment priorities are to fund organic growth maintain responsible leverage maintain an attractive dividend make strategic accretive acquisitions and repurchase shares Our acquisition thesis is centered around moving upmarket expanding capabilities and broadening customer sets across strategic growth vectors KBR also develops and prioritizes investment in technologies that are disruptive innovative and sustainability and safety focused These technologies and engineering solutions enable clients to achieve a safer more secure and more sustainable global future
We operate in global markets with customers who demand innovation technical and domain expertise and digitally enabled technology led sustainable solutions We seek to differentiate ourselves in areas in which we believe we have a competitive advantage These include
As an industry sustainability leader we have invested and will continue to invest in the development of disruptive innovative clean energy solutions and special chemicals that promote a cleaner greener future and a sustainable world
a cutting edge scalable technology that utilizes supercritical steam to convert a wide range of single use and other plastics into virgin grade feedstocks used to produce new plastics delivering a truly circular economy
We provide a wide range of professional services and the management of our business is heavily focused on major projects or programs within each of our reportable segments At any given time government programs and joint ventures represent a substantial part of our operations
Our 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 full spectrum solutions span research and development advanced prototyping acquisition support systems engineering C5ISR cyber analytics space domain awareness test and evaluation data analytics and integration systems integration and program management global supply chain management operations readiness and support and professional advisory services across the defense energy security and transition and critical infrastructure sectors Included in Government Solutions is the LinQuest Corporation LinQuest an engineering data analytics and digital integration company acquired in fiscal 2024 that develops and integrates advanced technology solutions to meet the most challenging demands across space air dominance and connected battlespace missions including advanced artificial intelligence machine learning capabilities and digital engineering
Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 85 innovative proprietary sustainability focused process technologies that reduce emissions increase efficiency and or accelerate and enable energy transition across the industrial base in four primary verticals ammonia syngas chemical petrochemicals clean refining and circular process circular economy solutions STS also provides highly synergistic services including advisory and consulting focused on energy security 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
To streamline and optimize our processes we realigned our segments effective for the year ended January 2 2026 fiscal 2025 As part of this realignment our Government Solutions reportable segment has been renamed Mission Technology Solutions while Sustainable Technology Solutions has retained its name The international business contained within Government Solutions has been integrated into both Mission Technology Solutions and Sustainable Technology Solutions The Company will begin reporting the new segment information beginning the first fiscal quarter of 2025
We generate significant revenues within our GS business segment from key U S government customers including U S DoD agencies such as the U S Army Navy Air Force Space 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 and from the U K government No other customers represented 10 or more of consolidated revenues in any of the periods presented The following table summarizes our revenues from contracts with U S and U K government agencies for which we are the prime contractor as well as for those contracts in which we are a subcontractor and the ultimate customer is a U S or U K government agency respectively
Information relating to our customer concentration is described in Item 1A Risk Factors contained in Part I of this Annual Report on Form 10 K Also see further explanations in Note 1 Significant Accounting Policies to our consolidated financial statements in Part II Item 8 of this Annual Report on Form 10 K
We enter into joint ventures and alliances with other industry participants to capitalize on the strengths of each party provide greater flexibility in delivering our services based on expertise cost and geographical efficiency increase the number of opportunities that can be pursued reduce exposure and diversify risk Our significant joint ventures and alliances are described below All joint venture ownership percentages presented are stated as of January 3 2025
Aspire Defence Limited a joint venture owned by KBR and two financial investors provides a range of facilities life cycle management services at the British Army s garrisons at Aldershot and across the Salisbury Plain in the U K KBR owns 45 of Aspire Defence Limited that is reported within our GS business segment using the equity method of accounting
The Affinity joint venture with Elbit Systems Ltd procures operates and maintains aircraft and aircraft related assets over an 18 year contract period in support of the UKMFTS project KBR owns a 50 interest in Affinity
KBR owns a 50 interest in the two joint ventures Affinity Capital Works and Affinity Flying Services which provide procurement operations and management support services under subcontracts with Affinity The investments are accounted for within our GS business segment using the equity method of accounting
Brown Root Industrial Services is a joint venture with Bernhard Capital Partners and offers maintenance services turnarounds and small capital projects primarily in North America in which we own 50 equity interest The investment is accounted for within our STS business segment using the equity method of accounting
JKC Australia LNG is a joint venture contracted to perform the engineering procurement supply construction and commissioning of onshore LNG facilities for a client in Darwin Australia The project is being executed through two entities collectively JKC which are VIEs in which we own a 30 equity interest The investment is accounted for within our STS business segment using the equity method of accounting
KZJV is a joint venture with Zachry Group that performs certain design engineering procurement and construction related services for a LNG facility in Plaquemines Parish Louisiana KBR owns a 45 interest in KZJV which is a VIE The investment is accounted for within our STS business segment using the equity method of accounting
HomeSafe a joint venture with Tier One Relocation was established to be the exclusive provider of household goods move management services for the U S Armed Forces U S DoD civilians and their families KBR owns a 72 interest in HomeSafe The joint venture is a VIE that is consolidated for financial reporting purposes and is accounted for within our GS business segment
Additional information relating to our joint ventures is described in Part II of this Annual Report on Form 10 K in Note 9 Equity Method Investments and Variable Interest Entities to our consolidated financial statements
Backlog is our estimate of the U S dollar amount of future revenues we expect to realize as a result of performing work on awarded contracts For projects within our unconsolidated joint ventures we have included our percentage ownership of the joint venture s estimated revenues in backlog to provide an indication of future work to be performed The future revenues we expect to realize in backlog were 17 264 million and 17 335 million as of January 3 2025 and December 29 2023 respectively with approximately 16 and 24 respectively related to work being executed by joint ventures accounted for using the equity method of accounting We estimate as of January 3 2025 40 of our backlog will be recognized as revenues or equity in earnings of unconsolidated affiliates within fiscal year 2025 For additional information regarding backlog see our discussion within Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II of this Annual Report on Form 10 K
Our business is heavily regulated We contract with numerous U S government agencies and entities principally the U S DoD NASA and certain intelligence agencies When working with these and other U S government agencies and entities we must comply with various laws and regulations relating to the formation administration and performance of contracts U S government contracts are generally subject to the FAR which sets forth policies procedures and requirements for the acquisition of goods and services by the U S government other agency specific regulations that implement or supplement the FAR such as the DoD FAR Supplement DFARS and other applicable laws and regulations These regulations impose a broad range of requirements many of which are unique to government contracting including various procurement import and export security contract pricing and cost contract termination and adjustment and audit requirements Among other things these laws and regulations
restrict the use and dissemination of and require the protection of unclassified contract related information and information classified for national security purposes and the export of certain products and technical data and
prohibit competing for work if an actual or potential organizational conflict of interest as defined by these laws and regulations related to such work exists and or cannot be appropriately mitigated neutralized or avoided
Our GS business in the U S primarily performs work under cost reimbursable contracts with the DoD and other U S governmental agencies If the U S government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations these costs are disallowed or if already reimbursed we may be required to refund the reimbursed amounts to the customer Such conditions may also include interest and other financial penalties If performance issues arise under any of our government contracts the customer retains the right to pursue remedies which could include termination under any affected contract Generally our customers have the contractual right to terminate or reduce the amount of work under our contracts at any time For more information see Item 1A Risk Factors contained in Part I of this Annual Report on Form 10 K
Our GS business also participates in PFI contracts such as the Aspire Defence and UKMFTS projects PFIs are long term contracts that outsource the responsibility for the construction procurement financing operation and maintenance of government owned assets to the private sector These contracts may contain both fixed price and cost reimbursable elements The PFI projects in which KBR participates are all located in the U K with contractual terms ranging from 15 to 35 years and involve the provision of services to various types of assets ranging from acquisition and maintenance of major military equipment and housing to transportation infrastructure Under most of these PFI contracts the primary deliverables of the contracting entity are the initial construction or procurement of assets for the customer and the subsequent provision of lifecycle management services for the life of such assets The amount of renumeration from the customer to the contracting entity is negotiated on each contract and varies depending on the specific terms for each PFI
Under fixed price contracts we perform a defined scope of work for a specified fee to cover all costs and any profit element Fixed price contracts entail risk to us because they require us to predetermine the work to be performed the project execution schedule and all the costs associated with the scope of work Additionally unit rate contracts are essentially fixed price contracts with the only variable being units of work to be performed Further our fixed price contracts may include cost escalation and other features that allow for increases in price should certain events occur or conditions change Fixed price contracts are typically subject to change orders if the scope of work changes or unforeseen conditions arise resulting in adjustments to the fixed price Although fixed price contracts involve greater risk than cost reimbursable contracts they also are potentially more profitable because the owner customer pays a premium to transfer project risks to us
Time and materials contracts typically provide for negotiated fixed hourly rates for specified categories of direct labor The rates cover the cost of direct labor indirect expense and fee These contracts can also allow for reimbursement of cost of material plus a fee if applicable In U S government contracting this type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence With respect to time and materials contracts we assume the price risk because our costs of performance may exceed negotiated hourly rates In commercial and non U S government contracting this contract is generally used for defined and non defined scope contracts where there is a higher degree of uncertainty and risks of work These types of contracts may also provide for a guaranteed maximum price where the total cost plus the fee cannot exceed an agreed upon guaranteed maximum price or not to exceed provisions
Under cost reimbursable contracts the price is generally variable based upon our actual allowable costs incurred for materials equipment reimbursable labor hours overhead and G A expenses Profit on cost reimbursable contracts may be in the form of a fixed fee or a mark up applied to costs incurred or a combination of the two The fee may also be an incentive fee based on performance indicators milestones or targets and can be based on customer discretion or in the form of an award fee determined based on customer evaluation of the Company s performance against contractual criteria Cost reimbursable contracts may also provide for a guaranteed maximum price where the total fee plus the total cost cannot exceed an agreed upon guaranteed maximum price Cost reimbursable contracts are generally less risky because the owner customer retains many of the project risks however it generally requires us to use our best efforts to accomplish the scope of the work within a specified time and budget Cost reimbursable contracts with the U S government are generally subject to the FAR and are competitively priced based on estimated or actual costs of providing the contractual goods or services The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U S government and its agencies Pricing for non U S government agencies and commercial customers is based on specific negotiations with each customer
Equipment and materials essential to our business are obtained from a variety of global sources The principal equipment and materials we use in our business are subject to availability and price fluctuations due to customer demand producer capacity and market conditions We monitor the availability and price of equipment and materials on a regular basis Our procurement function seeks to leverage our size and buying power to ensure that we have access to key equipment and materials at low prices and ideal delivery schedules We purchase our required materials and equipment from a variety of sources We have not experienced and do not anticipate experiencing any significant procurement difficulties as a result of political and economic conditions and regional conflict and war that have resulted in significant supply chain disruptions and inflation globally and within the United States However a number of factors that we may not be able to predict or control could result in increased costs for materials as well as global trade relationships regional conflict and wars and other general market and political conditions These potential increased costs could reduce profitability on our contracts particularly those that are fixed price See Item 1A Risk Factors contained in Part I of this Annual Report on Form 10 K for more information
The use of intellectual property generally benefits our STS business segment We have developed acquired or otherwise have the right to license leading technologies including technologies held under license from third parties used for the production of a range of essential products in the areas of transportation fuels petrochemicals and polymers fertilizers semi submersibles and specialty chemicals The technologies we license include the transformation of raw materials into commodity chemicals such as phenol which is used in the production of consumer end products and our ammonia process technologies used in the conversion of natural gas to ammonia with a fully developed proprietary end to end solutions for both fossil based and green ammonia K GreeN
a cutting edge scalable technology that utilizes supercritical water to convert a wide range of single use and other waste plastics into commercial raw materials used to produce new plastics a circular solution In 2023 we launched our Sustainable Aviation Fuel technology PureSAF
to extend our decarbonization efforts into the aviation sector We also offer technologies for conversion and refinement of minerals that are necessary for electrification of a range of industries We believe our technology portfolio and experience in the
Our rights to make use of technologies licensed to us are governed by written agreements of varying durations including some with fixed terms that are subject to renewal based on mutual agreement Generally each agreement may be further extended and we have historically been able to renew existing agreements before they expire The same agreements are supportive of the expansion of the third party partner s relevant intellectual property portfolio to the mutual benefit of both parties We expect these and other similar agreements to be extended so long as it is mutually advantageous to both parties at the time of renewal For technologies we own we protect our rights know how and trade secrets through patents and confidentiality agreements
The majority of our operations are not affected by seasonality However various factors can affect the distribution of our sales between accounting periods including the timing of government awards the availability of government funding timing of military moves product deliveries and customer acceptance Additionally weather and natural phenomena can temporarily affect the performance of our services Additional information relating to seasonality is described in Item 1A Risk Factors contained in Part I of this Annual Report on Form 10 K
Our business involves design management operations and maintenance at various project sites throughout the world which may be in and around sensitive environmental areas such as rivers lakes and wetlands Our operations may require us to manage handle transport and dispose of toxic or hazardous substances which are subject to stringent and complex laws relating to environmental protection
Significant fines penalties and other sanctions may be imposed for non compliance with environmental and worker health and safety laws and regulations and some laws provide for joint and several strict liabilities for remediation of releases of hazardous substances rendering a person liable for environmental damage without regard to negligence or fault on the part of such person These laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others or for our acts that were in compliance with all applicable laws at the time these acts were performed For example there are a number of governmental laws that strictly regulate the handling removal treatment transportation and disposal of toxic and hazardous substances such as the Comprehensive Environmental Response Compensation and Liability Act of 1980 and comparable national and state laws that impose strict joint and several liabilities for the entire cost of cleanup without regard to whether a company knew of or caused the release of hazardous substances In addition some environmental regulations can impose liability for the entire clean up costs on owners operators transporters and other persons arranging for the treatment or disposal of such hazardous substances related to contaminated facilities or project sites Other environmental laws applicable to our and customers operations affecting us include but are not limited to the Resource Conservation and Recovery Act the National Environmental Policy Act the Clean Air Act the Clean Water Act the Occupational Safety and Health Act and the Toxic Substances Control Act as well as other comparable foreign and state laws Liabilities related to environmental contamination or human exposure to hazardous substances or a failure to comply with any applicable environmental and worker health and safety laws and regulations could result in substantial costs to us including cleanup costs fines civil or criminal sanctions third party claims for property damage personal injury or cessation of remediation activities
Every day the people of KBR help solve some of the world s most challenging scientific technological and engineering problems From our promising new interns to world renowned experts this Team of Teams delivers for our customers so in turn we put them first At the end of fiscal 2024 we employed approximately 38 000 people performing multi faceted complex and mission critical roles in over 29 countries In addition our unconsolidated joint ventures employ approximately 10 000 employees
Our Employee Value Proposition EVP is the unique set of experiences and offerings that help differentiate KBR from other competitors for our employees time and talents and describes in practical terms how we put our people first
At the center of our EVP is Purpose because at KBR we do work that matters helping to solve the great challenges of our time while striving to create a secure safer and more sustainable world Our vision is to bring together the best and brightest employees to deliver technology and solutions that help our customers accomplish their most critical missions and objectives and this important work enables us to attract and retain some of the world s best talent who thrive in this purposeful environment
Our Values unite us across global cultures guiding our behavior and decision making throughout KBR We have embedded our values in our business processes established them as a foundation for our learning and development activities and regularly celebrate employees who epitomize our values led behavior While our One KBR Values unite us as a global business operating in distinct markets and environments we recognize and respect that our cultures are different Acknowledging these differences our culture weaves a golden thread through KBR Our employees take enormous pride in being part of an organization with a philosophical practical and proven commitment to fostering an environment in which our people can belong connect and grow
We are subject to numerous worker health and safety laws and regulations Our commitment to the health and safety of each employee as well as anyone we work with is the foundation of our Zero Harm culture We know that our employees willingness to implement each commitment into their daily work tasks is vital to our operations and has contributed to our industry leading safety performance among our customers partners and peers
The six core processes that comprise our Transactional Health Safety Security Environmental HSSE Management that lead to Transformational Leadership are non negotiable KBR safety standards that are required to be observed and followed by employees and contractors at all locations and projects By requiring our employees to personally internalize and adhere to these standards we aim to safeguard our individual health and safety and the well being of all those around us
We believe that KBR has provided the tools and processes our people need to achieve the mindset of 24 7 Zero Harm One process known as the Courage to Care Conversation is instrumental in developing a continual awareness of unsafe acts through observation intervention and conversation The goal of the Courage to Care Conversation is to continuously evaluate the work environment and to focus on people and their actions
Our Journey to Zero Harm has allowed us to create a company culture where safe execution is non negotiable and people take responsibility and accountability When it comes to safety we strive for one number Zero
KBR s ethics and our Code of Business Conduct the Code are rooted in our values and provide the standards and support to help us successfully navigate issues make the right decisions and conduct our business with the integrity that reflects our heritage and ethical reputation Additionally our Code is essential to how we as a Team of Teams interact with the world around us and to our success
We believe that an ethical culture where employees are treated fairly respectfully and without favoritism is key to employee satisfaction and retention We promote a speak up culture where employees are comfortable making reports of possible unethical behavior and workplace issues The Business Integrity Team has implemented a Question Manager as part of our Ethics Hotline for employees to receive advice confidentially or anonymously on ethical or other inquiries Employees speaking up and reporting issues enable us to address and remediate these issues early and effectively while instilling confidence that employee concerns are heard and addressed The recent People Perspective Survey indicates that a majority of our employees feel safe to report misconduct and reflects our dedication to an ethical culture
Retaliation undermines a speak up culture and is not tolerated Our Code and our Business Integrity program set forth our anti retaliation commitment which is reinforced in our communications and our annual Ethics training To further convey to the workforce that reports of unethical behavior are investigated and remediated the Ethics training incorporates examples of past misconduct incidents
As well as providing meaningful work from Day 1 our employees and job applicants are attracted to KBR because of the opportunity to develop personally and reach their full potential Providing the opportunity to Grow at KBR is a key component in our EVP We have a good reputation among our employees for providing growth opportunities and have continued to focus on enhancing these growth prospects in several ways throughout fiscal 2024 with the introduction of formal mentoring and sponsorship programs skills for the future offerings and an internal career pathways forum In addition we invest in training our employees across a range of topics that align with and enhance our values including programs that focus on leadership ethics and technical development
For our Technical Talent our One KBR Tech Fellows program provides funding and opportunities for these world leading scientists and technical professionals to conduct advanced research into topics ranging from carbon capture to machine learning Our Fellows also provide valuable input into strategy development business development and talent development within KBR Understanding the importance of internal advancement for attracting and retaining top technical talent we introduced the Career Opportunities Technical Talent Guide to outline technical career growth through roadmaps expectations for each career journey stages and resources and tools KBR Communities of Interest COIs are also designed to foster technical development by providing collaborative virtual forums for subject matter experts and those who support them Our COIs continue to evolve ensuring that subject matter experts across the globe can connect and collaborate on Data Science and Digital Technologies Sustainability and Energy Transition Human Performance and other technical specialties that inform our customers and society s greatest challenges today
Our flagship leadership program the Global Leadership Development Program is expanding to go beyond training to develop capabilities in being effective future executive leaders As well as developing strategic thinking through research projects ranging from sustainability investments to digital supply chain solutions these leaders attend intense learning events focused on executive skills and leading courageously and with integrity The revamped course cultivates peer networks sharpens enterprise mindsets and builds commercial and strategy acumen We also strengthen our future leadership by running regular Manager Excellence Programs and our Front Line Leaders Program grew substantially in fiscal 2024 to support over 1 000 employees globally who were newly transitioning into these critical leadership roles
In fiscal 2024 our Talent Calibration conversations covered over 5 000 KBR employees in a rigorous assessment of performance and potential As well as providing organization wide talent trends and data these conversations lead to individual career plans and added rigor to our succession plans The Board Nominations Corporate Governance Committee received regular updates on this process throughout the year culminating in detailed discussions on updated succession plans for the CEO and Executive Leadership Team
Our agile approach to performance management continued successfully into fiscal 2024 where we focused on frequent Check in Conversations about performance career development and priority alignment between managers and their team members Our employees indicated in surveys that they prefer this approach and we view it as more inclusive engaging agile and supportive of a high performing culture In fiscal 2024 we continued to embed the Agile Performance Development process across KBR and strengthen capabilities for holding quality effective Check ins
Our employee survey measures our progress through the eyes of our people We partner with Great Place to Work to conduct the survey on our behalf enabling us to provide the survey in multiple languages and benchmark how we perform compared to other similar organizations In fiscal 2024 our employee participation rate in our People s Perspective survey increased by 10 The data from our survey was reviewed in detail by different team leaders and across different business areas resulting in tailored action plans that are already being executed across KBR A significant majority of our employees who responded to the survey reported that they believe KBR is a great place to work resulting in KBR being certified as a Great Place to Work in several countries taking us to thirteen countries where KBR is officially certified We were also awarded for one of Glassdoor s Best led Companies Newsweek s Greatest Workplaces and Times Best Companies list amongst many other regional awards in 2024
Competition for talent was compounded by high levels of inflation in the general economy well into fiscal 2024 Throughout fiscal 2024 we continued to benchmark pay and benefits in local markets and expand our offerings to help us attract and retain the best and brightest talent
In fiscal 2024 we updated our comprehensive Talent Acquisition strategy aligning recruitment efforts with broader business objectives This unified approach ensures consistency across regions while empowering teams to tailor strategies to their local markets By fostering cross border collaboration and establishing teams from varying regions we improved process consistency adoption of best practices and scalability These efforts strengthened internal mobility built future focused talent pipelines and enhanced our ability to meet hiring demands effectively We also made enhancements to our Applicant Tracking System and Customer Relationship System platforms further streamlining workflows for candidates hiring managers and recruiters while improving training and standardization
Our Annual Reports on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act are made available free of charge on our website at www kbr com as soon as reasonably practicable after we have electronically filed the material with or furnished it to the SEC The SEC maintains a website that contains reports proxy and information statements and other information regarding issuers like us that file electronically with the SEC at www sec gov
A significant portion of our revenues is generated by large recurring business from certain significant customers including the U S government Any loss cancellation or delay in one or more projects by our significant customers in the future could negatively affect our financial performance
A considerable percentage of our revenues particularly in our GS business segment is generated under contracts with certain significant customers Revenues from the U S government represented 57 of our total consolidated revenues for fiscal 2024 Budget uncertainty the potential for U S government shutdowns the use of continuing resolutions and the federal debt ceiling can adversely affect our industry and the funding for our contracts If appropriations are delayed or a government shutdown were to occur and were to continue for an extended period of time we could be at risk of contract cancellations and other disruptions and nonpayment When the U S government operates under a continuing resolution new contract starts are restricted and funding for our programs may be unavailable reduced or delayed Shifting funding priorities or federal budget compromises also could result in reductions in overall defense spending on an absolute or inflation adjusted basis which could adversely impact our business
Our revenues are directly and indirectly derived from contract awards Reductions in the number and amounts of new awards delays in the timing of anticipated awards or potential cancellations of such prospects as a result of economic conditions funding priorities material and equipment pricing and availability or other factors could adversely impact our long term projected results It is particularly difficult to predict whether or when we will receive large scale projects as these contracts usually involve a lengthy and complex bidding and selection process This process can be affected by a number of factors including market conditions and governmental and environmental approvals and in some cases the customer s ability to secure the necessary financing for a project to proceed As a portion of our revenues is generated from such projects our results of operations and cash flows can fluctuate significantly from quarter to quarter depending on the timing of our contract awards and the commencement or progress of work under awarded contracts The uncertainty of our contract award timing can also present difficulties in matching workforce size with contract needs In some cases we maintain and bear the cost of a ready workforce that is larger than necessary under existing contracts in expectation of future workforce needs for anticipated contract awards If an anticipated contract award is delayed or not received we may incur additional costs resulting from reductions in staff or redundancy of facilities that could have a material adverse effect on our business financial condition results of operations and cash flows
Following contract award we may also encounter significant expense delay contract modifications or even contract loss Additionally certain contract awards including the performance of such awards have been and may in the future be contested and or otherwise involved in ongoing legal proceedings inquiries or other similar developments outside of our control which may result in significant delays in the project timeline or the wholesale cancellation or termination of a project Any project delays cancellations or contract modifications following the award of a contract could have a material adverse effect on our business financial condition results of operations backlog revenue recognition timing and cash flows
Political economic and other conditions in foreign countries and regions including geopolitical risks such as the current conflict between Russia and Ukraine and political and economic instability and ongoing conflict in the Middle East may adversely affect our business and operations as a portion of our revenue is derived from foreign operations Additionally the full scope duration and broader implications of international conflicts which may include additional international sanctions embargoes regional instability and geopolitical shifts increased tensions between the United States and countries in which we operate and the extent of the conflicts effects on our business and results of operations as well as the global economy cannot be predicted Any alleged or actual failure to comply with any sanctions and trade control measures implemented in response to international conflicts may subject us to government scrutiny civil and or criminal proceedings sanctions and other liabilities which may have an adverse effect on our international operations financial condition and results of operations
To the extent current conflicts or other geopolitical conflicts adversely affect our business they may also have the effect of heightening many of our other risks identified in this Annual Report on Form 10 K any of which could materially and adversely affect our business and results of operations Such risks include but are not limited to the following
Global pandemics epidemics outbreaks of infectious diseases or public health crises have disrupted our business and could have a material adverse effect on our future results of operations and financial performance
Pandemics epidemics outbreaks of infectious diseases or public health crises across the globe have disrupted and may in the future disrupt our business which could materially and adversely affect our financial condition results of operations cash flows and or future expectations Our business operations and financial performance have been and may be affected by macroeconomic impacts resulting from pandemics infectious disease outbreaks and public health crises As a result our financial performance and growth rates may differ from historical periods and our future results may fall below expectations Any health crisis may negatively affect worldwide economic and commercial activity disrupt global supply chains and the labor market and create significant volatility and disruption of financial and commodity markets The extent to which our business will continue to be affected and may in the future be affected by pandemics infectious disease outbreaks and other public health crises depends on a number of factors outside of our control including but not limited to the extent and duration of labor disruptions business operations disruptions from quarantines travel restrictions and other requirements imposed by regulators and health authorities delays modifications and terminations of contracts supply chain disruptions increased cybersecurity and data protection risks increased costs of doing business and other macroeconomic disruptions
We utilize a variety of intellectual property rights in providing technology and services to our customers We view our portfolio of process and design technologies as one of our competitive strengths and we use it as part of our efforts to differentiate our service offerings We may not be able to successfully preserve these intellectual property rights in the future and these rights could be invalidated circumvented challenged or infringed upon In addition the laws of some foreign countries in which our services may be sold do not protect intellectual property rights to the same extent as the laws of the U S We also license technologies from third parties and there is a risk that our relationships with licensors may terminate expire or be interrupted or harmed If we are unable to protect and maintain our intellectual property rights or if there are any successful intellectual property challenges or infringement proceedings against us our ability to differentiate our service offerings could diminish In addition if our intellectual property rights or work processes become obsolete we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers We will also need to continue to respond to and anticipate changes resulting from disruptive technologies including in areas of artificial intelligence and machine learning If we are not successful in protecting and preserving our intellectual property rights and licenses or in staying ahead of developing artificial intelligence and machine learning technologies and strategically incorporating them into our business our business and financial performance could be materially and adversely affected
We may not properly leverage or appropriately invest in technology advancements which could diminish any sustainable competitive advantage in our service offerings resulting in the potential loss of market share and profits
We operate in global markets with customers who demand innovation technical and domain expertise and digitally enabled technology led solutions Robust information technology systems platforms and products are integral in our efforts to differentiate our service offerings and maintain our competitive advantages Disruptive technologies including in areas of artificial intelligence and machine learning are rapidly changing the environment in which we our customers and our competitors operate and could affect the nature of how we generate revenue We will need to continue to respond to and anticipate these changes by enhancing our product and service offerings to maintain our competitive position
It is strategically important that we lead the digital transformation occurring in our industry However we may not be successful in structuring our technology or developing acquiring or implementing technology systems in ways that are competitive and responsive to the needs of our customers We may lack sufficient resources to continue to make the significant
technology investments to effectively compete with our competitors Certain technology initiatives that management considers important to our long term success will require capital investment have significant risks associated with their execution and could take several years to implement If we are unable to develop and implement these initiatives in a cost effective timely manner or at all it could damage our relationships with our customers and negatively impact our financial condition and results of operations There can be no assurance that others will not acquire similar or superior technologies sooner than we do or that we will acquire technologies on an exclusive basis or at a significant price advantage If we do not accurately predict prepare and respond to new technology innovations market developments and changing customer needs our revenues profitability and long term competitiveness could be materially adversely affected
We may use artificial intelligence machine learning data science and similar technologies in our business and challenges with properly managing such technologies could result in reputational harm competitive harm and legal liability and adversely affect our business financial condition and results of operations
Artificial intelligence machine learning data science and similar technologies collectively AI including third party AI tools may be enabled by or integrated into some of our business and solutions As with many developing technologies AI presents risks and challenges that could affect its further development adoption and use and therefore our business AI algorithms may be flawed or biased Datasets used to train or develop AI systems may be insufficient of inferior quality or contain biased information Additionally the laws and regulations concerning the use of AI continue to evolve If the use or integration of AI systems or the outputs generated by such systems were determined to be non compliant e g in relation to intellectual property or data privacy rights this may result in liability including legal liability or adversely affect our business reputation brand financial condition and results of operations It is possible that emerging regulations may limit or block the use of AI in our business and solutions or otherwise impose other restrictions that may affect or impair the usability or efficiency of our business or services for an extended period of time or indefinitely Our competitors or other third parties may incorporate AI into their product development product offerings technology and infrastructure products more quickly or more successfully than us which could impair our ability to compete effectively and adversely affect our business financial condition and results of operations
If we are unable to attract and retain senior management and key technical professionals with elite skills and appropriate government qualifications our ability to pursue and compete for projects to grow our business may be adversely affected our operating income may decrease and our reputation may be negatively impacted
KBR s forward looking strategy requires talent with dynamic and elite skills as KBR moves upmarket Our rate of growth and the success of our business depend upon our ability to attract develop retain and replace key qualified technical and management professionals either through direct hire subcontracts or acquisition of other firms who possess the elite skills to successfully deliver the solutions strategy The market for these professionals is competitive in the sectors in which we compete and we rely heavily upon the expertise and leadership of our professionals to perform execute and complete projects as required by our clients
We currently hold U S government issued facility security clearances and a large number of our employees have qualified for and hold U S government issued personal security clearances necessary to perform certain U S government contracts Obtaining and maintaining security clearances for employees involves lengthy processes and it is difficult to identify recruit and retain employees who already hold security clearances
If our employees are unable to obtain or retain security clearances or if our employees who hold security clearances terminate employment with us and we are unable to find replacements with equivalent security clearances we may be unable to perform our obligations to customers whose work requires cleared employees or such customers could terminate their contracts or decide not to renew them upon their expiration Our facility security clearances could be marked as invalid for several reasons including unapproved foreign ownership control or influence mishandling of classified materials or failure to properly report required activities An inability to obtain or retain our facility security clearances or engage employees with the required security clearances for a particular contract could disqualify us from bidding for and winning new contracts with security requirements
If we are unable to attract and retain a sufficient number of elite skilled professionals with appropriate government qualifications our ability to pursue and execute projects may be adversely affected our operating income may decline and our reputation may be damaged Our future success depends on the continued services of our executive officers as well as our ability to effectively transition to their successors If we are unable to attract develop and retain qualified employees that can succeed our executive officers or if our succession plans and or succession planning processes do not yield the results we intend or expect there could be a material adverse effect on our operating income and reputation
We engage in activities for large facilities where design construction or systems failures can result in substantial injury or damage to employees or other third parties or delays in completion or commencement of commercial operations exposing us to legal proceedings investigations and disputes The nature of our business results in clients subcontractors and vendors occasionally presenting claims against us for recovery of costs they incurred in excess of what they expected to incur or for which they believe they are not contractually liable If it is determined that we have liability we may not be covered by insurance or if covered the dollar amount of these liabilities may exceed our policy limits Our professional liability coverage is on a claims made basis covering only claims actually made during the policy period currently in effect In addition even where insurance is maintained for such exposures the policies have deductibles which result in our assumption of exposure for a layer of coverage with respect to any such claims We also manage and maintain a portion of our retained risk through our wholly owned captive insurance company which insures certain claims up to the applicable deductible amount of our third party insurance programs Additionally our captive insurance company is a registered and licensed insurance company with the Texas Department of Insurance and is therefore subject to various rules and regulations including meeting certain capital requirements which can result in additional use of our resources such as securing the captive insurance company s retained risks with issuing letters of credit Any liability not covered by our insurance in excess of our insurance limits or if covered by insurance but subject to a high deductible could result in a significant loss for us which may reduce our profits and cash available for operations Furthermore there is risk of mass casualty or environmentally damaging events that may involve our and third party personnel and property which could lead to future claims and litigation impact our reputation and investor confidence and ultimately result in reduced share price
We occasionally bring claims against project owners for additional costs exceeding the contract price or for amounts not included in the original contract price These types of claims occur due to matters such as owner caused delays changes from the initial project scope or other economic changes not stipulated under the contract that may result in additional direct and indirect costs Often these claims can be the subject of lengthy negotiations arbitration or litigation proceedings and it is difficult to accurately predict when these claims will be fully resolved When these types of events occur and unresolved claims are pending we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims A failure to recover on these types of claims fully or promptly could have a material adverse impact on our liquidity and financial results
We rely on third party subcontractors suppliers and equipment manufacturers in order to complete many of our projects Certain subcontractors and suppliers such as those used on our U S government contracts are subject to the same rigorous government requirements that we are and if they are unable to comply with these requirements in many cases there are limited alternative subcontractors and suppliers available in the market particularly those with the requisite security clearances Our subcontractors may be subject to various regulations to engage in motor carrier service including regulations from the Department of Transportation Federal Motor Carrier Safety Administration and various state agencies The failure of our subcontractors to comply with these regulations could adversely affect our financial performance on certain contracts
We sometimes have disputes with our contracting parties including disputes regarding the cost quality and timeliness of work performed or customer concerns about the other party s performance We also have been and in the future could be adversely affected by actions or issues experienced by our contracting parties that are outside of our control such as misconduct and reputational issues involving our contracting parties which has and could in the future subject us to liability and reputational harm or adversely affect our ability to compete for contract awards In addition if any subcontractor or a manufacturer is unable to deliver its services equipment or materials according to the negotiated terms for any reason including but not limited to the deterioration of its financial condition we may be required to purchase the services equipment or materials from another source at a higher price This may reduce the profit we expect to realize or result in a loss on a project for which the services equipment or materials were needed Furthermore if the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed price contracts we could experience losses in the performance of these contracts
A significant portion of our revenues and profits are measured and recognized over time using the cost to cost method of revenue recognition Our use of this accounting method results in recognition of revenues and profits over the life of a contract based on the proportion of costs incurred to date to total costs expected to be incurred for the entire project The effects of revisions to estimated revenues and costs are recorded when the amounts are known or can be reasonably estimated In addition we record unapproved change orders and claims against clients as well as estimated recoveries of claims against suppliers and subcontractors that have been included in the estimated profit at completion for certain projects Revisions to these estimates could occur in any period and their effects could be material The uncertainties inherent in estimating the progress towards completion or the recoverability of claims of long term contracts make it possible for actual revenues and costs to vary materially from our estimates including reductions or reversals of previously recorded revenues and profits
We conduct a portion of our operations through project specific joint ventures where control may be shared with unaffiliated third parties or control may be held by the unaffiliated third parties These projects include the facilitation of nonrecourse financing the design and construction of facilities the provision of operation and maintenance services and warranty obligations for an agreed upon period after the facilities have been completed If a project is unable to obtain financing we could incur losses on our investments and any related contractual receivables As with any joint venture arrangement differences in views among the joint venture partners may result in delayed decisions or in failures to agree on major issues We also cannot control the actions of our joint venture partners including failure to comply with applicable laws or regulations nonperformance and default or bankruptcy of our joint venture partners Also we often share liabilities on a joint and several basis with our joint venture partners under these arrangements If our partners do not meet their contractual obligations the joint venture may be unable to adequately perform and deliver its contracted services requiring us to make additional investments or perform additional services to ensure the adequate performance and delivery of services to the customer which could ultimately result in litigation We could be liable for both our obligations and those of our partners which may result in reduced profits significant losses on the project and a negative impact to our cash flows Additionally these factors could have a material adverse effect on the business operations of the joint venture and in turn our business operations and reputation
Operating through joint ventures in which we have a minority interest could result in us having limited control over many decisions made with respect to projects and internal controls relating to projects These joint ventures may not be subject to the same requirements regarding internal controls that are applicable to us As a result internal control issues may arise which could have a material adverse effect on our financial condition and results of operations
We conduct our business under various types of contracts where costs must be estimated in advance of our performance A portion of the value of our current backlog is attributable to fixed price contracts where we bear a significant portion of the risk of cost overruns These types of contracts are priced in part on cost and scheduling estimates that are based on assumptions including pricing and availability of experienced labor equipment and materials as well as productivity performance and future economic conditions If these estimates prove inaccurate if there are errors or ambiguities as to contract terms or specifications or if circumstances change due to among other things the recent rise in interest rates continued inflation supply chain disruptions tariffs unanticipated technical problems poor project execution difficulties in obtaining permits or approvals changes in local laws or labor conditions weather delays increased costs of equipment and materials from inflation or other factors or our suppliers or subcontractors inability to perform then cost overruns may occur Our approach to include annual price escalations in our bids for multi year work may be insufficient to counter inflationary cost pressures which may result in significant cost overruns on our contracts This could result in reduced profits on a contract losses on a contract and negative impacts to our cash flows and our longer term multi year contracts could become less favorable to us over time
We may not be able to obtain compensation for additional work performed or expenses incurred Additionally we have in the past and may in the future be required to pay liquidated damages upon our failure to meet schedule or performance requirements of our contracts Our failure to accurately estimate the resources and time required for fixed price contracts or our failure to complete our contractual obligations within a specified time frame or cost estimate could result in reduced profits or
in certain cases a loss for that contract If the contract is significant or we encounter issues that impact multiple contracts cost overruns or schedule delays could have a material adverse effect on our business financial condition and results of operations
As of January 3 2025 the future revenues we expect to realize as a result of backlog was approximately 17 3 billion We cannot guarantee that the revenues projected in our backlog will be realized or that the projects will be profitable Many of our contracts are subject to cancellation termination or suspension at the discretion of the customer From time to time changes in project scope may occur with respect to contracts reflected in our backlog and could reduce the dollar amount of our backlog or the timing of the revenues and profits that we ultimately earn Projects may remain in our backlog for an extended period of time because of the nature of the project and the timing of the particular services or equipment required by the project Delays suspensions cancellations payment defaults scope changes and poor project execution could materially reduce or eliminate profits that we actually realize from projects in backlog We cannot predict the impact that future economic conditions may have on our backlog which could include a diminished ability to replace backlog once projects are completed or could result in the termination modification or suspension of projects currently in our backlog Such developments could have a material adverse effect on our financial condition results of operations and cash flows
We may continue to seek business acquisitions as a means of broadening our offerings and capturing additional market opportunities by our business segments However there is no guarantee that we will be successful in identifying target companies that meet our criteria for acquisition We may also face increased competition from other potential acquirers who have greater financial resources or who are in a position to offer more favorable terms to the target company This competition may limit our ability to pursue acquisition opportunities which could negatively affect our growth strategies Additionally future acquisitions may require us to obtain additional equity or debt financing which may not be available on attractive terms if at all
The success of our historical and future business combinations also depends on our ability to integrate the operations of the acquired businesses efficiently and effectively with our existing operations and realize the anticipated benefits from them The potential risks associated with successful integration and realization of benefits include but are not limited to the following
acquired entities may not achieve anticipated revenue targets cost savings or other synergies or benefits or acquisitions may not result in improved operating performance which could adversely affect our operating income or operating margins and we may be unable to recover investments in any such acquisitions
we may have difficulty integrating acquired businesses resulting in unforeseen difficulties such as incompatible accounting information management or other control systems and greater expenses than expected
we may assume liabilities of an acquired business including litigation tax liabilities contingent liabilities environmental issues including liabilities that were unknown at the time of the acquisition that pose future risks to our working capital needs cash flows and the profitability of related operations
A portion of our revenues is derived from foreign operations which exposes us to risks inherent in doing business in each of the countries where we transact business The occurrence of any of the risks described below could have a material adverse effect on our business operations and financial performance With respect to any particular country these risks may include but not be limited to
costs to maintain the safety of our personnel and clients in high risk locations including but not limited to certain parts of Africa and the Middle East where the country or surrounding area is suffering from political social or economic issues war or civil unrest
governmental activities or judicial actions that limit or disrupt markets restrict payments limit the movement of funds result in the deprivation of contract rights or result in the inability for us to obtain or retain licenses required for operation or
Due to the unsettled political conditions in countries where we provide governmental logistical support our financial performance is subject to the adverse consequences of war the effects of terrorism civil unrest strikes currency controls and governmental actions In addition despite safety precautions military action or unrest could disrupt our operations in such locations and elsewhere and increase our costs related to security worldwide
Internal or external cybersecurity or privacy breaches or systems and information technology interruption or failure could adversely impact our ability to operate or expose us to significant financial losses and reputational harm
As a U S government contractor and a provider of services operating in multiple regulated industries and geographies we and our business partners including our service providers joint venture partners suppliers and subcontractors handle a variety of sensitive information including personally identifiable information personnel information protected health information classified and controlled unclassified information and financial information concerning our business employees and customers We and our business partners are continuously exposed to cyber and other security threats including cyberattacks such as malware computer viruses ransomware and phishing attacks insider threats related to malicious and non malicious activities from authorized and unauthorized employees or third parties catastrophic events power outages natural disasters computer system or network failures or physical break ins We also utilize third party software in the performance of certain critical accounting project management and financial reporting systems Technological developments in artificial intelligence and machine learning particularly those that provide actors with the capability to use more sophisticated means to attack our systems may exacerbate cybersecurity and data privacy risks Any unauthorized electronic or physical intrusion or other security threat may jeopardize the protection of sensitive or other information stored or transmitted through our IT systems and networks and those of our business partners and third party software providers This could lead to disruptions in our business and result in decreased performance significant remediation costs reputational damage transaction errors loss of data including personally identifiable information data leakage of confidential information processing inefficiencies downtime litigation and the loss of suppliers or customers Under certain contracts with the U S government subject to the FAR and CAS the adequacy of our business processes and related systems could be called into question Any significant disruptions or failures could have a material adverse effect on our business operations financial performance financial condition and reputation
Additionally we work with the defense industrial base industry and the U S government to gather and share threat intelligence and promote increased awareness and enhanced protections against cybersecurity threats However because of the evolving nature of these security threats there can be no assurance that our policies procedures and other controls will detect or prevent them and we cannot predict their full impact We may experience similar security threats to the IT systems that we
develop install or maintain under customer contracts including customer contracts under which we may have access to or management responsibility for customer databases or networks that contain sensitive information relating to our customers their employees or related third parties Although we work cooperatively with our customers to seek to minimize the impacts of cyber and other security threats we must usually rely on the safeguards used or required by those customers In the event of unauthorized access to sensitive information for which we are responsible under customer contracts our customers their employees or third parties may seek to hold us liable for any costs or other damages associated with the unauthorized access In addition government agencies may bring legal actions against us for violation of or noncompliance with regulatory requirements relating to any unauthorized access to sensitive information Any remediation costs damages or other liabilities related to unauthorized access of sensitive information of ours or our customers caused by cyber or other security threats may not be fully insured or indemnified by other means or our insurers Occurrence of any unauthorized access caused by these security threats could adversely affect our reputation business operations and financial results
While we have security measures and technology in place designed to protect our and our clients proprietary or classified information there can be no assurance that our efforts will prevent all threats to our computer systems Because the techniques used to obtain unauthorized access or sabotage systems change frequently become more sophisticated and generally are not identified until they are launched against a target we may be unable to anticipate these techniques or to implement adequate preventative measures As a result we may be required to expend significant resources to protect against the threat of system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches Any of these events could damage our reputation cause us to incur significant liability and have a material adverse effect on our business financial condition and results of operations
We continuously evaluate the need to upgrade and or replace our systems and network infrastructure to protect our digital environment to stay current on vendor supported products and to improve the efficiency of our systems and for other business reasons The implementation of new systems and information technology could adversely impact our operations by imposing substantial capital expenditures demands on management time and risks of delays or difficulties in transitioning to new systems In addition our systems implementations may not result in productivity improvements at the levels anticipated Systems implementation disruption and any other information technology disruption if not anticipated and appropriately mitigated could have a material adverse effect on our business
In addition laws and regulations governing data privacy and the unauthorized disclosure of personal data including the European Union General Data Protection Regulation GDPR the United Kingdom Data Protection Act the California Consumer Privacy Act the California Privacy Rights Act and other emerging U S state and global privacy laws pose increasingly complex compliance challenges and potentially elevate costs and may require changes to our business practices resulting from the variation of regulatory requirements and increased enforcement frequency Failure to comply with these laws and regulations including related regulatory enforcement and or private litigation resulting from a potential privacy breach could result in governmental investigations significant fines and penalties damages from private causes of action or reputational harm Additionally we are subject to laws rules and regulations regarding cross border transfers of personal data including laws relating to transfer of personal data outside the European Economic Area If we cannot rely on existing mechanisms for transferring personal data we may be unable to transfer personal data of employees and clients in those regions which could adversely affect our business financial condition and operating results
As of January 3 2025 we had 2 630 million of goodwill and 763 million of intangible assets recorded on our consolidated balance sheets Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations We perform an annual analysis of our goodwill on the first day of the fourth fiscal quarter to determine if it has become impaired We perform an interim analysis to determine if our goodwill has become impaired if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value These events or circumstances could include a significant change in the business climate including a significant sustained decline in a reporting unit s market value legal factors operating performance indicators competition sale or disposition of a significant portion of our business potential government actions toward our facilities and various other factors If the fair value of a reporting unit is less than its carrying value we could be required to record an impairment charge An impairment of all or a part of our goodwill or intangible assets could have a material adverse effect on our net earnings and net worth
The preparation of our consolidated financial statements in conformity with U S GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets liabilities revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated financial statements These estimates are based on information available through the date of the issuance of the financial statements and actual results could differ from those estimates which could have a material adverse impact on our financial condition results of operations and cash flows
We execute different projects in remote locations around the world and procure equipment and materials on a global basis Depending on the type of contract location nature of the work and the sourcing of equipment and materials we may charter seagoing vessels under time and bareboat charter arrangements and assume certain risks typical of those agreements Such risks may include damage to the ship liability for cargo and liability that charterers and vessel operators have to third parties at law In addition we ship a significant amount of cargo and are subject to hazards of the shipping and transportation industry
The U S government conducts a rigorous competitive process for awarding most contracts In the services arena the U S government uses multiple contracting approaches Historically omnibus contract vehicles have been used for work that is done on a contingency or as needed basis In more predictable sustainment environments contracts may include fixed price cost reimbursable and time and materials elements The U S government also favors multiple award task order contracts in which several contractors are selected as eligible bidders for future work Such processes require successful contractors to continually anticipate customer requirements and develop rapid response bid and proposal teams as well as maintain supplier relationships and delivery systems to react to emerging needs In addition U S government procurement practices sometimes emphasize price over qualitative factors such as technical capability and past performance As a result of these competitive pricing pressures our profit margins on future U S government contracts may be reduced and may require us to make sustained efforts to reduce costs to remain competitive
We face rigorous competition and pricing pressures for any additional contract awards from the U S government Many of our existing contracts must be recompeted when their original period of performance ends representing opportunities for competitors to take market share away from us or for our customers to obtain more favorable terms We may be required to qualify or continue to qualify under the various multiple award task order contract criteria Therefore it may be more difficult for us to win future awards from the U S government and we may have other contractors sharing in U S government awards that we win Once a contract is awarded it may be subject to a lengthy protest process Bid protests can result in significant expenses to us contract modifications or even loss of the contract award and the resolution can extend the time until contract activity can begin and delay the recognition of sales and defer underlying cash flows and adversely affect our operating results Our efforts to protest or challenge any bids for contracts that were not awarded to us also may be unsuccessful
Our profitability and cash flow may vary materially depending on the types of government contracts undertaken the nature of services performed under those contracts the costs incurred in performing the work the achievement of other performance objectives and the stage of performance at which the right to receive fees is determined particularly under award and incentive fee contracts Failure to perform to customer expectations and contract requirements may result in reduced fees or losses and may adversely affect our financial performance
Our GS business segment primarily performs work in the U S under cost reimbursable contracts with the DoD and other U S governmental agencies If the U S government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations these costs are disallowed or if already reimbursed we may be required to refund the reimbursed amounts to the customer Such conditions may also include interest and other financial penalties
Contract types primarily include fixed price and cost reimbursable contracts Cost reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a fee up to a ceiling based on the amount that has been funded Cost schedule or technical performance issues with respect to cost reimbursable contracts could result in reduced fees lower profit rates or program cancellation
Under fixed price contracts we receive a fixed price irrespective of the actual costs we incur and therefore we carry the burden of any cost overruns Due to the fixed price nature of the contracts if our actual costs exceed our estimates our margins and profits are reduced and we could incur a loss on the respective contract which could adversely affect our financial results In addition the timing of our profitability and cash flows may be affected by seasonal factors For example the peak amount of military moves in the U S typically occurs between May and September
Under both fixed price and cost reimbursable contracts if we are unable to control costs our operating results could be adversely affected Costs to complete a contract may increase for many reasons including technical and manufacturing challenges schedule delays workforce related issues the timeliness and availability of materials from suppliers internal and subcontractor performance or product quality issues inability to meet cost reduction initiatives or achieve efficiencies from digital transformation changing laws or regulations inflation and natural disasters Certain contracts may impose other risks such as forfeiting fees paying penalties or providing replacement systems in the event of performance failure Many of our contracts include multiple option years exercisable at the customer s discretion which carries risk The customer may decline to exercise an option or the customer may exercise an option on a contract for which we expect to incur a loss or perform at a low margin either of which could adversely affect our financial results
We face rigorous competition and pricing pressures for any additional contract awards from the U S government Our industry has experienced and we expect it will continue to experience significant changes to business practices as a result of an increased focus on affordability efficiencies and recovery of costs among other items From time to time new laws and regulations are enacted and government agencies adopt new interpretations and enforcement priorities relative to laws and regulations already in effect U S government agencies have and may continue to face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors Legislation regulations and initiatives dealing with procurement reform as well as any resulting shifts in the buying practices of U S government agencies such as increased usage of fixed price contracts multiple award contracts and small business set aside contracts could have adverse effects on government contractors including us In addition U S government procurement practices sometimes emphasize price over qualitative factors such as technical capability and past performance As a result of these competitive pricing pressures our profit margins on future U S government contracts may be reduced and may require us to make sustained efforts to reduce costs to remain competitive
Our programs for the U S government often operate for periods of time under Undefinitized Contract Actions UCAs which means that we begin performing our obligations before the terms specifications or price are finally agreed to between the parties The U S government has and has exercised in the past the ability to unilaterally definitize contracts which absent a successful appeal obligates us to perform under terms and conditions imposed by the U S government This can affect our ability to negotiate mutually agreeable contract terms and if a contract is unilaterally imposed upon on us it may negatively affect our expected profit and cash flows on a program or impose burdensome terms
We serve markets that are global and highly competitive We compete with larger companies that have greater name recognition financial resources and a larger technical staff We also compete with smaller more specialized companies that are able to concentrate their resources on particular areas Additionally we compete with the U S government s own capabilities
The markets in which we operate are characterized by rapidly changing technology and the needs of our customers change and evolve regularly Therefore our success depends on our ability to invest in and develop our people and technology to enable us to deliver services and products that address these changing needs To remain competitive we must consistently provide superior service technology and performance on a cost effective basis to our customers while understanding customer priorities and maintaining customer relationships Our competitors may be able to provide our customers with differentiated or superior capabilities or technologies or more attractive contract terms than we can provide including technical qualifications past contract experience geographic presence price and the availability of qualified professional personnel Some of our competitors have made or could make acquisitions of businesses or establish teaming or other agreements among themselves or third parties that allow them to offer more competitive and comprehensive solutions As a result of such acquisitions or
arrangements our current or potential competitors may be able to accelerate the adoption of new technologies that better address customer needs devote greater resources to bring these products and services to market initiate or withstand substantial price competition or develop and expand their product and service offerings at a more accelerated rate These competitive pressures in our market or our failure to compete effectively may result in fewer orders reduced revenue and margins and loss of market share
Our U S government contract work is regularly reviewed and audited by the U S government U S government auditors and others and these reviews can lead to withholding or delay of payments to us non receipt of award fees legal actions fines penalties and liabilities and other remedies against us
U S government contracts are subject to specific regulations such as the FAR the Truthful Cost or Pricing Data Statute CAS the Service Contract Act and DoD security regulations Failure to comply with any of these regulations requirements or statutes may result in contract price adjustments financial penalties or contract termination Our U S government contracts are subject to audits cost reviews and investigations by U S government contracting oversight agencies such as the DCAA The DCAA reviews the adequacy of and our compliance with our internal control systems and policies including our labor billing accounting purchasing property estimating compensation and management information systems The DCAA has the authority to conduct audits and reviews to determine if we are complying with the requirements under the FAR and CAS pertaining to the allocation period assignment and allowability of costs assigned to U S government contracts The DCAA presents its report findings to the DCMA Should the DCMA determine that we have not complied with the terms of our contract or applicable statutes and regulations payments to us may be disallowed which could result in adjustments to previously reported revenues and refunding of previously collected cash proceeds Additionally we previously have been and may in the future be subject to additional qui tam litigation brought by private individuals on behalf of the U S government under the Federal False Claims Act which could include claims for treble damages These suits may remain under seal and hence be unknown to us for some time while the U S government decides whether to intervene on behalf of the qui tam plaintiff For more information see Note 14 U S Government Matters to our consolidated financial statements in Part II Item 8 of this Annual Report on Form 10 K
Given the demands of working for the U S government we may have disagreements or experience performance issues When performance issues arise under any of our U S government contracts the U S government retains the right to pursue remedies which could include termination under any affected contract If any contract were so terminated our ability to secure future contracts could be adversely affected Other remedies that could be sought by our U S government customers for any improper activities or performance issues include sanctions such as forfeiture of profits suspension of payments fines and suspensions or debarment from doing business with the U S government Further the negative publicity that could arise from disagreements with our customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry reduce our ability to compete for new contracts and may also have a material adverse effect on our business financial condition results of operations and cash flows
A significant portion of our revenue is from contracts with the U S government that are classified or subject to security restrictions that preclude the disclosure of certain information Additionally a large number of our employees have security clearances which prohibit them from providing information to investors and other KBR employees without security clearances regarding certain clients and the related services we provide to them As we are limited in our ability to provide information about these contracts and services such as the scope of work associated risks and any disputes or claims our investors may have limited insight into a substantial portion of our business which may hinder their ability to fully evaluate the risks related to that portion of our business
We derive a significant portion of our revenues from contracts with agencies and departments of the U S the U K and Australia governments which is directly affected by changes in government spending priorities and availability of adequate funding Additionally government regulations generally include the right for government agencies to modify delay curtail renegotiate or terminate contracts at their convenience any time prior to their completion As we are a significant government
failure to pass budget appropriations continuing funding resolutions or other budgetary decisions including any failure of the U S federal government to manage its fiscal matters or to raise or further suspend the debt ceiling
We face uncertainty with respect to our government contracts due to the political fiscal economic and budgetary challenges facing our customers Potential contract delays modifications or terminations may arise from resolution of these issues and could cause our revenues profits and cash flows to be lower than our current projections The loss of work we perform for governments or decreases in governmental spending and outsourcing could have a material adverse effect on our business results of operations and cash flows
Fluctuations in commodity prices and outlook may affect our customers investment decisions which may result in existing project cancellations or delays or changes in the timing and funding of new awards
Demand for many of our services in our commodity based markets depends on capital spending by oil and natural gas companies including national and international oil companies and by industrial companies which is directly affected by trends in the prices of oil natural gas and other commodities Fluctuations in commodity prices can have a direct effect on the profitability and cash flow of such companies which may impact their willingness to continue pursuing their current investments or make new capital investments Additionally commodity prices can also significantly affect the costs of projects Rising commodity prices can negatively impact the potential returns on investments that are planned as well as those in progress and result in customers deferring new investments or canceling or delaying existing projects To the extent commodity prices decline or fluctuate or the perceived risk thereof and our customers defer new investments or cancel or delay existing projects the demand for our services may decrease which could have a material adverse impact on our business financial condition and results of operations
Current or future economic conditions including recession or inflation in the credit markets may negatively affect the ability to operate our or our customers businesses finance working capital implement our acquisition strategy and access our cash and short term investments
We finance our business using cash provided by operations but also depend on the availability of and access to credit markets including bank credit lines letters of credit and surety bonds Our ability to obtain capital or financing on satisfactory terms will depend in part on prevailing market conditions as well as our operating results The lack of adequate credit or funding or the unavailability of funding on terms satisfactory to us could have a material adverse effect on our business and financial performance Rising or high inflation and or interest rates could have an adverse effect on our business financial condition and results of operations Inflation and rising and or high interest rates could have a negative impact on our business and we may not be able to fully offset such higher rates
Disruptions of the capital markets could also adversely affect our clients ability to finance projects and could result in contract cancellations or suspensions project delays and payment delays or defaults by our clients In addition clients may be unable to fund new projects may choose to make fewer capital expenditures or otherwise slow their spending on our services or seek contract terms more favorable to them Our government clients may face budget deficits that prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate our contracts with little or no prior notice Furthermore any financial difficulties suffered by our subcontractors or suppliers could increase our cost or adversely impact project schedules These disruptions could materially impact our backlog and financial performance
In addition we are subject to the risk that the lending counterparties to our Revolver may be unable to meet their contractual obligations to us if they suffer catastrophic demands on their liquidity We also routinely enter into contracts with counterparties including vendors suppliers and subcontractors that may be negatively affected by events in the capital markets If those counterparties are unable to perform their obligations to us or our clients we may be required to provide additional services or make alternate arrangements on less favorable terms with other parties to ensure adequate performance and delivery of service to our clients These circumstances could also lead to disputes and litigation with our partners or clients which could have a material adverse effect on our reputation business financial condition and results of operations
Furthermore our cash balances and short term investments are maintained in accounts held at major banks and financial institutions located primarily in North America the U K and Australia Deposits are in amounts that exceed available insurance Although none of the financial institutions in which we hold our cash and investments have gone into bankruptcy been forced into receivership or have been seized by their governments there is a risk that this may occur in the future If this were to occur we would be at risk of not being able to access our cash and investments which may result in a temporary decrease in liquidity that could impede our ability to fund operations or execute acquisitions
Customers may require us to provide credit enhancements including letters of credit bank guarantees or surety bonds We are often required to provide performance guarantees to customers to indemnify the customer should we fail to perform our obligations under the contract Failure to provide the required credit enhancements on terms required by a customer may result in an inability to bid win or comply with the contract Historically we have had adequate letters of credit capacity but such capacity beyond our Senior Credit Facility is generally at the provider s sole discretion Due to events that affect the banking and insurance markets letters of credit or surety bonds may be difficult to obtain or may only be available at significant cost Moreover many projects are very large and complex which often necessitates the use of a joint venture often with a market competitor to bid on and perform the contract Entering into joint ventures or partnerships exposes us to the credit and performance risk of third parties many of whom may not be financially as strong or may encounter financial difficulties If our joint ventures or partners fail to perform we may be required to complete the project activities In addition future projects may require us to obtain letters of credit that extend beyond the term of our Senior Credit Facility Any inability to bid for or win new contracts due to the failure of obtaining adequate letters of credit surety bonds or other customary credit enhancements could have a material adverse effect on our business prospects and future revenues
Our Senior Credit Facility imposes restrictions that limit our operating flexibility and may result in additional expenses and such facility may not be available if financial covenants are violated or if an event of default occurs
Our Senior Credit Facility includes a 1 billion revolving credit facility which matures in February 2029 a Term Loan A with debt tranches denominated in U S dollars and British pound sterling and a Term Loan B The Senior Credit Facility contains a number of covenants restricting among other things our ability to incur liens and indebtedness sell assets repurchase our equity shares and make certain types of investments We are also subject to certain financial covenants including but not limited to maintenance of a maximum consolidated net leverage ratio and a consolidated interest coverage ratio as defined in the Senior Credit Facility agreement
A breach of any covenant or our inability to comply with the required financial ratios could result in a default under our Senior Credit Facility and we can provide no assurance that we will be able to obtain the necessary waivers or amendments from our lenders to remedy a default In the event of any default not cured or waived the lenders are not obligated to provide funding or issue letters of credit and could elect to require us to apply available cash to collateralize any outstanding letters of credit and declare any outstanding borrowings together with accrued interest and other fees to be immediately due and payable thus requiring us to apply available cash to repay any borrowings then outstanding If we are unable to cash collateralize our letters of credit or repay borrowings with respect to our Senior Credit Facility when due our lenders could proceed against the guarantees of our major domestic subsidiaries If any future indebtedness under our Senior Credit Facility is accelerated we can provide no assurance that our assets would be sufficient to repay such indebtedness in full
Our indebtedness and the associated covenants could materially adversely affect our ability to obtain additional financing including for acquisitions and capital expenditures limit our flexibility to manage our business prevent us from fulfilling our financial obligations and restrict our use of capital
requiring us to dedicate cash flow from operations to the repayment of debt interest and other related amounts which reduces the funds we have available for other purposes such as working capital capital expenditures acquisitions payment of dividends and share repurchase programs
We have frozen defined benefit pension plans for employees primarily in the U S the U K and Germany At January 3 2025 our defined benefit pension plans had an aggregate funding surplus calculated as the excess of the fair value of plan assets over the projected benefit obligations of approximately 77 million The largest potential source of deficit is related to our defined benefit pension plan in the U K that is in a funding surplus position at January 3 2025 In the future our pension surpluses and deficits may increase or decrease depending on changes in the levels of interest rates pension plan performance and other factors that may require us to make additional cash contributions to our pension plans and recognize further increases in our net pension cost to satisfy our funding requirements If we are required or elect to make up all or a significant portion of the deficit for any underfunded benefit plans our financial position could be materially and adversely affected
Our U K pension plan has been frozen to new participants for a number of years but can still have an aggregate funding deficit due to assumptions and factors noted below For our frozen defined benefit pension plan in the U K the annual minimum funding requirements are based on a binding agreement with the plan trustees that is negotiated on a triennial basis This agreement also includes other assurances and commitments regarding the business and assets that support the U K pension plan It is possible that following future valuations of our U K pension plan assets and liabilities or following future discussions with the trustees the annual funding obligation will change The future valuations under our U K pension plan can be affected by a number of assumptions and factors including legislative changes assumptions regarding interest rates inflation mortality and retirement rates the investment strategy and performance of the plan assets and in certain circumstance actions by the U K pensions regulator Adverse changes in the equity markets interest rates or actuarial assumptions and legislative or other regulatory actions could increase the risk that the funding requirements increase following the next triennial negotiation A significant increase in our funding requirements for our U K pension plan could result in a material adverse effect on our cash flows and financial position
We are subject to foreign currency exchange risks that could adversely affect our results of operations and our ability to reinvest earnings from operations Our ability to mitigate our foreign exchange risk through hedging transactions may be limited
We generally attempt to denominate our contracts in U S dollars or in the currencies of our costs However we enter into contracts that subject us to currency risk exposure primarily when our contract revenues are denominated in a currency different from the contract costs A portion of our consolidated revenues and consolidated operating expenses are in foreign currencies As a result we are subject to foreign currency risks including risks resulting from changes in currency exchange rates and limitations on our ability to reinvest earnings from operations in one country to fund the financing requirements of our operations in other countries
The governments of certain countries have or may in the future impose restrictive exchange controls on local currencies and it may not be possible for us to engage in effective hedging transactions to mitigate the risks associated with fluctuations of a particular currency We are often required to pay all or a portion of our costs associated with a project in the local currency As a result we generally attempt to negotiate contract terms with our customer who is often affiliated with the local government or has a significant local presence to provide that we are only paid in the local currency for amounts that match our local expenses If we are unable to match our local currency costs with revenues in the local currency we would be exposed to the risk of adverse changes in currency exchange rates
Part of our business strategy is to expand into new markets and enhance our position in existing markets both domestically and internationally which may include the acquisition and merging of complementary businesses To successfully fund and complete such potential acquisitions or to refinance our existing debt we may issue additional equity securities that may result in dilution of our existing shareholder ownership s earnings per share For example we have previously issued convertible notes and may again in the future issue additional convertible notes
Our certificate of incorporation and bylaws as well as Delaware corporate law contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable These provisions include among others prohibiting stockholder action by written consent advance notice for making nominations at meetings of stockholders providing for the state of Delaware as the exclusive forum for lawsuits concerning certain corporate matters and the issuance of preferred stock with rights that may be senior to those of our common stock without stockholder approval These provisions would apply even if a takeover offer may be considered beneficial by some of our stockholders If a change of control or change in management is delayed or prevented the market price of our common stock could decline Additionally our Senior Credit Facility contains a default provision that is triggered upon a change in control of at least 25 which would impede a takeover and or make a takeover more costly
We have maintained a regular cash dividend program since 2007 We anticipate continuing to pay quarterly dividends during fiscal 2025 However any future payment of dividends including the timing and amount of any such dividends is at the discretion of our Board of Directors and may depend upon our earnings liquidity financial condition alternate capital deployment opportunities or any other factors that our Board of Directors considers relevant A change in our regular cash dividend program could have an adverse effect on the market price of our common stock
To the extent that we export products technical data and services outside of the U S we are subject to laws and regulations governing trade and exports including but not limited to the International Traffic in Arms Regulations and the Export Administration Regulations and trade sanctions against embargoed countries including sanctions and export restrictions related to Russia s invasion of Ukraine which are administered by the Office of Foreign Asset Control within the Department of the Treasury In addition President Trump has directed various federal agencies to further evaluate key aspects of U S trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U S trade policies treaties and tariffs A failure to comply with these laws and regulations could result in civil or criminal sanctions including the imposition of fines as well as the denial of export privileges and debarment from participation in U S government contracts U S government contract violations could result in the imposition of civil and criminal penalties or sanctions contract termination forfeiture of profit or suspension of payment any of which could result in losing our status as an eligible U S government contractor and cause us to suffer serious reputational harm which could have a material adverse effect on our business financial condition or results of operations
We are subject to anti bribery laws in the U S and other jurisdictions violations of which could result in suspension or debarment of our ability to contract with the U S state or local governments U S government agencies or the U K MoD third party claims loss of customers adverse financial impact damage to reputation and adverse consequences on financing for current or future projects
The FCPA the U K Bribery Act and similar anti bribery laws Anti bribery Laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business Our policies mandate compliance with these Anti bribery Laws We operate in many parts of the world that have experienced governmental corruption to some degree and in certain circumstances strict compliance with
Anti bribery Laws may conflict with local customs and practices We train our staff concerning Anti bribery Laws and we also inform our partners subcontractors agents and other third parties who work for us or on our behalf that they must comply with the requirements of these Anti bribery Laws We also have procedures and controls in place to monitor internal and external compliance We cannot provide complete assurance that our internal controls and procedures will always protect us from the reckless or criminal acts committed by our employees or third parties working on our behalf If we are found to be liable for violations of these laws either due to our own acts or our inadvertence or due to the acts or inadvertence of others we could suffer from criminal or civil penalties or other sanctions which could have a material adverse effect on our business
Certain of our work sites are inherently dangerous and we are subject to various environmental and worker health and safety laws and regulations If we fail to maintain safe work sites or to comply with these laws and regulations we may suffer damage to our reputation and incur significant costs and penalties that could have a material adverse effect on our business financial condition results of operations and cash flows
Certain work sites often expose our employees and others to chemical and manufacturing processes highly regulated materials large pieces of mechanized equipment and moving vehicles Additionally our employees and others at certain project sites may be exposed to severe weather events or high security risks Failure to implement effective safety procedures may result in injury disability or loss of life to these parties In addition the projects may be delayed and we may be exposed to litigation or investigations
Our operations are subject to a variety of environmental worker health and safety laws and regulations governing the generation management and use of regulated materials the discharge of materials into the environment the remediation of environmental contamination associated with the release of hazardous substances and human health and safety Violations of these laws and regulations can cause significant delays and additional costs to a project When we perform our services our personnel and equipment may be exposed to radioactive and hazardous materials and conditions We may be subject to claims alleging personal injury property damage or natural resource damages by employees customers and third parties as a result of alleged exposure to or contamination by hazardous substances In addition we may be subject to fines penalties or other liabilities arising under environmental and employee safety laws A claim if not covered by insurance at all or only partially could have a material adverse impact on our financial condition results of operations and cash flows In addition more stringent regulation of our customers operations with respect to the protection of the environment could also adversely affect their operations and reduce demand for our services
Various U S federal state and local as well as foreign environmental laws and regulations may impose liability for property damage and costs of investigation and cleanup of hazardous or toxic substances on property currently or previously owned by us or arising out of our waste management or environmental remediation activities These laws may impose responsibility and liability without regard to knowledge or causation of the presence of contaminants The liability under these laws may be joint and several The ongoing costs of complying with existing environmental laws and regulations could be substantial and have a material adverse impact on our financial condition results of operations and cash flows Changes in the environmental laws and regulations remediation obligations enforcement actions stricter interpretations of existing requirements future discovery of contamination or claims for damages to persons property natural resources or the environment could result in material costs and liabilities that we currently do not anticipate
We are subject to income taxes in the U S and numerous foreign jurisdictions Significant judgment is required in determining certain components of our worldwide provision for income taxes and a change in tax laws treaties or regulations or their interpretation in any country in which we operate could result in higher taxes on our earnings which could have a material impact on our earnings and cash flows from operations In the ordinary course of our business there are certain transactions and calculations where the ultimate tax determination is uncertain We are audited by various U S and foreign tax authorities in the ordinary course of business and our tax estimates and tax positions could be materially affected by many factors including the final outcome of tax audits and related litigation the introduction of new tax accounting standards legislation regulations and related interpretations our global mix of earnings the realizability of deferred tax assets and changes in uncertain tax positions In particular international operations could adversely be affected by the Organization for Economic Co operation and Development OECD s proposed international taxation reform and introduction of a global minimum tax A significant increase in tax rates could have a material adverse effect on our profitability and liquidity
There are rapidly evolving views from stakeholders such as investors customers and current and future employees with respect to global climate risks and the related emphasis on sustainability practices which could affect our business
Continued attention to issues concerning climate risks or other environmental matters may result in the imposition of additional environmental regulations rules standards and policies that seek to restrict or otherwise impose limitations or costs upon our operations and the emission of greenhouse gases International agreements national regional and state legislation and regulatory measures including LNG exports or other policies and restrictions on emissions of greenhouse gases could affect our clients including those who are involved in the exploration production or refining of fossil fuels and those who emit greenhouse gases through the combustion of fossil fuels or through mining manufacturing or the utilization or production of materials or goods Such legislation or restrictions could increase the costs of projects for us and our clients or in some cases prevent a project from going forward thereby potentially reducing the need for our services that could in turn have a material adverse effect on our operations and financial condition However policy changes and climate legislation could also increase the overall demand for our services as our clients and partners work to comply with such policies such as by decarbonizing their industries transitioning from fossil fuels to renewable energy sources and developing integrated and sustainable solutions which could have a positive impact on our business We cannot predict when or whether any of these various legislative and regulatory proposals may become law or what their effect will be on us and our customers
Furthermore investor and societal expectations with respect to corporate responsibility matters have been rapidly evolving and increasing We risk damage to our reputation if we do not act responsibly in the following key areas anti discrimination environmental stewardship support for local communities and corporate governance and transparency A failure to adequately meet stakeholders expectations may result in loss of business diluted market valuation an inability to attract and retain customers and talented personnel increased negative investor sentiment toward us and or our customers and the diversion of investment to other industries which could have a negative impact on our stock price and our access to and costs of capital In some cases certain of our key stakeholders may have oppositional or conflicting views and expectations with respect to various matters e g some may be pro environmental stewardship and others may be anti sustainability initiatives In such cases it may be difficult or impossible for us to meet all stakeholders expectations and the decisions we make may not yield the results that we expect or intend
In addition standards for tracking and reporting corporate responsibility matters continue to evolve New laws regulations policies and international accords relating to such matters including sustainability climate related risks human capital and anti discrimination are being developed and formalized in Europe the United States Asia and elsewhere which may entail specific target driven frameworks and or disclosure requirements Our selection of voluntary disclosure frameworks and standards and the interpretation or application of those frameworks and standards may change from time to time or differ from those of others and may not be in line with any new and forthcoming related disclosure rules in the United States and abroad For example in January 2025 President Trump signed several executive orders signaling ongoing oversight of diversity initiatives These orders may lead to further investigations of private entities including publicly traded companies Methodologies for reporting data in these areas e g sustainability and climate related impacts or human capital data may also be updated and previously reported data may be adjusted to reflect improvement in availability and quality of internal and third party data changing assumptions changes in the nature and scope of our operations and other changes in circumstances Our processes and controls for reporting such matters across our operations and supply chain are evolving along with multiple disparate standards for identifying measuring and reporting metrics including related disclosures that may be required by the SEC European and other regulators and such standards may change over time which could result in significant revisions to our current goals reported progress in achieving such goals or ability to achieve such goals in the future Any failure or perceived failure by us to comply fully with developing interpretations of such laws and regulations could harm our business reputation financial condition and operating results and require significant time and resources to make the necessary adjustments If our corporate responsibility practices do not meet evolving investor or other stakeholder expectations and standards then our reputation or our attractiveness as an investment business partner acquirer service provider or employer could be negatively impacted
Climate related events such as increased frequency and severity of storms floods wildfires droughts hurricanes freezing conditions and other natural disasters may have a long term impact on our business financial condition and results of operations Although we are proactively seeking measures to mitigate our business risks associated with climate related events we recognize that there are innate climate related risks regardless of where and how we conduct our businesses As such a potential disruption to our and our customer s businesses from a natural disaster may cause us to experience work stoppages
We are continuously committed to advancing our sustainability strategy as evidenced by the establishment and continued focus on delivering on our net zero carbon ambitions after we achieved carbon neutrality in 2019 However achievement of our sustainability commitments and targets is subject to risks and uncertainties many of which are outside of our control These risks and uncertainties include but are not limited to our ability to execute our operational strategies and achieve our goals within the currently projected costs and the expected timeframes the availability and cost of alternative fuels global electrical charging infrastructure off site renewable energy and other materials and components unforeseen design operational and technological difficulties the outcome of research efforts and future technology developments including the ability to scale projects and technologies on a commercially competitive basis such as carbon sequestration and or other related processes compliance with and changes or additions to global and regional regulations taxes charges mandates or requirements relating to greenhouse gas emissions carbon costs or climate related goals labor related regulations and requirements that restrict or prohibit our ability to impose requirements on third party contractors adapting products to customer preferences and customer acceptance of sustainable supply chain solutions the actions of competitors and competitive pressures and an acquisition of or merger with another company that has not adopted similar carbon negative goals or whose progress towards reaching its carbon negative goals is not as advanced as ours
Although we believe that our sustainability commitments and targets are achievable there is no assurance that we will be able to successfully implement our strategies and achieve our net zero targets Investors have recently increased their focus on sustainability matters including practices related to greenhouse gas emissions and the environment Additionally an increasing percentage of the investment community considers sustainability factors in making investment decisions and an increasing number of entities are considering sustainability factors in awarding business The implementation of these goals and initiatives may require considerable investments and our goals with all of their contingencies dependencies and in certain cases reliance on third party verification and or performance are complex and ambitious and may change and we cannot guarantee that we will achieve them If we are unable to meet our commitments and targets and appropriately address sustainability enhancement we may lose investors customers or partners our stock price may be negatively impacted our reputation may be negatively affected and it may be more difficult for us to compete effectively all of which could have an adverse effect on our business results of operations and financial condition as well as on the price of our common stock
Cybersecurity risk is managed within the Company s Enterprise Risk Management program Our Enterprise Risk Management team works closely with our global Information Assurance team to continuously evaluate and address cybersecurity risks within the Enterprise Risk Management framework in alignment with our business objectives and operational needs The Company has established a comprehensive global cybersecurity and information security framework to help safeguard the confidentiality integrity and access of its information assets and to ensure regulatory contractual and operational compliance We understand the importance of preserving trust and protecting personal and other confidential and sensitive information Our cybersecurity program includes controls designed to identify protect against detect respond to and recover from cybersecurity and information security incidents
The Company s cybersecurity and information security framework is built upon the National Institute of Standards and Technology NIST Cyber Security Framework and incorporates International Organization for Standardizations ISO 27001 standards for general information technology security controls and Sarbanes Oxley SOX for assessment of internal controls KBR s global cybersecurity risk program also integrates the following cybersecurity frameworks across our regional operations US Defense Federal Acquisition Regulation Supplement DFARS and NIST 800 171 UK Cyber Essentials and Australia s Essential Eight
The Company utilizes policies and procedures software training programs and hardware solutions to protect and monitor its environment Our Chief Information Security Officer CISO oversees the Company s approach to managing cybersecurity and digital risk Our CISO reports to the General Counsel is supported by and collaborates with the Company s executive leadership team and regularly engages with cross functional teams at the Company including Digital Technology Legal Audit Human Resources Facilities and Corporate Risk Our Chief Compliance Officer CCO Chief Information Officer CIO and CISO oversee our dedicated technology risk management which work in partnership with our internal audit department and data privacy team to review information technology related internal controls with our independent registered public accounting firm as part of the overall internal controls process
The Company provides mandatory annual security awareness education and training for all employees new hires and contractors conducts regular internal phishing testing and requires additional training for clickers and publishes periodic tips to inform our user population of cyber best practices any emerging external or internal threats and data privacy requirements applicable in the jurisdictions in which we operate
We maintain a robust Cybersecurity Incident Response Plan which provides a framework for handling cybersecurity incidents based on the severity of the incident and facilitates cross functional coordination across the Company and have established a global Security Operations Center to support enterprise visibility to cyber incidents in real time We update our Cybersecurity Incident Response Plan on a regular basis and regularly measure our security posture and resilience through risk assessments penetration testing vulnerability scanning and attack simulation The Company also conducts additional cybersecurity tabletop exercises using independent moderators with respect to breach and other problematic information security scenarios for executive management and employees as well as our board of directors when appropriate
We also engage with a range of external experts to assess and report on the effectiveness of our cybersecurity and data privacy controls compliance with international and regional cybersecurity standards and our internal incident response preparedness as well as to help identify areas for continued focus and improvement The Company also has a third party risk management program that assesses the cyber related risks from our vendors and suppliers We also benchmark our activities and results against select peers
In the last three fiscal years we have not experienced any material information security breach incidences and the expenses we have incurred from information security breach incidences were immaterial We have not incurred any material penalties and settlements related to any cybersecurity breach Other risks from cybersecurity threats have also not materially impacted our business strategy results of operations or financial condition and as of the date of this report we do not reasonably believe that such risks will have a material impact on our business strategy results of operations or financial condition
Our CISO oversees the Company s approach to managing cybersecurity and digital risk and leads our global Information Assurance team Our CISO brings over 15 years of experience which includes implementing and verifying effectiveness of cybersecurity controls in high security environments Our CISO maintains the following internationally recognized certifications ISC2 Certified Information System Security Professional CISSP and Project Management Institute Project Management Professional PMP
Our CIO oversees the Company s information technology infrastructure and implements policies and procedures issued by the CISO within the Company Our CIO brings over 30 years of experience garnered across a diverse range of industries and countries which includes implementing new systems and modifying existing systems for changes in policies and procedures
Our CISO is responsible for the creation of the Company s enterprise wide cybersecurity and information security framework including the design effectiveness of the Company s cybersecurity controls Our CIO is responsible for the implementation of the Company s cybersecurity and information security framework and the day to day execution of our cybersecurity processes and controls The CISO reports to the General Counsel and the CIO reports to the Chief Financial Officer All cyber incidents under our existing cyber policy are reported to both the CISO and CIO which are then communicated through their reporting structure to the General Counsel and Chief Financial Officer The CISO and CIO routinely provide operational updates to the General Counsel and Chief Financial Officer as needed and updates are regularly provided by the CISO and CIO to both the Cybersecurity and Audit Committees of our Board of Directors as discussed more fully below
Our board of directors is committed to mitigating data privacy and cybersecurity risks While the Board of Directors maintains ultimate responsibility for the oversight of our data privacy and cybersecurity program and risks it has delegated certain responsibilities to our Cybersecurity Committee and Audit Committee The Cybersecurity and Audit Committees stay apprised of our data privacy and information security programs strategy policies standards architecture processes and material risks and overseeing responses to security and data incidents The Board of Directors receives information security and privacy awareness training which covers among other matters the Board s oversight obligations and the privacy and security programs in place at the company Our Cybersecurity and Audit Committees regularly receive updates from our CISO and CIO on data privacy risks security risks and any material incidents Additionally outside counsel advises the Board about best practices for cybersecurity oversight by the Board Members of the Board stay apprised of the rapidly evolving cyber threat landscape through our ongoing director education programming and provide guidance to management as appropriate in order to address the effectiveness of our overall data privacy and cybersecurity program Four members of our Board of Directors two of whom serve as members of the Cybersecurity Committee have cybersecurity experience
Our operations are conducted at both owned and leased properties in domestic and foreign locations Our corporate headquarters are located at 601 Jefferson Street Houston Texas 77002 While we have operations worldwide the following table describes the locations of our more significant existing office facilities
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
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
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 January 3 2025 and December 29 2023 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 20 2025 the Board of Directors declared a dividend of 0 165 per share which will be paid on April 15 2025
At January 31 2025 there were 58 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
On February 20 2025 the Board of Directors authorized 454 million of share repurchases to be added to the prior authorizations which increased the total amount authorized and available for repurchase under the share repurchase program to 750 million
The authorization does not obligate us to acquire any particular number of shares of common stock and may be commenced suspended or discontinued without prior notice The share repurchases are intended to be funded through our 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 January 3 2025 and the amount available to be repurchased under the authorized share repurchase program as of January 3 2025
Included within the shares repurchased herein are 11 968 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 58 06 per share
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 January 3 2025 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 2019 and reinvestment of all dividends The shareholder return is not necessarily indicative of future performance
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
Drawing from its 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
In December 2024 the National Defense Authorization Act NDAA for fiscal year 2025 was signed into law 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 884 billion in fiscal year 2025 funding for national defense 850 billion of which is for the DoD The requested amount is an increase of 9 billion when compared to the authorized defense spending for fiscal year 2024
The U S government has not yet enacted an annual budget for its fiscal year 2025 To avert a government shutdown a continuing resolution funding measure has been enacted to finance all U S government activities through March 14 2025 Under the continuing resolution partial year funding at amounts consistent with appropriated levels for fiscal year 2024 are available subject to certain restrictions but new spending initiatives are not authorized Uncertainty continues to exist regarding the 2025 fiscal year budget and the impacts that the new legislative and executive branch will have on the final fiscal year 2025 budget 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 ultimate fiscal year 2025 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 the new Administration and Congress efficiency initiatives such as the Department of Government Efficiency 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 2024 the U K government announced the defense budget with the defense budget remaining consistent with the defense budget from the prior fiscal year A general election was held in the United Kingdom in July 2024 with the
Labour Party becoming the primary governing party of the House of Commons The Labour Party has committed to increasing defense spending to 2 5 of GDP in the future which is an increase from the previous commitment to increase defense spending to 2 25 The Labour Party has commissioned a strategic defense review to determine future defense spending priorities Recognizing the importance of strong defense and the role the U K plays across the globe the U K has prioritized investment in military research and investment in key areas to advance and develop capabilities around artificial intelligence cyber security and space superiority The Australian government continues to invest in defense spending with particular focus on enhancing regional security modernizing defense capabilities strengthening cyber defenses and promoting broader economic stability The fiscal year budget for Australia for the 2024 2025 financial year was finalized with the Australian government increasing defense spending to AUD 55 7 billion or approximately 2 00 of GDP
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
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 related 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 protection energy security 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 more secure future
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 29 2023 and December 31 2022 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 29 2023 fiscal 2023 as filed with the SEC on February 20 2024
Revenues increased by 786 million or 11 to 7 742 million in fiscal 2024 compared to 6 956 million in fiscal 2023 The increase was primarily due to growth on high end defense engineering classified intelligence and international programs within our GS business increased revenues from engineering and professional services in our STS business and 181 million in revenue associated with LinQuest The increase was offset by the final resolution of an outstanding legacy claim associated with a U S government project resulting in a 26 million decrease in fiscal 2024
The increase in overall gross profit of 126 million or 13 was primarily driven by items increasing revenues discussed above and 32 million in gross profit associated with LinQuest This was partially offset by favorable resolutions on various legacy matters in fiscal 2023 that did not recur in fiscal 2024
Equity in earnings losses of unconsolidated affiliates decreased by 7 million to 107 million in earnings in fiscal 2024 compared to 114 million in earnings in fiscal 2023 primarily due to decreased equity in earnings from services on an LNG project within our STS segment
Selling general and administrative expenses were 56 million higher in fiscal 2024 compared to fiscal 2023 which was primarily driven by additional expenses incurred to support the growth in both our GS and STS business segments
In fiscal 2024 we recognized a gain on disposition of assets and investments of 7 million primarily due to the sale of our investment interest in a joint venture within our GS segment In fiscal 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 fiscal 2023 we recognized a loss of 494 million related to the cash election and repurchase of our Convertible Notes and the agreements to terminate and settle our outstanding warrants in fiscal 2023 that did not recur in fiscal 2024
The provision for income taxes for fiscal 2024 reflects a 25 tax rate as compared to a 57 tax rate for fiscal 2023 The effective tax rate of 25 as compared to the U S statutory rate of 21 for fiscal 2024 was primarily impacted by the rate differential on our foreign earnings and the impact of state and local taxes in the U S The effective tax rate of 57 as compared to the U S statutory rate of 21 for fiscal 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 in fiscal 2023 The impacts 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 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
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 Business Segment Information to our consolidated financial statements
rowth on high end defense engineering classified intelligence and international programs and 181 million in revenue associated with LinQuest The increase was offset by the final resolution of an outstanding legacy claim associated with a U S government program resulting in a 26 million decrease in fiscal 2024
GS operating income increased by 168 million or 59 to 453 million in fiscal 2024 compared to 285 million in fiscal 2023 The increase in operating income was primarily driven by the 144 million charge recognized in fiscal 2023 related to the settlement of a legacy legal matter that did not recur in fiscal 2024 16 million in operating income associated with LinQuest and growth in the areas discussed above Additionally in fiscal 2024 we recognized 6 million gain related to the sale of our investment interest in a joint venture These increases were offset by the final resolution of an outstanding legacy claim associated with a U S government project resulting in a 26 million decrease in fiscal 2024
STS revenues increased by 268 million or 17 to 1 871 million in fiscal 2024 compared to 1 603 million in fiscal 2023 This increase is primarily driven by increased revenues from engineering and professional services
STS operating income increased by 46 million or 14 to 370 million in fiscal 2024 compared to 324 million in fiscal 2023 The increase from fiscal 2023 to fiscal 2024 is primarily due to the items discussed above and a 7 million loss related to the sale of our operations in Russia in fiscal 2023 that did not recur in fiscal 2024 offset by decreased equity in earnings from services on an LNG project within our STS segment and a favorable resolution on a legacy matter in 2023 that did not recur in 2024
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 or changes in our recognition of revenue from our backlog versus amounts we book as backlog 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 and probable are included in backlog For projects where we act solely in a project management capacity we only include the expected value of our services in backlog
We define backlog as it relates to U S government contracts as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period including customer approved option periods for which work scope and price have been agreed with the customer We define funded backlog as the portion of backlog for which funding currently is appropriated less the amount of revenue we have previously recognized We define unfunded backlog as the total backlog less the funded backlog Our GS backlog does not include any estimate of future potential delivery orders that might be awarded under our government wide acquisition contracts agency specific indefinite delivery indefinite quantity contracts or other multiple award contract vehicles nor does it include option periods that have not been exercised by the customer
Within our GS business segment we calculate estimated backlog for long term contracts associated with the U K government s PFIs based on the aggregate amount that our client would contractually be obligated to pay us over the life of the project We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary
We have included in the table below our proportionate share of unconsolidated joint ventures estimated backlog As these projects are accounted for under the equity method only our share of future earnings from these projects will be recorded in our results of operations Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled 2 8 billion at January 3 2025 and 4 1 billion at December 29 2023
We estimate that as of January 3 2025 40 of our backlog will be executed within one year Of this amount we estimate that 89 will be recognized in revenues on our consolidated statement of operations and 11 will be recorded by our unconsolidated joint ventures As of January 3 2025 193 million of our backlog relates to active contracts that are in a loss position
As of January 3 2025 17 of our backlog was attributable to fixed price contracts 36 was attributable to PFIs 30 was attributable to cost reimbursable contracts and 17 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 January 3 2025 9 1 billion of our GS backlog was currently funded by our customers
As of January 3 2025 we had approximately 4 0 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 13 8 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 is provided by available cash and cash equivalents cash generated from operations our Senior Credit Facility as defined below sale or divestiture of assets 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 stag
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 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
entered into Amendment No 11 to our Credit Agreement on January 19 2024 This amendment provided for an incremental Term Loan B facility in an aggregate principal amount of 1 billion and extended the Term Loan B maturity date to January 2031 We borrowed the full 1 billion principal amount available under this loan We received 24 million in cash proceeds from this borrowing to pay accrued interest and financing fees 501 million was applied to the outstanding principal under the Term Loan B facility and the remaining 475 million was applied to the outstanding principal under the Revolver In addition Amendment No 11 reduced the interest rate margin applicable to Term Loan B During fiscal 2024 7 million in cash was paid on the outstanding Term Loan B principal
We entered into Amendment No 12 to our Credit Agreement on February 7 2024 This amendment consolidated all USD denominated Term Loans A including Term A 1 Term A 2 and Term A 4 loan facilities under our Credit Agreement into the amended singular USD denominated Term A 1 loan facility and continued the GBP denominated Term A 3 loan facility outstanding at December 29 2023 During fiscal 2024 117 million in cash was paid on the outstanding Term Loan A principal and accrued interest and 20 million was applied to the Term Loan A principal using proceeds of a borrowing on our Revolver 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
We entered into Amendment No 13 to our Credit Agreement on August 14 2024 This amendment allowed for an incremental delayed draw Term A 2 loan in an aggregate principal amount up to 550 million which remained available for 180 days to fund the acquisition of LinQuest maturing August 2027 On August 30 2024 we borrowed the entire 550 million available under the delayed draw Term A 2 loan upon closing of the LinQuest acquisition Additionally under Amendment No 13 we refinanced outstanding principal amounts under the Company s existing Term B loan facility via a cashless roll into a new Term B loan facility to reduce the interest rate margin applicable to Term Loan B
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 January 3 2025 we are in compliance with all financial covenants related to our debt agreements
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 Additionally domestic cash and cash equivalents includes 12 million held by our wholly owned captive insurance company as of January 3 2025 which is generally not available to KBR to utilize to support its other operations
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 January 3 2025 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 provided by operations totaled 462 million and 331 million in fiscal 2024 and fiscal 2023 respectively as compared to net income of 381 million and net loss of 261 million in fiscal 2024 and fiscal 2023 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 our 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 increase in operating cash flows in fiscal 2024 compared to fiscal 2023 is primarily related to the 144 million payment made in fiscal 2023 related to the settlement of a legacy legal matter that did not recur in fiscal 2024 and increased distributions of earnings from unconsolidated affiliates In fiscal 2024 we received 163 million in distributions of earnings from unconsolidated affiliates compared to 74 million in fiscal 2023 The increase in operating cash flows was primarily offset by increased employer pension contributions in fiscal 2024 In fiscal 2024 we made an advance payment to our U K defined benefit pension plan for approximately 17 million 21 million at the current exchange rate Additionally we made an advance payment to our U K pension plan in fiscal 2022 that resulted in decreased employer pension contributions in fiscal 2023 Further there were decreases in operating cash flows in fiscal 2024 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
Cash used in investing activities totaled 776 million in fiscal 2024 and was primarily related to the acquisition of LinQuest net of cash acquired of 738 million capital expenditures of 77 million and funding in other investment of 5 million This was offset by a return of equity method investment from JKC in fiscal 2024 of approximately 36 million related to our proportionate share of a tax refund Additionally we received 7 million primarily from the sale of our investment interest in a joint venture within our GS segment See Note 4 Acquisition of LinQuest Corporation to our consolidated financial statements for further discussion around the acquisition of LinQuest and Note 9 Equity Method Investments and Variable Interest Entities for further details around the return of investment from JKC
Cash used in investing activities totaled 70 million in fiscal 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 equity method investment of approximately 61 million from JKC resulting from the receipt of the second payment from the Subcontractor Settlement Agreement
Cash provided by financing activities totaled 374 million in fiscal 2024 and was primarily related to 393 million in borrowings on our Revolver and 574 million in borrowings associated with Amendment No 11 and No 13 to our Credit Agreement These increases were offset by 124 million of principal payments related to our Senior Credit Facility 98 million in payments on the Revolver 204 million for the repurchase of common stock under our share repurchase program and 14 million for the repurchase of common stock under our withhold to cover program Cash used in financing activities also included a 33 million payment for the settlement of warrants in connection with our Convertible Notes 79 million of dividend payments to common shareholders 18 million in debt issuance costs associated with Amendment No 11 No 12 and No 13 to our Credit Agreement for our Senior Credit Facility and 10 million for the acquisition of a noncontrolling interest See Note 11 Debt and Other Credit Facilities for further discussion of our Senior Credit Facility
Cash used in financing activities totaled 359 million in fiscal 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 Revolver See Note 11 Debt and Other Credit Facilities for further discussion of our Senior Credit Facility
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
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
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
We have recognized on our consolidated balance sheets a funding surplus of approximately 82 million calculated as the excess of the fair value of plan assets over projected benefit obligations as of January 3 2025 for our frozen U K defined benefit pension plan The total amount of employer pension contributions paid for the year ended January 3 2025 is 61 million for our defined benefit plan in the U K The funding requirements for our U K pension plan are determined based on the U K Pensions Act 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 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 2024 the Trustee of the U K defined benefit pension plan commenced the triennial actuarial valuation of the plan At this time we do not anticipate contributing additional funding to this plan at least until the next triennial valuation In the future pension funding may increase or decrease depending on changes in the levels of interest rates pension plan asset return performance and other factors A significant increase in our funding requirements for the U K pension plan could result in a material adverse impact on our financial position
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 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 to meet 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
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
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
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 In May 2024 a partner in one of our project based joint ventures voluntarily filed for Chapter 11 bankruptcy reorganization Our joint venture operations have not been materially impacted by these bankruptcy proceedings 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 January 3 2025 we had no material guarantees of the work or obligations of third parties recorded
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 January 3 2025 we had a 1 billion committed line of credit on the Revolver under our Senior Credit Facility and 466 million of bilateral and uncommitted lines of credit As of January 3 2025 with respect to our Revolver we had 345 million of outstanding borrowings We also have 14 million of outstanding letters of credit on our Senior Credit Facility With respect to our 466 million of bilateral and uncommitted lines of credit we utilized 284 million for letters of credit as of January 3 2025 The total remaining capacity of these committed and uncommitted lines of credit was approximately 823 million as of January 3 2025 all of which can be used toward issuing letters of credit 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
Determined based on long term debt borrowings outstanding at January 3 2025 using the interest rates in effect for the individual borrowings as of January 3 2025 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
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 Fiscal 2025 and fiscal 2026 each include approximately 30 million related to contractual repayments associated with a joint venture in our GS segment
We have excluded uncertain tax positions totaling 85 million as of January 3 2025 The ultimate timing of settlement of these obligations cannot be determined with reasonable assurance See Note 12 Income Taxes to our consolidated financial statements for further discussion on income taxes
We form incorporated and unincorporated joint ventures to execute certain projects In addition to participating as a joint venture partner we often provide engineering procurement construction management 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 up to but not in excess of the joint venture s percent complete on its scope of work 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 Equity Method Investments and Variable Interest Entities 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
Information relating to recent accounting pronouncements is described in Note 1 Significant Accounting Policies 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
Information relating to U S government matters commitments and contingencies is described in Note 14 U S Government Matters 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
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 II Item 7
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 Significant Accounting Policies 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
Our policy on revenue recognition is provided in Note 1 Significant Accounting Policies to our consolidated financial statements for the year ended January 3 2025 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
We allocate the purchase price of an acquired business to the identifiable assets and liabilities of the acquiree based on estimated fair values The excess of the purchase price over the amount allocated to the identifiable assets and liabilities if any is recorded as goodwill Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset and are developed using widely accepted valuation techniques such as discounted cash flows When determining the fair value of the assets and liabilities of an acquired business we make judgments and estimates using all available information to us including but not limited to quoted market prices carrying values expected future cash flows which includes consideration of future growth rates and margins attrition rates future changes in technology and brand awareness loyalty and position and discount rates We engage third party appraisal firms when appropriate to assist in the fair value determination of intangible assets The purchase price allocation recorded in a business combination may change during the measurement period which is a period not to exceed one year from the date of acquisition as additional information about conditions existing at the acquisition date becomes available Our purchase price allocation is discussed in Note 4 Acquisition of LinQuest Corporation in the accompanying consolidated financial statements
Goodwill and intangible assets 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 fiscal 2024 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 fiscal 2024 Our goodwill and intangible assets are discussed in Note 8 Goodwill and Intangible Assets
As discussed in Note 12 Income Taxes 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 295 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 1 014 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
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
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 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 increased to 5 32 at January 3 2025 from 4 70 at December 29 2023 The discount rate used to determine the projected benefit obligation at the measurement date for our U K pension plan which constitutes 95 of all pension plans increased to 5 54 at January 3 2025 from 4 79 at December 29 2023 Our expected long term rates of return on plan assets utilized at the measurement date of January 3 2025 and December 29 2023 was 6 64 for our U S pension plans and 6 80 and 6 79 for our U K pension plans respectively
Unrecognized actuarial gains and losses are recognized using the corridor method over a period of approximately 20 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 January 3 2025 was 887 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 Retirement Benefits in the accompanying consolidated financial statements
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
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 We recorded a net loss of 3 million for fiscal 2024 a net loss of 6 million for fiscal 2023 and a net gain of 4 million for fiscal 2022 within other non operating income expense on our consolidated statements of operations The fair value of these derivatives was not material to our consolidated balance sheet for the periods presented For more information see Note 20 Fair Value of Financial Instruments and Risk Management 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
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 345 million of borrowings issued under the Revolver as of January 3 2025 Additionally we had 1 999 million outstanding under the term loan portions of the Senior Credit Facility as of January 3 2025 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 fiscal 2024 we entered into additional interest rate swap agreements to term SOFR 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 Our portfolio of interest rate swaps consists of the following
The fair value of the interest rate swaps at January 3 2025 was a 37 million net asset of which 19 million is included in other current assets and 18 million is included in other assets The unrealized net gains on these interest rate swaps was 37 million and is included in AOCL as of January 3 2025
At January 3 2025 we had fixed rate debt aggregating 1 543 million and variable rate debt aggregating 1 051 million after taking into account the effects of the interest rate swaps that were effective at January 3 2025 Our weighted average interest rate for fiscal 2024 was 5 52 If interest rates were to increase by 50 basis points pre tax interest expense would increase by approximately 5 million in the next twelve months net of the impact from our swap agreements based on outstanding borrowings as of January 3 2025
We have audited the accompanying consolidated balance sheets of KBR Inc and subsidiaries the Company as of January 3 2025 and December 29 2023 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 January 3 2025 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 January 3 2025 and December 29 2023 and the results of its operations and its cash flows for each of the fiscal years in the three year period ended January 3 2025 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 January 3 2025 based on criteria established in
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25 2025 expressed an unqualified opinion on the effectiveness of the Company s internal control over financial reporting
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
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that 1 relates 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 a critical audit matter 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 matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
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 at completion including assumptions related to estimated labor costs and total contract revenue including assumptions related to contractually allowable costs
We identified the evaluation of certain contract costs at completion and certain contract revenue as a critical audit matter Evaluating the Company s estimates of contract costs at completion for certain contracts involves auditor judgment given the variability and uncertainty associated with estimating costs specifically labor costs to be incurred over the contract period Evaluating the Company s estimates of contract revenue for a certain contract requires an evaluation of subjective assumptions specifically 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 contract costs at completion specifically assumptions related to estimated labor costs and contract revenue for a certain contract specifically the contractual allowability of 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
The accompanying consolidated financial statements have been prepared in accordance with U S GAAP and include the accounts of KBR Inc and the subsidiaries it controls including VIEs where it is the primary beneficiary We account for investments over which we have significant influence but not a controlling financial interest using the equity method of accounting See Note 9 Equity Method Investments and Variable Interest Entities to our consolidated financial statements for further discussion of our equity investments and VIEs All material intercompany balances and transactions are eliminated in consolidation
In 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 Fiscal 2024 ended January 3 2025 fiscal 2023 ended December 29 2023 and fiscal 2022 ended December 31 2022 Fiscal 2024 included 53 weeks and both fiscal 2023 and fiscal 2022 included 52 weeks
The preparation of our consolidated financial statements in conformity with U S GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities the reported amounts of revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated financial statements These estimates are based on information available through the date of the issuance of the financial statements and actual results could differ from those estimates Areas requiring estimates and assumptions by our management include the following
Revenue is measured based on the amount of consideration specified in a contract with a customer Revenue is recognized when and as our performance obligations under the terms of the contract are satisfied which occurs with the transfer of control of the goods or services to the customer
To determine the proper revenue recognition method for contracts we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation This evaluation requires judgment and the decision to combine a group of contracts or separate a combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts primarily because we provide a
significant service of integrating a complex set of tasks and components into a single project or capability Contracts that cover multiple phases of the product lifecycle development construction and maintenance support are typically considered to have multiple performance obligations even when they are part of a single contract
For a limited number of contracts with multiple performance obligations we allocate the transaction price to each performance obligation using our best estimate of the relative standalone selling price of each distinct good or service in the contract In cases where we do not provide the distinct good or service on a standalone basis the primary method used to estimate standalone selling price is the expected cost plus a margin approach under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service
Fixed price contracts also include unit rate contracts Under fixed price contracts we perform a defined scope of work for a specified fee to cover all costs and any profit element Fixed price contracts entail risk to us because they require us to predetermine the work to be performed the project execution schedule and all the costs associated with the scope of work Unit rate contracts are essentially fixed price contracts with the only variable being units of work to be performed Although fixed price contracts involve greater risk than cost reimbursable contracts they also are potentially more profitable because the owner customer pays a premium to transfer project risks to us
Time and materials contracts typically provide for negotiated fixed rates for specified cost categories The rates are designed to cover the cost of direct labor indirect expense and fee These contracts can also allow for reimbursement of cost of material plus a fee if applicable In U S government contracting this type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence With respect to time and materials contracts we assume the price risk because our costs of performance may exceed negotiated hourly rates In commercial and non U S government contracting this contract type is generally used for defined and non defined scope contracts where there is a higher degree of uncertainty and risks as to the scope of work These types of contracts may also provide for a guaranteed maximum price where the total cost plus the fee cannot exceed an agreed upon guaranteed maximum price or not to exceed provisions
Under cost reimbursable contracts the price is generally variable based upon our actual allowable costs incurred for materials equipment reimbursable labor hours overhead and G A expenses Profit on cost reimbursable contracts may be in the form of a fixed fee or a mark up applied to costs incurred or a combination of the two The fee may also be an incentive fee based on performance indicators milestones or targets and can be based on customer discretion or in form of an award fee determined based on customer evaluation of the Company s performance against contractual criteria Cost reimbursable contracts may also provide for a guaranteed maximum price where the total fee plus the total cost cannot exceed an agreed upon guaranteed maximum price Cost reimbursable contracts are generally less risky because the owner customer retains many of the project risks however it requires us to use our best efforts to accomplish the scope of the work within a specified time and budget Cost reimbursable contracts with the U S government are subject to the FAR and are competitively priced based on estimated or actual costs of providing the contractual goods or services The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U S government and its agencies Pricing for non U S government agencies and commercial customers including the types of costs that are allowable is based on specific negotiations with each customer
Contract costs include all direct materials labor and subcontractor costs and an allocation of indirect costs related to contract performance Customer furnished materials are included in both contract revenue and cost of revenue when management concludes that the company is acting as a principal rather than as an agent Project mobilization costs incurred are capitalized as deferred assets and amortized on a straight line basis over the anticipated term of the contract or a specified period of performance consistent with the transfer of control of the performance obligation to the client These costs incurred may be to transition the services employees and equipment to or from the customer a prior contract or prior contractor Pre contract costs are expensed as incurred unless they are expected to be recovered from the client
Contract costs incurred for U S government contracts including indirect costs are subject to audit and adjustment by the DCAA If the U S government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations these costs are disallowed or if already reimbursed we may be required to refund the reimbursed amounts to the customer Such conditions may also include interest and other financial penalties
We provide limited warranties to customers for work performed under our contracts that typically extend for a limited duration following substantial completion of our work on a project Such warranties are not sold separately and do not provide customers with a service in addition to assurance of compliance with agreed upon specifications Accordingly these types of warranties are not considered to be separate performance obligations
In addition to the variable contract price under cost reimbursable contracts it is common for our contracts to contain variable consideration in the form of award fees incentive fees performance bonuses liquidated damages or penalties that may increase or decrease the transaction price These variable amounts generally are awarded upon achievement of certain performance metrics program milestones or targets and can be based on customer discretion Other contract provisions also give rise to variable consideration such as unapproved change orders and claims and on certain contracts index based price adjustments We estimate the amount of variable consideration at the most likely amount to which we expect to be entitled Variable consideration is included in the transaction price when it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved Our estimates of variable consideration and determination of whether to include such amounts in the transaction price are based largely on our assessment of legal enforceability anticipated performance and any other information historical current or forecasted that is reasonably available to us
Variable consideration associated with claims and unapproved change orders is included in the transaction price only to the extent of costs incurred We recognize claims against vendors subcontractors and others as a reduction in recognized costs when enforceability is established by the contract and the amounts are reasonably estimable and probable of recovery Reductions in costs are recognized to the extent of the lesser of the amounts management expects to recover or actual costs incurred
Due to the nature of the work required to be performed on many of our performance obligations the estimation of total revenue and cost at completion is complex and subject to many variables and requires significant judgment As a significant change in estimated total revenue and cost could affect the profitability of our contracts we routinely review and update our contract related estimates through a disciplined project review process in which management reviews the progress and execution of our performance obligations and the EAC As part of this process management reviews information including but not limited to outstanding contract matters progress towards completion program schedule and the associated changes in estimates of revenues and costs Management must make assumptions and estimates regarding the availability and productivity of labor the complexity of the work to be performed the availability and cost of materials the performance of subcontractors and the availability and timing of funding from the customer along with other risks inherent in performing services under all contracts where we recognize revenue over time using the cost to cost method
We recognize changes in contract estimates on a cumulative catch up basis in the period in which the changes are identified Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in prior period Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs from the previous estimate If at any time the estimate of contract profitability indicates an anticipated loss on the contract we recognize the total loss in the period it is identified See Note 3 Revenue for changes in all other project related estimates
Contracts are often modified to account for changes in contract specifications and requirements Most of our contract modifications are for goods or services that are not distinct from existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they were part of the original contract The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue either as an increase in or a reduction of revenue on a cumulative catch up basis We account for contract modifications prospectively when the modification results in the promise to deliver additional goods or services that are distinct and the increase in price of the contract is for the same amount as the stand alone selling price of the additional goods or services included in the modification
Billing practices are governed by the contract terms of each project based upon costs incurred achievement of milestones or predetermined schedules Billings do not necessarily correlate with revenue recognized over time using the percentage of completion method Contract assets include unbilled amounts typically resulting from revenue under long term contracts when the percentage of completion method of revenue recognition is used and revenue recognized exceeds the amount billed to the customer Contract liabilities consist of advance payments and billings in excess of revenue recognized as well as deferred revenue
Retainage included in contract assets represent the amounts withheld from billings by our clients pursuant to provisions in the contracts and may not be paid to us until the completion of specific tasks or the completion of the project and in some instances for even longer periods Retainage may also be subject to restrictive conditions such as performance guarantees
The payment terms of our contracts from time to time require the customer to make advance payments as well as interim payments as work progresses Advance payments generally are not considered to contain a significant financing component as we expect to recognize those amounts in revenue within a year of receipt as work progresses on the related performance obligation
Selling general and administrative expenses include charges for such items as executive management corporate business development information technology finance and accounting human resources and various other functions The Company classifies indirect costs incurred within or allocated to its U S government customers as overhead included in cost of revenues or selling general and administrative expenses in the same manner as such costs are defined in the Company s disclosure statements under CAS
Accounts receivable include amounts billed and currently due from customers amounts billable where the right to consideration is unconditional and amounts unbilled Amounts billed and unbilled are recognized at estimated realizable value and consist of costs and fees substantially all of which are expected to be billed and collected within one year Unbilled amounts also include rate variances that are billable upon negotiation of final indirect rates with the DCAA
We establish an allowance for credit losses based on the assessment of our clients ability to pay In addition to such allowances there are often items in dispute or being negotiated that may require us to make an estimate as to the ultimate outcome Past due receivable balances are written off when our internal collection efforts have been unsuccessful in collecting the amounts due
Additionally we sell certain receivables to unrelated third party financial institutions under various accounts receivable monetization programs The receivables sold under the agreements do not allow for recourse for any credit risk related to our customers if such receivables are not collected by the third party financial institutions The Company accounts for these receivable transfers as a sale under
as the receivables have been legally isolated from the Company the financial institution has the right to pledge or exchange the assets received and we do not maintain effective control over the transferred accounts receivable Our only continuing involvement with the transferred financial assets is as the collection and servicing agent As a result the accounts receivable balance on the consolidated balance sheets is presented net of the transferred amount See Note 20 Fair Value of Financial Instruments and Risk Management to our consolidated financial statements for our further information on sales of receivables
Property plant and equipment are reported at cost less accumulated depreciation except for those assets that have been written down to their fair values due to impairment Expenditures for major additions and improvements are capitalized and minor replacements maintenance and repairs are charged to expense as incurred The cost of property plant and equipment sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operating income for the respective period Depreciation is generally provided on the straight line method over the estimated useful lives of the related assets Leasehold improvements are amortized using the straight line method over
which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill We engage third party appraisal firms when appropriate to assist in the fair value determination of intangible assets Initial purchase price allocations are subject to revisions within the measurement period not to exceed one year from the date of acquisition Acquisition related expenses and transaction costs associated with business combinations are expensed as incurred
goodwill is not amortized but is tested annually for impairment or on an interim basis when indicators of potential impairment exist Goodwill is tested for impairment at the reporting unit level Our reporting units are our operating segments or components of operating segments where discrete financial information is available and segment management regularly reviews the operating results For purposes of impairment testing goodwill is allocated to the applicable reporting units based on our reporting structure
Goodwill is assessed annually for possible impairment as of the first day of our fourth quarter each fiscal year and on an interim basis when indicators of possible impairment exist We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value Qualitative factors assessed for each of the applicable reporting units include but are not limited to changes in macroeconomic conditions industry and market considerations cost factors discount rates competitive environments and financial performance of the reporting units If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value a quantitative test is required
We also have the option to proceed directly to the quantitative test Under the quantitative impairment test the estimated fair value of each reporting unit is compared to its carrying value including goodwill If the carrying value of the reporting unit including goodwill exceeds its fair value an impairment charge equal to the excess would be recognized up to a maximum amount of goodwill allocated to that reporting unit We can resume the qualitative assessment in any subsequent period for any reporting unit
During fiscal 2024 2023 and 2022 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 fiscal 2024 2023 and 2022 See Note 8 Goodwill and Intangible Assets to our consolidated financial statements for reported goodwill in each of our segments
We had intangible assets with net carrying values of 763 million and 618 million as of January 3 2025 and December 29 2023 respectively Intangible assets with indefinite lives are not amortized but are subject to annual impairment tests or on an interim basis when indicators of potential impairment exist An intangible asset with an indefinite life is impaired if its carrying value exceeds its fair value During fiscal 2024 2023 and 2022 there were no triggering events identified Intangible assets with finite lives are amortized on a straight line basis over the useful life of those assets ranging from 1 year to 25 years See Note 8 Goodwill and Intangible Assets to our consolidated financial statements for further discussion of our intangible assets
We account for non marketable investments using the equity method of accounting if the investment gives us the ability to exercise significant influence over but not control of an investee Significant influence generally exists if we have an ownership interest representing between 20 and 50 of the voting stock of the investee Under the equity method of accounting investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions
Equity in earnings losses of unconsolidated affiliates in the consolidated statements of operations reflects our proportionate share of the investee s net income including any associated taxes Our proportionate share of the investee s other comprehensive income loss net of income taxes is recorded in the consolidated statements of shareholders equity and consolidated statements of comprehensive income loss In general the equity investment in our unconsolidated affiliates is equal to our current equity investment plus those entities undistributed earnings
We evaluate our equity method investments for impairment at least annually or whenever events or changes in circumstances indicate in management s judgment that the carrying value of an investment may have experienced an other than temporary decline in value When evidence of loss in value has occurred management compares the estimated fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment See Note 9 Equity Method Investments and Variable Interest Entities to our consolidated financial statements for our discussion on equity method investments
We evaluate distributions received from our equity method investments using the nature of distribution approach Under this approach we evaluate the nature of activities of the investee that generated the distribution The distributions received are either classified as a return on investment which is presented as a component of operating activities on our consolidated statements of cash flows or as a return of investment which is presented as a component of investing activities on our consolidated statements of cash flows For BRIS only we apply the cumulative earnings approach for the cash flow classification of distributions as information is not available to evaluate the nature of the activities of the joint venture
Other investments are investments in equity securities of privately held companies without readily determinable fair values and are included in other assets on our consolidated balance sheets These investments are accounted for under the measurement alternative provided that KBR does not have the ability to exercise significant influence or control over the investees We measure the investments at cost less any impairment and adjust the carrying value to fair value resulting from observable transactions for identical or similar investments of the investee If it is determined that impairment indicators exist and the carrying value is less than the fair value we adjust the carrying value of the investment to its fair value and record the related impairment The gains and losses on the investments are recognized in gain loss on other investment on our consolidated statements of operations
which requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE If a reporting enterprise meets these conditions then it has a controlling financial interest and is the primary beneficiary of the VIE Our unconsolidated VIEs are accounted for under the equity method of accounting
We assess all newly created entities and those with which we become involved to determine whether such entities are VIEs and if so whether or not we are their primary beneficiary Most of the entities we assess are incorporated or unincorporated joint ventures formed by us and our partner s for the purpose of executing a project or program for a customer and are generally dissolved upon completion of the project or program Many of our long term commercial projects are executed through such joint ventures Although the joint ventures in which we participate own and hold contracts with the customers the services required by the contracts are typically performed by the joint venture partners or by other subcontractors under subcontracts with the joint ventures Typically these joint ventures are funded by advances from the project owner and accordingly require little or no equity investment by the joint venture partners but may require subordinated financial support from the joint venture partners such as letters of credit performance and financial guarantees or obligations to fund losses incurred by the joint venture Other joint ventures such as PFIs generally require the partners to invest equity and take an ownership position in an entity that manages and operates an asset after construction is complete The assets of joint ventures are restricted for use to the obligations of the particular joint venture and are not available for our general operations
We perform a qualitative assessment to determine whether we are the primary beneficiary once an entity is identified as a VIE Thereafter we continue to re evaluate whether we are the primary beneficiary of the VIE in accordance with ASC 810 Consolidation A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity s activities These include the terms of the contracts entered into by the entity ownership interests issued by
the entity and how they were marketed and the parties involved in the design of the entity We then identify all of the variable interests held by parties involved with the VIE including among other things equity investments subordinated debt financing letters of credit financial and performance guarantees and contracted service providers Once we identify the variable interests we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities Though infrequent some of our assessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment significant service contracts and other subordinated financial support See Note 9 Equity Method Investments and Variable Interest Entities to our consolidated financial statements for our discussion on variable interest entities
Occasionally we may determine that we are the primary beneficiary as a result of a reconsideration event associated with an existing unconsolidated VIE We account for the change in control under the acquisition method of accounting for business combinations in accordance with
Our pension benefit obligations and expenses are calculated using actuarial models and methods The more critical assumption and estimate used in the actuarial calculations is the discount rate for determining the current value of benefit obligations Other assumptions and estimates used in determining benefit obligations and plan expenses include expected rate of return on plan assets inflation rates and demographic factors such as retirement age mortality and turnover These assumptions and estimates are evaluated periodically typically annually and are updated accordingly to reflect our actual experience and expectations
The discount rate used to determine the benefit obligations was computed using a yield curve approach that matches plan specific cash flows to a spot rate yield curve based on high quality corporate bonds The expected long term rate of return on assets was determined by a stochastic projection that takes into account asset allocation strategies historical long term performance of individual asset classes an analysis of additional return net of fees generated by active management risks using standard deviations and correlations of returns among the asset classes that comprise the plans asset mix Plan assets are comprised primarily of equity funds and securities fixed income funds and securities hedge funds real estate and other funds As we have both domestic and international plans these assumptions differ based on varying factors specific to each particular country participant demographics or economic environment
Unrecognized actuarial gains and losses are recognized using the corridor method over a period of approximately 20 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
We recognize the amount of taxes payable or refundable for the year and deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will not be realized See Note 12 Income Taxes to our consolidated financial statements for our discussion on income taxes
Income taxes are accounted for under the asset and liability method We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will not be realized Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards A current tax asset or liability is recognized for the estimated taxes refundable or payable on tax returns Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date
In assessing the realizability of deferred tax assets we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will not be realized We consider the scheduled reversal of deferred tax liabilities income available from carryback years projected future taxable income and available tax planning strategies in making this assessment Additionally we use forecasts of certain tax elements such as taxable income and foreign tax credit utilization in making this assessment of realization Given the inherent uncertainty involved with the use of such estimates and assumptions there can be significant variation between estimated and actual results
We have operations in numerous countries other than the United States Consequently we are subject to the jurisdiction of a significant number of taxing authorities The income earned in these various jurisdictions is taxed on differing bases including income actually earned income deemed earned and revenue based tax withholding The final determination of our tax liabilities involves the interpretation of local tax laws tax treaties and related authorities in each jurisdiction Changes in the operating environment including changes in tax law and currency repatriation controls could impact the determination of our tax liabilities for a tax year
We recognize the effect of income tax positions only if it is more likely than not that those positions will be sustained Recognized income tax positions are measured at the largest amount that is greater than 50 likely of being realized Changes in recognition or measurement are reflected in the period in which the change in judgment occurs The Company records potential interest and penalties related to unrecognized tax benefits in income tax expense
Tax filings of our subsidiaries unconsolidated affiliates and related entities are routinely examined by tax authorities in the normal course of business These examinations may result in assessments of additional taxes which we work to resolve with the tax authorities and through the judicial process Predicting the outcome of disputed assessments involves some 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
We enter into derivative financial transactions to hedge existing or forecasted risk to changing foreign currency exchange rates and interest rate risk on variable rate debt We do not enter into derivative transactions for speculative or trading purposes We recognize all derivatives at fair value on the balance sheet Derivatives that are not designated as hedges in accordance with
are adjusted to fair value and such changes are reflected in the results of operations If the derivative is designated as a cash flow hedge all changes in the fair value of derivatives are recognized in other comprehensive income loss and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings See Note 20 Fair Value of Financial Instruments and Risk Management to our consolidated financial statements for our discussion on derivative instruments
Recognized gains or losses on derivatives entered into to manage project related foreign exchange risk are included in gross profit Foreign currency gains and losses for hedges of non project related foreign exchange risk are reported within other non operating income expense on our consolidated statements of operations Realized gains or losses on derivatives used to manage interest rate risk are included in interest expense in our consolidated statements of operations
Financial instruments which potentially subject our company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables Our cash is primarily held with major banks and financial institutions throughout the world We believe the risk of any potential loss on deposits held in these institutions is minimal
Contracts with clients usually contain standard provisions allowing the client to curtail or terminate contracts for convenience Upon such a termination we are generally entitled to recover costs incurred settlement expenses and profit on work completed prior to termination and demobilization cost
We have revenues and receivables from transactions with an external customer that amounts to 10 or more of our revenues which are generally not collateralized We generated significant revenues from transactions with the U S government and U K government within our GS business segment No other customers represented 10 or more of consolidated revenues in any of the periods presented
The following table summarizes our revenues and accounts receivable for contracts with U S and U K government agencies for which we are the prime contractor as well as for contracts in which we are a subcontractor and the ultimate customer is a U S or U K government agency respectively
Our reporting currency is the U S dollar The functional currency of our non U S subsidiaries is typically the currency of the primary environment in which they operate Where the functional currency for a non U S subsidiary is not the U S dollar translation of all of the assets and liabilities including long term assets such as goodwill to U S dollars is based on exchange rates in effect at the balance sheet date Translation of revenues and expenses to U S dollars is based on the average rate during the period and shareholders equity accounts are translated at historical rates Translation gains or losses net of income tax effects are reported in accumulated other comprehensive loss on our consolidated balance sheets
Transaction gains and losses that arise from foreign currency exchange rate fluctuations on transactions denominated in a currency other than the functional currency are recognized in income each reporting period when these transactions are either settled or remeasured Transaction gains and losses on intra entity foreign currency transactions and balances including advances and demand notes payable on which settlement is not planned or anticipated in the foreseeable future are recorded in accumulated other comprehensive loss on our consolidated balance sheets
We account for share based payments including grants of employee stock options restricted stock based awards and performance cash units in accordance with ASC 718 Compensation Stock Compensation which requires that all share based payments to the extent that they are compensatory be recognized as an expense in our consolidated statements of operations based on their fair values on the award date and the estimated number of shares of common stock we ultimately expect to vest We recognize share based compensation expense on a straight line basis over the service period of the award which is no greater than 3 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 Share based Compensation and Incentive Plans to our consolidated financial statements for our discussion on share based compensation and incentive plans
We record liabilities for loss contingencies arising from claims assessments litigation fines and penalties and other sources when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated Legal costs incurred in connection with loss contingencies are expensed as incurred
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures ASU 2023 07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker CODM and included within each reported measure of segment profit or loss an amount and description of its composition for other segment items to reconcile to segment profit or loss and the title and position of the entity s CODM The amendments in this update also expand the interim segment disclosure requirements We adopted this standard effective for our 2024 fiscal year and for interim periods starting in our first quarter of fiscal year 2025 These new disclosure requirements are applied retrospectively to all prior periods included in the financial statements
In December 2023 the FASB issued ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold Further the ASU requires certain disclosures of state versus federal income tax expense and taxes paid The amendments in this ASU are required to be adopted for fiscal years beginning after December 15 2024 Early adoption is permitted for annual financial statements that have not yet been issued We expect this ASU to only impact our disclosures with no impacts to our results of operations cash flows and financial condition
In November 2024 the FASB issued ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses ASU 2024 03 requires disclosure of additional information about certain income statement expense categories ASU 2024 03 will be effective for our 2027 fiscal year ending December 31 2027 Early adoption is permitted and the amendments can be applied on a prospective or retrospective basis We expect this ASU to only impact our disclosures with no impacts to our results of operations cash flows and financial condition
We provide a wide range of professional services and the management of our business is heavily focused on major projects or programs within each of our reportable segments At any given time government programs and joint ventures
represent a substantial part of our operations Our reportable segments follow the same accounting policies as those described in Note 1 Significant Accounting Policies to our consolidated financial statements
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 full spectrum solutions span research and development advanced prototyping acquisition support systems engineering C5ISR cyber analytics space domain awareness test and evaluation data analytics and integration systems integration and program management global supply chain management operations readiness and support and professional advisory services across the defense energy security and transition and critical infrastructure sectors Included in Government Solutions is the LinQuest Corporation LinQuest an engineering data analytics and digital integration company acquired in fiscal 2024 that develops and integrates advanced technology solutions to meet the most challenging demands across space air dominance and connected battlespace missions including advanced artificial intelligence machine learning capabilities and digital engineering See Note 4 Acquisitions to our consolidated financial statements for additional information on this acquisition
Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 85 innovative proprietary sustainability focused process technologies that reduce emissions increase efficiency and or accelerate and enable energy transition across the industrial base in four primary verticals ammonia syngas chemical petrochemicals clean refining and circular process circular economy solutions STS also provides highly synergistic services including advisory and consulting focused on energy security 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
In its operation of our business our management including our chief operating decision maker CODM who is also our chief executive officer evaluates the performance of our business segments based on operating income Our CODM utilizes operating income to evaluate segment results and is one of the factors considered in determining capital allocation among the segments Our CODM analyzes selected segment balance sheet information for our business segments and for the Company as a whole Information on each of our business segments and reconciliation to Net income loss attributable to KBR within our consolidated statements of operations is presented in the tables below
To streamline and optimize our processes we realigned our segments effective for fiscal 2025 As part of this realignment our Government Solutions reportable segment has been renamed Mission Technology Solutions while Sustainable Technology Solutions has retained its name The international business contained within Government Solutions has been integrated into both Mission Technology Solutions and Sustainable Technology Solutions The Company will begin reporting the new segment information beginning the first fiscal quarter of 2025
We disaggregate our revenue from customers by business unit geographic destination and contract type for each of our segments as we believe it best depicts how the nature amount timing and uncertainty of our revenue and cash flows are affected by economic factors
Government Solutions revenue earned from key U S government customers includes U S DoD agencies and NASA and is reported as Science Space Defense Intel and Readiness Sustainment Government Solutions revenue earned from non U S government customers primarily includes the U K MoD and the Australian Defence Force and is reported as International
Many of our contracts contain cost reimbursable time and materials and fixed price including unit rate components We define contract type based on the component that represents the majority of the contract Revenue by contract type was as follows
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 or claim being resolved We recognized revenue from performance obligations satisfied in previous periods for such matters of 30 million 15 million and 49 million for the years ended January 3 2025 December 29 2023 and December 31 2022 respectively
On January 3 2025 we had 13 8 billion of transaction price allocated to remaining performance obligations We expect to recognize approximately 41 of our remaining performance obligations as revenue within one year 36 in years two through five and 23 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 January 3 2025
There are many factors that may affect the accuracy of our cost estimates and ultimately our future profitability These include but are not limited to the availability and costs of resources such as labor materials and equipment productivity weather and ongoing resolution of commercial and legal matters including any new or ongoing disputes with our business partners and others in our supply chain We generally realize both lower and higher than expected margins on projects in any given period We recognize revisions of revenues costs and equity in earnings in the period in which the revisions are known This may result in the recognition of costs before the recognition of related revenue recovery if any During fiscal 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 to the statement of operations from AOCL
Contract assets were 273 million and 177 million and contract liabilities were 336 million and 359 million at January 3 2025 and December 29 2023 respectively The increase in contract assets was primarily attributed to revenue recognized on certain contracts partially offset by the timing of billings The decrease in contract liabilities was due to the timing of advance payments and revenue recognized during the period We recognized revenue of 263 million for the year ended January 3 2025 which was previously included in the contract liability balance at December 29 2023
On August 30 2024 we acquired LinQuest an engineering data analytics and digital integration company that develops and integrates advanced technology solutions to meet the most challenging demands across space air dominance and connected battlespace missions including advanced AI and machine learning capabilities LinQuest supports the U S Air Force and other U S Department of Defense and intelligence agencies We accounted for this transaction as an acquisition of a business using the acquisition method under
The aggregate consideration paid upon closing was 739 million in cash net of cash acquired subject to certain working capital net debt and other post closing adjustments The Company funded the acquisition through a combination of cash on hand 550 million in borrowings under the delayed draw term A 2 loan 50 million in borrowings on our Revolver and proceeds from the sale of receivables In the fourth quarter of 2024 we received 1 million in cash from escrow related to post closing adjustments See Note 11 Debt and Other Credit Facilities for further discussion around these borrowings on our Senior Credit Facility We have recorded 6 million during fiscal 2024 in acquisition related costs related to LinQuest which are included in Selling general and administrative expenses on the consolidated statements of operations
As of January 3 2025 the estimated fair values of net assets acquired were preliminary with possible updates primarily in our finalization of tax returns In the fourth quarter of fiscal 2024 we recorded measurement period adjustments to the preliminary fair values initially recorded on August 30 2024 and reported within KBR s quarterly report on Form 10 Q for the period ended September 27 2024 The primary measurement period adjustments were a decrease to Intangible Assets of 90 million and an increase to Deferred income taxes liability of 12 million As a result of the measurement period adjustments recorded in the fourth quarter of fiscal 2024 there was a net increase to Goodwill of 109 million The primary measurement period adjustments were related to additional facts obtained by the Company during the analysis of the fair value of the assets acquired and liabilities assumed as of the acquisition date The following table summarizes the consideration paid for this acquisition and the fair value of assets acquired and liabilities assumed as of the acquisition date on August 30 2024 after considering the measurement period adjustments described above
primarily relates to future growth opportunities a highly skilled assembled workforce and other expected synergies from the combined operations For U S tax purposes the transaction is treated as a stock deal
The contract backlog intangible asset is backlog that represents revenue that is already fully awarded and funded as of the acquisition date The estimated customer relationships intangible assets consist of unfunded backlog as of the acquisition date and revenue arising from existing recompete and follow on programs The contract backlog and customer relationships intangible assets were valued using the income approach specifically the multi period excess earnings method in which the value is derived from an estimation of the after tax cash flows specifically attributable to contract backlog and customer relationships In connection with this analysis certain assumptions were made with respect to forecasted revenues and EBITDA margins contributory asset charge rates weighted average cost of capital and a tax amortization benefit
The following supplemental pro forma combined financial information has been prepared from historical financial statements that have been adjusted to give effect to the acquisition of LinQuest as though it had been acquired on January 1 2023 Pro forma adjustments were primarily related to the amortization of intangibles and interest on borrowings related to the acquisition Accordingly this supplemental pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations of the combined company would have been had the acquisition occurred on January 1 2023 nor is it indicative of future results of operations
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents Cash and cash equivalents include cash balances held by our wholly owned subsidiaries as well as cash held by joint ventures that we consolidate Joint venture and the Aspire project cash balances are limited to specific project activities and are not available for other projects new acquisitions and joint ventures general cash needs or distribution to us without approval of the Board of Directors of the respective entities The cash and cash equivalents held in consolidated joint ventures and the Aspire project are expected to be used for their respective project costs and distributions of earnings
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 Includes cash and cash equivalents held by our wholly owned captive insurance company of 12 million as of January 3 2025 which is generally not available to KBR to utilize to support its other operations
The balance as of January 3 2025 relates to estimated recoveries of claims associated with certain U S government projects in our Government Solutions segment In fiscal 2024 an outstanding legacy claim was resolved associated with a U S government project resulting in a 26 million decrease recognized in revenues on our consolidated statements of operations
Property plant and equipment includes approximately 33 million and 48 million of equipment and other assets under finance lease obligations as of January 3 2025 and December 29 2023 respectively Depreciation expense including amortization expense for finance ROU assets was 56 million 50 million and 40 million for the years ended January 3 2025 December 29 2023 and December 31 2022 respectively
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 January 3 2025 December 29 2023 and December 31 2022 no impairments related to our intangible assets were recorded
We conduct some of our operations through joint ventures which operate through partnerships corporations and undivided interests and other business forms and are principally accounted for using the equity method of accounting Additionally the majority of our joint ventures are VIEs
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 A joint venture within our STS segment declared a distribution of earnings of 39 million in the fourth quarter of fiscal 2024 that was not received by KBR until fiscal 2025
During fiscal 2024 we received a return of investment from JKC of approximately 36 million related to our proportionate share of a tax refund During fiscal 2023 we received a return of investment from JKC of approximately 61 million related to the second payment received from the Subcontractor Settlement Agreement
During fiscal 2024 Other included the reclassification of the net liability position of 128 million related to joint ventures within our STS business segment During fiscal 2023 Other included the reclassification of the net liability position of 47 million related to a joint venture within our STS business segment
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
For the VIEs in which we participate our maximum exposure to loss consists of our equity investment in the VIE and any amounts owed to us for services we may have provided to the VIE reduced by any unearned revenues on the project Our maximum exposure to loss may also include our obligation to fund our proportionate share of any future losses incurred Where our performance and financial obligations are joint and several to the client with our joint venture partners we may be further exposed to losses above our ownership interest in the joint venture
The following summarizes the total assets and total liabilities recorded on our consolidated balance sheets related to our unconsolidated VIEs in which we have a significant variable interest but are not the primary beneficiary
KBR owns a 50 interest in the two joint ventures Affinity Capital Works and Affinity Flying Services which provide procurement operations and management support services under subcontracts with Affinity The remaining 50 interest in these entities is held by Elbit Systems KBR has provided its proportionate share of certain limited financial and performance guarantees in support of the partners contractual obligations The three project related entities are VIEs however KBR is not the primary beneficiary of any of these entities We account for KBR s interests in each entity using the equity method of accounting within our GS business segment The project is funded through KBR and Elbit Systems provided equity subordinated debt and non recourse third party commercial bank debt Our maximum exposure to loss includes our equity investments in the project entities as of January 3 2025
We indirectly own a 45 interest in Aspire Defence Limited the contracting company that is the holder of the 35 year concession contract The project is funded through equity and subordinated debt provided by the project sponsors and the issuance of publicly held senior bonds which are nonrecourse to KBR and the other project sponsors The contracting company is a VIE however we are not the primary beneficiary of this entity We account for our interest in Aspire Defence Limited using the equity method of accounting 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 January 3 2025
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 30 equity interest We account for our investments using the equity method of accounting At January 3 2025 the liability of 80 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
KZJV is a joint venture with Zachry Group that performs certain design engineering procurement and construction related services for a LNG facility in Plaquemines Parish Louisiana KBR owns a 45 interest in KZJV which is a VIE for which we are joint and several to the client with our joint venture partner We are not the primary beneficiary as we do not have the power to direct the activities of the VIE that most significantly impact its economic performance The investment is accounted for within our STS business segment using the equity method of accounting
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 January 3 2025 December 29 2023 and December 31 2022 our revenues included 721 million 567 million and 413 million respectively related to the services we provided primarily to the Aspire Defence Limited joint venture within our GS business segment and a joint venture within our STS business segment
Amounts included in our consolidated balance sheets related to services we provided to our unconsolidated joint ventures and undistributed earnings for the years ended January 3 2025 and December 29 2023 are as follows
We consolidate VIEs if we determine we are the primary beneficiary of the project entity because we control the activities that most significantly impact the economic performance of the entity The following is a summary of the significant VIEs where we are the primary beneficiary
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 a joint venture with Tier One Relocation was established to be the exclusive provider of household goods move management services for the U S Armed Forces U S DoD civilians and their families KBR owns a 72 interest in HomeSafe The joint venture is a VIE that is consolidated for financial reporting purposes and is accounted for within our GS business segment We determined that we are the primary beneficiary of this project entity because we control the activities that most significantly impact economic performance of the entity
The Fasttrax joint venture Fasttrax was created to provide to the U K MoD a fleet of 91 new HETs capable of carrying a 72 ton Challenger II tank Fasttrax owns operates and maintains the HET fleet and provides heavy equipment transportation services to the British Army During fiscal 2024 we acquired the remaining interest of Fasttrax for 10 million Fasttrax is fully consolidated within our consolidated balance sheets as of January 3 2025
We have elective defined contribution plans for our employees in the U S and retirement savings plans for our employees in the U K Canada and other locations Our defined contribution plans provide retirement benefits in return for services rendered These plans provide an individual account for each participant and have terms that specify how contributions to the participant s account are to be determined rather than the amount of retirement benefits the participant is to receive Contributions to these plans are based on pretax income discretionary amounts determined on an annual basis Our expense for the defined contribution plans totaled 131 million in fiscal 2024 119 million in fiscal 2023 and 104 million in fiscal 2022
We have two frozen defined benefit pension plans in the U S one frozen and one active plan in the U K and one frozen plan in Germany Substantially all of our defined benefit plans are funded pension plans which define an amount of pension benefit to be provided usually as a function of years of service or compensation
We used January 3 2025 as the measurement date for all plans in fiscal 2024 and December 29 2023 as the measurement date for all plans in fiscal 2023 Plan assets expenses and obligations for our defined benefit pension plans are presented in the following tables
The Accumulated Benefit Obligation ABO is the present value of benefits earned to date The ABO for our United States pension plans was 55 million and 58 million as of January 3 2025 and December 29 2023 respectively The ABO for our international pension plans was 1 115 million and 1 305 million as of January 3 2025 and December 29 2023 respectively
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
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 Fair Value of Financial Instruments and Risk Management for a description of the primary valuation methodologies and classification used for assets measured at fair value
a Certain investments that are measured at fair value using the net asset value per share or its equivalent practical expedient have not been classified in the fair value hierarchy The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet
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 The total amount of employer pension contributions paid in fiscal 2024 for our U K defined benefit pension plan is 61 million which includes an advance payment for approximately 17 million 21 million at the current exchange rate In 2024 the Trustee of the U K defined benefit pension plan commenced the triennial actuarial valuation of the plan At this time we do not anticipate contributing additional funding to this plan at least until the next triennial valuation occurs
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 6 million and 13 million of mutual funds designated for a portion of our employee deferral plan included in other assets on our consolidated balance sheets at January 3 2025 and December 29 2023 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 74 million and 66 million as of January 3 2025 and December 29 2023 respectively and are included in employee compensation and benefits in our consolidated balance sheets
Our existing Credit Agreement dated as of April 25 2018 as amended Credit Agreement consists 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
We entered into Amendment No 11 to our Credit Agreement on January 19 2024 This amendment provided for an incremental Term Loan B facility in an aggregate principal amount of 1 billion and extended the Term Loan B maturity date to January 2031 We borrowed the full 1 billion principal amount available under this loan We received 24 million in cash proceeds from this borrowing to pay accrued interest and financing fees 501 million was applied to the outstanding principal under the Term Loan B facility and the remaining 475 million was applied to the outstanding principal under the Revolver In addition Amendment No 11 reduced the interest rate margin applicable to Term Loan B During fiscal 2024 7 million in cash was paid on the outstanding Term Loan B principal
We entered into Amendment No 12 to our Credit Agreement on February 7 2024 This amendment consolidated all USD denominated Term Loans A including Term A 1 Term A 2 and Term A 4 loan facilities under our Credit Agreement into the amended singular USD denominated Term A 1 loan facility and continued the GBP denominated Term A 3 loan facility outstanding at December 29 2023 During fiscal 2024 117 million in cash was paid on the outstanding Term Loan A principal and accrued interest and 20 million was applied to the Term Loan A principal using proceeds of a borrowing on our Revolver 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
We entered into Amendment No 13 to our Credit Agreement on August 14 2024 This amendment allowed for an incremental delayed draw Term A 2 loan in an aggregate principal amount up to 550 million which remained available for 180 days to fund the acquisition of LinQuest maturing August 2027 On August 30 2024 we borrowed the entire 550 million available under the delayed draw Term A 2 loan upon closing of the LinQuest acquisition Additionally under Amendment No 13 we refinanced outstanding principal amounts under the Company s existing Term B loan facility via a cashless roll into a new Term B loan facility to reduce the interest rate margin applicable to Term Loan B
We had cash borrowings of 393 million and cash repayments of 98 million on our Revolver that occurred during fiscal 2024 The interest rates with respect to the Revolver Term Loan A and Term Loan B are based on at our option the applicable adjusted reference rate plus an additional margin or base rate plus additional margin Additionally there is a commitment fee applicable to available amounts under the Revolver
The reference rate for the Revolver and the U S dollar tranches of Term Loan A 1 is SOFR plus 10 bps Credit Spread Adjustment and the British pound sterling tranche of Term Loan A 3 is SONIA plus 12 bps Credit Spread Adjustment
Both Term Loan A 1 and Term Loan A 3 provide for quarterly principal payments of 0 625 of the aggregate principal amount increasing to 1 25 starting with the quarter ending April 3 2026 Term Loan A 2 provides for quarterly principal payments of 0 625 of the aggregate principal amount commencing with the last business day September 2024 Term Loan B provides for quarterly principal payments of 3 million commencing with the last business day of September 2024 Each of Term Loan A 1 Term Loan A 3 and the Revolver matures in February 2029 Term Loan A 2 matures in August 2027 and Term Loan B matures in January 2031
The Senior Credit Facility contains financial covenants providing for a maximum consolidated net leverage ratio and a consolidated interest coverage ratio as such terms are defined in the Senior Credit Facility Our consolidated net leverage ratio as of the last day of any fiscal quarter may not exceed 4 25 to 1 in 2023 reducing to 4 00 to 1 in 2024 and thereafter Our consolidated interest coverage ratio may not be less than 3 00 to 1 as of the last day of any fiscal quarter As of January 3 2025 we were in compliance with our financial covenants under our Senior Credit Facility
On September 30 2020 we issued and sold 250 million aggregate principal amount of 4 750 Senior Notes due 2028 the Senior Notes pursuant to an indenture among us the guarantors party thereto and Citibank N A as trustee The Senior Notes are senior unsecured obligations and are fully and unconditionally guaranteed by each of our existing and future domestic subsidiaries that guarantee our obligations under the Senior Credit Facility and certain other indebtedness 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
Since September 30 2023 we have the ability to 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 If we undergo a change of control we may be required to make an offer to holders of the Senior Notes to repurchase all of the Senior Notes at a purchase price equal to 101 of the principal amount thereof plus accrued and unpaid interest
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 January 3 2025 we had a 1 billion committed line of credit on the Revolver under our Senior Credit Facility and 466 million of bilateral and uncommitted lines of credit As of January 3 2025 with respect to our Revolver we had 345 million of outstanding borrowings We also have 14 million of outstanding letters of credit on our Senior Credit Facility With respect to our 466 million of bilateral and uncommitted lines of credit we utilized 284 million for letters of credit as of January 3 2025 The total remaining capacity of these committed and uncommitted lines of credit was approximately 823 million as of January 3 2025 all of which can be used toward issuing letters of credit 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 84 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
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
The valuation allowance for deferred tax assets was 142 million and 148 million at January 3 2025 and December 29 2023 respectively The net change in the total valuation allowance was a decrease of 6 million in fiscal 2024 and a decrease of 69 million in fiscal 2023 The change in fiscal 2024 was mainly driven by the additional utilization of previously valued
foreign tax credits in the U S The change in fiscal 2023 was mainly driven by proposed net operating loss amendments on previously filed state income tax returns and the utilization of previously valued foreign tax credits in the U S
January 3 2025 is primarily related to foreign tax credit carryforwards and foreign and state net operating loss carryforwards that in the judgment of management are not more likely than not to be realized In assessing the realizability of deferred tax assets management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible Management considers the scheduled reversal of deferred tax liabilities including the impact of available carryback and carryforward periods income available from carryback years projected future taxable income and tax planning strategies in making this assessment
Income related to the U S branches totaled 147 million 94 million and 56 million for the fiscal years 2024 2023 and 2022 respectively and is included in the foreign component of income in the notes to our consolidated financial statements
The total income loss related to the U S inclusive of branches and exclusive of charges associated with Convertible Notes and the legal settlement of a legacy matter in fiscal 2023 totaled 249 million 267 million and 194 million for the fiscal years 2024 2023 and 2022 respectively
We concluded that future taxable income and the reversal of deferred tax liabilities were the only sources of taxable income available in determining the amount of valuation allowance to be recorded against our deferred tax assets The deferred tax liabilities we relied on are projected to reverse in the same jurisdiction and are of the same character as the temporary differences that gave rise to the deferred tax assets The deferred tax liabilities are projected to reverse in the same periods as the deferred tax assets and are projected to reverse beginning in fiscal year 2025 through fiscal year 2029 We estimated future taxable income by jurisdiction exclusive of reversing temporary differences and carryforwards and applied our foreign tax credit carryforwards based on the sourcing and character of those estimates and considered any limitations
Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate future taxable income of at least 295 million prior to their expiration whereas our ability to utilize other net deferred tax assets to generate future taxable income of at least 1 014 million While our current projections of taxable income exceed these amounts changes in our forecasted taxable income in the applicable taxing jurisdictions within the carryforward periods could affect the ultimate realization of deferred tax assets and our valuation allowance
We provide for taxes on accumulated and current E P on certain foreign subsidiaries As of January 3 2025 the cumulative amount of permanently reinvested foreign earnings is 2 6 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 total amount of unrecognized tax benefits that if recognized would affect our effective tax rate was approximately 71 million as of January 3 2025 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 25 million due to settlements with tax authorities and the expirations of statutes of limitations The settlements of 16 million in fiscal 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 46 million and 40 million as of January 3 2025 and December 29 2023 respectively During fiscal 2024 2023 and 2022 we recognized net interest and penalty charges of 4 million 3 million and 2 million respectively 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
We are a party to litigation and other proceedings that arise in the ordinary course of our business These types of matters could result in fines penalties cost reimbursements or contributions compensatory or treble damages or non monetary sanctions or relief We believe the probability is remote that the outcome of any individual matter including the matters described below will have a material adverse effect on the corporation as a whole notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in any particular reporting period Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims the asserted or possible damages or loss contingency if estimable the progress of the case existing law and precedent the opinions or views of legal counsel and other advisers our experience in similar cases and the experience of other companies the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim Our assessment of these factors may change over time as individual proceedings or claims progress
Although we cannot predict the outcome of legal or other proceedings with certainty when it is probable that a loss will be incurred and the amount is reasonably estimable U S GAAP requires us to accrue an estimate of the probable loss or range of loss In the event a loss is probable but the probable loss is not reasonably estimable we are required to make a statement that such an estimate cannot be made We follow a thorough process in which we seek to estimate the reasonably possible loss or range of loss and only if we are unable to make such an estimate do we conclude and disclose that an estimate cannot be made Accordingly unless otherwise indicated below in our discussion a reasonably possible loss or range of loss associated with any individual contingency cannot be estimated See further discussion of material legal proceedings and ongoing litigation in Note 14 U S Government Matters below
Our employee related health care benefits program is self funded Our workers compensation automobile and general liability insurance programs include a deductible applicable to each claim Claims in excess of our deductible are paid by the insurer The liabilities are based on claims filed and estimates of claims incurred but not reported As of January 3 2025 liabilities for anticipated claim payments and incurred but not reported claims for all insurance programs totaled approximately 40 million comprised of 17 million included in accrued salaries wages and benefits 3 million included in other current liabilities and 20 million included in other liabilities all on our consolidated balance sheets As of December 29 2023 liabilities for anticipated claim payments and incurred but not reported claims for all insurance programs totaled approximately 37 million comprised of 18 million included in accrued salaries wages and benefits 3 million included in other current liabilities and 16 million included in other liabilities all on our consolidated balance sheets
We provide services to various U S governmental agencies including the U S DoD NASA and the Department of State The negotiation administration and settlement of our contracts are subject to audit by the DCAA The DCAA serves in an advisory role to the DCMA which is responsible for the administration of the majority of our contracts The scope of these audits includes among other things the validity of direct and indirect incurred costs provisional approval of annual billing rates approval of annual overhead rates compliance with the FAR and CAS compliance with certain unique contract clauses and audits of certain aspects of our internal control systems Based on the information received to date we do not believe any completed or ongoing government audits will have a material adverse impact on our results of operations financial position or cash flows The U S government also retains the right to pursue various remedies under any of these contracts which could result in challenges to expenditures suspension of payments fines and suspensions or debarment from future business with the U S government
We accrued for probable and reasonably estimable unallowable costs associated with open government matters related to our GS business in the amounts of 41 million and 45 million as of January 3 2025 and December 29 2023 respectively which are recorded in other liabilities on our consolidated balance sheets
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
In April 2008 FKTC one of our LogCAP III subcontractors providing housing containers filed for arbitration with the American Arbitration Association for several claims under various LogCAP III subcontracts After a series of arbitration proceedings and related litigation between KBR and the U S government the panel heard the final claims and we received an award on July 27 2022 FKTC filed a motion for correction of the award asking the tribunal to change its findings The tribunal denied FKTC s motion in an order issued on October 20 2022 On January 5 2023 FKTC filed a motion to vacate the arbitral award in the Eastern District of Virginia Federal District Court KBR filed its response on February 2 2023 On March 22 2023 both parties presented oral arguments On May 12 2023 the District Court issued its order denying FKTC s motion to vacate the arbitration award and confirming the award On June 12 2023 the parties submitted their briefs in support of their calculations of the final award amount KBR sought to confirm the net award of 16 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 70 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 8 million FKTC has appealed this ruling In addition in March 2022 FKTC filed a civil action in Kuwait civil court against KBR seeking 100 million in damages This action is duplicative of the claims decided in arbitration In September 2022 we filed a motion to dismiss 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 FKTC refiled its case and in November 2024 served KBR We are preparing a response 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 January 3 2025
We enter into lease arrangements primarily for real estate project equipment transportation and information technology assets in the normal course of our business operations Real estate leases accounted for approximately 93 of our lease obligations at January 3 2025 An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property and equipment for a period of time in exchange for consideration We have elected not to recognize an ROU asset and lease liability for leases with an initial term of 12 months or less Many of our equipment leases primarily associated with the performance of projects for U S government customers include one or more renewal option periods with renewal terms that can extend the lease term in one year increments The exercise of these lease renewal options is at our sole discretion and is generally dependent on the period of project performance or extension thereof determined by our customers When it is reasonably certain that we will exercise the option we include the impact of the option in the lease term to determine total future lease payments Because most of our lease agreements do not explicitly state the discount rate we use our incremental borrowing rate on the commencement date to calculate the present value of future lease payments
Certain leases include payments that are based solely on an index or rate These variable lease payments are included in the calculation of the ROU asset and lease liability Other variable lease payments such as usage based amounts are excluded from the ROU asset and lease liability and are expensed as incurred In addition to the present value of the future lease payments the calculation of the ROU asset also includes any deferred rent lease pre payments and initial direct costs of obtaining the lease such as commissions
In addition to the base rent real estate leases typically contain provisions for common area maintenance and other similar services which are considered non lease components for accounting purposes We exclude these non lease components in calculating the ROU asset and lease liability for real estate leases and expense them as incurred For all other types of leases non lease components are included in calculating our ROU assets and lease liabilities
The operating ROU asset and noncurrent operating lease liabilities are disclosed on our consolidated balance sheets The current operating lease liabilities are included in other current liabilities on our consolidated balance sheets The finance ROU asset is included in property plant and equipment and the current and noncurrent finance lease liabilities are included in other current liabilities and other liabilities respectively on our consolidated balance sheets
Operating lease cost includes operating lease ROU asset amortization of 48 million 46 million and 47 million for the years ended January 3 2025 December 29 2023 and December 31 2022 respectively and other noncash operating lease costs related to the accretion of operating lease liabilities and straight line lease accounting of 15 million 16 million and 14 million for the years ended January 3 2025 December 29 2023 and December 31 2022 respectively
On February 25 2014 the Board of Directors authorized a plan to repurchase our outstanding shares of common stock which replaced and terminated the August 26 2011 share repurchase program As of January 3 2025 296 million remained available for repurchase under this authorization On February 20 2025 the Board of Directors authorized 454 million of share repurchases to be added to the prior authorizations which increased the total amount authorized and available for repurchase under the share repurchase program to 750 million The authorization does not obligate us to acquire any particular number of shares of common stock and may be commenced suspended or discontinued without prior notice The share repurchases are intended to be funded through our current and future cash flows and the authorization does not have an expiration date
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
We have in place a withhold to cover program which allows us to withhold common shares from employees in connection with the settlement of income tax and related benefit withholding obligations arising from the issuance of share based equity awards under the KBR Stock Plan
In May 2012 the KBR Stock Plan was amended to add 2 million shares of our common stock available for issuance under the KBR Stock Plan and increase certain sub limits and in May 2016 the KBR Stock Plan was further amended to add 4 4 million shares of our common stock available for issuance under the KBR Stock Plan
In May 2021 the KBR Stock Plan was amended to add 7 0 million shares of our common stock available for issuance under the KBR Stock Plan Additionally this amendment increased the sublimit under the Stock Plan in the form of restricted stock awards restricted stock unit awards stock value equivalent awards or pursuant to performance awards denominated in common stock by 7 0 million Under the terms of the KBR Stock Plan 23 4 million shares of common stock have been reserved for issuance to employees and non employee directors The plan specifies that no more than 16 9 million shares can be awarded as restricted stock restricted stock units stock value equivalents or pursuant to performance awards denominated in common stock
At January 3 2025 approximately 10 4 million shares were available for future grants under the KBR Stock Plan of which approximately 7 1 million shares remained available for restricted stock awards or restricted stock unit awards
Under the KBR Stock Plan stock options are granted with an exercise price not less than the fair market value of the common stock on the date of the grant and a term no greater than 10 years The fair value of options at the date of grant were estimated using the Black Scholes Merton option pricing model The expected volatility of KBR options granted in each year is based upon a blended rate that uses the historical and implied volatility of common stock for KBR The expected term of KBR options granted was based on KBR s historical experience The estimated dividend yield was based upon KBR s annualized dividend rate divided by the market price of KBR s stock on the option grant date The risk free interest rate was based upon the yield of U S government issued treasury bills or notes on the option grant date We amortize the fair value of the stock options over the vesting period on a straight line basis Options are granted from shares authorized by our Board of Directors There were no stock options granted in fiscal 2024 2023 or 2022
As of January 3 2025 there were 33 203 options outstanding and exercisable with a weighted average exercise price of 15 90 All remaining outstanding and exercisable options expire by the end of fiscal 2025 During fiscal 2024 100 853 options were exercised with a weighted average exercise price of 19 67 As of January 3 2025 there was no unrecognized compensation cost net of estimated forfeitures related to non vested KBR stock options There was no stock option compensation expense in fiscal 2024 2023 and 2022
Restricted shares issued under the KBR Stock Plan are restricted as to sale or disposition These restrictions lapse periodically over a period of time not exceeding 10 years Restrictions may also lapse for early retirement and other conditions in accordance with our established policies Upon termination of employment shares on which restrictions have not lapsed must be returned to us resulting in restricted stock forfeitures The fair market value of the stock on the date of grant is amortized and ratably charged to income over the period during which the restrictions lapse on a straight line basis For awards with performance conditions an evaluation is made each quarter as to the likelihood of meeting the performance criteria Share based compensation is then adjusted to reflect the number of shares expected to vest and the cumulative vesting period met to date
The weighted average grant date fair value per share of restricted KBR shares granted to employees during fiscal 2024 2023 and 2022 was 59 78 56 09 and 47 94 respectively Restricted stock compensation expense was 15 million in each of fiscal 2024 2023 and 2022 Total income tax benefit recognized in net income for share based compensation arrangements during each of fiscal 2024 2023 and 2022 was 3 million As of January 3 2025 there was 15 million of unrecognized compensation cost net of estimated forfeitures related to KBR s non vested restricted stock and restricted stock units which is expected to be recognized over a weighted average period of 1 84 years The total fair value of restricted shares vested was 23 million in fiscal 2024 21 million in fiscal 2023 and 31 million in fiscal 2022 based on the weighted average fair value on the vesting date The total fair value of shares vested was 16 million in fiscal 2024 14 million in fiscal 2023 and 15 million in fiscal 2022 based on the weighted average fair value on the date of grant
Under the KBR Stock Plan a portion of the Long term Performance Cash and Stock Awards is settled in KBR shares These awards vest and shares are issued at the end of a three year period The ultimate number of shares issued could range from 0 to 200 of the original shares granted depending upon KBR s performance in relation to the Total Shareholder Return TSR performance objective Stock compensation expense for these awards was 6 million in fiscal 2024 fiscal 2023 and fiscal 2022 respectively In fiscal 2024 278 178 shares vested related to our performance based stock awards As of January 3 2025 there was 5 million of unrecognized compensation cost related to KBR s non vested performance based stock awards
Under the KBR Stock Plan for Cash Performance Awards granted in fiscal 2024 2023 and 2022 performance is based 50 on average TSR as compared to the average TSR of KBR s peers and 50 on KBR s Book to Bill for 2024 2023 and 2022 In accordance with the provisions of ASC 718 Compensation Stock Compensation the TSR portion for the performance award units are classified as liability awards and remeasured at the end of each reporting period at fair value until settlement The fair value approach uses the Monte Carlo valuation method which analyzes the companies comprising KBR s peer group considering volatility interest rate stock beta and TSR through the grant date The Book to Bill calculation for 2024 2023 and 2022 is based on the Company s Book to Bill earned at a target level averaged over a three year period The
Book to Bill portion of the Cash Performance Award is also classified as a liability award and remeasured at the end of each reporting period based on our estimate of the amount to be paid at the end of the vesting period The cash performance award units may only be paid in cash
Under the KBR Stock Plan in fiscal 2024 we granted 20 million performance based award units Cash Performance Awards with a three year performance period from January 1 2024 to December 31 2026 In fiscal 2023 we granted 19 million Cash Performance Awards with a three year performance period from January 1 2023 to December 31 2025 In fiscal 2022 we granted 16 million Cash Performance Awards with a three year performance period from January 1 2022 to December 31 2024 Cash Performance Awards forfeited net of previous plan payout totaled 7 million units 5 million units and 2 million units during fiscal 2024 fiscal 2023 and fiscal 2022 respectively At January 3 2025 the outstanding balance for Cash Performance Awards is 45 million units Cash Performance Awards are not considered earned until required performance conditions are met Additionally approval by the Compensation Committee of the Board of Directors is required before earned Cash Performance Awards are paid
Cost for the Cash Performance Awards is accrued over the requisite service period For fiscal 2024 fiscal 2023 and fiscal 2022 we recognized 16 million 21 million and 20 million respectively in expense for Cash Performance Awards The expense associated with these Cash Performance Awards is included in cost of services and general and administrative expense in our consolidated statements of operations The liability for Cash Performance Awards includes 17 million recorded within accrued salaries wages and benefits and 16 million recorded within employee compensation and benefits on our consolidated balance sheets as of January 3 2025 The liability for Cash Performance Awards includes 20 million recorded within accrued salaries wages and benefits and 19 million recorded within employee compensation and benefits on our consolidated balance sheets as of December 29 2023
Under the ESPP eligible employees may withhold up to 10 of their earnings subject to some limitations to purchase shares of KBR s common stock Unless KBR s Board of Directors determines otherwise each six month offering period commences at the beginning of February and August of each year In fiscal 2024 employees who participated in the ESPP received a 6 discount on the stock price at the end of each period In fiscal 2025 employees who participate in the ESPP will receive a 7 discount on the stock price at the end of each period During fiscal 2024 and fiscal 2023 our employees purchased approximately 156 000 and 119 000 shares respectively through the ESPP These shares were issued from our treasury share account
Basic income loss per share is based upon the weighted average number of common shares outstanding during the period Diluted income loss per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued using the if converted method for Convertible Debt and the treasury stock method for all other instruments
For the year ended January 3 2025 the diluted net income loss attributable to KBR per share calculation excluded the following weighted average potential common shares because their inclusion would have been anti dilutive 0 2 million related to our stock options and restricted stock awards
Due to our net loss position for the year ended December 29 2023 our basic net loss attributable to KBR per share and diluted net loss attributable to KBR per share are identical as the effect of all potential common shares is anti dilutive and therefore excluded For the year ended December 29 2023 the diluted net income loss attributable to KBR per share calculation excluded the following weighted average potential common shares because their inclusion would have been anti dilutive 4 0 million related to the convertible notes that we repurchased and settled in fiscal 2023 10 2 million related to the outstanding warrants that were terminated in fiscal 2023 the Warrant Transactions and 1 4 million related to our stock options and restricted stock awards For the year ended December 31 2022 the diluted net income loss attributable to KBR per share calculation excluded the following weighted average potential common shares because their inclusion would have been anti dilutive 11 2 million related to the Warrant Transactions and 0 5 million related to our stock options and restricted stock awards
We declared dividends totaling 80 million and 73 million in fiscal 2024 and fiscal 2023 respectively On February 20 2025 the Board of Directors declared a dividend of 0 165 per share which will be paid on April 15 2025
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date We utilize a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value Level 1 inputs are quoted prices in active markets for identical assets or liabilities Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly including quoted prices for similar assets or liabilities in active markets quoted prices in markets that are not active inputs other than quoted prices that are observable for the asset or liability or inputs derived from observable market data Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities
The carrying amount of cash and cash equivalents accounts receivable and accounts payable as reflected in the consolidated balance sheets approximates fair value due to the short term maturities of these financial instruments The carrying values and estimated fair values of our financial instruments that are not required to be recorded at fair value in our consolidated balance sheets are provided in the following table
The carrying value of the debt instruments listed above exclude debt issuance costs for the respective instrument See Note 11 Debt and Other Credit Facilities for the debt issuance costs of our debt instruments and further discussion of our term loans Senior Notes and Revolver We paid the final outstanding derivative liability on the Warrant Transactions at December 29 2023 of 33 million in fiscal 2024
We conduct business globally in numerous currencies and are therefore exposed to foreign currency fluctuations We may use derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates We do not use derivative instruments for speculative trading purposes We generally utilize foreign currency exchange forwards and option contracts to hedge exposures associated with forecasted future cash flows and to hedge exposures present on our balance sheet
As of January 3 2025 the gross notional value of our foreign currency exchange forwards and option contracts used to hedge balance sheet exposures was 38 million all of which had durations of 30 days or less The fair value of our balance
sheet hedges are included in other current assets other assets and other liabilities on our consolidated balance sheets at January 3 2025 and December 29 2023 The fair values of these derivatives are considered Level 2 under ASC 820 Fair Value Measurement as they are based on quoted prices directly observable in active markets
The following table summarizes the recognized changes in fair value of our balance sheet hedges offset by remeasurement of balance sheet positions These amounts are recognized in our consolidated statements of operations for the periods presented The net of our changes in fair value of hedges and the remeasurement of our assets and liabilities is included in other non operating income expense on our consolidated statements of operations
We use interest rate swaps to reduce interest rate risk and to manage net interest expense by converting a portion of our variable rate debt under our Senior Credit Facility into fixed rate debt During fiscal 2024 we entered into additional interest rate swap agreements to term SOFR which became effective September 30 2024 Our portfolio of interest rate swaps consists of the following
Our interest rate swaps are reported at fair value using Level 2 inputs The fair value of the interest rate swaps at January 3 2025 was a 37 million net asset of which 19 million is included in other current assets and 18 million is included in other assets The unrealized net gains on these interest rate swaps was 37 million and is included in AOCL as of January 3 2025 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 The unrealized net gains on these interest rate swaps was 36 million and is included in AOCL as of December 29 2023
From time to time we sell certain receivables to unrelated third party financial institutions under various accounts receivable monetization programs One such program is with MUFG Bank Ltd MUFG under a Master Accounts Receivable Purchase Agreement the RPA which provides the sale to MUFG of certain of our designated eligible receivables with a significant portion of such receivables being owed by the U S government During fiscal 2024 we derecognized 3 117 million of accounts receivables from the balance sheet under these agreements of which certain receivables totaling 3 073 million were sold under the MUFG RPA The fair value of the sold receivables approximated their book value due to their short term nature The fees incurred are presented in other non operating income expense on the consolidated statements of operations
Other investments include investments in equity securities of privately held companies without readily determinable fair values and are included in other assets on our consolidated balance sheets These investments are accounted for under the measu
rement alternative provided that KBR does not have the ability to exercise significant influence or control over the investees KBR s aggregate investment in Mura Technology Mura is approximately 17 The carrying value of our investment in Mura was 126 million at January 3 2025 The carrying value of our investment in Mura was 128 million at December 29 2023
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 January 3 2025 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 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 January 3 2025 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 January 3 2025
As disclosed in Note 4 Acquisition of LinQuest Corporation to our consolidated financial statements we acquired LinQuest Corporation during fiscal year 2024 As permitted by guidelines established by the Securities and Exchange Commission for newly acquired businesses we excluded this acquisition from the scope of our annual report on internal controls over financial reporting for the year ended January 3 2025 This acquisition comprised approximately 141 million of our consolidated total assets as of January 3 2025 and 181 million of our consolidated revenues for the year ended January 3 2025 We are in the process of integrating this business into our overall internal controls over financial reporting and plan to include them in our scope for the year ended January 2 2026
The effectiveness of our internal control over financial reporting as of January 3 2025 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
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 January 3 2025
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 January 3 2025 based on criteria established in I
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 January 3 2025 and December 29 2023 and 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 January 3 2025 and the related notes collectively the consolidated financial statements and our report dated February 25 2025 expressed an unqualified opinion on those consolidated financial statements
The Company acquired LinQuest Corporation during 2024 and management excluded from its assessment of the effectiveness of the Company s internal control over financial reporting as of January 3 2025 LinQuest Corporation s internal control over financial reporting associated with total assets of 141 million and total revenues of 181 million included in the consolidated financial statements of the Company as of and for the year ended January 3 2025 Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of LinQuest Corporation
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
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
During the three months ended January 3 2025 none of our officers or directors adopted or terminated 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
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
We have adopted an insider trading policy governing the purchase sale and other dispositions of securities of the Company by directors officers and employees that we believe is reasonably designed to promote compliance with insider trading laws rules and regulations Our insider trading policy states among other things that our directors officers and employees are prohibited from trading in such securities while in possession of material nonpublic information The foregoing summary of our insider trading policies and procedures does not purport to be complete and is qualified by reference to our Policy on Trading in Company Securities filed as an exhibit to our Annual Report on Form 10 K for the fiscal year ended January 3 2025
The information required by this Item is incorporated herein by reference to the KBR Inc Company Proxy Statement for our 2025 Annual Meeting of Stockholders except as to information required pursuant to Item 402 v of SEC Regulation S K relating to pay versus performance
of this annual report on Form 10 K The report of KBR Inc s independent registered public accounting firm PCAOB ID 185 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
Indenture dated September 30 2020 by and among KBR Inc the guarantors party thereto and Citibank N A as trustee incorporated by reference to Exhibit 4 1 to KBR s current report on Form 8 K filed on October 5 2020 File No 001 33146
First Supplemental Indenture dated as of January 6 2021 by and among KBR Inc the guarantors named therein and Citibank N A as trustee incorporated by reference to Exhibit 4 1 to KBR s current report on Form 8 K filed on January 6 2021 File No 001 33146
Master Separation Agreement between Halliburton Company and KBR Inc dated as of November 20 2006 incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed November 27 2006 File No 001 33146
Tax Sharing Agreement dated as of January 1 2006 by and between Halliburton Company KBR Holdings LLC and KBR Inc as amended effective February 26 2007 incorporated by reference to Exhibit 10 2 to KBR s annual report on Form 10 K for the year ended December 31 2006 File No 001 33146
Intellectual Property Matters Agreement dated as of November 20 2006 by and between Halliburton Company and KBR Inc incorporated by reference to Exhibit 10 7 to KBR s current report on Form 8 K filed November 27 2006 File No 001 33146
Form of Indemnification Agreement between KBR Inc and its directors and executive officers incorporated by reference to Exhibit 10 7 to KBR s annual report on Form 10 K for the year ended December 31 2013 filed on February 27 2014 File No 001 33146
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
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
Amendment No 2 to Credit Agreement dated as of February 7 2020 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed February 12 2020 File No 001 33146
Amendment No 3 to Credit Agreement dated as of July 2 2020 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto the swing line lenders party thereto the letter of credit issuers party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed July 8 2020 File No 001 33146
Amendment No 4 to Credit Agreement dated as of September 14 2020 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto the swing line lenders party thereto the letter of credit issuers party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed September 14 2020 File No 001 33146
Amendment No 5 to Credit Agreement dated as of November 18 2021 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed November 24 2021 File No 001 33146
Amendment No 6 to Credit Agreement dated as of May 17 2022 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed May 17 2022 File No 001 33146
Amendment No 7 to the Credit Agreement dated as of December 30 2022 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed December 30 2022 File No 001 33146
Amendment No 8 to the Credit Agreement dated as of February 6 2023 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of KBR party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed February 6 2023 File No 001 33146
Amendment No 9 to the Credit Agreement dated as of June 6 2023 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of the Company party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed June 8 2023 File No 001 33146
Amendment No 10 to the Credit Agreement dated as of July 26 2023 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of the Company party thereto incorporated by reference to Exhibit 10 5 to KBR s quarterly report on Form 10 Q for the period ended June 30 2023 filed on July 27 2023 File No 001 33146
Amendment No 11 to the Credit Agreement dated as of January 19 2024 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of the Company party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed on January 23 2024 File No 001 33146
Amendment No 12 to the Credit Agreement dated as of February 7 2024 with Bank of America N A as administrative agent swing line lender and a letter of credit issuer the lenders party thereto and each of the subsidiaries of the Company party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed on February 13 2024 File No 001 33146
Amendment No 13 to the Credit Agreement dated as of August 14 2024 with Bank of America N A as administrative agent the lenders party thereto the Company and each of the subsidiaries of the Company party thereto incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed August 19 2024 File No 001 33146
KBR Elective Deferral Plan as restated effective September 1 2019 incorporated by reference to Exhibit 10 27 to KBR s quarterly report on Form 10 Q for the period ended September 30 2019 File No 001 33146
Form of revised Restricted Stock Unit Agreement Director pursuant to KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 3 to KBR s quarterly report on Form 10 Q for the period ended March 31 2013 File No 001 33146
Form of revised Nonstatutory Stock Option Agreement for US and Non US Employees pursuant to KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 2 to KBR s quarterly report on Form 10 Q for the period ended March 31 2014 File No 001 33146
Amendment to the 2008 Severance and Change in Control Agreements effective as of December 31 2008 incorporated by reference to Exhibit 10 36 to KBR s annual report on Form 10 K for the year ended December 31 2011 File No 001 33146
Severance and Change in Control Agreement effective as of June 2 2014 between KBR Technical Services Inc a Delaware corporation KBR Inc and Stuart J Bradie incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed April 9 2014 File No 001 33146
Severance and Change of Control Agreement effective as of February 23 2017 by and between KBR Technical Services Inc a Delaware corporation KBR Inc and Mark Sopp incorporated by reference to Exhibit 10 1 to KBR s current report on Form 8 K filed December 13 2016 File No 001 33146
KBR Senior Executive Performance Pay Plan as restated effective January 1 2020 incorporated by reference to Exhibit 10 7 to KBR s quarterly report on Form 10 Q for the period ended March 31 2020 File No 001 33146
KBR Management Performance Pay Plan as restated effective January 1 2020 incorporated by reference to Exhibit 10 8 to KBR s quarterly report on Form 10 Q for the period ended March 31 2020 File No 001 33146
KBR Benefit Restoration Plan as restated effective December 31 2010 incorporated by reference to Exhibit 10 56 to KBR s quarterly report on Form 10 Q for the period ended March 31 2021 File No 001 33146
First Amendment to KBR Benefit Restoration Plan as restated effective December 31 2010 incorporated by reference to Exhibit 10 57 to KBR s quarterly report on Form 10 Q for the period ended March 31 2021 File No 001 33146
Second Amendment to KBR Benefit Restoration Plan as restated effective December 31 2010 incorporated by reference to Exhibit 10 58 to KBR s quarterly report on Form 10 Q for the period ended March 31 2021 File No 001 33146
Third Amendment to KBR Benefit Restoration Plan as restated effective December 31 2010 incorporated by reference to Exhibit 10 42 to KBR s annual report on Form 10 K for the period ended December 29 2023 filed on February 20 2024 File No 001 33146
Form of revised Restricted Stock Unit Agreement US Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 1 to KBR s quarterly report on Form 10 Q for the period ended March 31 2022 File No 001 33146
Form of revised Restricted Stock Unit Agreement International Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 2 to KBR s quarterly report on Form 10 Q for the period ended March 31 2022 File No 001 33146
Form of revised Performance Stock Unit Agreement US Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 3 to KBR s quarterly report on Form 10 Q for the period ended March 31 2022 File No 001 33146
Form of revised Performance Stock Unit Agreement International Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 4 to KBR s quarterly report on Form 10 Q for the period ended March 31 2022 File No 001 33146
Form of Performance Award Agreement US International Employee Cash Only pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 5 to KBR s quarterly report on Form 10 Q for the period ended March 31 2022 File No 001 33146
Form of Performance Award Agreement US International Employee Cash Stock pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 6 to KBR s quarterly report on Form 10 Q for the period ended March 31 2022 File No 001 33146
First Amendment to KBR Elective Deferral Plan as restated effective September 1 2019 incorporated by reference to Exhibit 10 61 to KBR s annual report on Form 10 K for the period ended December 31 2022 File No 001 33146
First Amendment to KBR Senior Executive Performance Pay Plan as restated effective January 1 2020 incorporated by reference to Exhibit 10 62 to KBR s annual report on Form 10 K for the period ended December 31 2022 File No 001 33146
First Amendment to KBR Management Performance Pay Plan as restated effective January 1 2020 incorporated by reference to Exhibit 10 63 to KBR s annual report on Form 10 K for the period ended December 31 2022 File No 001 33146
Second Amendment to KBR Senior Executive Performance Pay Plan as restated effective January 1 2020 incorporated by reference to Exhibit 10 2 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of revised Restricted Stock Unit Agreement US Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 3 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of revised Restricted Stock Unit Agreement International Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 4 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of revised Performance Stock Unit Agreement US Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 5 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of revised Performance Stock Unit Agreement International Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 6 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of Performance Award Agreement US International Employee Cash Only pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 7 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of Performance Award Agreement US International Employee Cash Stock pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 8 to KBR s quarterly report on Form 10 Q for the period ended March 31 2023 File No 001 33146
Form of revised Restricted Stock Unit Agreement US Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 3 to KBR s quarterly report on Form 10 Q for the period ended March 29 2024 File No 001 33146
Form of revised Restricted Stock Unit Agreement International Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 4 to KBR s quarterly report on Form 10 Q for the period ended March 29 2024 File No 001 33146
Form of revised Performance Stock Unit Agreement US Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 5 to KBR s quarterly report on Form 10 Q for the period ended March 29 2024 File No 001 33146
Form of revised Performance Stock Unit Agreement International Employee pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 6 to KBR s quarterly report on Form 10 Q for the period ended March 29 2024 File No 001 33146
Form of Performance Award Agreement US International Employee Cash Only pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 7 to KBR s quarterly report on Form 10 Q for the period ended March 29 2024 File No 001 33146
Form of Performance Award Agreement US International Employee Cash Stock pursuant to Amended and Restated KBR Inc 2006 Stock and Incentive Plan incorporated by reference to Exhibit 10 8 to KBR s quarterly report on Form 10 Q for the period ended March 29 2024 File No 001 33146
KBR Inc Policy for the Recovery of Erroneously Awarded Compensation incorporated by reference to Exhibit 97 1 to KBR s annual report on Form 10 K for the period ended December 29 2023 filed on February 20 2024 File No 001 33146
The following materials from KBR annual report on Form 10 K for the period ended January 3 2025 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
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
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

Company Name	KBR, INC. Vist SEC web-site
Category	HEAVY CONSTRUCTION OTHER THAN BUILDING CONST - CONTRACTORS
Trading Symbol	KBR