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What changed in KBR, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KBR, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+478 added−422 removedSource: 10-K (2023-02-17) vs 10-K (2022-02-22)

Top changes in KBR, INC.'s 2023 10-K

478 paragraphs added · 422 removed · 261 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

49 edited+73 added−55 removed38 unchanged
Biggest changeWe seek to differentiate ourselves in areas in which we believe we have a competitive advantage, including: • People ◦ Distinctive, mission-focused and inclusive team ethos and culture, which we refer to as “One KBR”. ◦ Deep domain expertise resident across nationally recognized subject matter experts. ◦ Highly-cleared employee base. • Sustainability ◦ Achieved carbon neutrality from 2019 and established a 2030 net-zero carbon ambition. ◦ As an industry leader, we have and will continue to invest in the development of disruptive, innovative clean energy solutions that promote a cleaner, greener future and a sustainable world. ◦ World leader in ammonia technology, a leading hydrogen energy enabler, with a fully developed, proprietary, end-to-end green ammonia solution K-GreeN TM . ◦ Exclusive licensor of Cat-HTR TM , an innovative, disruptive mixed plastics recycling technology that processes all types of plastic including many that are currently considered unrecyclable, and Hydro-PRT TM , 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. ◦ Safe and responsible operations are essential, and our Zero Harm culture prioritizes the safety and security of our people as well as the active management of our environmental impact. • Technical Excellence and Digital Solutions ◦ Innovative, sustainable, proprietary process technology, expertise and solutions. ◦ Innovative digital solutions and advanced capabilities to improve operations, reliability and environmental impact, including machine learning and artificial intelligence. ◦ Virtual and augmented reality visualizations to provide greater perspectives, insights and training in a controlled environment. • Customer Relationships ◦ Customer missions and objectives are placed at the center of our planning and delivery model. ◦ Decades of enduring relationships with government and commercial client base. • Financial Strength ◦ Diverse portfolio of multi-year, mission critical programs creating stability and resilience. ◦ Low capital intensity business model generating favorable operating cash flows. ◦ Strong liquidity with ample capacity for growth.
Biggest changeThese targets include a 25% reduction in business travel, renewable energy agreements and certifications and increasing our green fleets. ◦ We have a dedicated Net Zero Roadmap project team working with each section of the business to measure and monitor GHG emissions for developing discrete and tailored reduction programs, alongside the corporate level reduction plans and targets. ◦ As an industry leader, we have and will continue to invest in the development of disruptive, innovative clean energy solutions that promote a cleaner, greener future and a sustainable world. ◦ World leader in ammonia technology, a leading hydrogen energy enabler, with a fully developed, proprietary, end-to-end green ammonia solution K-GreeN TM . ◦ Exclusive licensor of Hydro-PRT TM , 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. ◦ Safe and responsible operations are essential, and our Zero Harm culture prioritizes the safety and security of our people as well as the active management of our environmental impact. • Technical Excellence and Digital Solutions ◦ Innovative, sustainable, proprietary process technology, expertise and solutions. ◦ Innovative digital solutions and advanced capabilities to improve operations, reliability and environmental impact, including machine learning and artificial intelligence. ◦ Virtual and augmented reality visualizations to provide greater perspectives, insights and training in a controlled environment. • Customer Relationships ◦ Customer missions and objectives are placed at the center of our planning and delivery model. ◦ Decades of enduring relationships with government and commercial client base. • Financial Strength ◦ Diverse portfolio of multi-year, mission critical programs creating stability and resilience. ◦ Low capital intensity business model generating favorable operating cash flows. ◦ Strong liquidity with ample capacity for growth. 9 Our Business Segments 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.
Significant Joint Ventures and Alliances We enter into joint ventures and alliances with other reputable industry participants to capitalize on the strengths of each party and provide greater flexibility in delivering our services based on expertise, cost and geographical efficiency, increase the number of opportunities that can be pursued and reduce exposure and diversify risk.
Significant Joint Ventures and Alliances We enter into joint ventures and alliances with other reputable 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.
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 variety of petrochemicals and chemicals and in the areas of olefins, refining, fertilizers, coal gasification, semi-submersibles and specialty chemicals.
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 variety of petrochemicals and in the areas of olefins, refining, fertilizers, coal gasification, semi-submersibles and specialty chemicals.
In addition, some environmental regulations can impose liability for the entire clean-up on owners, operators, transporters and other persons arranging for the treatment or disposal of such hazardous substances costs related to contaminated facilities or project sites.
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.
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 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.
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.
Among other things, these laws and regulations: • require certification and disclosure of all cost and pricing data in connection with certain contract negotiations; • define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-type U.S. government contracts; • require compliance with CAS; • require reviews by the DCAA, DCMA and other regulatory agencies for compliance with a contractor’s business systems; • 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.
Among other things, these laws and regulations: • require certification and disclosure of all cost and pricing data in connection with certain contract negotiations; • define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-type U.S. government contracts; • require compliance with CAS; 12 • require reviews by the DCAA, DCMA and other regulatory agencies for compliance with a contractor’s business systems; • 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.
Significant Customers We provide services to a diverse customer base, including domestic and foreign governments and commercial companies. We generate significant revenues within our GS business segment from key U.S. government customers including U.S. DoD and NASA, and from the U.K government. No other customers represented 10% or more of consolidated revenues in any of the periods presented.
Significant Customers We provide services to a diverse customer base, including domestic and foreign governments and commercial and industrial companies. We generate significant revenues within our GS business segment from key U.S. government customers including U.S. DoD and NASA, and from the U.K government. No other customers represented 10% or more of consolidated revenues in any of the periods presented.
For technologies we own, we protect our rights, know-how and trade secrets through patents and confidentiality agreements. 12 Seasonality Our operations are not generally 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, product deliveries and customer acceptance.
For technologies we own, we protect our rights, know-how and trade secrets through patents and confidentiality agreements. Seasonality Our operations are not generally 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, product deliveries and customer acceptance.
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.
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 was being executed through two entities (collectively, "JKC"), which are VIEs, in which we own a 30% equity interest.
Under lump-sum contracts, we perform a defined scope of work for a specified fee to cover all costs and any profit element. Lump-sum contracts entail significant risk to us because they require us to predetermine the work to be performed, the project execution schedule and all the costs associated with the scope of work.
Under lump-sum contracts, we perform a defined scope of work for a specified fee to cover all costs and any profit element. Lump-sum contracts entail risk to us because they require us to predetermine the work to be performed, the project execution schedule and all the costs associated with the scope of work.
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 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 13 time and budget.
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.
These laws and regulations may expose us to liability arising out of the conduct of operations or conditions 14 caused by others, or for our acts that were in compliance with all applicable laws at the time these acts were performed.
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 11 material plus a fee, if applicable.
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.
Our significant joint ventures and alliances are described below. All joint venture ownership percentages presented are stated as of December 31, 2021. 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.
Our significant joint ventures and alliances are described below. All joint venture ownership percentages presented are stated as of December 31, 2022. 11 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's services cover the full spectrum spanning research and development, advanced prototyping, acquisition support, systems engineering, C4ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management and operations readiness and support.
KBR's services cover the full spectrum spanning research and development, advanced prototyping, acquisition support, systems engineering, C5ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management and operations readiness and support.
From early planning through scope definition, advanced technologies and facility life-cycle support, our STS business segment works closely with customers to provide what we believe is the optimal approach to maximize their return on investment. Other. Our non-core Other segment includes corporate expenses and selling, general and administrative expenses not allocated to the core business segments above.
Through early planning and scope definition, advanced technologies and facility life-cycle optimization, our STS business segment works closely with customers to provide what we believe is the optimal approach to maximize their return on investment. Other. Our non-core Other segment includes corporate expenses and selling, general and administrative expenses not allocated to the core business segments above.
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.
For projects within our consolidated and 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.
Item 1. Business Company Overview KBR, Inc., a Delaware corporation ("KBR" or, the "Company"), delivers science, technology and engineering solutions to governments and companies around the world .
Item 1. Business Company Overview KBR, Inc., a Delaware corporation ("KBR" or, the "Company"), delivers science, technology, engineering and logistics support solutions to governments and companies around the world .
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. 17
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. 21
Areas of long-term strategic focus include sustainable technology solutions, energy transition and technology-led asset optimization. 7 Competitive Advantages We operate in global markets with customers who demand innovation, technical and domain expertise and digitally-enabled, technology-led solutions.
Areas of long-term strategic focus include sustainable technology solutions, energy transition, energy security and technology-led asset optimization. 8 Competitive Advantages We operate in global markets with customers who demand innovation, technical and domain expertise and digitally-enabled, technology-led sustainable solutions.
Risk Factors” contained in Part I of this Annual Report on Form 10-K for more information. Intellectual Property The use of intellectual property generally benefits our STS business segment.
See “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K for more information. Intellectual Property The use of intellectual property generally benefits our STS business segment.
Air Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; the U.K. Ministry of Defence (“MoD”), London Metropolitan Police, other U.K. Crown Services; the Royal Australian Air Force, Navy and Army; and other national governments.
Air Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; the U.K. MoD, London Metropolitan Police, other U.K. Crown Services; the Royal Australian Air Force, Navy and Army; and other national governments.
While the ongoing COVID-19 pandemic has resulted in significant supply chain disruptions globally and within the United States, we have not experienced, and do not anticipate experiencing, any significant procurement difficulties, as we purchase our required materials and equipment from a variety of sources.
While the COVID-19 pandemic and other political and economic conditions have resulted in significant supply chain disruptions and inflation globally and within the United States, we have not experienced, and do not anticipate experiencing, any significant procurement difficulties, as we purchase our required materials and equipment from a variety of sources.
Our capabilities and offerings include the following: • Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences; • Defense systems engineering such as rapid prototyping; test and evaluation; aerospace acquisition support; systems and platform integration; and sustainment engineering; • Operational support such as space domain awareness; C4ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support; • Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; artificial intelligence and machine learning; and • Technology such as proprietary, sustainability-focused process licensing; advisory services focused on energy transition; and digitally-enabled asset optimization solutions.
Our capabilities and offerings include the following: • Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences; • Defense systems engineering such as rapid prototyping; test and evaluation; aerospace acquisition support; systems and platform integration; and sustainment engineering; • Operational support such as space domain awareness; C5ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support; • Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; artificial intelligence and machine learning; and • Sustainable decarbonization solutions that accelerate and enable energy transition and climate change solutions such as proprietary, sustainability-focused process licensing; advisory services focused on energy transition; high-end engineering, design and program management offerings; and digitally-enabled asset optimization solutions.
The future revenues we expect to realize as a result of backlog was $15.0 billion and $15.1 billion as of December 31, 2021 and 2020, respectively, with approximately 17% and 16%, respectively, related to work being executed by joint ventures accounted for using the equity method of accounting.
The future revenues we expect to realize as a result of backlog were $15.6 billion and $15.0 billion as of December 31, 2022 and 2021, respectively, with approximately 25% and 17%, respectively, related to work being executed by joint ventures accounted for using the equity method of accounting.
The contract ceiling value is $20 billion with a potential 9-year term, inclusive of all options periods. HomeSafe is expected to be the exclusive household goods move management service provider for the U.S. Armed Forces, Department of Defense civilians and their families.
Transportation Command. The contract ceiling value is $20 billion with a potential 9-year term, inclusive of all options periods. HomeSafe is the exclusive household goods move management service provider for the U.S. Armed Forces, U.S. DoD civilians and their families.
Our operations may require us to manage, handle, remove, treat, transport and dispose of toxic or hazardous substances, which are subject to stringent and complex laws relating to the protection of the environment and prevention of pollution.
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.
Additionally, weather and natural phenomena can temporarily affect the performance of our services. Environmental Regulation Our business involves planning, design, program management, construction and construction management and operations and maintenance at various project sites throughout the world, including oil field and related energy infrastructure construction services, in and around sensitive environmental areas, such as rivers, lakes and wetlands.
Additionally, weather and natural phenomena can temporarily affect the performance of our services. Environmental Regulation 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.
However, a number of factors that we may not be able to predict or control could result in increased costs for these materials, including the continued impact of the ongoing COVID-19 pandemic, as well as global trade relationships and other general market and political conditions. See “Item 1A.
However, a number of factors that we may not be able to predict or control could result in increased costs for materials, including the continued impact of the COVID-19 pandemic, as well as global trade relationships and other general market and political conditions. These potential increased costs could reduce profitability on our contracts, particularly those that are fixed price.
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.
Government Contracts and Regulations Our business is heavily regulated. We contract with numerous U.S. government agencies and entities, principally the U.S. DoD and NASA. 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.
The investment is accounted for within our STS business segment using the equity method of accounting. Backlog of Unfulfilled Orders 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.
Backlog of Unfulfilled Orders 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.
Sustainable Technology Solutions. Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 70 innovative, proprietary, sustainability-focused process technologies that we license spanning four primary areas: ammonia/syngas/fertilizers, chemical/petrochemicals, clean refining and circular process/circular economy solutions.
Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 70 innovative, proprietary, sustainability-focused process technologies that accelerate and enable energy transition across the industrial base in four primary verticals: ammonia/syngas, chemical/petrochemicals, clean refining and circular process/circular economy solutions.
With the acquisition of Frazer-Nash Consultancy Limited ("Frazer-Nash") on October 20, 2021 (described in Note 4 to the consolidated financial statements), our GS business segment also provides a broad range of professional advisory services to deliver high-end systems engineering, systems assurance and technology to customers across the defense, energy and critical infrastructure sectors primarily in the U.K. and Australia.
With the acquisition of Frazer-Nash Consultancy Limited ("Frazer-Nash") on October 20, 2021, we have expanded our broad range of professional advisory services that deliver high-end systems engineering, systems assurance and technology to customers across the defense, renewable energy and critical infrastructure sectors in the U.K.
Risk Factors” contained in Part I of this Annual Report on Form 10-K. Also, see further explanations in "Item 7.
Risk Factors” contained in Part I of this Annual Report on Form 10-K. Also, see further explanations in Note 1 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
In 2021, KBR’s operating model continued to shift toward agile, technology-driven, solutions-oriented delivery and was streamlined to increase strategic focus to move upmarket into differentiated areas that we believe will provide attractive returns and consistent growth with favorable cash conversion. The Company has also transitioned away from higher risk, volatile and increasingly commoditized markets.
In 2022, KBR’s operating model continued to shift toward agile, technology-driven, solutions-oriented delivery and was streamlined to increase strategic focus to move upmarket into differentiated areas that we believe will provide attractive returns and consistent growth with favorable cash conversion. Our key areas of strategic focus are as follows: • Government.
These laws and regulations are frequently changing, and it is impossible to predict with certainty the effect of such laws and regulations on us in the future. Our global Zero Harm culture encompasses ten sustainability pillars.
These laws and regulations are frequently changing, and it is impossible to predict with certainty the effect of such laws and regulations on us in the future. 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.
Revenues and percent of consolidated revenues attributable to major customers by year: Years ended December 31, Dollars in millions, except percentage amounts 2021 2020 2019 U.S. government (all agencies) $ 5,122 70 % $ 3,079 53 % $ 3,014 53 % U.K. government (all agencies) $ 508 7 % $ 573 10 % $ 659 12 % Information relating to our customer concentration is described in “Item 1A.
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. 10 Revenues and percent of consolidated revenues attributable to major customers by year: Years ended December 31, Dollars in millions, except percentage amounts 2022 2021 2020 U.S. government (all agencies) $ 4,034 61 % $ 5,122 70 % $ 3,079 53 % U.K. government (all agencies) $ 584 9 % $ 508 7 % $ 573 10 % Information relating to our customer concentration is described in “Item 1A.
We estimate as of December 31, 2021, 30% of our backlog will be recognized as revenues or equity in earnings of unconsolidated affiliates within fiscal year 2022. For additional information regarding backlog, see our discussion within “Item 7.
We estimate as of December 31, 2022, 36% of our backlog will be recognized as revenues or equity in earnings of unconsolidated affiliates within fiscal year 2023. 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.
Additional information relating to environmental regulations is described in "Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K and in Note 14 to our consolidated financial statements. 13 Human Capital Management Across KBR, 2021 has been known as ‘the year of our people’.
Additional information relating to environmental regulations is described in "Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K and in Note 14 to our consolidated financial statements. 15 Human Capital Management Every day, the people of KBR help solve some of the world’s most challenging scientific, technological and engineering problems.
Our business is organized into two core business segments and one non-core business segment as follows: Core business segments • Government Solutions ("GS") • Sustainable Technology Solutions ("STS") Non-core business segment • Other 8 Our business segments are described below. Government Solutions.
At any given time, government programs and joint ventures represent a substantial part of our operations. Our business is organized into two core business segments and one non-core business segment as follows: Core business segments • Government Solutions • Sustainable Technology Solutions Non-core business segment • Other Our business segments are described below. Government Solutions.
Through the combined efforts of our employees and leadership team, this bold initiative has already resulted in tangible benefits for our people and the business, helping us realize our vision to bring together the best and brightest to deliver technology and solutions that help our customers accomplish their most critical missions and objectives.
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.
These services are provided primarily to government agencies in the U.S., the U.K. and Australia under long-term programs with key technical, scientific or mission-specific differentiation. Key customers include U.S. Department of Defense (“DoD”) agencies such as the U.S. Army, U.S. Navy and U.S.
KBR delivers 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., the U.K. and Australia under long-term programs with key technical, scientific or mission-specific differentiation.
Under this contract, HomeSafe plans to modernize and infuse technology to improve the domestic and international relocation experience for all military personnel and their families. The contract award is currently under protest.
Under this contract, HomeSafe plans to modernize and infuse technology to improve the global relocation experience for all military personnel and their families. In October 2022, the award was upheld in the Court of Federal Claims, and the period for appeal of the Court's decision has expired. Subsequent to the Court of Federal Claims ruling, U.S.
STS also includes our highly synergistic advisory and consulting practice focused on energy transition and net-zero carbon emission consulting, our high-end engineering, design and professional services offerings, as well as our technology-led industrial solutions built on our KBR INSITE® platform.
STS also provides highly synergistic services including advisory and consulting focused on broad-based energy transition and net-zero carbon emission solutions, high-end engineering, design and program management centered around decarbonization, energy efficiency, environmental impact and asset optimization, as well as our digitally-enabled operating and monitoring solutions.
Additional information relating to the Frazer-Nash acquisition is described in Part II of this Annual Report on Form 10-K in Note 4 to our consolidated financial statements. 9 HomeSafe Alliance LLC Contract Award In November 2021, we announced that HomeSafe Alliance LLC (“HomeSafe”), a KBR led joint venture, was awarded the global household goods contract by U.S. Transportation Command.
Additional information relating to the Frazer-Nash and VIMA acquisitions is described in Part II of this Annual Report on Form 10-K in Note 4 to our consolidated financial statements. Sustainable Technology Solutions.
KBR delivers a wide range of professional services across defense, intelligence, space, aviation and other programs and missions for military and other government agencies, spanning research and development, advanced prototyping, acquisition support, systems engineering, C4ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management and operations readiness and support.
KBR's services cover the full spectrum spanning research and development, advanced prototyping, acquisition support, systems engineering, systems assurance and technology, C5ISR, cyber analytics, space domain awareness, test and evaluation, systems integration and program management, global supply chain management, digital transformation and operations readiness and support. Key customers include U.S. DoD agencies such as the U.S. Army, U.S. Navy and U.S.
Organization Agility KBR continues to grow organically and through acquisition, while remaining agile and restructuring where required to support our long-term strategy. At the end of 2021, we employed approximately 28,000 people performing diverse, complex and mission critical roles in 34 countries. In addition, our unconsolidated joint ventures employ approximately 10,000 employees.
From our promising new interns to world-renowned experts, this diverse Team of Teams delivers for our customers, so in turn, we put them first. At the end of 2022, we employed approximately 30,000 people performing diverse, complex and mission critical roles in 34 countries. In addition, our unconsolidated joint ventures employ approximately 9,000 employees.
We market high-end advisory solutions centered around energy transition, license process technologies, provide basic engineering and design services, sell proprietary equipment and catalysts and provide asset optimization and remote facility-operations monitoring. Key customers include national governments, industrial companies and oil and gas companies.
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 decarbonization, energy efficiency, environmental impact and asset optimization; and digitally-enabled operating and monitoring solutions. Key customers include commercial and industrial companies.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II of this Annual Report on Form 10-K and Note 3 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
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 10 to our consolidated financial statements.
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Our key areas of strategic focus are as follows: • Government.
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We seek to differentiate ourselves in areas in which we believe we have a competitive advantage, including: • People ◦ Distinctive, mission-focused and inclusive team ethos and culture, which we refer to as “One KBR”. ◦ Deep domain expertise resident across nationally recognized subject matter experts. ◦ Highly-cleared employee base. • Sustainability Leadership ◦ Our Zero Harm philosophy includes ten key areas of sustainability focus across our company and correspond with the United Nations’ (U.N.) Sustainable Development Goals (SDGs). ◦ As signatories to the U.N.
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Our Business Segments 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.
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Global Compact, we align our business with the U.N.
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KBR INSITE® is a proprietary, digital, cloud-based operations and maintenance platform that identifies opportunities for our clients to achieve sustainable improvements in production, reliability, environment impact, energy efficiency and ultimately profitability.
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SDGs that serve as a benchmark for accomplishing our sustainability goals. ◦ We have a dedicated Global Sustainability Committee made up of leaders from across key corporate and business functions, and the Chair of that Committee reports quarterly to the Board. ◦ Achieved carbon neutrality from 2019 and established a 2030 operational net-zero carbon ambition. ◦ Based on our Science Based Targets Initiative commitments, we have set preliminary reduction targets in line with a 1.5 degree Celsius ambition.
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The following table summarizes our revenues from U.S. and U.K. government agencies.
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Additionally, with the acquisition of VIMA Group ("VIMA") on August 2, 2022, we deliver solutions across a number of large-scale, high priority digital transformation programs to support our clients in ensuring availability of effective digital and information technology as guided by the U.K.'s Digital Strategy for Defence.
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Recent Developments Frazer-Nash Acquisition On October 20, 2021, we acquired Frazer-Nash, a leading provider of high-end systems engineering, assurance and technology advisory services used to solve complex challenges. Frazer-Nash provides a broad range of professional advisory services across the defense, renewable energy and critical infrastructure sectors primarily in the U.K. and Australia.
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Recent Developments VIMA Acquisition On August 2, 2022, we acquired VIMA, a U.K. based leading provider of digital transformation solutions to defense and other public sector clients.
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With expertise in areas such as systems engineering, data science, cyber and clean energy, Frazer-Nash compliments KBR's global priorities with minimal overlap because of its geographic footprint.
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VIMA Group delivers solutions across a number of large-scale, high priority digital transformation programs to support its clients in ensuring availability of effective digital and information technology as guided by the U.K.'s Digital Strategy for Defence.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this Annual Report on Form 10-K. 10 Government Contracts and Regulations Our business is heavily regulated. We contract with numerous U.S. government agencies and entities, principally the U.S. DoD and NASA.
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The company is a trusted advisor and a top five supplier to Defence Digital and Navy Digital – both organizations within the UK MoD with several highly strategic, fast-growing programs.
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We entered the year with ambitious plans to build on our empowering culture, enhance our employee experience and ensure that we deserve our reputation as an employer of choice.
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Mura Technology Investment In June 2022, we announced that we entered into an agreement to invest an additional £80 million in Mura Technology ("Mura") that will bring KBR's aggregate investment in Mura to approximately 18.5%.
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Culture and Values We refreshed our One KBR Values in late 2020, as follows: • We Value Our People • We Deliver • We Are People of Integrity • We Empower • We Are a Team of Teams We brought these to life early in 2021 by a cascade of conversations between managers and their teams in every business and market.
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This investment provides Mura incremental capital to accelerate development of its plastics recycling projects and enables KBR to participate more fully in this sustainability-focused, high growth sector. Funding will be made in two tranches with the first payment made in the quarter ended June 30, 2022 and the remainder in 2023.
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Our aim was to lift our values off the page and into our employees’ local experience, identifying any areas for improvement and building on our existing strengths. This concerted effort was underpinned by a review of our people processes to ensure these reflect our culture and values, resulting in updates to selection and exit interviews, job descriptions and training collateral.
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With a strategic approach to commercializing and scaling its proprietary, differentiated plastics recycling solution, Mura is well positioned for profitable growth and value creation as the plastics circular economy develops and matures.
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We then tested how embedded the values are through our global ‘People Perspectives’ employee survey, achieving high scores in each value area. This positive feedback about our organizational culture is particularly encouraging as many employees continued to work remotely through the pandemic. However, we are not complacent.
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Phase 1 of Plaquemines LNG Full Notice to Proceed In May 2022, KBR's joint venture with Zachry Group, KZJV, was issued a full notice to proceed with Phase 1 of Plaquemines LNG. KZJV, in which KBR holds a non-majority interest, will integrate highly modularized, owner-furnished equipment for the 13.3 million tonnes per annum (MTPA) nameplate facility.
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Leaders across KBR continue to consciously reinforce our values through their everyday behavior and to proactively engage and communicate with their teams as hybrid working arrangements become the new normal. Employee Health & Safety We are subject to numerous worker health and safety laws and regulations.
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KBR will provide project management, engineering, program integration and interface management and commissioning support under an innovative commercial structure that promotes collaboration and enhances overall program performance. HomeSafe Alliance LLC Contract Award In November 2021, we announced that HomeSafe Alliance LLC (“HomeSafe”), a KBR led joint venture with Tier One Relocation, was awarded the global household goods contract by U.S.
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The central pillar is Health Safety & Security and is supported by the key Zero Harm principle of “Courage to Care,” which we define as the willingness to intervene when one observes something that does not meet acceptable standards. We believe our Zero Harm culture has resulted in a work environment that promotes employee engagement and ownership.
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Transportation Command lifted the stop work order on the contract in November 2022 and KBR is proceeding with work under the award.
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Although we have experienced significant improvement in our safety performance indicators, we cannot guarantee that our efforts will always be successful and from time to time we may experience incidents or unsafe work conditions or practices may arise.
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The investment is accounted for within our STS business segment using the equity method of accounting. KZJV is a joint venture with Zachary Group that performs certain design, engineering, procurement and construction-related services for a LNG facility in Plaquemines Parish, Louisiana. KBR owns a 45% interest in KZJV, which is a VIE.
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Our project sites often put our employees and others in proximity with mechanized equipment, moving vehicles, chemical and manufacturing processes and highly regulated materials. Additionally, our employees and others at certain project sites may be exposed to severe weather events or high security risks.
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The investment is accounted for within our STS business segment using the equity method of accounting. HomeSafe, a KBR led joint venture with Tier One Relocation, was established to be the exclusive provider of household goods move management services for the U.S. Armed Forces, U.S. DoD civilians and their families. KBR owns a 72% interest in HomeSafe.
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We actively seek to maintain a safe, healthy and environmentally sound workplace for all of our employees and those who work with us. Consequently, we may incur substantial costs to maintain the safety and security of our personnel in these locations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur business and operational plans may be adversely affected by the global economic uncertainty caused by the COVID-19 pandemic due to a number of factors outside of our control that continue to develop, including: • the duration, scope and severity of the pandemic, including the impact of variants and resurgences; • the health or availability of our workforce, including contractors and subcontractors, and restrictions that we and our customers, contractors and subcontractors impose, including limiting worksite access and facility shutdowns, to ensure the safety of employees and others; • an overall tightening and increasingly competitive labor market resulting in labor shortages, lack of skilled labor, increased turnover or labor inflation; • other workforce impacts, such as difficulty recruiting, retaining, training, motivating and developing employees due to evolving health and safety protocols; changing worker expectations and talent marketplace variability regarding flexible work models; and the challenges of maintaining our strong corporate culture, which values communication, collaboration and connections, despite a majority of employees working from home; • supply chain disruptions that impact the ability or willingness of our vendors and suppliers to provide the equipment, parts or raw materials for our operations or otherwise fulfill their contractual obligations, which in turn could impair our ability to perform under our contracts or to deliver products on a timely basis; • recommendations of, or restrictions imposed by, government and health authorities, including travel bans, quarantines and vaccine mandates to address the COVID-19 outbreak; • potential contract delays, modifications or terminations; • increased potential for the occurrence of operational hazards, including terrorism, cyber-attacks or domestic vandalism, as well as information system failures or communication network disruptions; • reductions in the number and amounts of new government contract awards, delays in the timing of anticipated awards or potential cancellations of such prospects as a result of the fiscal, economic and budgetary challenges facing our customers, including increased material and equipment costs resulting from inflation and supply chain disruptions; • increased cost and reduced availability of capital for growth or capital expenditures; • increased costs of operation attributed to inflation, which costs may not be fully recoverable or adequately covered by insurance; and • long-term disruption of the U.S. and global economy and financial and commodity markets. 18 The spread of COVID-19 has caused us to significantly modify our business practices, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, contractors, customers, suppliers and communities.
Biggest changeThe extent to which our business will continue to be affected and may in the future be affected depends on a number of factors outside of our control, including: • labor disruptions due to (i) worker health and availability, (ii) pandemic-related restrictions limiting worksite access or shutting down facilities to ensure the safety of employees and others, (iii) difficulty recruiting, retaining, training, motivating and developing employees due to evolving health and safety protocols, changing worker expectations and market competition regarding return to office and flexible work models and (iv) the challenges of maintaining our strong corporate culture valuing communication, collaboration and connections despite a majority of employees working remotely; • increased cyber security risk and data accessibility disruptions due to remote working arrangements; • recommendations of, or restrictions imposed by, government and health authorities, including travel bans, quarantines and vaccine mandates to address the COVID-19 outbreak; • potential contract delays, modifications or terminations; • continued or additional supply chain disruptions which could impair our ability to perform under our contracts or deliver services and products on a timely basis, resulting in potential contract delays, modifications or terminations; • reductions in the number and amounts of new government contract awards, delays in the timing of anticipated awards or potential cancellations of such prospects as a result of the fiscal, economic and budgetary challenges facing our customers, including increased material and equipment costs resulting from inflation and supply chain disruptions; • increased cost and reduced availability of capital for growth or capital expenditures; • increased costs of operation attributed to inflation, which costs may not be fully recoverable or adequately covered by insurance; and • long-term disruption of the U.S. and global economy and financial and commodity markets.
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.
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.
The potential risks associated with successful integration and realization of benefits include, but are not limited to the following: • our due diligence may not identify or fully assess valuation issues, potential liabilities or other acquisition risks; • 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; 23 • 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 have difficulty entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures; • key personnel within an acquired organization may resign from their related positions resulting in a significant loss to our strategic and operational efficiency associated with the acquired company; • the effectiveness of our daily operations may be reduced by the redirection of employees and other resources to acquisition activities; • 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; • we may assume unprofitable projects that pose future risks to our working capital needs, cash flows and the profitability of related operations; or • business acquisitions may include substantial transactional costs to complete the acquisition that exceed the estimated financial and operational benefits.
The potential risks associated with successful integration and realization of benefits include, but are not limited to the following: • our due diligence may not identify or fully assess valuation issues, potential liabilities or other acquisition risks; • 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 have difficulty entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures; • key personnel within an acquired organization may resign from their related positions resulting in a significant loss to our strategic and operational efficiency associated with the acquired company; • the effectiveness of our daily operations may be reduced by the redirection of employees and other resources to acquisition and integration activities; • 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; • we may assume unprofitable projects that pose future risks to our working capital needs, cash flows and the profitability of related operations; or • business acquisitions may include substantial transactional costs to complete the acquisition that exceed the estimated financial and operational benefits.
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; an acquisition of or merger with another company that has not adopted similar carbon 33 negative goals or whose progress towards reaching its carbon negative goals is not as advanced as ours; and the pace of regional and global recovery from the COVID-19 pandemic.
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; 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; and the pace of regional and global recovery from the COVID-19 pandemic.
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 32 changes in uncertain tax positions.
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.
A change in our regular cash dividend program could have an adverse effect on the market price of our common stock. Risks Related to Regulations and Compliance We could be adversely impacted if we fail to comply with international export and domestic laws, which are rigorously enforced by the U.S. government.
A change in our regular cash dividend program could have an adverse effect on the market price of our common stock. 35 Risks Related to Regulations and Compliance We could be adversely impacted if we fail to comply with international export and domestic laws, which are rigorously enforced by the U.S. government.
We are continuously committed to advancing our environmental, social and governance strategy as evidenced by the establishment and continued focus on delivering on our 2030 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.
We are continuously committed to advancing our environmental, social and governance strategy as evidenced by the establishment and continued focus on delivering on our 2030 operational 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.
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 environmental, social and governance matters have been rapidly evolving and increasing.
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 environmental, social and governance ("ESG") matters have been rapidly evolving and increasing.
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.
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. 29 We face rigorous competition and pricing pressures for any additional contract awards from the U.S. government.
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 26 their expiration.
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.
Deposits are in amounts that exceed available 28 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.
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.
In the future, our pension 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.
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.
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.
These disruptions could materially impact our backlog and financial performance. 32 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.
Such risks may include damage to the ship, liability for cargo and liability that charterers and vessel operators have to third 25 parties “at law.” In addition, we ship a significant amount of cargo and are subject to hazards of the shipping and transportation industry.
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.
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 30 our local expenses.
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.
As a result, we could sustain a loss on our equity investment in these projects. We have made and may continue to make business combinations as a part of our business strategy, which may present certain risks and uncertainties.
As a result, we could sustain a loss on our equity investment in these projects. 26 We have made and may continue to make business combinations as a part of our business strategy, which may present certain risks and uncertainties.
Our Senior Credit Facility allows us and the administrative agent to replace LIBOR with an alternative benchmark rate, subject to the right of the majority of the lenders to object thereto, as set forth in the Senior Credit Facility.
The terms of our Senior Credit Facility allows us and the administrative agent to replace LIBOR with an alternative benchmark rate, subject to the right of the majority of the lenders to object thereto, as set forth in the Senior Credit Facility.
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. 34 Item 1B.
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. 38 Item 1B.
We had approximately $1.9 billion of indebtedness outstanding as of December 31, 2021 which could have negative consequences to us, including, but not limited to: • 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; • making it more difficult or expensive for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements, debt refinancing, acquisitions or other purposes; • reducing our flexibility in planning for or reacting to changes in our industry and market conditions; • causing us to be more vulnerable in the event of a downturn in our business; • exposing us to increased interest rate risk given that a portion of our debt obligations are at variable interest rates; and • increasing our risk of a covenant violation under our Senior Credit Facility.
We had approximately $1.7 billion of indebtedness outstanding as of December 31, 2022 which could have negative consequences to us, including, but not limited to: • 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; • making it more difficult or expensive for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements, debt refinancing, acquisitions or other purposes; • reducing our flexibility in planning for or reacting to changes in our industry and market conditions; • causing us to be more vulnerable in the event of a downturn in our business; • exposing us to increased interest rate risk given that a portion of our debt obligations are at variable interest rates; and • increasing our risk of a covenant violation under our Senior Credit Facility.
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 may change our dividend policy in the future. We have maintained a regular cash dividend program since 2007. We anticipate continuing to pay quarterly dividends during 2022.
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 may change our dividend policy in the future. We have maintained a regular cash dividend program since 2007. We anticipate continuing to pay quarterly dividends during 2023.
As a result, internal control issues may arise, which could have a material adverse effect on our financial condition and results of operations. 21 The nature of our contracts, particularly those that are fixed-price, subjects us to risks associated with cost overruns, operating cost inflation and potential claims for liquidated damages.
As a result, internal control issues may arise, which could have a material adverse effect on our financial condition and results of operations. 25 The nature of our contracts, particularly those that are fixed-price, subjects us to risks associated with cost overruns, operating cost inflation and potential claims for liquidated damages.
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 and results of operations. We ship a significant amount of cargo using seagoing vessels, exposing us to certain maritime risks.
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 ship a significant amount of cargo using seagoing vessels, exposing us to certain maritime risks.
As a result, our business and financial performance could be materially and adversely affected. 19 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.
As a result, our business and financial performance could be materially and adversely affected. 23 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.
Some of our services are performed in high-risk locations, including but not limited to, Iraq, Afghanistan and 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.
Some of our services are performed 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.
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 2030 targets. Investors have recently increased their focus on environmental, social and governance matters, including practices related to greenhouse gas emissions and climate change.
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 2030 operational net-zero targets. Investors have recently increased their focus on environmental, social and governance matters, including practices related to greenhouse gas emissions and climate change.
A failure to recover on these types of claims fully or promptly could have a material adverse impact on our liquidity and financial results. 20 For example, we have a 30% ownership interest in the JKC joint venture ("JKC"), which was contracted to perform the engineering, procurement, supply, construction and commissioning of onshore LNG facilities for a client in Darwin, Australia (the "Ichthys LNG Project").
A failure to recover on these types of claims fully or promptly could have a material adverse impact on our liquidity and financial results. 24 For example, we have a 30% ownership interest in JKC, which was contracted to perform the engineering, procurement, supply, construction and commissioning of onshore LNG facilities for a client in Darwin, Australia (the "Ichthys LNG Project").
Risks Related to Financial Conditions and Markets Current or future economic conditions 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.
Risks Related to Financial Conditions and Markets 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.
If these estimates prove inaccurate, if there are errors or ambiguities as to contract specifications or if circumstances change due to, among other things, unanticipated technical problems, poor project execution, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, changes in the costs of equipment and materials or our suppliers’ or subcontractors’ inability to perform, then cost overruns may occur.
If these estimates prove inaccurate, if there are errors or ambiguities as to contract specifications or if circumstances change due to, among other things, 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.
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, which are administered by the Office of Foreign Asset Control within the Department of the Treasury.
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.
Our backlog of unfilled orders is subject to unexpected adjustments and cancellations and, therefore, may not be a reliable indicator of our future revenues or earnings. As of December 31, 2021, the future revenues we expect to realize as a result of backlog was approximately $15.0 billion.
Our backlog of unfilled orders is subject to unexpected adjustments and cancellations and, therefore, may not be a reliable indicator of our future revenues or earnings. As of December 31, 2022, the future revenues we expect to realize as a result of backlog was approximately $15.6 billion.
Additionally, we may be subject to 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.
Additionally, we currently are and may 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.
Climate change and related environmental issues could have a material adverse impact on our business, financial condition and results of operations. Climate change 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.
Climate change 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.
With respect to any particular country, these risks may include, but not be limited to: • expropriation and nationalization of our assets in that country; • political and economic instability; • changes in trade policies affecting the markets for our services (including but not limited to retaliatory tariffs between the United States and other countries); • civil unrest, acts of terrorism, war or other armed conflict (including but not limited to potential U.S. sanctions on other countries); • currency fluctuations, devaluations and conversion restrictions; • confiscatory taxation or other adverse tax policies; • uncertainties related to any geopolitical, economic and regulatory effects or changes due to recent or upcoming domestic and international elections; • 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 • increased polarization of political parties, in the U.S. and abroad, which may lead to more volatility in government spending or other developments such as trade wars or changes in military priorities.
With respect to any particular country, these risks may include, but not be limited to: • expropriation and nationalization of our assets in that country; • changes in government regimes and other developments that may cause, directly or indirectly, political and economic instability; • changes in trade policies affecting the markets for our services (including but not limited to retaliatory tariffs between the United States and other countries); • civil unrest, acts of terrorism, war or other armed conflict (including but not limited to potential U.S. sanctions on other countries); • currency fluctuations, devaluations and conversion restrictions; • confiscatory taxation or other adverse tax policies; • uncertainties related to any geopolitical, economic and regulatory effects or changes due to recent or upcoming domestic and international elections; • 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 • increased polarization of political parties, in the U.S. and abroad, which may lead to more volatility in government spending or other developments such as trade wars or changes in military priorities. 27 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.
We may be required to contribute additional cash to meet our significant underfunded benefit obligations associated with defined benefit plans we manage. We have frozen defined benefit pension plans for employees primarily in the U.S., the U.K. and Germany.
We may be required to contribute additional cash to meet any unfunded benefit obligations associated with defined benefit plans we manage. We have frozen defined benefit pension plans for employees primarily in the U.S., the U.K. and Germany.
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.
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.
If we are required or elect to make up all or a significant portion of the deficit for underfunded benefit plans, our financial position could be materially and adversely affected. Our U.K. defined benefit pension plan has an aggregate funding deficit.
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. defined benefit pension plan has had in the past, and may have in the future, an aggregate funding deficit.
We may not be able to obtain compensation for additional work performed or expenses incurred. Additionally, we may be required to pay liquidated damages upon our failure to meet schedule or performance requirements of our contracts.
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.
Demand for our services provided under government contracts are directly affected by spending by our customers. 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 and availability of adequate funding.
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 and availability of adequate funding.
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.
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. 31 Demand for our services provided under government contracts are directly affected by spending by our customers.
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, there may be limited subcontractors and suppliers available in the market.
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.
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 and results of operations. A portion of our revenues is generated by large, recurring business from certain significant customers.
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.
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.
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.
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. 31 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.
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.
It is strategically important that we lead the digital transformation occurring in our industry. We may not be successful in structuring our technology or developing, acquiring or implementing technology systems which 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.
It is strategically important that we lead the digital transformation occurring in our industry. 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.
If the contract is significant, or we encounter issues that impact multiple contracts, cost overruns could have a material adverse effect on our business, financial condition and results of operations. The transition period resulting from the Referendum of the United Kingdom's Membership of the European Union could adversely affect our business, financial condition and results of operations.
If the contract is significant, or we encounter issues that impact multiple contracts, cost overruns could have a material adverse effect on our business, financial condition and results of operations.
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.
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.
Factors that could affect current and future government spending include: 27 • policy or spending changes implemented by the current administration, defense department or other government agencies; • failure to pass budget appropriations, continuing funding resolutions or other budgetary decisions; • changes, delays or cancellations of government programs or requirements; • adoption of new laws or regulations that affect companies providing services to the governments; • curtailment of the governments’ outsourcing of services to private contractors; or • the level of political instability due to war, conflict or natural disasters.
Factors that could affect current and future government spending include: • policy or spending changes implemented by the current administration, defense department or other government agencies; • increased polarization of political parties; • 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; • changes, delays or cancellations of government programs or requirements; • adoption of new laws or regulations that affect companies providing services to the governments; • reduced buying power as a result of inflation; • curtailment of the governments’ outsourcing of services to private contractors; or • the level of political instability due to war, conflict or natural disasters.
As of December 31, 2021, we had $2.1 billion of goodwill and $708 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 October 1 to determine if it has become impaired.
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 October 1 to determine if it has become impaired.
A loss, cancellation or delay in 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 from transactions with certain significant customers. Revenues from the U.S. government represented 70% of our total consolidated revenues for the year ended December 31, 2021.
A considerable percentage of our revenues, particularly in our GS business segment, is generated from transactions with certain significant customers. Revenues from the U.S. government represented 61% of our total consolidated revenues for the year ended December 31, 2022.
The failure of our internal or external IT systems to perform as anticipated for any reason could disrupt our business and result in decreased performance, significant remediation costs, transaction errors, loss of data (including personally identifiable information), processing inefficiencies, downtime, litigation and the loss of suppliers or customers.
This could lead to disruptions in our business and result in decreased performance, significant remediation costs, transaction errors, loss of data (including personally identifiable information), processing inefficiencies, downtime, litigation and the loss of suppliers or customers.
At December 31, 2021, our defined benefit pension plans had an aggregate funding deficit (calculated as the excess of projected benefit obligations over the fair value of plan assets) of approximately $88 million, the majority of which is related to our defined benefit pension plan in the U.K.
At December 31, 2022, our defined benefit pension plans had an aggregate funding surplus (calculated as the excess of fair value of plan assets over the projected benefit obligations) of approximately $35 million.
The spread of COVID-19 across the globe has continued to 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.
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.
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.
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. 36 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.
The construction and commissioning of the Ichthys LNG Project is complete, and the facility has been handed over to the client and is producing LNG. The project experienced significant cost increases associated with a variety of issues related to delays, changes in the scope of work and lower than expected subcontractor productivity.
Prior to completion, the project experienced significant cost increases associated with a variety of issues related to delays, changes in the scope of work and lower than expected subcontractor productivity.
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.
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.
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.
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.
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.
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 damage our reputation or have a material adverse effect on our business operations, financial performance, financial condition and reputation.
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.
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.
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.
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.
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. Our use of the cost-to-cost method of revenue recognition could result in a reduction or reversal of previously recorded revenues and profits.
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. We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.
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.
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.
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.
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.
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 as well as result in the termination of any existing contracts requiring such clearances.
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 as well as result in the termination of any existing contracts requiring such clearances. 30 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.
The implementation of such alternative reference rates and spread adjustments could cause our funding costs to increase, including if there arises a differential between the alternative reference rate and/or spread adjustment under our credit facility and the alternative reference rate and/or spread adjustment applicable to our interest rate hedges. 29 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.
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.
We utilize a variety of intellectual property rights in providing 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 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.
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. LIBOR is expected to no longer be available after June 30, 2023 for the primary U.S. dollar LIBOR settings used by the Company.
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. On February 6, 2023, we amended our Senior Credit Facility (Amendment No. 8 to our Senior Credit Facility) to transition from LIBOR to SOFR.
The loss of one or more of our significant customers, or the cancellation or delay in their projects, could adversely affect our revenues and results of operations. If we are unable to enforce our intellectual property rights, or if our intellectual property rights become obsolete, our competitive position could be adversely impacted.
If we are unable to enforce our intellectual property rights, or if our intellectual property rights are challenged or become obsolete, our competitive position could be adversely impacted. We utilize a variety of intellectual property rights in providing services to our customers.
Any discontinuation of LIBOR and use of an alternative benchmark rate under our credit facility or our interest rate swap transactions is expected to be accompanied by a spread adjustment.
Any discontinuation of LIBOR and use of an alternative benchmark rate under our term loans is expected to be accompanied by a spread adjustment. The implementation of such alternative reference rates and spread adjustments could cause our funding costs to increase, including if there arises a differential between the alternative reference rate and/or spread adjustment under our credit facility.
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.
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.
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. 22 Specifically, due to the complex humanitarian, logistical and multi-agency contractual challenges presented by OAW, several threats are present, including the threat of injury or death to Afghan guests, clients or third-party personnel, damage to client facilities and work performed by KBR or its subcontractors inconsistent (or alleged to be inconsistent) with the client contracts.
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.
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. Given the demands of working for the U.S. government, we may have disagreements or experience performance issues.
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 15 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
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.
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.
However, our portfolio of hardware and software products, solutions and services and information contained within our enterprise IT systems and external systems maintained by our service providers may be vulnerable to damage or disruption caused by circumstances beyond our control such as catastrophic events, cyberattacks inclusive of malware/computer viruses, ransomware and phishing attacks, insider threats related to malicious and non-malicious activities from authorized and unauthorized employees or third parties, power outages, natural disasters, computer system or network failures or physical break-ins.
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.
Any significant disruptions or failures could damage our reputation or have a material adverse effect on our business operations, financial performance and financial condition. An impairment of all or part of our goodwill or our intangible assets could have a material adverse impact on our net earnings and net worth.
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.
In addition, military action or unrest could disrupt our operations in such locations and elsewhere and increase our costs related to security worldwide. We rely on internal and external information technology ("IT") systems to conduct our business, and disruption, failure or security breaches of these systems could adversely affect our business and results of operations.
Our operations are conducted in areas that have significant political risk. In addition, military action or unrest could disrupt our operations in such locations and elsewhere and increase our costs related to security worldwide.
These potential impacts, while uncertain, could adversely affect our business, financial condition, results of operations and/or cash flows, as well as our ability to pay dividends to our shareholders. Our results of operations and cash flows depend on the award of new contracts and the timing of the performance of these contracts.
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 results of operations and cash flows depend on the award of new contracts and the timing of the performance of these contracts.
On October 21, 2021, JKC entered into a binding settlement agreement (the "Settlement Agreement") that resolved the outstanding claims and disputes between JKC and its client, Ichthys LNG Pty, Ltd (collectively, "the Parties"). As a result of the Settlement Agreement, the Parties agreed to withdraw all claims and terminate all ongoing arbitration and court proceedings between the Parties.
While JKC entered into binding settlement agreements that resolved the outstanding claims and disputes between JKC and its client, Ichthys LNG Pty, Ltd and JKC and its consortium of subcontractors, we were required to record significant non-cash charges to equity in earnings (losses) of unconsolidated affiliates in connection with these disputes.
Removed
Risk Factors Risks Related to Operations of Our Business The widespread outbreak of a pandemic or epidemic, or the outbreak of an infectious disease, such as COVID-19, has materially impacted how we and our customers operate our business and the duration and extent to which they may materially adversely affect our future results of operations and financial performance remains uncertain.
Added
Item 1A. Risk Factors Risks Related to Operations of Our Business A significant portion of our revenues is generated by large, recurring business from certain significant customers, including the U.S. government. A loss, cancellation or delay in projects by our significant customers in the future could negatively affect our financial performance.
Removed
In response to the rapid global spread of the virus, national, state and local governments have continued to issue orders and recommendations to attempt to reduce the spread of the disease. To protect the health and safety of our employees, we have continued to limit employee and contractor presence at our work locations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWhile we have operations worldwide, the following table describes the locations of our more significant existing office facilities: Location Owned/Leased Business Segment North America: Houston, Texas Leased All Webster, Texas Leased Government Solutions Fulton, Maryland Leased Government Solutions Columbia, Maryland Leased Government Solutions Lexington Park, Maryland Leased Government Solutions Ann Arbor, MI Leased Government Solutions Chantilly, Virginia Leased Government Solutions Vienna, Virginia Leased Government Solutions Fairfax, Virginia Leased Government Solutions Dayton/Beavercreek, Ohio Leased Government Solutions Huntsville, Alabama Leased Government Solutions Phoenix, Arizona Leased Government Solutions Europe, Middle East and Africa: Leatherhead, United Kingdom Owned All Bristol, United Kingdom Leased Government Solutions Glasgow, United Kingdom Leased Government Solutions Wiltshire, United Kingdom Leased / Owned Government Solutions Al Khobar, Saudi Arabia Leased Sustainable Technology Solutions Manama, Bahrain Leased All Asia-Pacific: Chennai, India Leased All Majura Park, Australia Leased Government Solutions Delhi (Gurgaon), India Leased Sustainable Technology Solutions Perth, Australia Leased Government Solutions Brisbane, Australia Leased Government Solutions Melbourne, Australia Leased Government Solutions 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.
Biggest changeWhile we have operations worldwide, the following table describes the locations of our more significant existing office facilities: Location Owned/Leased Business Segment North America: Houston, Texas Leased All Fulton, Maryland Leased Government Solutions Columbia, Maryland Leased Government Solutions Lexington Park, Maryland Leased Government Solutions Chantilly, Virginia Leased Government Solutions Vienna, Virginia Leased Government Solutions Fairfax, Virginia Leased Government Solutions Dayton/Beavercreek, Ohio Leased Government Solutions Huntsville, Alabama Leased Government Solutions Phoenix, Arizona Leased Government Solutions Europe, Middle East and Africa: Leatherhead, United Kingdom Owned All Glasgow, United Kingdom Leased Government Solutions Wiltshire, United Kingdom Leased / Owned Government Solutions Al Khobar, Saudi Arabia Leased Sustainable Technology Solutions Asia-Pacific: Chennai, India Leased All Majura Park, Australia Leased Government Solutions Delhi (Gurgaon), India Leased Sustainable Technology Solutions Brisbane, Australia Leased Government Solutions Sydney, Australia Leased Government Solutions Melbourne, Australia Leased Government Solutions 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. 35
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. 39

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures Not applicable. 36 PART II
Biggest changeMine Safety Disclosures Not applicable. 40 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following is a summary of share repurchases of our common stock settled during the three months ended December 31, 2021, and the amount available to be repurchased under the authorized share repurchase program: Purchase Period Total Shares Repurchased (1) Average Price Paid per Share Shares Repurchased as Part of Publicly Announced Plan Dollar Value of Maximum Number of Shares that May Yet Be Purchased Under the Plan October 1 - 31, 2021 — $ — — $ 250,299,457 November 1 - 30, 2021 480,385 $ 45.81 479,600 $ 228,330,004 December 1 - 31, 2021 69,339 $ 45.55 66,286 $ 225,310,393 Total 549,724 $ — 545,886 $ 225,310,393 (1) Included within the shares repurchased herein are 3,838 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 $44.76 per share. 37 Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Biggest changeThe following is a summary of share repurchases of our common stock settled during the three months ended December 31, 2022, and the amount available to be repurchased under the authorized share repurchase program: Purchase Period Total Shares Repurchased (1) Average Price Paid per Share Shares Repurchased as Part of Publicly Announced Plan Dollar Value of Maximum Number of Shares that May Yet Be Purchased Under the Plan October 1 - 31, 2022 1,160,197 $ 46.82 1,160,197 $ 475,074,729 November 1 - 30, 2022 457,660 $ 50.48 451,938 $ 452,257,517 December 1 - 31, 2022 30,143 $ 51.48 21,046 $ 451,171,009 Total 1,648,000 $ — 1,633,181 $ 451,171,009 (1) Included within the shares repurchased herein are 14,819 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 $50.51 per share. 41 Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the NYSE and trades under the symbol “KBR.” We have declared a dividend in each quarter during the years ended December 31, 2021 and 2020, and we currently expect that comparable quarterly cash dividends will continue to be paid for the foreseeable future.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the NYSE and trades under the symbol “KBR.” We have declared a dividend in each quarter during the years ended December 31, 2022 and 2021, and we currently expect that comparable quarterly cash dividends will continue to be paid for the foreseeable future.
The following performance graph compares the cumulative total shareholder return on shares of our common stock for the five-year period ended December 31, 2021, with the cumulative total return on the S&P 1500 IT Consulting & Other Services Index, the Russell 2000 Index, the S&P MidCap 400 Index and the Dow Jones Heavy Construction Industry Index for the same period.
The following performance graph compares the cumulative total shareholder return on shares of our common stock for the five-year period ended December 31, 2022, with the cumulative total return on the S&P 1500 IT Consulting & Other Services Index, the Russell 1000 Index, the Russell 2000 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, 2016 and reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.
The comparisons assume the investment of $100 on December 31, 2017 and reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.
On February 19, 2020, the Board of Directors authorized an increase of approximately $190 million to our share repurchase program, returning the authorization level to $350 million. As of December 31, 2021, $225 million remains available for repurchase under this authorization.
As of December 31, 2019, $160 million remained available under this authorization. On February 19, 2020, the Board of Directors authorized an increase of approximately $190 million to our share repurchase program, returning the authorization level to $350 million. As of December 31, 2021, $225 million remained available for repurchase under this authorization.
The declaration, payment and amount of future cash dividends will be at the discretion of our Board of Directors. On February 18, 2022, the Board of Directors declared a dividend of $0.12 per share, which will be paid on April 15, 2022. At January 31, 2022, there were 67 shareholders of record.
The declaration, payment and amount of future cash dividends will be at the discretion of our Board of Directors. On February 10, 2023, the Board of Directors declared a dividend of $0.135 per share, which will be paid on April 14, 2023. At January 31, 2023, there were 64 shareholders of record.
In calculating the number of shareholders, we consider clearing agencies and security position listings as one shareholder for each agency or listing. Share Repurchases On February 25, 2014, the Board of Directors authorized a $350 million share repurchase program. As of December 31, 2019, $160 million remained available under this authorization.
In calculating the number of shareholders, we consider clearing agencies and security position listings as one shareholder for each agency or listing. Share Repurchases On February 25, 2014, the Board of Directors authorized a plan to repurchase up to $350 million of our outstanding shares of common stock, which replaced and terminated the August 26, 2011 share repurchase program.
Removed
This year we added the S&P MidCap 400 Index to our performance graph as it is a widely used market capitalization index that we believe appropriately represents companies of comparable size to that of KBR. 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 KBR $ 100.00 $ 121.18 $ 94.47 $ 192.37 $ 198.45 $ 308.92 S&P 1500 IT Consulting & Other Services $ 100.00 $ 111.69 $ 93.13 $ 118.35 $ 130.85 $ 176.63 Russell 2000 $ 100.00 $ 113.14 $ 99.37 $ 122.94 $ 145.52 $ 165.45 S&P MidCap 400 $ 100.00 $ 114.45 $ 100.15 $ 124.23 $ 138.90 $ 171.15 Dow Jones Heavy Construction $ 100.00 $ 104.50 $ 76.67 $ 102.11 $ 123.25 $ 184.05 38 Item 6. [Reserved] 39
Added
On October 18, 2022, the Board of Directors authorized an increase of approximately $420 million to our share repurchase program, increasing the authorization level to $500 million. As of December 31, 2022, $451 million remains available for repurchase under this authorization.
Added
As KBR is no longer a constituent of the Russell 2000 index and is now a constituent of the Russell 1000 index, the Russell 2000 index will be removed from this performance graph and will be replaced by the Russell 1000 index going forward. 12/31/2017 12/31/2018 12/31/2019 12/30/2020 12/31/2021 12/31/2022 KBR $ 100.00 $ 77.96 $ 158.74 $ 163.76 $ 254.92 $ 285.35 S&P 1500 IT Consulting & Other Services $ 100.00 $ 85.45 $ 111.27 $ 126.23 $ 174.12 $ 133.03 Russell 1000 $ 100.00 $ 95.22 $ 125.14 $ 151.37 $ 191.42 $ 154.80 Russell 2000 $ 100.00 $ 88.99 $ 111.70 $ 134.00 $ 153.85 $ 122.41 S&P MidCap 400 $ 100.00 $ 88.92 $ 112.21 $ 127.54 $ 159.12 $ 138.34 Dow Jones Heavy Construction $ 100.00 $ 73.89 $ 99.12 $ 120.35 $ 180.21 $ 207.33 42 Item 6. [Reserved] 43

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements and Supplementary Data 59 Report of Independent Registered Public Accounting Firm 60 FINANCIAL STATEMENTS Consolidated Statements of Operations 62 Consolidated Statement of Comprehensive Income (Loss) 63 Consolidated Balance Sheets 64 Consolidated Statements of Shareholders’ Equity 65 Consolidated Statements of Cash Flows 66 Notes to Consolidated Financial Statements 68
Biggest changeFinancial Statements and Supplementary Data 63 Report of Independent Registered Public Accounting Firm 64 FINANCIAL STATEMENTS Consolidated Statements of Operations 66 Consolidated Statement of Comprehensive Income (Loss) 67 Consolidated Balance Sheets 68 Consolidated Statements of Shareholders’ Equity 69 Consolidated Statements of Cash Flows 70 Notes to Consolidated Financial Statements 72
Item 6. [ Reserve d] 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 58 Item 8.
Item 6. [Reserved] 43 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYears Ended December 31, 2021 vs. 2020 2020 vs. 2019 Dollars in millions 2021 2020 $ % 2019 $ % Revenues Government Solutions $ 6,149 $ 4,055 $ 2,094 52 % $ 4,042 $ 13 — % Sustainable Technology Solutions 1,190 1,712 (522) (30) % 1,597 115 7 % Total revenues $ 7,339 0 $ 5,767 $ 1,572 27 % $ 5,639 $ 128 2 % Gross profit (loss) Government Solutions $ 575 $ 493 $ 82 17 % $ 444 $ 49 11 % Sustainable Technology Solutions 231 173 58 34 % 209 (36) (17) % Total gross profit $ 806 $ 666 $ 140 21 % $ 653 $ 13 2 % Equity in earnings (losses) of unconsolidated affiliates Government Solutions $ 29 $ 28 $ 1 4 % $ 29 $ (1) (3) % Sustainable Technology Solutions (199) 2 (201) n/m 6 (4) n/m Total equity in earnings (losses) of unconsolidated affiliates $ (170) $ 30 $ (200) (667) % $ 35 $ (5) (14) % Selling, general and administrative expenses $ (393) $ (335) $ 58 17 % $ (341) $ (6) (2) % Acquisition and integration related costs $ (12) $ (9) $ 3 n/m $ (2) $ 7 n/m Goodwill impairment $ — $ (99) $ (99) n/m $ — $ 99 n/m Restructuring charges and asset impairment $ (2) $ (214) $ (212) n/m $ — $ 214 n/m Gain on disposition of assets $ 2 $ 18 $ (16) n/m $ 17 $ 1 n/m Total operating income $ 231 $ 57 $ 174 305 % $ 362 $ (305) (84) % n/m - not meaningful 46 Government Solutions GS revenues increased by $2.1 billion, or 52%, to $6.1 billion in 2021 compared to $4.1 billion in 2020.
Biggest changeConsolidated Results Years Ended December 31, Change 2022 vs. 2021 2021 vs. 2020 Dollars in millions 2022 2021 (1) 2020 (1) $ % $ % Revenues $ 6,564 $ 7,339 $ 5,767 $ (775) (11) % $ 1,572 27 % Cost of revenues $ (5,736) $ (6,533) $ (5,101) $ (797) (12) % $ 1,432 28 % Gross profit $ 828 $ 806 $ 666 $ 22 3 % $ 140 21 % Equity in earnings (losses) of unconsolidated affiliates $ (80) $ (170) $ 30 $ 90 53 % $ (200) n/m Selling, general and administrative expenses $ (420) $ (393) $ (335) $ 27 7 % $ 58 17 % Acquisition and integration related costs $ (2) $ (12) $ (9) $ (10) (83) % $ 3 33 % Gain on disposition of assets and investments $ 19 $ 2 $ 18 $ 17 n/m $ (16) 89 % Goodwill impairment $ — $ — $ (99) $ — n/m $ (99) (100) % Restructuring charges, asset impairments and other $ (2) $ (2) $ (214) $ — — % $ (212) (99) % Operating income $ 343 $ 231 $ 57 $ 112 48 % $ 174 305 % Interest expense $ (87) $ (80) $ (72) $ 7 9 % $ 8 11 % Unrealized gain on other investment $ 16 $ 4 $ — $ 12 300 % $ 4 n/m Other non-operating income (expense) $ 12 $ (9) $ 1 $ 21 n/m $ (10) n/m Income (loss) before income taxes $ 284 $ 146 $ (14) $ 138 95 % $ 160 n/m Provision for income taxes $ (92) $ (111) $ (28) $ (19) (17) % $ 83 296 % Net income (loss) $ 192 $ 35 $ (42) $ 157 449 % $ 77 183 % Net income attributable to noncontrolling interests $ 2 $ 8 $ 21 $ (6) (75) % $ (13) (62) % Net income (loss) attributable to KBR $ 190 $ 27 $ (63) $ 163 604 % $ 90 143 % (1) As adjusted for the adoption of ASU 2020-06 using the full retrospective method. n/m - not meaningful Revenues.
We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary. 47 Refer to "Item 1A. Risk Factors" contained in Part 1 of this Annual Report on Form 10-K for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.
We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary. Refer to "Item 1A. Risk Factors" contained in Part 1 of this Annual Report on Form 10-K for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.
Changes in contract estimates may also result in the reversal of previously recognized revenue if the current estimate differs from the previous estimate. 54 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.
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.
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.
Our international cash balances may be available for general corporate purposes but are subject to local restrictions, such 52 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.
The information discussed therein is incorporated by reference into this Part II, Item 7. 53 Recent Accounting Pronouncements Information relating to recent accounting pronouncements is described in Note 23 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 information discussed therein is incorporated by reference into this Part II, Item 7. Recent Accounting Pronouncements Information relating to recent accounting pronouncements is described in Note 23 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 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.
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 58 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 weather, 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.
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.
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. 50 Future uses of cash.
We believe that future sources of cash include cash flows from operations (including accounts receivable monetization arrangements), cash derived from working capital management and cash borrowings under the Senior Credit Facility. Future uses of cash.
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.
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.
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. 57 Our actuarial estimates of pension expense and expected return on plan assets are discussed in Note 11 in the accompanying consolidated financial statements.
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 11 in the accompanying consolidated financial statements. 61
We recognize profit over time on our services provided to joint ventures that we consolidate and joint ventures that we record under the equity method of accounting. See Note 10 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.
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 10 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information.
Senior Notes Information relating to our Senior Notes is described in Note 12 "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Senior Credit Facility Information relating to our Senior Credit Facility is described in Note 12 "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.
Cash provided by financing activities totaled $87 million in 2021 and was primarily due to borrowings of $290 million on our Senior Credit Facility and $12 million in net proceeds received from the issuance of common stock, offset by $82 million for the repurchase of common stock under our share repurchase program, $61 million of dividend payments to common shareholders, $27 million in payments on borrowings related to our Senior Credit Facility, $13 million repayment on our finance lease obligations, $4 million repayment on our non-recourse debt associated with our Fasttrax joint venture and dividends paid to NCI shareholders of $23 million (of which $15 million was driven by the dividends paid to the minority interest of the sale of the EBIC Ammonia plant).
Cash provided by financing activities totaled $87 million in 2021 and was primarily due to borrowings of $290 million on our Senior Credit Facility and $12 million in net proceeds received from the issuance of common stock, offset by $78 million for the repurchase of common stock under our share repurchase program, $61 million of dividend payments to common shareholders, $27 million in payments on borrowings related to our Senior Credit Facility, $13 million repayment on our finance lease obligations, $4 million for the repurchase of common stock under our "withheld to cover" program, $4 million repayment on our non-recourse debt associated with our Fasttrax joint venture and dividends paid to NCI shareholders of $23 million (of which $15 million was driven by the dividends paid to the minority interest of the sale of the EBIC Ammonia plant).
Goodwill and Intangible Assets . Goodwill is tested annually for possible impairment as of October 1 of each 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.
Goodwill is tested annually for possible impairment as of October 1 of each 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.
The following table illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for our pension plans: Effect on Pretax Pension Cost in 2022 Pension Benefit Obligation at December 31, 2021 Dollars in millions U.S. U.K. U.S.
The following table illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for our pension plans: Effect on Pretax Pension Cost in 2023 Pension Benefit Obligation at December 31, 2022 Dollars in millions U.S. U.K. U.S.
The Company benefits from a significant base of long-term enduring contracts in our government business, a diverse portfolio of high quality proprietary process technologies, market tailwinds that benefit our capabilities and technologies in areas such as defense modernization and energy transition and a truly global client base.
The Company benefits from a significant base of long-term enduring contracts in our government business, a diverse portfolio of high quality proprietary process technologies, market tailwinds that benefit our capabilities and technologies in areas such as defense modernization, energy transition, energy security and high-end engineering and a truly global client base.
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.
Our estimates of variable consideration and determination of whether to include such amounts in the transaction price are based largely on our assessment of legal enforceability, anticipated performance and any other information (historical, current or forecasted) that is reasonably available to us. Goodwill and Intangible Assets .
Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia which complements KBR's proprietary process technology and capabilities. 41 We expect climate change and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a cleaner future.
Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia which complements KBR's proprietary process technologies, solutions and capabilities. We expect climate change and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a cleaner future.
Liquidity and Capital Resources Liquidity is provided by available cash and equivalents, cash generated from operations, our Senior Credit Facility 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 e of completion of our projects.
Liquidity and Capital Resources Liquidity is provided by available cash and cash equivalents, cash generated from operations, our Senior Credit Facility (as defined below) and access to capital markets. Our operating cash flow can vary significantly from year to year and is affected by the mix, terms, timing and stag e of completion of our projects.
Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate income from foreign sources of approximately $662 million prior to their expiration whereas our ability to utilize other net deferred tax assets exclusive of those associated with indefinite-lived intangible assets is based on our ability to generate U.S. forecasted taxable income of approximately $610 million.
Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate income from foreign sources of approximately $557 million prior to their expiration whereas our ability to utilize other net deferred tax assets exclusive of those associated with indefinite-lived intangible assets is based on our ability to generate U.S. forecasted taxable income of approximately $676 million.
Cash used in investing activities totaled $428 million in 2021, which included $406 million net cash used for the acquisition of Frazer-Nash and Harmonic and acquisition of a technology license, $29 million of cash used primarily for funding our proportionate share of JKC's ongoing legal and commercial costs and an investment in a plastics recycling technology and $30 million used for capital expenditures, partially offset by proceeds received of $44 million, which was primarily from the sale of our investment interest in the Middle East Petroleum Corporation (EBIC Ammonia project).
Cash used in investing activities totaled $428 million in 2021, which included $406 million of net cash used for the acquisition of Frazer-Nash and Harmonic and the acquisition of a technology license, $29 million of cash used primarily for funding our proportionate share of JKC's ongoing legal and commercial costs, $7 million for our initial investment in Mura Technology and $30 million used for capital expenditures, partially offset by proceeds received of $44 million, which was primarily from the sale of our investment interest in the Middle East Petroleum Corporation (EBIC Ammonia project).
The difference between backlog of $15.0 billion and the remaining performance obligation as defined by ASC 606 of $11.7 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligation. See Note 3 to our consolidated financial statements for discussion of the remaining performance obligations.
The difference between backlog of $15.6 billion and the remaining performance obligations as defined by ASC 606 of $11.2 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. See Note 3 to our consolidated financial statements for discussion of the remaining performance obligations.
We often receive cash in the early phases of our 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.
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.
Our Business KBR's business is organized into two core business segments and one non-core business segment as follows: Core business segments • Government Solutions • Sustainable Technology Solutions Non-core business segment • Other See additional information on our business segments, including detail with respect to changes to our reportable segments, in Note 1 and 2 to our consolidated financial statements and under "Item 1.
Our Business Segments KBR's business is organized into two core business segments and one non-core business segment as follows: Core business segments • Government Solutions • Sustainable Technology Solutions Non-core business segment • Other See additional information on our business segments in Note 2 to our consolidated financial statements and under "Item 1.
U.K. 25-basis-point decrease in discount rate $ — $ — $ 2 $ 88 25-basis-point increase in discount rate $ — $ — $ (2) $ (81) 25-basis-point decrease in expected long-term rate of return $ — $ 5 N/A N/A 25-basis-point increase in expected long-term rate of return $ — $ (5) N/A N/A Unrecognized actuarial gains and losses are generally recognized using the corridor method over a period of approximately 22 years, which represents a reasonable systematic method for amortizing gains and losses for the employee group.
U.K. 25-basis-point decrease in discount rate $ — $ (1) $ 1 $ 37 25-basis-point increase in discount rate $ — $ 1 $ (1) $ (35) 25-basis-point decrease in expected long-term rate of return $ — $ 4 N/A N/A 25-basis-point increase in expected long-term rate of return $ — $ (4) N/A N/A Unrecognized actuarial gains and losses are generally recognized using the corridor method over a period of approximately 22 years, which represents a reasonable systematic method for amortizing gains and losses for the employee group.
Our capabilities and offerings include the following: • Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences; • Defense systems engineering such as rapid prototyping; test and evaluation; aerospace acquisition support; systems and platform integration; and sustainment engineering; • Operational support such as space domain awareness; C4ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support; • Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; artificial intelligence and machine learning; and • Technology such as proprietary, sustainability-focused process licensing; advisory services focused on energy transition; and digitally-enabled asset optimization solutions.
Our capabilities and offerings include the following: • Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences; • Defense systems engineering such as rapid prototyping; test and evaluation; aerospace acquisition support; systems and platform integration; and sustainment engineering; • Operational support such as space domain awareness; C5ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support; • Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; artificial intelligence and machine learning; and • Sustainable decarbonization solutions that accelerate and enable energy transition and climate change solutions such as proprietary, sustainability-focused process licensing; advisory services focused on energy transition; high-end engineering, design and management program offerings; and digitally-enabled asset optimization solutions.
As discussed in Note 12 "Debt and Other Credit Facilities" of our consolidated financial statements, on November 18, 2021, we entered into Amendment No. 5 under our existing Credit Agreement, dated as of April 25, 2018 ("Pro Rata Facilities") consisting of a $1 billion revolving credit facility (the "Revolver"), a $442 million Term Loan A, ("Term Loan A") with debt tranches denominated in US dollars, Australian dollars and British pound sterling and a $512 million Term Loan B ("Term Loan B"), with an aggregate capacity of $1.954 billion.
As discussed in Note 12 "Debt and Other Credit Facilities" of our consolidated financial statements, on December 30, 2022, we entered into Amendment No. 7 under our existing Credit Agreement, dated as of April 25, 2018, consisting of a $1 billion revolving credit facility (the "Revolver"), a $442 million Term Loan A, ("Term Loan A") with debt tranches denominated in US dollars, Australian dollars and British pound sterling and a $512 million Term Loan B ("Term Loan B"), with an aggregate capacity of $1.954 billion ("Senior Credit Facility").
The discount rate utilized to calculate the projected benefit obligation at the measurement date for our U.S. pension plan increased to 2.45% at December 31, 2021 from 2.00% at December 31, 2020.
The discount rate utilized to calculate the projected benefit obligation at the measurement date for our U.S. pension plan increased to 4.91% at December 31, 2022 from 2.45% at December 31, 2021.
Convertible Senior Notes Information relating to our Convertible Senior Notes is described in Note 12 "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.
For more information relating to our Convertible Notes, Note Hedge Transactions and Warrant Transactions, refer to Note 12 "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.
Under the income approach, we estimated fair value by discounting each reporting unit’s estimated future cash flows using a weighted-average cost of capital reflecting current market conditions and the risk profile of the reporting unit.
The income approach estimates fair value by discounting each reporting unit’s estimated future cash flows using a weighted-average cost of capital that reflects current market conditions and the risk profile of the reporting unit.
Cash and equivalents totaled $370 million at December 31, 2021 and $436 million at December 31, 2020 and consisted of the following: December 31, Dollars in millions 2021 2020 Domestic U.S. cash $ 34 $ 54 International cash 220 231 Joint venture and Aspire Defence project cash 116 151 Total $ 370 $ 436 Our cash balances are held in numerous accounts throughout the world to fund our global activities.
Cash and cash equivalents totaled $389 million at December 31, 2022 and $370 million at December 31, 2021 and consisted of the following: December 31, Dollars in millions 2022 2021 Domestic U.S. cash $ 27 $ 34 International cash 255 220 Joint venture and Aspire Defence project cash 107 116 Total $ 389 $ 370 Our cash balances are held in numerous accounts throughout the world to fund our global activities.
Of this amount, 91% will be recognized in revenues on our consolidated statement of operations and 9% will be recorded by our unconsolidated joint ventures. As of December 31, 2021, $180 million of our backlog relates to active contracts that are in a loss position.
Of this amount, 77% will be recognized in revenues on our consolidated statement of operations and 23% will be recorded by our unconsolidated joint ventures. As of December 31, 2022, $98 million of our backlog relates to active contracts that are in a loss position.
As companies continue to commit to near-term carbon neutrality and longer-range net-zero carbon emissions, we expect spending to continue in areas such as decarbonization; carbon capture, utilization and sequestration; biofuels; and circular economy.
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.
As the need for credit support arises, letters of credit may be issued under our $1 billion bank Revolver or with lending counterparties on a bilateral, syndicated or other basis.
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.
Our expected long-term rates of return on plan assets utilized at the measurement date decreased to 5.19% from 5.72% for our U.S. pension plans and increased to 4.67% from 3.70% for our U.K. pension plans, for the years ended December 31, 2021 and 2020, respectively.
Our expected long-term rates of return on plan assets utilized at the measurement date increased to 6.63% from 5.19% for our U.S. pension plans and increased to 6.00% from 4.67% for our U.K. pension plans, for the years ended December 31, 2022 and 2021, respectively.
The discount rate utilized to determine the projected benefit obligation at the measurement date for our U.K. pension plan, which constitutes 97% of all plans, increased to 1.80% at December 31, 2021 from 1.40% at December 31, 2020.
The discount rate utilized to determine the projected benefit obligation at the measurement date for our U.K. pension plan, which constitutes 98% of all international plans, increased to 5.00% at December 31, 2022 from 1.80% at December 31, 2021.
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.
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.
These technologies and solutions enable clients to achieve a cleaner, greener, more energy efficient global future. On October 1, 2020, we acquired Centauri, a provider of high-end engineering and development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber and emerging technologies such as directed energy and missile defense.
On October 1, 2020, we acquired Centauri, a provider of high-end engineering and development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber and emerging technologies such as directed energy and missile defense.
The following table summarizes our backlog by business segment for the years ended December 31, 2021 and December 31, 2020, respectively: Dollars in millions December 31, 2021 December 31, 2020 Government Solutions $ 12,628 $ 12,661 Sustainable Technology Solutions 2,345 2,454 Total backlog $ 14,973 $ 15,115 We estimate as of December 31, 2021, 30% of our backlog will be executed within one year.
The following table summarizes our backlog by business segment for the years ended December 31, 2022 and December 31, 2021, respectively: Dollars in millions December 31, 2022 December 31, 2021 Government Solutions $ 11,543 $ 12,628 Sustainable Technology Solutions 4,012 2,345 Total backlog $ 15,555 $ 14,973 We estimate that as of December 31, 2022, 36% of our backlog will be executed within one year.
These components are impacted by the size and changes in the mix of our cost-reimbursable and time-and-material projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business.
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-material projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business.
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.
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.
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.
The difference between actual and expected returns is deferred as an unrecognized actuarial gain or loss on our consolidated statement of comprehensive income (loss) and is recognized as a decrease or an increase in future pension expense. Our pretax unrecognized net actuarial loss in accumulated other comprehensive loss at December 31, 2022 was $771 million.
We have recognized on our consolidated balance sheet a funding deficit of $88 million (measured as the difference between the fair value of plan assets and the projected benefit obligation as of December 31, 2021) for our frozen defined benefit pension plans.
We have recognized on our consolidated balance sheets a funding surplus of $46 million (measured as the difference between the fair value of plan assets and the projected benefit obligation as of December 31, 2022) for our frozen U.K. defined benefit pension plan.
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.
In November 2022, the U.K. government announced its intent to maintain its budget to at least 2% of GDP. 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.
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.
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.
Accordingly, we have recorded the income tax expense expected with the repatriation in 2021, which was less than $2 million. In addition, we changed our permanent reinvestment assertion on all current and future earnings in our subsidiaries in Saudi Arabia.
In 2021, we changed our permanent reinvestment assertion on the unremitted earnings, as well as all current and future earnings in a wholly owned subsidiary in India. Accordingly, we recorded the income tax expense which was less than $2 million. In addition, we changed our permanent reinvestment assertion on all current and future earnings in our subsidiaries in Saudi Arabia.
We continued our track record of innovation, bringing new technologies to market and advising, consulting and delivering expertise in the vital area of energy transition, hydrogen future and plastics circular economy. We progressed in our strategic journey to advance upmarket to deliver innovative, digitally-enabled solutions by completing the Frazer-Nash acquisition.
These accomplishments have assisted us in continuing our track record of innovation, bringing new technologies to market and advising, consulting and delivering expertise in the vital area of energy transition, energy security, hydrogen future and plastics circular economy. We progressed in our strategic journey to advance upmarket to deliver digital transformation solutions by completing the VIMA acquisition.
A discussion regarding our financial condition and results of operations for the years ended December 31, 2020 and 2019 is included in Item 7. of Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Current Report on Form 8-K, which was filed with the SEC on July 29, 2021.
A discussion regarding our financial condition and results of operations for the years ended December 31, 2021 and 2020 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 22, 2022.
For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or time-and materials according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of December 31, 2021, $9.5 billion of our GS backlog was currently funded by our customers.
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.
See Notes 6, 14 and 15 to our consolidated financial statements for further discussion of our significant legal, investigation and other contingent matters. Pensions. Our pension benefit obligations and expenses are calculated using actuarial models and methods. The more critical assumption and estimate used in the actuarial calculations is the discount rate for determining the current value of benefit obligations.
See Notes 6, 14 and 15 to our consolidated financial statements for further discussion of our significant legal, investigation and other contingent matters. 60 Pensions. Our pension benefit obligations and expenses are calculated using actuarial models and methods.
We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture purposes or for paying dividends. Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes.
Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes.
Other contract provisions also give rise to variable consideration such as unapproved change orders and claims, and on certain contracts, index-based price adjustments.
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.
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. Overview KBR Inc., a Delaware corporation, delivers science, technology and engineering solutions to governments and companies around the world .
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.
Our STS business landed $1.1 billion in bookings, including numerous projects across the ammonia landscape, including traditional, blue and green ammonia, and multiple Hydro-PRT licenses and studies. 42 Results of Operations The following tables set forth our results of operations for the periods presented, including by segment.
Our STS business landed $4.1 billion in bookings, including our proportionate share of Phase 1 of the Plaquemines LNG project and numerous projects across the ammonia landscape, including traditional, blue and green ammonia, multiple Hydro-PRT licenses and studies and other projects spanning carbon capture, utilization and storage, hydrogen, biofuels and renewables. 47 Results of Operations The following tables set forth our results of operations for the periods presented, including by segment.
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.
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.
Drawing from its rich 100-year history and culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full life cycle capabilities to help clients meet their most pressing challenges.
Company Overview KBR Inc., a Delaware corporation ("KBR"), delivers science, technology, engineering and logistics support solutions to governments and companies around the world . Drawing from its rich 100-year history and culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full life cycle capabilities to help clients meet their most pressing challenges.
We can resume the qualitative assessment in any subsequent period for any reporting unit. For 2021, management performed a qualitative impairment assessment of our reporting units, of which there were no indications that it was more likely than not that the fair value of our reporting units were less than their respective carrying values.
While we have the option to proceed directly to the quantitative test, for 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.
Additional information relating to the Centauri acquisition is described in Note 4 to our consolidated financial statements. On October 20, 2021, we acquired Frazer-Nash Consultancy Limited ("Frazer-Nash"), a leading provider of high-end systems engineering, assurance and technology advisory services used to solve complex challenges.
On October 20, 2021, we acquired Frazer-Nash Consultancy Limited ("Frazer-Nash"), a leading provider of high-end systems engineering, assurance and technology advisory services used to solve complex challenges.
As of December 31, 2021, 12% of our backlog was attributable to fixed-price contracts, 46% was attributable to PFIs, 29% was attributable to cost-reimbursable contracts and 13% was attributable to time-and-materials contracts.
As of December 31, 2022, 11% of our backlog was attributable to fixed-price contracts, 40% was attributable to PFIs, 24% was attributable to cost-reimbursable contracts and 25% was attributable to time-and-materials contracts.
To arrive at our future cash flows, we used estimates of economic and market assumptions, including growth rates in revenues, costs, tax rates and future expected changes in operating margins and cash expenditures that are consistent with changes in our business strategy.
To arrive at our future cash flows, we used estimates of economic and market assumptions, including growth rates in revenues, costs, estimates of future expected 59 changes in operating margins, tax rates and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements.
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 addition to participating as a joint venture partner, we often provide engineering, procurement, construction, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions.
We provide disclosure when there is a reasonable possibility that the ultimate loss will exceed our recorded liability by a material amount or if the loss is not reasonably estimable but is expected to be material to our financial statements. Generally, our estimates related to these matters are developed in 56 consultation with internal and external legal counsel.
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.
We account for both financial and performance guarantees at fair value at issuance in accordance with ASC 460-10 Guarantees and, as of December 31, 2021, we had no material guarantees of the work or obligations of third parties recorded.
We account for both financial and performance guarantees at fair value at issuance in accordance with ASC 460-10 Guarantees and, as of December 31, 2022, we had no material guarantees of the work or obligations of third parties recorded. 56 As of December 31, 2022, we had $1 billion in a committed line of credit under the Senior Credit Facility and $449 million of uncommitted lines of credit to support the issuance of letters of credit.
Backlog of Unfilled Orders Backlog generally represents the dollar amount of revenues we expect to realize in the future as a result of performing work on contracts and our pro-rata share of work to be performed by unconsolidated joint ventures. We generally include total expected revenues in backlog when a contract is awarded under a legally binding agreement.
The decrease in operating loss is primarily attributed to decreased acquisition and integration costs. 50 Backlog of Unfilled Orders Backlog generally represents the dollar amount of revenues we expect to realize in the future as a result of performing work on contracts and our pro-rata share of work to be performed by our consolidated and unconsolidated joint ventures.
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.
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.
As of December 31, 2021, we had approximately $4.7 billion of priced option periods for U.S. government contracts that are not included in the backlog amounts presented above.
As of December 31, 2022, $8.3 billion of our GS backlog was currently funded by our customers. 51 As of December 31, 2022, we had approximately $4.2 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.
These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities.
Working capital levels vary from year to year and are primarily affected by the Company's volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world.
As of December 31, 2021, with respect to our Senior Credit Facility, we had $364 million of outstanding borrowings previously issued to fund the acquisitions of Centauri and Frazer-Nash and $48 million of outstanding letters of credit.
As of December 31, 2022, with respect to our Senior Credit Facility, we had $260 million of outstanding borrowings previously issued to fund the acquisition of Centauri and $47 million of outstanding letters of credit. With respect to our $449 million of uncommitted lines of credit, we had utilized $248 million for letters of credit as of December 31, 2022.
As of December 31, 2021, 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. 49 Cash Flows The following table summarizes our cash flows for the periods indicated: Years ended December 31, Dollars in millions 2021 2020 2019 Cash flows provided by operating activities $ 278 $ 367 $ 256 Cash flows used in investing activities (428) (877) (158) Cash flows provided by (used in) financing activities 87 225 (133) Effect of exchange rate changes on cash (3) 9 8 (Decrease) increase in cash and equivalents $ (66) $ (276) $ (27) Operating Activities .
Cash Flows The following table summarizes our cash flows for the periods indicated: Years ended December 31, Dollars in millions 2022 2021 2020 Cash flows provided by operating activities $ 396 $ 278 $ 367 Cash flows used in investing activities 37 (428) (877) Cash flows provided by (used in) financing activities (399) 87 225 Effect of exchange rate changes on cash (15) (3) 9 Increase (decrease) in cash and cash equivalents $ 19 $ (66) $ (276) Operating activities .
We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary.
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 unapproved fiscal 2022 non-defense discretionary spending proposal includes a 16% increase in funding, including a 6.5% increase in funding for NASA to support the continuation of scientific research and exploration as well as increased funding across all agencies to tackle climate change. However, as the U.S.
The non-defense discretionary spending proposal includes $25 billion, or a 6% increase from the fiscal 2022 budget, in funding for NASA to support the continuation of scientific research, exploration and space technology, as well as increased funding across all agencies to address the climate crisis. However, uncertainty continues to exist regarding the raising of the debt ceiling.
As discussed in Note 13 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 can resume the qualitative assessment in any subsequent period for any reporting unit. Deferred Taxes, Valuation Allowances and Tax Contingencies. As discussed in Note 13 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.
Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements, only the amounts authorized are included in backlog. For projects where we act solely in a project management capacity, we only include the expected value of our services in backlog.
Additionally, nearly all contracts allow customers to terminate the agreement at any time for convenience. Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements, only the amounts authorized are included in backlog.
Nonrecourse Project Finance Debt Information relating to our nonrecourse project debt is described in Note 12 "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Senior Notes Information relating to our Senior Notes is described in Note 12 "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. 55 Convertible Senior Notes On November 15, 2018, we issued and sold $350 million of 2.50% Convertible Senior Notes due 2023 (the "Convertible Notes") pursuant to an indenture between us and Citibank, N.A., as trustee.
The maturity date of Term Loan B remained unchanged maturing February 2027. We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months.
We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months. As of December 31, 2022, we were in compliance with all financial covenants related to our debt agreements.
KBR's strategic growth vectors include: • Defense modernization; • Space superiority; • Health and human performance; and • Sustainable technology. Key customers include U.S. DoD agencies such as the U.S. Army, U.S. Navy and U.S. Air Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S.
KBR's strategic growth vectors include: • Defense modernization; • Space superiority; • Health and human performance; • Sustainable technology; • High-end engineering; • Energy transition and security; and • Technology-led asset optimization Key customers include U.S. DoD agencies such as the U.S. Army, U.S. Navy and U.S.
Frazer-Nash provides a broad range of professional advisory services across the defense, renewable energy and critical infrastructure sectors primarily in the U.K. and Australia.
Frazer-Nash provides a broad range of professional advisory services across the defense, renewable energy and critical infrastructure sectors primarily in the U.K. and Australia. 44 On August 2, 2022, we acquired VIMA Group ("VIMA"), a U.K. based leading provider of digital transformation solutions to defense and other public sector clients.
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 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.
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.
Our acquisition thesis is centered around moving upmarket, expanding capabilities and broadening customer sets across strategic growth vectors. KBR also develops and prioritizes investment in technologies that are disruptive, innovative and sustainability- and safety-focused. These technologies and engineering solutions enable clients to achieve a cleaner, greener, more energy efficient global future.
Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by the Company's volume of work.
Cash provided by operations totaled $396 million and $278 million in 2022 and 2021, respectively as compared to net income of $192 million and $35 million in 2022 and 2021, respectively. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeUnder these swap agreements, we receive a one month LIBOR rate and pay an average monthly fixed rate of 3.055% for the term of the swaps that expire in September 2022. In March 2020, we entered into additional swap agreements covering notional value of $400 million of our outstanding loans which are effective beginning October 2022.
Biggest changeIn March 2020, we entered into additional swap agreements with a notional value of $400 million, which were effective beginning October 2022 and mature in January 2027. Under the March 2020 swap agreements, we receive one-month LIBOR and pay a monthly fixed rate of 0.965% for the term of the swaps.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Financial Market Risk. Cash and equivalents are deposited with major banks throughout the world. We invest excess cash and 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 equivalents.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Financial Market Risk. Cash and cash equivalents are deposited with major banks throughout the world. We invest excess cash and cash equivalents in short-term securities, primarily money market funds, which carry a fixed rate of return.
Under these swap agreements, we will receive a one-month LIBOR and pay an average monthly fixed rate of 0.965% for the term of the swaps that expire in January 2027. The swap agreements were designated as cash flow hedges at inception in accordance with ASC Topic 815 Accounting for Derivative and Hedging Transactions .
We will receive one-month LIBOR and pay a monthly fixed rate of 3.507% for the term of the swaps. The swap agreements were designated as cash flow hedges at inception in accordance with ASC Topic 815 Accounting for Derivative and Hedging Transactions .
Our weighted average interest rate for the year ended December 31, 2021 was 3.68%. If interest rates were to increase by 50 basis points, pre-tax interest expense would increase by approximately $4 million in the next twelve months net of the impact from our swap agreements, based on outstanding borrowings as of December 31, 2021. 58
If interest rates were to increase by 50 basis points, pre-tax interest expense would increase by approximately $3 million in the next twelve months net of the impact from our swap agreements, based on outstanding borrowings as of December 31, 2022. 62
We do not enter into derivative financial instruments for trading purposes or make speculative investments in foreign currencies. We recorded a net loss of $8 million for the year ended December 31, 2021, and a net gain of $4 million for the years ended December 31, 2020 and 2019 in other non-operating income (expense) on our consolidated statements of operations.
We recorded a net gain of $4 million for the years ended December 31, 2022 and December 31, 2020 and a net loss of $8 million for the year ended December 31, 2021 in other non-operating income (expense) on our consolidated statements of operations.
Foreign Currency Risk. Because of the global nature of our business, we are exposed to market risk associated with changes in foreign currency exchange rates. We have historically attempted to limit exposure to foreign currency fluctuations through provisions requiring the client to pay us in currencies corresponding to the currency in which cost is incurred.
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.
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. 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.
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 are exposed to market risk for changes in interest rates for the Revolver and term loan borrowings under the Senior Credit Facility.
We are exposed to market risk for changes in interest rates for the Revolver and term loan borrowings under the Senior Credit Facility. We had $260 million of borrowings outstanding under the Revolver to partially fund the acquisition of Centauri and $904 million outstanding under the term loan portions of the Senior Credit Facility as of December 31, 2022.
We manage interest rate exposure by entering into interest rate swap agreements pursuant to which we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated on an agreed-upon notional principal amount. In October 2018, we entered into interest rate swap agreements covering $500 million of notional value of our outstanding term loans.
Borrowings under the Senior Credit Facility bear interest at variable rates as described in Note 12 to our consolidated financial statements. We manage interest rate exposure by entering into interest rate swap agreements pursuant to which we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated on an agreed-upon notional principal amount.
The total fair value of these derivative instruments was a net liability of approximately $3 million as of December 31, 2021, of which $10 million is included in other current liabilities and $7 million is included in other assets At December 31, 2021, we had fixed rate debt aggregating $1.1 billion and variable rate debt aggregating $816 million, after taking into account the effects of the interest rate swaps.
The total fair value of these derivative instruments was a net asset of approximately $48 million as of December 31, 2022, of which $19 million is included in other current assets and $29 million is included in other assets.
Removed
The net loss of $8 million during the year ended December 31, 2021 consisted primarily of foreign currency losses of approximately $7 million on certain intercompany balance positions denominated in various currencies and an additional $1 million loss related to changes in the fair value of balance sheet hedges.
Added
We have not incurred any credit risk losses related to deposits of our cash and cash equivalents. Foreign Currency Risk. Because of the global nature of our business, we are exposed to market risk associated with changes in foreign currency exchange rates.
Removed
We had $364 million of borrowings outstanding under the Revolver to partially fund the acquisitions of Centauri and Frazer-Nash and $952 million outstanding under the term loan portions of the Senior Credit Facility as of December 31, 2021. Borrowings under the Senior Credit Facility bear interest at variable rates as described in Note 12 to our consolidated financial statements.
Added
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.
Added
In October 2018, we entered into interest rate swap agreements with a notional value of $500 million, where we received one-month LIBOR and paid a monthly fixed rate of 3.055% for the term of the swaps which expired in September 2022.
Added
In late September 2022 and early October 2022, we entered into additional interest rate swap agreements with an initial notional value of $250 million from the effective date of October 2022 to October 2023. Effective November 2023, the notional value will increase to $350 million through maturity in January 2027.
Added
At December 31, 2022, we had fixed rate debt aggregating $1.3 billion and variable rate debt aggregating $514 million, after taking into account the effects of the interest rate swaps that were effective at December 31, 2022. Our weighted average interest rate for the year ended December 31, 2022 was 4.05%.

Other KBR 10-K year-over-year comparisons