(Mark One)
| ý | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to |
For the transition period from to
| Delaware | 20-4536774 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
601 Jefferson Street
Suite 3400
Houston, Texas 77002
(Address of principal executive offices)
Telephone Number - Area code (713) 753-3011
| 601 Jefferson Street Suite 3400 | 77002 | |
| Houston, Texas | Zip Code | |
| (Address of principal executive offices) | Telephone Number - Area code (713) 753-3011 | |
Title of each class | Name of each Exchange on which registered | |
| Common Stock par value $0.001 per share | New York Stock Exchange | |
Large accelerated filer | ý | Accelerated filer | |||
| ¨ | ||||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | ||
(Do not check if a smaller reporting company)
KBR, Inc. and its subsidiaries (collectively, " Segment President who reports directly to our chief operating decision maker ("CODM"). We our particular capability to deliver large projects in remote locations and harsh environments. successful prior execution of large projects in difficult locations; technical excellence and differentiation; high value in service delivery, including the ability to deliver personnel, processes, systems and technology on an consistent superior service quality; financial strength through liquidity, breadth of proprietary technology and technical sophistication; robust risk awareness and management processes. $10 million in cash. The sale resulted in a $3 million pre-tax gain and is recorded in "gain on disposition of assets" in our accompanying consolidated statements of income. business combinations and other transactions. Backlog represents the dollar amount of revenue we expect to realize in the future as a result of performing work on contracts scopes. government contracts, the government retains the right to pursue remedies, which could include termination under any affected contract. Furthermore, the government has the contractual right to terminate or reduce the amount of work under our contracts at any time. See “Item 1A. Risk Factors” for more information. The information in the following tables has summarized data related to our revenue from Chevron and the U.S. government. and Suppliers more information. services. As of December 31, 43% of the value of our backlog is attributable to fixed-price contracts where we bear a significant portion of the risk of cost over-runs. These types of contracts are priced based in part on cost and scheduling estimates that are based on assumptions including prices and availability of labor, equipment and materials as well as productivity, performance and future economic conditions. If these estimates prove inaccurate, there are errors or ambiguities as to contract specifications or if circumstances change due to, among other things, unanticipated technical problems, 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 over-runs may occur. 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. Our failure to accurately estimate the resources and time required for fixed-price contracts or our failure to complete our contractual obligations within the time frame and costs committed could result in reduced profits or, in certain cases, a loss for that contract. If the contract is significant, or we encounter issues that impact multiple contracts, cost over-runs could have a material adverse effect on our business, financial condition and results of operations. the level of demand for oil, natural gas, industrial services and power generation; governmental regulations or policies, including the policies of governments regarding the use of energy and the exploration for and production and development of their oil and natural gas reserves; a reduction in energy demand as a result of energy taxation or a change in consumer spending patterns; global economic growth or decline; the level of oil production by non-OPEC countries and the available excess production capacity global weather conditions and natural disasters; oil refining capacity; shifts in end-customer preferences toward fuel efficiency and the use of natural gas; potential acceleration of the development and expanded use of alternative fuels; environmental regulation, including limitations on fossil fuel consumption based on concerns about its relationship to climate change; and reduction in demand for the commodity-based markets in which we IT systems to perform as anticipated for any reason could net worth. profits ratably over the life of a contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project, the ratio of hours performed to date to our estimate of total expected hours at completion, or the physical progress methodology. The effects of revisions to revenues and estimated costs are recorded when the amounts are known or can be reasonably estimated. Such revisions could occur in any period and their effects could be material. Although we have historically made reasonably reliable estimates of the progress towards completion of long-term engineering, program management, construction management or construction contracts, the uncertainties inherent in the estimating process make it possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenues and profits. . findings to the Defense Contract Management Agency 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. Law termination of our U.S. government contractor status could have a and could elect to require us to apply available cash to collateralize any outstanding letters of credit and declare any outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, thus requiring us to apply available cash to repay any borrowings then outstanding. If we full. least 25%. limitations on our ability to reinvest earnings from operations in one country to fund the Location Owned/Leased Description Business Segment Office Owned Leatherhead, United Kingdom Owned Mine Safety Disclosures Fiscal Year 2010 First quarter ended March 31, 2010 Second quarter ended June 30, 2010 Third quarter ended September 30, 2010 Fourth quarter ended December 31, 2010 Fiscal Year 2009 First quarter ended March 31, 2009 Second quarter ended June 30, 2009 Third quarter ended September 30, 2009 Fourth quarter ended December 31, 2009 declared. In the fourth quarter of 2013, we declared a dividend of $0.08 per share on October 2, 2013. October 1 – 22, 2010 Repurchase Program(a) Employee Transactions(b) November 1 –23, 2010 Repurchase Program Employee Transactions(b) December 9 – 27, 2010 Repurchase Program Employee Transactions(b) Total Repurchase Program(a) Employee Transactions(b) We have had several share repurchase programs, including the Statements of Operations Data: Total revenue Operating income Income from continuing operations, net of tax Income from discontinued operations, net of tax Net income (loss) attributable to noncontrolling interests Net income attributable to KBR Basic net income attributable to KBR per share: —Continuing operations —Discontinued operations (a) Basic net income attributable to KBR per share Diluted net income attributable to KBR per share: —Continuing operations —Discontinued operations (a) Diluted net income attributable to KBR per share Basic weighted average shares outstanding Diluted weighted average shares outstanding Cash dividends declared per share Balance Sheet Data (as of the end of period): Cash and equivalents Net working capital Total assets Non-recourse long-term debt Total shareholders’ equity Other Financial Data: Backlog at year end Gross operating margin percentage Capital expenditures (b) Depreciation and amortization expense (c) In 2013, we reclassified equity in earnings of unconsolidated affiliates from revenues to a separate component of operating income on our consolidated statement of income. We Form 10-K. Reorganization western Canada. performance bonds. revenues or expenses. We recognize the profit on our services provided to joint ventures that we consolidate and joint ventures that we record under the equity method of accounting primarily using the percentage-of-completion method. claims. contracts The second step compares the implied fair value of the reporting unit's goodwill to the carrying value, if any, of that goodwill. We determine the implied fair value of the goodwill in the same manner as determining the amount of goodwill to be recognized in a business combination. We believe these two approaches are appropriate valuation techniques and we generally weight the two resulting values equally as an estimate of a reporting Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. The fair value derived from the weighting of these two methods provides appropriate valuations that, in the aggregate, reasonably reconcile to our market capitalization, taking into account observable control premiums. discussed below in relation to the goodwill impairment in 2012. We beyond. tax expense. ultimate outcome. We review the facts for each assessment, experience and expectations. plan, a method is used that recognizes investment gains or losses, the difference between the expected and actual return based on market-related value of assets over a five-year period, which has the effect of reducing year-to-year volatility. Dollar Change Hydrocarbons: Gas Monetization Oil & Gas Downstream Technology Total Hydrocarbons Infrastructure, Government and Power (“IGP”): North America Government and Defense International Government and Defence Infrastructure and Minerals Power and Industrial Total IGP Services Ventures Other Total revenue Business unit income (loss): Hydrocarbons: Gas Monetization Oil & Gas Downstream Technology Total job income Impairment of long-lived assets Divisional overhead Total Hydrocarbons Infrastructure, Government and Power (“IGP”): North America Government and Defense International Government and Defence Infrastructure and Minerals Power and Industrial Total job income Divisional overhead Total IGP Services: Job income Gain (loss) on sale of assets Divisional overhead Total Services Ventures: Job income (loss) Gain on sale of assets Divisional overhead Total Ventures Other: Job income Impairment of long-lived assets Impairment of goodwill Gain (loss) on sale of assets Divisional overhead Total Other Total business unit income Unallocated amounts: Labor cost absorption (1) Corporate general and administrative Total operating income Business Unit Revenue Hydrocarbons business segment: Gas Monetization Oil & Gas Downstream Technology Total Hydrocarbons business segment revenue Infrastructure, Government and Power (“IGP”): North America Government and Defense International Government and Defence Infrastructure and Minerals Power and Industrial Total IGP business segment revenue Services Other Total KBR Revenue Business Unit Revenue Total Sectors Hydrocarbons business segment: Gas Monetization Oil & Gas Downstream Technology Total Hydrocarbons business segment revenue Infrastructure, Government and Power (“IGP”): North America Government and Defense International Government and Defence Infrastructure and Minerals Power and Industrial Total IGP business segment revenue Services Other Total KBR Revenue Hydrocarbons business segment: Gas Monetization Oil & Gas Downstream Technology Total Hydrocarbons business segment revenue Infrastructure, Government and Power (“IGP”): North America Government and Defense International Government and Defence Infrastructure and Minerals Power and Industrial Total IGP business segment revenue Services Other Total KBR Revenue (in millions) Hydrocarbons: Gas Monetization Oil & Gas Downstream Technology Total Hydrocarbons backlog Infrastructure, Government and Power (“IGP”): North America Government and Defense International Government and Defence Infrastructure and Minerals Power and Industrial Total IGP backlog Services Ventures Total backlog for continuing operations Cash flows provided by (used in) operating activities Cash flows used in investing activities Cash flows used in financing activities Effect of exchange rate changes on cash Decrease in cash and equivalents Cash increase due to consolidation of a variable interest entity Net decrease in cash and equivalents Obligation to former noncontrolling interest (a) Operating leases Purchase obligations(b) Pension funding obligation (c) Total (d) Revenue from services provided to unconsolidated joint ventures Profit from services provided to unconsolidated joint ventures 27, 2014 Revenue: Services Equity in earnings of unconsolidated affiliates, net Total revenue Operating costs and expenses: Cost of services General and administrative Impairment of long-lived assets Impairment of goodwill Gain on disposition of assets, net Total operating costs and expenses Operating income Interest income (expense), net Foreign currency losses, net Other non-operating expense Income from continuing operations before income taxes and noncontrolling interests Less: Provision for income taxes Income from continuing operations, net of tax Income from discontinued operations, net of tax benefit of $11 Net income Less: Net income attributable to noncontrolling interests Net income attributable to KBR Reconciliation of net income attributable to KBR common shareholders: Continuing operations Discontinued operations, net Net income attributable to KBR Basic income per share (1): Continuing operations – Basic Discontinued operations, net – Basic Net income attributable to KBR per share – Basic Diluted income per share (1): Continuing operations - Diluted Discontinued operations, net – Diluted Net income attributable to KBR per share – Diluted Basic weighted average common shares outstanding Diluted weighted average common shares outstanding Cash dividends declared per share Statements of Comprehensive Income Assets Current assets: Cash and equivalents Receivables: Accounts receivable, net of allowance for bad debts of $27 and $26 Unbilled receivables on uncompleted contracts Total receivables Deferred income taxes Other current assets Total current assets Property, plant, and equipment, net of accumulated depreciation of $334 and $264 (including $80 and $0, net, owned by a variable interest entity – see Note 15) Goodwill Intangible assets, net Equity in and advances to related companies Noncurrent deferred income taxes Noncurrent unbilled receivables on uncompleted contracts Other assets Total assets Current liabilities: Accounts payable Due to former parent, net Obligation to former noncontrolling interest (Note 3) Advance billings on uncompleted contracts Reserve for estimated losses on uncompleted contracts Employee compensation and benefits Current non-recourse project-finance debt of a variable interest entity (Note 15) Other current liabilities Current liabilities related to discontinued operations, net Total current liabilities Noncurrent employee compensation and benefits Noncurrent non-recourse project-finance debt of a variable interest entity (Note 15) Other noncurrent liabilities Noncurrent income tax payable Noncurrent deferred tax liability Total liabilities KBR Shareholders’ equity: Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding Common stock, $0.001 par value, 300,000,000 shares authorized, 171,448,067 and 170,686,531 shares issued, and 151,132,049 and 160,363,830 shares outstanding Paid-in capital in excess of par Accumulated other comprehensive loss Retained earnings Treasury stock, 20,316,018 shares and 10,322,701 shares, at cost Total KBR shareholders’ equity Noncontrolling interests Total shareholders’ equity Total liabilities and shareholders’ equity millions) Balance Sheets Net income Other comprehensive income (loss), net of tax benefit (provision): Net cumulative translation adjustments Pension liability adjustments, net of taxes of $4, $(5) and $(85) Other comprehensive gains (losses) on derivatives: Unrealized gains (losses) on derivatives Reclassification adjustments to net income Income tax benefit (provision) on derivatives Comprehensive income Less: Comprehensive income attributable to noncontrolling interests Comprehensive income attributable to KBR millions, except share data) Balance at January 1, Stock-based compensation Common stock issued upon exercise of stock options Tax benefit increase (decrease) related to stock-based plans Dividends declared to shareholders Adjustments pursuant to tax sharing agreement with former parent Repurchases of common stock Issuance of ESPP shares Distributions to noncontrolling interests Investments from noncontrolling interests Acquisition of noncontrolling interests Consolidation of Fasttrax Limited Tax adjustments to noncontrolling interests Other noncontrolling partner activity Cumulative effect of initial adoption of accounting for defined benefit pension and other postretirement plans Comprehensive income Balance at December 31, Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization Equity in earnings of unconsolidated affiliates Deferred income taxes Impairment of long-lived assets Impairment of goodwill Other Changes in operating assets and liabilities: Receivables Unbilled receivables on uncompleted contracts Accounts payable Advance billings on uncompleted contracts Accrued employee compensation and benefits Reserve for loss on uncompleted contracts Collection (repayment) of advances from (to) unconsolidated affiliates, net Distributions of earnings from unconsolidated affiliates Other assets Other liabilities Total cash flows provided by (used in) operating activities Cash flows from investing activities: Acquisition of businesses, net of cash acquired Capital expenditures Investment in equity method joint ventures Investment in licensing arrangement Sales of property, plant and equipment Proceeds from sale of investments Total cash flows used in investing activities Cash flows from financing activities: Payments to reacquire common stock Distributions to noncontrolling interests, net Payments of dividends to shareholders Net proceeds from issuance of stock Excess tax benefits from stock-based compensation Payments on short-term and long-term borrowings Return (funding) of cash collateral on letters of credit, net Total cash flows used in financing activities Effect of exchange rate changes on cash Decrease in cash and equivalents Cash increase due to consolidation of a variable interest entity Cash and equivalents at beginning of period Cash and equivalents at end of period Supplemental disclosure of cash flow information: Cash paid for interest Cash paid for income taxes (net of refunds) Noncash operating activities Other assets (Note 10) Other liabilities (Note 10) Noncash investing activities Purchase of computer software Noncash financing activities Obligation to former noncontrolling interest (Note 3) mining companies and domestic and foreign governments. appropriate disclosures. Areas requiring significant estimates and assumptions by our management include the following: Revenue from contracts to provide construction, engineering, design or similar services is reported on the percentage-of-completion method of accounting. Revenues and gross profit on contracts can be significantly affected by change orders and claims that may not be ultimately approved until the later stages of a contract or subsequent to the date a project is completed. If it is not probable that the costs will be recovered through a change in contract price, the costs attributable to change orders are treated as contract costs without incremental revenue. If it is probable that the costs will be recovered through a change order, the costs are treated as contract costs and contract revenue is recognized to the extent of the lesser of the amounts management expects to recover or the costs expected to be incurred. multiple deliverables contracts development, information technology, finance and corporate accounting, human resources and various other corporate functions. Equivalents Current restricted cash Non-current restricted cash Total restricted cash consolidated statements of cash flows. the reporting unit goodwill. operating margins, tax rates and cash expenditures. We believe these two approaches are appropriate valuation techniques and we generally weight the two resulting values equally as an estimate of a reporting current equity investment plus those entities' undistributed earnings. See Note 9 for our discussion on equity method investments. See Note 21 for our discussion on derivative instruments. Revenues from major customers: U.S. government revenue Chevron revenue Percentages of revenues and accounts receivable from major customers: U.S. government revenue percentage Chevron revenues percentage U.S. government receivables percentage Chevron receivables percentage government. equity method of accounting. after construction is complete. subordinated debt financing, letters of credit, We Advances to subcontractors Retainage payables to subcontractors Basic weighted average common shares outstanding Stock options and restricted shares Diluted weighted average common shares outstanding Millions of dollars, except years Net tangible assets: Cash and equivalents Notes and accounts receivable Unbilled receivables Other assets Accounts payable and advanced billings Advanced billings on uncompleted contracts Deferred tax liabilities Other current liabilities Total net tangible assets Identifiable intangible assets: Customer relationships and backlog Tradenames Other Total amount allocated to identifiable intangible assets Goodwill Total purchase price Probable unapproved claims Probable unapproved change orders Probable unapproved change orders related to unconsolidated subsidiaries Millions of dollars Revenue: Hydrocarbons Infrastructure, Government and Power Services Other Total revenue Operating segment income: Hydrocarbons Infrastructure, Government and Power Services Other Operating segment income Unallocated amounts: Labor cost absorption Corporate general and administrative Total operating income Capital Expenditures: Hydrocarbons Infrastructure, Government and Power Services Other Total Equity in earnings (losses) of unconsolidated affiliates, net: Hydrocarbons Infrastructure, Government and Power Services Other Total Depreciation and amortization: Hydrocarbons Infrastructure, Government and Power Services Other Total Millions of dollars Total assets: Hydrocarbons Infrastructure, Government and Power Services Other Total assets Goodwill: Hydrocarbons Infrastructure, Government and Power Services Other Total Equity in/advances to related companies: Hydrocarbons Infrastructure, Government and Power Services Other Total Revenue: United States Iraq Africa Other Middle East Asia Pacific (includes Australia) Europe Other Countries Total Long-Lived Assets (PP&E): United States United Kingdom Other Countries Total Balance at December 31, 2008 as previously reported Retroactive effect of reorganization adjustments Balance at December 31, 2008 as adjusted Impairment of goodwill Purchase price and other adjustments Reallocation adjustment Balance at December 31, 2009 Acquisition of R&S Acquisition of Energo Balance at December 31, 2010 billings. The Millions of dollars Intangibles not subject to amortization Intangibles subject to amortization Total intangibles Accumulated amortization of intangibles Net intangibles 2008 2009 2010 Millions of dollars 2011 2012 2013 2014 2015 Estimated Lives in Years December 31, Land Buildings and property improvements Equipment and other Total Less accumulated depreciation Net property, plant and equipment amount due from PEP, including the amounts paid on the performance bonds as long term. we have not accrued. We are obligated under operating leases, principally for the use of land, offices, equipment, field facilities and warehouses. We recognize minimum rental expenses over the term of the lease. When a lease contains a fixed escalation of the minimum rent or rent holidays, we recognize the related rent expense on a straight-line basis over the lease term and record the difference between the recognized rental expense and the amounts payable under the lease as deferred lease credits. We have certain leases for office space where we receive allowances for leasehold improvements. We capitalize these leasehold improvements as property, plant and equipment and deferred lease credits. Leasehold improvements are amortized over the shorter of their economic useful lives or the lease term. Total rent expense was 2011 2012 2013 2014 2015 Beyond 2015 601 Jefferson Building Current income taxes: Federal Foreign State Total current Deferred income taxes: Federal Foreign State Total deferred Provision for income taxes Barracuda & Caratinga Leasing Company B.V. ("BCLC"), the project owner and claimant, to develop the Barracuda and Caratinga crude oilfields, which are located off the coast of Brazil. Petrobras is a contractual representative that controls the project owner. In November 2007, we executed a settlement agreement with the project owner to settle all outstanding project issues except for the bolts arbitration discussed below. United States Foreign Total United States Statutory Rate Rate differentials on foreign earnings Non-deductible expenses State income taxes Prior year foreign, federal and state taxes Valuation allowance Taxes on unincorporated joint ventures Other Total effective tax rate on continuing operations Gross deferred tax assets: Depreciation and amortization Employee compensation and benefits Construction contract accounting Loss carryforwards Insurance accruals Allowance for bad debt Accrued liabilities Foreign tax credit carryforwards Deferred foreign tax credit Other Total Gross deferred tax liabilities: Construction contract accounting Intangibles Depreciation and amortization Deferred foreign tax credit carryforward Other Total Valuation Allowances: Loss carryforwards Net deferred income tax asset Balance at January 1, 2010 Increases as a result of tax positions taken during the current year Decreases as a result of tax positions taken during a prior year Other Balance at December 31, 2010 warranty period that ended on June 30, 2006. Balance at December 31, 2007 Cumulative effect of initial adoption of accounting for defined benefit pension and other postretirement plans Stock-based compensation Common stock issued upon exercise of stock options Tax benefit increase related to stock-based plans Dividends declared to shareholders Repurchases of common stock Distributions to noncontrolling interests Acquisition of noncontrolling interests Tax adjustments to noncontrolling interests Comprehensive income: Net income Other comprehensive income, net of tax (provision): Cumulative translation adjustment Pension liability adjustment, net of tax of $(85) Other comprehensive gains (losses) on derivatives: Unrealized gains (losses) on derivatives Reclassification adjustments to net income (loss) Income tax benefit (provision) on derivatives Comprehensive income, total Balance at December 31, 2008 Stock-based compensation Common stock issued upon exercise of stock options Tax benefit decrease related to stock-based plans Dividends declared to shareholders Repurchases of common stock Issuance of ESPP shares Distributions to noncontrolling interests Investments by noncontrolling interests Comprehensive income: Net income Other comprehensive income, net of tax (provision): Cumulative translation adjustment Pension liability adjustment, net of tax of $(5) Other comprehensive gains (losses) on derivatives: Unrealized gains (losses) on derivatives Reclassification adjustments to net income (loss) Comprehensive income, total Balance at December 31, 2009 Stock-based compensation Common stock issued upon exercise of stock options Dividends declared to shareholders Adjustment pursuant to tax sharing agreement with former parent Repurchases of common stock Issuance of ESPP shares Distributions to noncontrolling interests Investments by noncontrolling interests Acquisition of noncontrolling interests Consolidation of Fasttrax Limited Other noncontrolling partner activity Comprehensive income: Net income Other comprehensive income, net of tax (provision): Net cumulative translation adjustment Pension liability adjustment, net of tax of $4 Other comprehensive gains (losses) on derivatives: Unrealized gains (losses) on derivatives Reclassification adjustments to net income (loss) Income tax benefit (provision) on derivatives Comprehensive income, total Balance at December 31, 2010 Cumulative translation adjustments Pension liability adjustments Unrealized gains (losses) on derivatives Total accumulated other comprehensive loss Balance at December 31, 2008 Treasury stock acquired Balance at December 31, 2009 Treasury stock acquired, net of ESPP shares issued Balance at December 31, 2010 (Amended May 2012) stock appreciation rights, in tandem with stock options or freestanding; restricted stock; restricted stock units; cash performance awards; and stock value equivalent awards. Expected term range (in years) Expected volatility range Risk-free interest rate range Expected dividend yield range Granted stock options (millions of shares) Expected term (in years) Weighted average grant-date fair value per share Expected volatility range Expected dividend yield range Risk-free interest rate range Outstanding at December 31, 2009 Granted Exercised Forfeited Expired Outstanding at December 31, 2010 Exercisable at December 31, 2010 2013 Nonvested shares at December 31, 2009 Granted Vested Forfeited Nonvested shares at December 31, 2010 Board of Directors Compensation Committee. 2012 The grant-date fair value of employee share options is estimated using option-pricing models. If an award is modified after the grant date, incremental compensation cost is recognized immediately Stock-based compensation Total income tax benefit recognized in net income for stock-based compensation arrangements Incremental compensation cost Tax benefit increase (decrease) related to stock-based plans 26 months. $1 million and $(1) million at December 31, 2013 and 2012, respectively. The financial assets and liabilities measured at fair value on a recurring basis are Quoted Prices (Level 1) Significant (Level 2) Significant (Level 3) Pension plan assets Marketable securities Derivative assets Derivative liabilities Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Member’s equity Total liabilities and member’s equity Revenue Operating income Net income (loss) (in millions, except for percentages) U.K. Road projects Fermoy Road project Allenby & Connaught project EBIC Ammonia project Other Liquefied Natural Gas projects (in millions, except for percentages) U.K. Road projects Fermoy Road project Allenby & Connaught project EBIC Ammonia project Other Liquefied Natural Gas projects (in millions, except for percentages) Fasttrax Limited project Escravos Gas-to-Liquids project Pearl GTL project Gorgon LNG project (in millions, except for percentages) Escravos Gas-to-Liquids project Pearl GTL project Gorgon LNG project 2011 2012 2013 2014 2015 Beyond 2015 Revenue from services provided to unconsolidated joint ventures Profit from services provided to unconsolidated joint ventures Change in projected benefit obligation Projected benefit obligation at beginning of period Service cost Interest cost Plan Amendments Curtailment Foreign currency exchange rate changes Actuarial (gain) loss Benefits paid Projected benefit obligation at end of period Accumulated benefit obligation at end of period Change in plan assets Fair value of plan assets at beginning of period Actual return on plan assets Employer contributions Foreign currency exchange rate changes Benefits paid Fair value of plan assets at end of period Funded status Employer contribution Net amount recognized Amounts recognized on the consolidated balance sheet Noncurrent liabilities Weighted-average assumptions used to determine benefit obligations at measurement date Discount rate Rate of compensation increase Equity securities Fixed income securities Cash equivalents and other assets U.S. equity securities Fixed income securities Cash equivalents Asset Category at December 31, 2010 United States plan assets U.S. equity securities Non-U.S. equity securities Government bonds Corporate bonds Mortgage backed securities Cash and cash equivalents Total U.S. plan assets International plan assets U.S. equity securities Non-U.S. equity securities Government bonds Corporate bonds Other bonds Annuity contracts Real estate Cash and cash equivalents Other Total international plan assets Total plan assets at December 31, 2010 Asset Category at December 31, 2009 United States plan assets U.S. equity securities Non-U.S. equity securities Government bonds Corporate bonds Mortgage backed securities Cash and cash equivalents Other Total U.S. plan assets International plan assets U.S. equity securities Non-U.S. equity securities Government bonds Corporate bonds Other bonds Annuity contracts Real estate Cash and cash equivalents Other Total international plan assets Total plan assets at December 31, 2009 International plan assets Balance at December 31, 2009 Actual return on plan assets held at end of year Purchases, sales and settlements Balance at December 31, 2010 International plan assets Balance at December 31, 2008 Actual return on plan assets held at end of year Purchases, sales and settlements Balance at December 31, 2009 Net actuarial loss, net of tax of $10 and $146, respectively Total in accumulated other comprehensive loss Millions of dollars 2011 2012 2013 2014 2015 Years 2016 – 2020 Millions of dollars Components of net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service cost Settlements/curtailments Recognized actuarial loss Net periodic benefit cost Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 Discount rate Expected return on plan assets Rate of compensation increase Actuarial (gain) loss Total Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. This ASU requires an entity to measure obligations resulting from joint and several liability arrangements as the sum of the amount the entity has both agreed and expects to pay on the basis of its arrangement among its co-obligors. The entity is also required to disclose the nature and amount of the obligation. The amendments in this ASU are effective retrospectively for interim and annual periods beginning after December 15, 2013. The adoption of ASU 2013-04 is not expected to have a material impact on our financial position, results of operations or cash flows. 2010 Revenue Operating income Income from continuing operations, net of tax Net income attributable to noncontrolling interests Net income attributable to KBR Net income attributable to KBR per share : Net income attributable to KBR per share – Basic Net income attributable to KBR per share – Diluted 2009 Revenue Operating income Income from continuing operations, net of tax Net income attributable to noncontrolling interests Net income attributable to KBR Net income attributable to KBR per share : Net income attributable to KBR per share – Basic Net income attributable to KBR per share – Diluted statements included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented. 2013 company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and included in management’s assessment (Item 9A(b)) related to project reporting over the completeness and accuracy of estimates of revenues, costs and profit at completion for certain long-term construction projects with multiple currencies. Financial Statements: Schedule II—Valuation and qualifying accounts for the three years ended December 31, Note: All schedules not filed with this report required by Regulations S-X have been omitted as not applicable or not required, or the information required has been included in the notes to financial statements. Exhibit Description Transition Services Agreement dated as of November 20, 2006, by and between Halliburton Energy Services, Inc. and KBR, Inc. (KBR as service provider) (incorporated by reference to Exhibit 10.4 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) Form of Indemnification Agreement between KBR, Inc. and its directors KBR Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.3 to KBR’s current report on Form 8-K dated April 9, 2007; File No. 1-33146) Description Form of Restricted Stock Agreement between KBR, Inc. and William P. Utt pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s Form 10-Q for the quarter ended September 30, 2007; File No. 1-33146) Severance and Change of Control Agreement effective as of October 21, 2009, between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Susan K. Carter (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated October 26, 2009; File No. 1-33146) Description *23.1 *31.1 Exhibit **32.1 **32.2 ***101.INS ***101.SCH ***101.CAL Management contracts or compensatory plans or arrangements Year ended December 31, 2010: Deducted from accounts and notes receivable: Allowance for bad debts Reserve for losses on uncompleted contracts Reserve for potentially disallowable costs incurred under government contracts Year ended December 31, 2009: Deducted from accounts and notes receivable: Allowance for bad debts Reserve for losses on uncompleted contracts Reserve for potentially disallowable costs incurred under government contracts Year ended December 31, 2008: Deducted from accounts and notes receivable: Allowance for bad debts Reserve for losses on uncompleted contracts Reserve for potentially disallowable costs incurred under government contracts Receivable write-offs, net of recoveries, and reclassifications. Reserves have been recorded as reductions of revenue, net of reserves no longer required. By: 27, 2014 Transition Services Agreement dated as of November 20, 2006, by and between Halliburton Energy Services, Inc. and KBR, Inc. (KBR as service provider) (incorporated by reference to Exhibit 10.4 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) Form of Indemnification Agreement between KBR, Inc. and its directors KBR Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.3 to KBR’s current report on Form 8-K dated April 9, 2007; File No. 1-33146) Description Form of Restricted Stock Agreement between KBR, Inc. and William P. Utt pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s Form 10-Q for the quarter ended September 30, 2007; File No. 1-33146) Severance and Change of Control Agreement effective as of October 21, 2009, between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Susan K. Carter (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated October 26, 2009; File No. 1-33146) Description *23.1 *31.1 **32.1 **32.2 ***101.INS ***101.SCH ***101.CAL ***101.DEF *** 101.PRE * Page PART I21 21PART II24255858FINANCIAL STATEMENTS 113113115 FINANCIAL STATEMENTS59606162636465PART III115115115115115 PART IV115121forward lookingforward-looking information. Some of the statements contained in this annual report are forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect” and similar expressions are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future financial performance and results of operations.General“KBR”"KBR") is a global engineering, construction and services company supporting the energy, petrochemicals,hydrocarbons, power, minerals, civil infrastructure, government services, industrial and civil infrastructure sectors.commercial market segments. We offer a wide rangean extensive portfolio of services through our Gas Monetization, Hydrocarbons, Infrastructure, Government and Power (“IGP”("IGP"), Services and Other business segments. Information regarding business segment disclosures areis incorporated by reference in Note 52 to our consolidated financial statements and “Item"Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”priorformer parent, Halliburton Company, which was completed on April 5, 2007. We trace our history and culture to two businesses, The M.W. Kellogg Company (Kellogg)("Kellogg") and Brown & Root, Inc. (Brown("Brown & Root)Root"). Kellogg dates back to a pipe fabrication business whichthat was founded in New York in 1901 and has been creatingevolved into a technology and service provider for petroleum refining and petrochemicals processing since 1919.processing. Brown & Root was founded in Houston, Texas in 1919 and built the world’s first offshore platform in 1947. Brown & Root was acquired by Halliburton in 1962 and Kellogg was acquired by Halliburton in 1998 through its merger with Dresser Industries.Unitsoperate in four segments: Hydrocarbons; Infrastructure, Government & Power (“IGP”); Services; and Other as described below.Hydrocarbons. Our Hydrocarbonshave revised our business segment servesreporting to represent how we currently manage our business and recast prior periods to conform to the Hydrocarbon industrycurrent business segment presentation.providing services ranging from prefeasibility studies to design,global and construction to commissioning of process facilitiesregional economic growth expectations reflected in remote locations around the world. We are involveda long global spending cycle. The spending cycle is moderated by fluctuations in hydrocarbon processing which includes constructing liquefiedcrude oil prices and chemical feedstock costs including natural gas (“LNG”) plants in several countries. Our global teamsprices, and is also partially subject to volatility of engineers also execute and provide solutions for projects in the oil and gas, olefins, refining, petrochemical, biofuels and carbon capturefinancial markets. The Hydrocarbons business segment comprises the Monetization, Oil & Gas, Downstream, and Technology business units.Monetization.Gas Monetization business unit – Our Gas Monetization business unitsegment designs and constructs facilities that enable our customers to monetize theirliquefied natural gas resources. We create LNG("LNG") and gas-to-liquids (“GTL”("GTL") facilities that allow for the economicaleconomic development and transportation of resources across the globe. Additionally, we makeWe provide our customers a full range of services for large and complex LNG and GTL projects, as well as provide significant contributions in advancing gas processing development, equipment design and innovative construction methods.Oil & GasHydrocarbons. Our Hydrocarbons business unit – Our Oil & Gas business unit deliverssegment provides services ranging from pre-feasibility studies to front-end engineering design ("FEED") through construction and commissioning of process facilities in remote locations and developed areas around the world. We design and construct onshore and offshore oil and natural gas production facilities whichthat include platforms, floating production and subsea facilities,floating liquefied natural gas ("FLNG") facilities. We provide specialty consulting services that include field development studies and pipelines.planning, structural integrity management and proprietary designs for ship and semi-submersible hulls. We also implement the infrastructure needed to make intricate projects feasible by managing projects ranging from deepwater through landfalls, to onshore environments, in remote desert regions, tropical rain forests,license technology and major river crossings.Downstream business unit – Our Downstream business unit serves clients in the petrochemical, refining, chemicals, biofuelsprovide basic engineering and syngas markets throughout the world. We leverage our differentiated process technologies, but also execute projects and complexes using non-KBR technologies. Our success is based on delivering value over the lifecycle of projects in the hydrocarbon market.Technology business unit – Our Technology business unit offersdesign packages for highly efficient differentiated proprietary process technologiestechnologies. We also provide process technology and project design and execution for theoil and gas, refining, chemicals, petrochemical, biofuels, fertilizers, coal monetization, petrochemical, refininggasification and syngas markets. In additionoffering technology licenses, we partner withbe engaged in studies and FEED projects, reflecting our Downstream business unit on project managementclients' intentions to invest in capital-intensive energy projects that utilize our process technologies and EPCengineering, procurement and construction ("EPC") project-delivery skills.provide fully integrated solutions worldwide.serves the Infrastructure, Government & Power industries delivering effective solutions todesigns and executes projects for industrial, commercial and defense and governmental agencies worldwide, providing baseworldwide. These projects range from basic deliverables to complex infrastructure initiatives including aviation, road, rail, maritime, water, wastewater, building and pipeline projects. Our capabilities include operations, maintenance, logistics and field support, facilities management and border security, EPC services, and logistics support. We also deliver project management support and services for an array of complex initiatives and provide project management for the airfield design and construction program, runway expansion and widening, bridges, new cargo infrastructure and drainage improvements. For the industrial manufacturing market, we provide a full range of EPC services to a variety of heavy industrial and advanced manufacturing markets, frequently employing our clients’ proprietary knowledge and technologies in strategically critical projects. For the power market, we use our full-scope EPC expertise to execute projects which play a distinctive role in increasing the world’s power generation capacity from multiple fuel sources and in enhancing the efficiency andenvironmental compliance of existing power facilities. The IGP business segment includes the North American Government and Defense (“NAGD”), International Government and Defence (“IGD”), Infrastructure and Minerals (“I&M”), and the Power and Industrial (“P&I”) business units.North American Government and Defense business unit – Our NAGD business unit offers operations, maintenance, and logistics support in both contingency and sustainment environments as well as construction and design or build services. Our suite of services to the United States Department of Defense (“DOD”) and other federal government agencies.International Government and Defence business unit – Our IGD business unit supports armed forces and government departments around the world by providing logistics and field support, operations and maintenance of camps and bases, program andincludes project management, construction management, training, and visualization software, and engineering and support services. We provide services to government departments including the United Kingdom (“U.K.”), Europe, Middle East and Australia.Infrastructure & Minerals business unit – Our I&M business unit providesas well as engineering, construction and project management services across the worldworld.large and complex infrastructureall U.S. EPC projects. We have a focus on technical excellence, incorporating safetyprovide module assembly, fabrication and sustainability factors into the planning, design and construction of our work. The I&M business unit provides global focus and leadership in four key markets – mining & minerals; transport (aviation, ports, rail and roads); water; and facilities (includes buildings and pipelines.)Power & Industrial business unit – Our P&I business unit provides full-scope engineering, procurement and construction (“EPC”)maintenance services, for the industrial and power markets globally. Within the Industrial product line, we primarily serve clients in the forest products, manufacturing, technology, life sciences, consumer products, metals and materials sectors. Within the Power product line, we deliver fossil fuel and renewable power generation projects, plant re-powering projects and emissions control projects for customers that include regulated utilities, power cooperatives, municipalities, independent power producers and industrial cogeneration providers.Services. Our Services segment delivers full-scope construction, construction management, fabrication, operations/maintenance, commissioning/startup and turnaround expertise worldwide to a broad variety of markets including oil and gas, petrochemicals and hydrocarbon processing, oil sands, mining, power, alternate energy, pulp and paper, industrial and manufacturing and consumer product industries. Specifically,Our Services is organized around four major product lines; U.S. Construction, Industrial Services, Building Group and Canada Operations. Our U.S. Construction product line delivers direct hire construction and construction management for stand-alone construction projects to a variety of markets and works closely with the Hydrocarbons group and Power and Industrial business units to provide construction execution support on all domestic EPC projects. Our Industrial Services product line is a diversified maintenance organization operating on asegment also provides global basis providing maintenance, on-call construction, turnaround and specialty services to a variety of markets. This group works with our other business units to identify potential for pull through opportunities and to identify upcoming EPC projects at the 80 pluswhere today more than 90 locations where we have embedded KBR personnel. Our Building Group product line providespersonnel that provide commercial general contractor-relatedcontractor services tofor education, food and beverage, manufacturing, health care, hospitality and entertainment, life science and technology and mixed-use building clients. Our Canada Operations product line isServices business segment periodically works on projects with other business segments. diversified constructionreportable segment, nor do they share a majority of the aggregation criteria with another operating segment. These operating segments are reported on a combined basis as "Other" and fabrication operation providing direct hire construction, construction management, module assembly, fabricationinclude our Ventures and maintenance services to our Canadian customers. This product line servesTechnical Staffing Resources (formerly a numberpart of markets including oil and gas customers operatingAllstates) as well as corporate expenses not included in the oil sands, pulp and paper, mining, and industrial markets.operating segments’ results.Other. Included in our Other segment is the business unit and other operations. The Ventures business unit invests KBR equity alongside clients’ equityclients in projects where one or more of KBR’s other business unitssegments has a direct role in technology supply, engineering, construction, construction management or operations and maintenance. Project equity investments under current management includehave been made in business sectors including defense equipment and housing, toll roads and petrochemicals.In addition to the Ventures business unit, other business operations are reported in our Other segment including the Allstates staffing business acquired in the BE&K, Inc. (“BE&K”) acquisition in 2008, our engineering resource operations and other operations that do not individually meet the criteria for reportable segment presentation under Accounting Standards Codification (“ASC”) 280 – Segment Reporting.Our business strategy is tobythrough a business strategy of providing our customers differentiated and consistent capital project delivery and services offerings across the entire engineering, construction and operations project lifecycle. We executelifecycle as a vertically integrated global contractor. Our projects are generally long-term in nature and are impacted by factors including market conditions, financing arrangements, governmental approvals and environmental matters. An essential feature of our businessglobal strategy on a global scale delivering consistent, predictable resultsis to establish local operations in all marketslocations where we operate.services demand growth is expected. Our core skills are conceptual design, FEED, (front-end engineering design), engineering, project management, procurement, construction, construction management, logistics, commissioning, operations and maintenance. We willWhen necessary, we complement organic growth by pursuing targeted acquisitions that focus on expanding our capabilities and market coverage or accelerating business unit growth strategies. Key features of our business unitsegment strategies include:•The Hydrocarbons business segment will build on our world-class strength and experience with gas monetization projects and seek to expand our footprint in both offshore and onshore oil and gas services. Our Downstream business unit will grow by utilizing our leading technology and execution excellence to provide high value process facilities to customers. Our Technology business unit will expand its portfolio of differentiated process technologies and associated service, proprietary equipment and catalyst offerings and deliver through an expanded global platform.•The Infrastructure, Government & Power business segment will broaden our commercial, government operations, logistics, construction and maintenance services both domestically and in foreign lands. We will apply our design, project management and construction skills to infrastructure, industrial and power markets utilizing the same global delivery platform already in place for Hydrocarbons.•The Services segment will capitalize on our brand reputation and core competencies to expand our construction and industrial services operations both domestically and internationally with focus on safe operations and high value predictable outcomes.•The Ventures business unit will invest alongside our clients in selected projects to both earn a return on our capital and secure capital projects for our business units to design and build.world.world and we believe the following are the areas where we have a competitive advantage in the markets in which we operate. The principal methodstypes of competition with respect to sales of our capital project and service offerings include: our delivered projects and services measured by performance, quality, operability and cost;“as"as needed, where needed and when needed”needed" basis with the required local content and presence;market leadingmarket-leading health, safety and environmental standards and sustainable practices; and capital capacity and the ability to support our warranties;6570 countries. Based on the location of services provided,projects executed, our operations in countries other than the United StatesU.S. accounted for 79%66% of our consolidated revenue during 2010 and 2009, and 85%2013, 73% of our consolidated revenue during 2008. Revenue from our operations in Iraq, primarily related to our work for the U.S. government, was 29%2012 and 78% of our consolidated revenue in 2010, 35% of our consolidated revenue in 2009 and 43% of our consolidated revenue in 2008.during 2011. See Note 52 to our consolidated financial statements for selected geographic information. Years ended December 31, 2013 2012 2011 Revenue: United States 34 % 27 % 22 % Asia Pacific (includes Australia) 26 % 25 % 16 % Canada 10 % 6 % 3 % Africa 8 % 21 % 23 % Middle East (excluding Iraq) 8 % 7 % 8 % Europe 8 % 7 % 6 % Iraq 4 % 6 % 22 % Other Countries 2 % 1 % — % Total 100 % 100 % 100 % capital project and service offerings through our business segments. We have manyThe markets we serve are highly competitive and for the most part require substantial competitors in the markets that we serve. Theresources and highly skilled and experienced technical personnel. A large number of companies are competing in the markets that we serve include but arenot limited to AMEC,served by our business, including U.S.-based companies such as Bechtel Corporation, CH2M Hill Companies Ltd., Fluor Corporation, Jacobs Engineering Group, Inc., URS Corporation, AECOM Technology Corporation, and international-based companies such as AMEC plc, Chicago Bridge and Iron Co., N.V., Chiyoda DynCorp, Fluor Corporation ("Chiyoda"), Foster Wheeler Ltd.A.G., JacobsHyundai Engineering Group, Inc.,and Construction Company, JGC Corp, John Wood Group PLC,Corporation ("JGC"), McDermott International, Petrofac PLC, Saipem S.PA., Shaw Group, Inc.S.p.A., Technip, URS Corporation,John Wood Group PLC and Worley Parsons Ltd. Since the markets for our services are vast and covers broad geography,extend across multiple geographic regions, we cannot make a meaningfuldefinitive estimate of the total number of our competitors. currency fluctuations. We strive to manage or mitigate these risks through a variety of tacticsmeans including insurance schemes, hedging, contract provisions, contingency planning, insurance schemes, hedging and other risk management techniques. Please read “Itemactivities. See "Item 1A. Risk Factors," "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —- Financial Instruments Market Risk,” “Risk Factors – International and political events may adversely affect our operations,”Risk" and Note 1421 to our consolidated financial statements for information regarding our exposures to foreign currency fluctuations, risk concentration and financial instruments used to manage our risks.RecentJGC Corporation.JGC. MWKL is located in the U.K. and provides EPC services primarily for LNG, GTL and onshore oil and gas projects. MWKL will continue to support our LNG and other Hydrocarbons projects.privately held,privately-held EPC services company for material handling systems. Headquartered in Chicago, Illinois, R&S provides services and associated processing infrastructure to customers in the mining and minerals, power, industrial, refining, aggregates, precious and base metals industries. ENI and its acquired businesses will behave been integrated into our IGP business segment.In January 2010, we entered into a collaboration agreement with BP p.l.c. to market and license certain technology. In conjunction with this arrangement, we acquired a 25-year license granting us the exclusive right to the technology. The activity associated with this arrangement is integrated into our Hydrocarbons business segment.On April 5, 2010, we acquired 100% of the outstanding common stock of Houston-based Energo Engineering (“Energo”) which provides Integrity Management (IM) and advanced structural engineering services to the offshore oil and gas industry. Energo’s results of operations were integrated into our Hydrocarbons business segment.In October 2008, we acquired 100% of the outstanding common stock of Wabi Development Corporation (“Wabi”). Wabi is a privately held Canada-based general contractor, which provides services for the energy, forestry and mining industries. Wabi provides maintenance, fabrication, construction and construction management services to a variety of clients in Canada and Mexico. Wabi was integrated into our Services business segment and it provides additional growth opportunities for our heavy hydrocarbon, forestry, oil sand, general industrial and maintenance services business.In July 2008, we acquired 100% of the outstanding common shares of BE&K a privately held, Birmingham, Alabama-based engineering, construction and maintenance services company. The acquisition of BE&K enhances our ability to provide contractor and maintenance services in North America. BE&K and its acquired divisions were integrated into our IGP, Hydrocarbons and Services business segments based upon the nature of the underlying projects acquired.In April 2008, we acquired 100% of the outstanding common stock of Turnaround Group of Texas, Inc. (“TGI”) and Catalyst Interactive. TGI is a Houston-based turnaround management and consulting company that specializes in the planning and execution of turnarounds and outages in the petrochemical, power, and pulp & paper industries. Catalyst Interactive is an Australian e-learning and training solution provider that specializes in the defense, government and industry training sectors. TGI’s results of operations are included in our Services business segment. Catalyst Interactive’s results of operations are included in our IGP business segment.320 to our consolidated financial statements for further discussion of our recent acquisitions.expand or create thefacilitate relationships of each party withbetween us, our venture partners and different potential customers and allow for greater flexibility in delivering our services based on cost and geographical efficiency. SeveralClients of ourthe Gas Monetization business segment frequently require EPC contractors to work in teams given the size and complexity of LNG projects that may cost billions of dollars to complete. Our significant joint ventures and alliances are described below. All joint venture ownership percentages presented are stated as of December 31, 2010.Kellogg Joint Venture (“KJV”2013Downstreamdownstream LNG Projectproject ("Gorgon LNG project") located on Barrow Island off the northwest coast of Western Australia. We hold a 30% interest in the joint venture which is consolidated for financial accounting purposes and it is reported in our HydrocarbonsGas Monetization business segment.Defence—Allenby & ConnaughtDefence Holdings Limited ("Aspire Defence") is a joint venture between us, Carillion Plc.currently owned by KBR and two financial investors formed to contract with the U.K. Ministry of Defence to upgrade and provide a range of services to the British Army’s garrisons at Aldershot and around the Salisbury Plain in the United Kingdom.U.K. We own a 45% interest in Aspire Defence, which is reported in our Ventures business unit thatand is included in our Other business segment. In addition, we own a 50% interest in each of the two joint ventures within our IGP business segment that provideprovides the construction and related support services to Aspire Defence. We account for our investments in these entities using the equity method of accounting.MMMLtdLtd., a Cayman Islands company. The partners agreementPartners’ Agreement covers five joint venture entities executing Mexican contracts with PEMEX. ThePetróleos Mexicanos ("PEMEX"). MMM joint venture was set up under Mexican maritime law in order to hold navigation permits to operate in Mexican waters. The scope of the business is to render services of maintenance, repair and restoration services of offshore oil and gas platforms and provisions of quartering in the territorial waters of Mexico. We own a 50% interest in MMM and in each of the four other joint ventures. We account for our investment in these entities using the equity method of accounting and it is reported inreport them within our Services business segment.Backlogawarded andawarded. For our projects related to unconsolidated joint ventures, we have included our percentage ownership of the joint venture’s estimated revenue in progress.backlog to provide an indication of future work to be performed. Our backlog was $12$14.4 billion and $14.1$14.9 billion at December 31, 20102013 and 2009,2012, respectively. We estimate that, as of December 31, 2010, 55%2013, 49% of our backlog will be recognized as revenue within one year. All backlog is attributable to firm orders at December 31, 20102013 and December 31, 2009.2012. For additional information regarding backlog see our discussion within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”both categories contain a portion of our contracts are “hybrid” contracts containing both cost-reimbursable and fixed-price scope.both the quantities of work to be performed, the project execution schedule and the costs associated with executing the work. Although fixed-price contracts involve greater risk than cost-reimbursable contracts, they also are potentially more profitable since the owner/customer pays a premium to transfer more project riskrisks to us.includingand reimbursable labor hour contracts. Profit on cost-reimbursable contracts may be a fixed amount, a mark-up applied to costs incurred, or a combination of the two. Cost reimbursableCost-reimbursable contracts are generally less risky than fixed-price contracts because the owner/customer retains many of the project risks.U.S.United States Department of Defense (“DoD”) and other governmental agencies whichthat are generally subject to applicable statutes and regulations. If the Governmentgovernment finds that we improperly charged any costs to a contract under the terms of the contract or applicable Federal Procurement Regulations, these costs are potentially not reimbursable or, if already reimbursed, we may be required to refund the costs to the customer. Such conditions may also include financial penalties. If performance issues arise under any of our“Risk Factors – Our U.S. government contracts work is regularly reviewed and audited by our customer, 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.”RevenueA considerable percentage of revenue is generated from transactions with the United StatesChevron Corporation (“Chevron”) primarily from our Gas Monetization business segment and the U.S. government which was derived almost entirely from our IGP business segment, totaled $3.3 billion, or 32% of consolidated revenue, in 2010, $5.2 billion, or 43% of consolidated revenue, in 2009 and $6.2 billion, or 53% of consolidated revenue in 2008. Revenue from the Chevron Corporation, which was derived almost entirely from our Hydrocarbons business segment, totaled $1.8 billion or 18% of consolidated revenue in 2010, $1.4 billion or 11% of consolidated revenue in 2009, and was $1.1 billion or 9% of our consolidated revenues in 2008.segment. No other customers represented 10% or more of consolidated revenues in any of the periods presented.Revenue and percent of consolidated revenues attributable to major customers by year: Years ended December 31, 2013 2012 2011 Millions of dollars, except percentage amounts $ % $ % $ % Chevron revenue $ 1,871 26 % $ 2,302 30 % $ 2,048 22 % U.S. Government revenue $ 567 8 % $ 688 9 % $ 2,216 24 % availableobtained from worldwide sources.a variety of sources throughout the world. The principal equipment and materials we use in our business are subject to availability and pricingprice fluctuations due to customer demand, producer capacity and market conditions. We monitor the availability and pricingprice of equipment and materials on a regular basis. Our procurement department actively leveragesseeks to leverage our size and buying power to ensure that we have access to key equipment and materials at the best possible prices and delivery schedule.schedules. While we do not currently foresee any significant lack of availability of equipment and materials in the near term, the availability of these items may vary significantly from year to year and any prolonged unavailability or significant price increases for equipment and materials necessary to our projects and services could have a material adverse effect on our business. Please read, “See “Item 1A. Risk Factors— The nature of our contracts, particularly our fixed-price contracts, subject us to risks associated with cost over-runs, operating cost inflation and potential claimsFactors” for liquidated damages.” and“Risk Factors— The current worldwide economic recession will likely affect a portion of our client base, subcontractors and suppliers and could materially affect our backlog and profits.”also a licensor of ammonia process technologies used in the conversion of Syngassynthetic gas to ammonia. We believe our technology portfolio and experience in the commercial application of these technologies and related know-how differentiates us, from other contractors, enhances our margins and encourages customers to utilize our broad range of engineering, procurement, constructionEPC and construction services (“EPC-CS”) services.agreements to protect our know-how and trade secrets.agreements. Our expenditures for research and development activities were immaterial in each of the past three fiscal years.services, but the widespread geographic scope of our operations mitigates those effects.Employees2010,2013, we had approximately 35,00027,000 employees, in our continuing operations, of which approximately 10%17% were subject to collective bargaining agreements. Based upon the geographic diversification of our employees, we believe any risk of loss from employee strikes or other collective actions would not be material to the conduct of our operations taken as a whole. We believe that our employee relations are good.include:include the Federal OccupationOccupational Safety and Health Act and comparable state legislation, the Mine Safety and Health Administration laws, and safety requirements of the Departments of State, Defense, Energy and Transportation.Transportation of the U.S. government. We are also subject to similar requirements in other countries in which we have extensive operations, including the United Kingdom where we are subject to the various regulations enacted by the Health and Safety Act of 1974.FederalClean Water Pollution Control Act; and the Toxic Substances Control Act. In addition to federal and state laws and regulations, other countries where we do business often have numerous environmental regulatory requirements by which we must abide in the normal course of our operations. These requirements apply to our business segments where we perform construction and industrial maintenance services or operate and maintain facilities.site conditions at sites owned or previously owned, and until further information is available, we are only able to estimate a possible range of remediation costs. These locations were primarily utilized for manufacturing or fabrication work and are no longer in operation. The use of these facilities created various environmental issues including deposits of metals, volatile and semi-volatile compounds and hydrocarbons impacting surface and subsurface soils and groundwater. The range of remediation costs could change depending on our ongoing site analysis and the timing and techniques used to implement remediation activities. We do not expect that costs related to environmental matters will have a material adverse effect on our condensed consolidated financial position or results of operations. Based on the information presently available to us, as of December 31, 2013, we have accrued approximately $7$2 million for the assessment and remediation costs associated with all environmental matters and could possibly incur an additional $1 million for which represents the low end of the range of possible costs that could be as much as $14 million.we have not accrued. See Note 1014 to our consolidated financial statements for more information on environmental matters. (“PRP”) in various clean-up actions taken by federal and state agencies in the U.S. Based on the early stages of these actions,At this time, we are unable to determine whether we will ultimately be deemed responsible for any costs associated with these actions.or the markets that we serve noror on our results of operations or financial position.position with the possible exception of the power generation projects within our IGP business segment. However, climate change legislation could have a direct effect on our customers or suppliers, which could have an indirect effect onimpact our business. For example, our commodity-based markets depend on the level of activity of mineral and oil and gas companies and existing or future laws, regulations, treaties or international agreements related to climate change, including incentives to conserve energy or use alternative energy sources, which could have an indirect impact on our business if such laws, regulations, treaties or international agreements reduce the worldwide demand for minerals, oil and natural gas. We will continue to monitor emerging developments in this area.internetInternet website atwww.kbr.com as soon as reasonably practicable after we have electronically filed the material with, or furnished it to, the SEC.U.S. Securities and Exchange Commission ("SEC"). The public may read and copy any materials we have filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet siteInternet website that contains our reports, proxy and information statements and our other SEC filings. The address of that sitewebsite iswww.sec.gov. www.sec.gov. We have posted on our website our Code of Business Conduct, which applies to all of our employees and Directors and serves as a code of ethics for our principal executive officer, principal financial officer, principal accounting officer and other persons performing similar functions. Any amendments to our Code of Business Conduct or any waivers from provisions of our Code of Business Conduct granted to the specified officers above are disclosed on our website within four business days after the date of any amendment or waiver pertaining to these officers. No such waivers were granted during 2013. especially in our commodity-based markets depends on capital spending by oil and natural gas companies, including national and international oil companies, and by industrial, mining and power companies, which is directly affected by trends in oil, natural gas and commodities prices. Capital expenditures for refining and distribution facilities by large oil and gas companies have a significant impact on the activity levels of our businesses. Demand for LNG facilities for which we provide construction services could decrease in the event of a sustained reduction in demand for crude oil or natural gas prices.gas. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies or longer-term higher material and contractor pricesinclude:include, but are not limited to:within OPEC;serve.Additionally, demandalsobe sold do not protect intellectual property rights to the same extent as the laws of the United States. Since we license technologies from third parties, there is a risk that our relationships with licensors may terminate, expire or be interrupted or harmed. In some, but not all cases, we may be able to obtain the necessary intellectual property rights from alternative sources. If we are unable to protect and maintain our intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against us, our ability to differentiate our service offerings could diminish. In addition, if our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers. As a result, our business and financial performance could be materially and adversely affectedaffected.consolidationredirection of employees and other resources to acquisition activities;customers, which:cause customers to reduce their capital spending, which in turn reduces the demand fordisrupt our services;business andcould result in customer personnel changes,decreased performance, significant remediation costs, transaction errors, loss of data, processing inefficiencies, downtime, litigation and the loss of suppliers or customers. We have experienced limited and infrequent security threats, none of which in turn affects the timingwe considered to be significant to our business or results of contract negotiations and settlements of claims and claim negotiations with engineering and construction customers on cost variances and change orders on major projects.The nature of our contracts, particularly those that are fixed-price, subject us to risks associated with cost over-runs, operating cost inflation and potential claims for liquidated damages.Our long-term contracts to provide services can be cost-reimbursable, fixed-priceoperations, but significant disruption or hybrid. In connection with projects or portions of projects that are fixed-price, we bear a significant portion of the risk of cost over-runs, operating cost inflation, labor availability and productivity, and supplier and subcontractor pricing and performance. Our failure to accurately estimate the resources and time required for a fixed-price contract or our failure to complete our contractual obligations within the time frame and costs committed could have a material adverse effect on our business results of operations, financial performance and financial condition. Risks undercontracts include:Our engineering, procurementbusiness and construction projects may encounter difficultiesresults of operations.the2013 for ERP design or engineering phasesand implementation. In addition, we incurred expenses related to the procurementERP initiative of supplies, schedule changes, equipment performance failures,$41 million during 2013. Capital expenditures and other factors that may result in additional costs to us, reductions in revenue, claims or disputes.We mayexpenses for ERP for 2014 and beyond will depend upon the pace of conversion. If implementation is not be able to obtain compensation for additional work or expenses, particularly on our fixed-price contracts, incurred as a result of customer change orders or our customers providing deficient design or engineering information, equipment or materials.We may be required to pay liquidated damages upon our failure to meet schedule or performance requirements of our contracts.Difficulties in engaging third party subcontractors, equipment manufacturers or materials suppliers or failures by third party subcontractors, equipment manufacturers or materials suppliers to performexecuted successfully, this could result in business interruptions. If we do not complete the implementation of ERP timely and successfully, we may incur additional costs associated with completing this project delays and causea delay in our ability to improve existing operations, support future growth and enable us to incur additional costs.Our projects expose us to potential professional liability, product liability, warranty, performancetake advantage of new applications and other claims that may exceed our available insurance coverage. Although we have historically been able to secure our insurance needs, there can be no assurances that we can securetechnologies.necessary or appropriate insurance in the future.The naturepart of our engineering and construction business exposes us to potential liability claims and contract disputes which may reducegoodwill and/or our profits.We engage in engineering and construction activities for large facilities where design, construction or systems failures can result in substantial injury or damage to third parties. In addition, the nature of our business results in clients, subcontractors and vendors occasionally presenting claims against us for recovery of cost they incurred in excess of what they expected to incur, or for which they believe they are not contractually liable. We have been and may in the future be named as a defendant in legal proceedings where parties may make a claim for damages or other remedies with respect to our projects or other matters. These claims generally arise in the normal course of our business. When it is determined that we have liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed our policy limits. Our professional liability coverage is on a “claims-made” basis covering only claims actually made during the policy period currently in effect. In addition, even where insurance is maintained for such exposures, the policies have deductibles resulting in our assuming exposure for a layer of coverage with respect to any such claims. Any liability not covered by our insurance, in excess of our insurance limits or, if covered by insurance but subject to a high deductible, could result in a significant loss for us, which may reduce our profits and cash available for operations.We occasionally bring claims against project owners for additional cost exceeding the contract price or for amounts not included in the original contract price. These types of claims occur due to matters such as owner-caused delays or changes from the initial project scope, which result in additional cost, both direct and indirect. Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is often difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we may invest significant workingcapital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of claimsintangible assets could have a material adverse impact on our liquiditynet earnings and financial results.Demand forAs of December 31, 2013, we had $772 million of goodwill and $85 million of intangible assets recorded on our services provided under U.S. government contractsconsolidated balance sheets. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. If our market capitalization drops significantly below the amount of net equity recorded on our balance sheets, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. We perform an annual and an interim analysis, if appropriate, of our goodwill to determine if it has become impaired. The analysis requires us to make assumptions in estimates of fair value of our reporting units. If actual results are directly affected by spending and capital expenditures by our customers and our abilitysignificantly different from the estimates, we might be required to contract with our customers.We derive a significantwrite down the impaired portion of goodwill. An impairment of all or a part of our revenue from contracts with agencies and departments of the U.S. government which is directly affected by changes in government spending and availability of adequate funding. For example, we are currently the sole service provider under our LogCAP III contract in the Middle East and elsewhere and have been awarded a portion of the LogCAP IV contract. However, the current level of government services being provided in the Middle East will not likely continue for an extended period of time and we expect our overall volume of work to decline as our customer scales back its requirements for the types and the amounts of service we provide. Factors that could impact current and future U.S. government spending include:policygoodwill and/or spending changes implemented by the current administration, DoD or other government agencies;changes, delays or cancellations of U.S. government programs or requirements;adoption of new laws or regulations that affect companies providing services to the U.S. government;curtailment of the U.S. governments’ outsourcing of services to private contractors;The loss of or a significant decrease in the magnitude of work we perform for the U.S. government in the Middle East or other decreases in governmental spending and outsourcing of the type that we provideintangible assets could have a material adverse effect on our business,net earnings and net worth.operationsrevenues and cash flow.contract awardscontracts from the U.S. government may be unsuccessful.It usesHistorically, omnibus contract vehicles, such as LogCAP,support for the military in Iraq, have been used for work that is done on a contingency or as-needed basis. In more predictable “sustainment” environments, contracts may include both fixed-price and cost-reimbursable elements. The U.S. government has also recently favored multiple award task order contracts in which several contractors are selected as eligible bidders for future work. Such processes require successful contractors to continually anticipate customer requirements and develop rapid-response bid and proposal teams as well as have supplier relationships and delivery systems in place to react to emerging needs. We will face rigorous competition and pricing pressures for any additional contract awards from the U.S. government, and we may be required to qualify or continue to qualify under the various multiple award task order contract criteria. The DoD has awarded us a portion of the LogCAP IV contract, which is a multiple award task order contract, and has also extended our performance under the LogCAP III contract to the end of 2011 under which we are the sole provider. We may not be awarded any further task orders under the LogCAP IV contract, which could have a material adverse effect on future results of operations. It may be more difficult for us to win future awards from the U.S. government and we may have other contractors sharing in any U.S. government awards that we win. In addition, negative publicity regarding findings stemming from DCAA audits by the Defense Contract Audit Agency (the "DCAA") and Congressional investigations may adversely affect our ability to obtain future awards. See“Item "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Analysis –- U.S. Government Matters.”"(“FAR”("FAR"), the Truth in Negotiations Act, the Cost Accounting Standards (“CAS”("CAS"), the Service Contract Act and Department of DefenseDoD security regulations. Failure to comply with any of these regulations, requirements or statutes may result in contract price adjustments, financial penalties or contract termination. Our U.S. government contracts are subject to audits, cost reviews and investigations by U.S. government contracting oversight agencies such as the Defense Contract Audit Agency (“DCAA”).DCAA. The DCAA reviews the adequacy of, and our compliance with, our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, compensation and management information systems. The DCAA has the authority to conduct audits and reviews to determine if KBR is complying with the requirements under the FAR and CAS, pertaining to the allocation, period assignment, allowability, and allocationallowability of costs assigned to US GovernmentU.S. government contracts. The DCAA presents its report(“DCMA”("DCMA"). Should the DCMA determine that we have not complied with the terms of our contract and applicable statutes and regulations, payments to us may be disallowed, which could result in adjustments to previously reported revenues and refunding of previously collected cash proceeds.in the Middle Eastdomestically and elsewhereoverseas for the U.S. government, we expect that from time to time we willmay have disagreements or experience performance issues with the various government customers for which we work. Ifissues. 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 threatened termination or termination under any affected contract. If any contract were so terminated, we may not receive award fees under the affected contract and our ability to secure future contracts could be adversely affected, although we would receive payment for amounts owed for our allowable costs under cost-reimbursable contracts. Other remedies that could be sought by our government customers may seek 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 government. Further, the negative publicity that could arise from disagreements with our customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry, reduce our ability to compete for new contracts and may also have a material adverse effect on our business, financial condition, results of operations and cash flow.Our results of operations depend on the award of new contractsflows.the timing of the performance of these contracts.A substantial portion of our revenue is directly or indirectly derived from new contract awards. Delays in the timing of the awards or potential cancellations of such prospects as a result of economic conditions, material and equipment pricing and availability, or other factors could impact our long term projected results. It is particularly difficult to predict whether or when we will receive large-scale international and domestic projects as these contracts frequently involve a lengthy and complex bidding and selection process which is affected by a number of factors, such as market conditions, governmental approvals and environmental matters. Because a significant portion of our revenue is generated from such projects, our results of operations and cash flow can fluctuate significantly from quarter to quarter depending on the timing of our contract awards and the commencement or progress of work under awarded contracts. In addition, many of these contracts are subject to financing contingencies and, as a result, we are subject to the risk that the customer will not be able to secure the necessary financing for the project.We may be unable to obtain new contract awards if we are unable to provide our customers with bonds, letters of credit or other credit enhancements.Customers may require us to provide credit enhancements, including surety bonds, letters of credit or bank guarantees. We are often required to provide performance guarantees to customers to indemnify the customer should we fail to perform our obligations under the contract. Failure to provide a bond on terms required by a customer may result in an inability to bid on or win a contract award. Historically, we have had adequate bonding capacity but such bonding beyond the capacity of our Revolving Credit Agreement is generally at the provider’s sole discretion. Due to events that affect the insurance and bonding markets generally, bonding may be difficult to obtain or may only be available at significant cost. Moreover, many projects are often very large and complex, which often necessitates the use of a joint venture, often with a competitor, to bid on and perform the contract. However, entering into joint ventures or partnerships exposes us to the credit and performance risk of third parties, many of whom are not as financially strong as us. If our joint ventures or partners fail to perform, we could suffer negative results. In addition, future projects may require us to obtain letters of credit that extend beyond the term of our current credit facility. Any inability to obtain adequate bonding and/or provide letters of credit or other customary credit enhancements and, as a result, to bid on or win new contracts could have a material adverse effect on our business prospects and future revenue.The uncertainty of the timing of future contract awards may inhibit our ability to recover our labor costs.The uncertainty of our contract award timing can also present difficulties in matching workforce size with contract needs. In some cases, we maintain and bear the cost of a ready workforce that is larger than called for under existing contracts in anticipation of future workforce needs for expected contract awards. If an expected contract award is delayed or not received, we may incur additional costs resulting from reductions in staff or redundancy of facilities, which could have a material adverse effect on us.Our backlog is subject to unexpected adjustments and cancellations.As of December 31, 2010, our backlog was approximately $12 billion. We cannot guarantee that the revenue projected in our backlog will be realized or profitable. Project terminations or suspensions and changes in project scope may occur, from time to time, with respect to contracts reflected in our backlog and could reduce the dollar amount of our backlog and the revenue and profits that we actually earn. Many of our contracts have termination for convenience provisions in them. In addition, projects may remain in our backlog for an extended period of time. Finally, poor project performance could also impact our backlog and profits if it results in termination of the contract. We cannot predict the impact the recent worldwide economic recession may have on our backlog which could include a diminished ability to replace backlog once projects are completed and/or could result in the termination, modification or suspension of projects currently in our backlog. Such developments could have a material adverse affect on our financial condition, results of operations and cash flows.We conduct a portion of our engineering and construction operations through large project-specific joint ventures. The failure of our joint venture partners to perform their joint venture obligations could impose on us additional financial and performance obligations that could result in reduced profits or, in some cases, significant losses.We conduct a portion of our engineering, procurement and construction operations through large project-specific joint ventures, where control may be shared with unaffiliated third parties. As with any joint venture arrangement, differences in views among the joint venture participants may result in delayed decisions or in failures to agree on major issues. We also cannot control the actions of our joint venture partners, including any nonperformance, default, or bankruptcy of our joint venture partners, and we typically have joint and several liability with our joint venture partners under these joint venture arrangements. If our partners do not meet their obligations, the joint venture may be unable to adequately perform and deliver its contracted services requiring us to make additional investments or provide additional services. These factors could have a material adverse affect the business operations of the joint venture and, in turn, our business operations as well as our reputation within our industry and our client base.Operating through joint ventures in which we have a minority interest could result in us having limited control over many decisions made with respect to projects and internal controls relating to projects. These joint ventures may not be subject to the same requirements regarding internal controls and internal control reporting that we follow. As a result, internal control issues may arise, which could have a material adverse effect on our financial condition and results of operation. When entering into joint ventures, in order to establish or preserve relationships with our joint venture partners, we may agree to risks and contributions of resources that are proportionately greater than the returns we could receive, which could reduce our income and returns on these investments compared to what we would have received if the risks and resources we contributed were always proportionate to our returns.We make equity investments in privately financed projects in which we could sustain significant losses.We participate in privately financed projects that enable our government and other customers to finance large-scale projects, such as major military equipment, capital project and service purchases. These projects typically include the facilitation of non-recourse financing, the design and construction of facilities, and the provision of operation and maintenance services for an agreed to period after the facilities have been completed. We may incur contractually reimbursable costs and typically make an equity investment prior to an entity achieving operational status or completing its full project financing. If a project is unable to obtain financing, we could incur losses including our contractual receivables and our equity investment. After completion of these projects, our equity investments can be at risk, depending on the operation of the project and market factors, which may not be under our control. As a result, we could sustain a loss on our equity investment in these projects.Intense competition in the engineering and construction industry could reduce our market share and profits.We serve markets that are highly competitive and in which a large number of multinational companies compete. These highly competitive markets require substantial resources and capital investment in equipment, technology and skilled personnel. Our projects are frequently awarded through a competitive bidding process, which is standard in our industry. We are constantly competing for project awards based on pricing and the breadth and technological sophistication of our services. Any increase in competition or reduction in our competitive capabilities could have a significant adverse impact on the margins we generate from our projects or our ability to retain market share.If we are unable to attract and retain a sufficient number of affordable trained engineers and other skilled workers, our ability to pursue projects may be adversely affected and our costs may increase.Our rate of growth and success of our business depends upon our ability to attract, develop and retain a sufficient number of affordable trained engineers and other skilled workers either through direct hire or acquisition of other firms employing such professionals. The market for these professionals is competitive. If we are unable to attract and retain a sufficient number of skilled personnel, our ability to acquire projects may be adversely affected and the costs of performing our existing and future projects may increase, which may adversely impact our margins.We ship a significant amount of cargo using seagoing vessels which expose us to certain maritime risks.We execute different projects around the world that include remote locations. Depending on the type of contract, location and the nature of the work, we may charter vessels under time and bareboat charter parties that assume certain risks typical of those agreements. Such risks may include damage to the ship and liability for cargo and liability which 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.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.We utilize a variety of intellectual property rights in our services. 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, or challenged. 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 United States. Because we license technologies from third parties, there is a risk that our relationships with licensors may terminate or expire or may be interrupted or harmed. In some, but not all cases, we may be able to obtain the necessary intellectual property rights from alternative sources. 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 be reduced. In addition, if our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings, and some of our competitors may be able to offer more attractive services to our customers. As a result, our business and revenue could be materially and adversely affected.Recent or future economic recessions may affect a portion of our client base, subcontractors and suppliers and could materially affect our backlog and profits.A recession could reduce the availability of liquidity and credit to fund or support the continuation and expansion of industrial business operations as occurred with the recent worldwide economic recession. A disruption of the credit markets could adversely affect our clients’ borrowing capacity, which support the continuation and expansion of projects worldwide, and could result in contract cancellations or suspensions, project delays, payment delays or defaults by our clients. In addition, clients may choose to make fewer capital expenditures, to otherwise slow their spending on our services or to seek contract terms more favorable to them. Our government clients may face budget deficits that prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate our contracts with little or no prior notice. Furthermore, any financial difficulties suffered by our subcontractors or suppliers could increase our cost or adversely impact project schedules. These disruptions could materially impact our backlog and profits.We may not be able to raise additional capital or obtain additional financing in the future for working capital, capital expenditures and/or acquisitions.The financial market condition and recent worldwide economic recession weakened the capital and credit markets which could make it more difficult for us to raise additional capital or obtain additional financing. Our ability to obtain such additional capital or financing will depend in part upon prevailing market conditions, as well as conditions in our business and our operating results; and those factors may affect our efforts to arrange additional financings on terms that are satisfactory to us. We cannot be certain that additional funds will be available if needed to make future investments in certain projects, take advantage of acquisitions or other future opportunities, or respond to competitive pressures. If additional funds are not available, or are not available on terms satisfactory to us, there could be a material adverse impact on our business and operations.Our revolving credit facility imposes restrictions that limit our operating flexibility and may result in additional expenses, and this credit facility will not be available if financial covenants are not met or if an event of default occurs.Our Revolving Credit Facility provides up to $1.1 billion of borrowing, including $880 million in letters of credit fronting commitments at December 31, 2010, and expires in November 2012. The Revolving Credit Facility contains a number of covenants restricting, among other things, incurrence of additional indebtedness and liens, sales of our assets, the amount of investments we can make, and the amount of dividends we can declare to pay or equity shares that can be repurchased. We are also subject to certain financial covenants, including maintenance of ratios with respect to consolidated debt to consolidated EBITDA and a minimum consolidated net worth. If we fail to meet the covenants or an event of default occurs, we would not have available the liquidity that the facility provides.A breach of any covenant or our inability to comply with the required financial ratios could result in a default under our Revolving Credit Facility, and we can provide no assurance that we will be able to obtain the necessary waivers or amendments from our lenders to remedy a default. In the event of any default not cured or waived, the lenders under our Revolving Credit Facility are not required to lend any additional amounts or issue letters of credit and could elect to require us to apply all of our available cash to collateralize any outstanding letters of credit, declare any outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable or require us to apply all of our available cash to repay any borrowings then outstanding at the time of default. If we are unable to collateralize our letters of credit or repay borrowings with respect to our Revolving Credit Facility when due, our lenders could proceed against the guarantees of our major domestic subsidiaries. If any future indebtedness under our Revolving Credit Facility is accelerated, we can provide no assurance that our assets would be sufficient to repay such indebtedness in full.An impairment of all or part of our goodwill and/or our intangible assets could have a material adverse impact to our net earnings and net worth.As of December 31, 2010, we had $947 million of goodwill and $127 million of intangible assets recorded on our consolidated balance sheet. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. If our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. We also perform an annual review of our goodwill and intangible assets to determine if it has become impaired which would require us to write down the impaired portion of these assets. An impairment of all or a significant part of our goodwill and/or intangible assets would have a material adverse impact to our net earnings and net worth. 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. U.S. government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit and/or suspension of payment, any of which could make us lose our status as an eligible U.S. government contractor and cause us to suffer serious harm to our reputation. Any suspension ornegativematerial adverse impact toeffect on our business, financial condition or results of operations.United States,U.S. state or local governments, U.S. government agencies or the U.K. MoD, third partythird-party claims, loss of customers, adverse financial impact, damage to reputation and adverse consequences on financing for current or future projects.in the U.S.U.K. Anti-Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We train our staff concerning FCPA issues, and we also inform our partners, subcontractors, agents and other third parties who work for us or on our behalf that they must comply with the requirements of the FCPA and other anti-corruption laws. We also have procedures and controls in place to monitor internal and external compliance. We cannot assure youprovide complete assurance that our internal controls and procedures will always will protect us from the reckless or criminal acts committed by our employees or third parties working on our behalf. If we are found to be liable for violations of these laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.Our current business strategy includes acquisitionspresent certain riskscould have a material adverse effect on our business.uncertainties.We seek business acquisition activities as a means of broadening our offeringssafety laws and capturing additional market opportunities by our business units. As a result,regulations. If we fail to comply with these laws and regulations, we may incur certain additional risks accompanyingsignificant costs and penalties that could have a material adverse effect on our business, financial condition, results of operations and cash flows.risks includelaws may impose responsibility and liability without regard to knowledge or causation of the following:presence of contaminants. The liability under these laws is joint and several. The ongoing costs of complying with existing environmental laws and regulations could be substantial and have a material adverse impact on our financial condition, results of operations and cash flows.Valuation methodologiesaccurately capturecovered by insurance at all or only partially, could have a material adverse impact on our financial condition, results of operations and cash flows.value proposition;environmental laws and regulations, remediation obligations, enforcement actions, stricter interpretations of existing requirements, future discovery of contamination or claims for damages to persons, property, natural resources or the environment could result in material costs and liabilities that we currently do not anticipate.Future completed acquisitionsintegrated withinfinancially strong. If our operations with the efficiency and effectiveness initially expected resulting in a potentially significant detrimentjoint ventures or partners fail to the associated product service line financial results, and pose additional risks to our operations as a whole;We may have difficulty managing the growth from acquisition activities;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 (e.g. litigation, tax liabilities, contingent liabilities, environmental issues), including liabilities that were unknown at the time the acquisition, that poseperform, we could suffer negative results. In addition, future risks to our working capital needs, cash flows and the profitability of related operations;Business acquisitions may include substantial transactional costs to complete the acquisition that exceed the estimated financial and operational benefits;Future acquisitionsprojects may require us to obtain letters of credit that extend beyond the term of our current Credit Agreement. Any inability to bid for or win new contracts due to the failure of obtaining adequate letters of credit, surety bonding and/or other customary credit enhancements could have a material adverse effect on our business prospects and future revenue.equity or debt financing, whichexpenses, and this credit agreement may not be available on attractive terms. Moreover,if financial covenants are violated or if an event of default occurs.extent an acquisition transaction resultsrequired financial ratios could result in additional goodwill, ita default under our Credit Agreement, and we can provide no assurance that we will reducebe able to obtain the necessary waivers or amendments from our tangible net worth, which might have an adverse effect on ourlenders to remedy a default. In the event of any default not cured or waived, the lenders are not obligated to provide funding or issue letters of credit capacity.needare unable to sellcash collateralize our letters of credit or issue additional common sharesrepay borrowings with respect to finance future acquisitions, our existing shareholder ownershipCredit Agreement when due, our lenders could be diluted.Partproceed against the guarantees of our business strategymajor domestic subsidiaries. If any future indebtedness under our Credit Agreement is accelerated, we can provide no assurance that our assets would be sufficient to expand into new markets and enhance our positionrepay such indebtedness in existing markets both domestically and internationally through the merging and acquiring of complementary businesses. To successfully fund and complete such identified, potential acquisitions, we may issue additional equity securities that have the potential to dilute our earnings per share and our existing shareholder ownership.and Delaware law and our Credit Agreement may inhibit a takeover or impact operational control which could adversely affect the value of our common stock.a staggered board of directors, prohibiting stockholder action by written consent, advance notice for raising business or making nominations at meetings of stockholders, providing for the State of Delaware as the exclusive forum for lawsuits concerning certain corporate matters and the issuance of preferred stock with rights that may be senior to those of our common stock without stockholder approval. Many of these provisions became effective following the exchange offer. These provisions would apply even if a takeover offer may be considered beneficial by some of our stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline.International and political events may adversely affect Additionally, our operations.A significant portionCredit Agreement contains a default provision that is triggered upon a change in control of our revenue is derived from our foreign operations, which exposes us to risks inherent in doing business in each of the countries in which we transact business. The occurrence of any of the risks described below could have a material adverse effect on our results of operations and financial condition. With respect to any particular country, these risks may include:expropriation and nationalization of our assets in that country;political and economic instability;civil unrest, acts of terrorism, force majeure, war, or other armed conflict;currency fluctuations, devaluations, and conversion restrictions;confiscatory taxation or other adverse tax policies;governmental activities that limit or disrupt markets, restrict payments, or limit the movement of funds;governmental activities that may result in the deprivation of contract rights; andgovernmental activities that may result in the inability to obtain or retain licenses required for operation.Due to the unsettled political conditions in many oil-producing countries and countries in which we provide governmental logistical support, our revenue and profits are subject to the adverse consequences of war, the effects of terrorism, civil unrest, strikes, currency controls, and governmental actions. Countries where we operate that have significant amounts of political risk include: Afghanistan, Algeria, Indonesia, Iraq, Nigeria, Russia, China, Egypt, Yemen and Saudi Arabia. In addition, military action or continued unrest in the Middle East could impact the supply and pricing for oil and gas, disrupt our operations in the region and elsewhere, and increase our costs for security worldwide.We may have additional tax liabilities associated with our international operations.We are subject to income taxes in the United States and numerous foreign jurisdictions, many of which are developing countries. Significant judgment is required in determining our worldwide provision for income taxes due to lack of clear and concise tax laws and regulations in certain developing jurisdictions. It is not unlikely that laws may be changed or clarified and such changes may adversely affect our tax provisions. Also, in the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination may be uncertain. We are regularly under audit by various tax authorities. Although we believe that our tax estimates are reasonable, the final outcome of tax audits and related litigation could be materially different from that which is reflected in our financial statements.We work in international locations where there are high security risks, which could result in harm to our employees and contractors or substantial costs.Some of our services are performed in high-risk locations, such as Iraq, Afghanistan, Nigeria, Algeria, Egypt and Saudi Arabia where the country or location is suffering from political, social or economic issues, or war or civil unrest. In those locations where we have employees or operations, we may incur substantial costs to maintain the safety of our personnel. Despite these precautions, the safety of our personnel in these locations may continue to be at risk, and we have in the past and may in the future suffer the loss of employees and contractors.operations, and ouroperations. Our ability to limitmitigate our foreign exchange risk through hedging transactions may be limited.sizablesignificant portion of our consolidated revenue and consolidated operating expenses are in foreign currencies. As a result, we are subject to significant foreign currency risks, including:foreign exchangeincluding risks resulting from changes in foreigncurrency exchange rates and the implementation of exchange controls; andcapital needsfinancing requirements of our operations in other countries.In particular, weconduct business in countries that have non-traded or “soft”the future impose restrictive exchange controls on local currencies which, because of their restricted or limited trading markets, may be difficult to exchange for “hard” currencies. The national governments in some of these countries are often not able to establish the exchange rates for the local currency. As a result,and it may not be possible for us to engage in effective hedging transactions to mitigate the risks associated with fluctuations of thea particular currency. We are often required to pay all or a portion of our costs associated with a project in the local soft currency. As a result, we generally attempt to negotiate contract terms with our customer, who is often affiliated with the local government, or has a significant local presence, to provide that we are only paid in the local currency infor amounts that match our local expenses. If we are unable to match our local currency costs with matching revenue in the local currency, we would be exposed to the risk of an adverse changechanges in currency exchange rates.Where possible,selectively use hedging transactionsneed to limitsell or issue additional common shares to finance future acquisitions, our exposureexisting shareholder ownership could be diluted.risks from doing businessexpand into new markets and enhance our position in foreign currencies. Our abilityexisting markets, both domestically and internationally, which may include the acquiring and merging of complementary businesses. To successfully fund and complete such potential acquisitions, we may issue additional equity securities that may result in dilution of our existing shareholder ownership's earnings per share.hedgefinance large-scale projects, such as the acquisition and maintenance of major military equipment, capital projects and service purchases. These projects typically include the facilitation of nonrecourse financing, the design and construction of facilities and the provision of operation and maintenance services for an agreed-upon period after the facilities have been completed. We may incur contractually reimbursable costs and typically make investments prior to an entity achieving operational status or receiving project financing. If a project is unable to obtain financing, we could incur losses on our investments and any related contractual receivables. After completion of these projects, the return on our investments can be limited because pricing of hedging instruments, where they exist, is often volatile and not necessarily efficient.In addition,dependent on the valueoperational success of the derivative instruments could be impacted by:adverse movements in foreign exchange rates;interest rates;commodity prices; orthe valueproject and time period of the derivative being different than the exposures or cash flow being hedged.Halliburton’s indemnity for matters relating to the Barracuda-Caratinga project only applies to the replacement of certain subsea bolts, and Halliburton’s actionsmarket factors, which may not be inunder our stockholders’ best interests.Under the terms of our master separation agreement with our former parent Halliburton, Halliburton agreed to indemnify us for out-of-pocket cash costs and expenses, or cash settlements or cash arbitration awards in lieu thereof, we incur ascontrol. As a result, of the replacement of certain subsea flow-line bolts installedwe could sustain a loss on our equity investment in connection with the Barracuda-Caratinga project, which we refer to as “B-C Matters.” At our cost, we will control the defense, counterclaim and/or settlement with respect to B-C Matters, but Halliburton will have discretion to determine whether to agree to any settlement or other resolution of B-C Matters. We expect Halliburton will take actions that are in the best interests of its stockholders, which may or may not be in our or our stockholders’ best interests. Halliburton has the right to assume control over the defense, counterclaim and/or settlement of B-C Matters at any time. If Halliburton assumes control over the defense, counterclaim and/or settlement of B-C Matters, or refuses a settlement proposed by us, it could result in material and adverse consequences to us or our business that would not be subject to Halliburton’s indemnification. In addition, if Halliburton assumes control over the defense, counterclaim and/or settlement of B-C Matters, and we refuse a settlement proposed by Halliburton, Halliburton may terminate the indemnity. Also, if we materially breach our obligation to cooperate with Halliburton or we enter into a settlement of B-C Matters without Halliburton’s consent, Halliburton may terminate the indemnity. Please read “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Transactions with Former Parent,” Houston, Texas Leased(1) facilities AllHydrocarbons, IGP and CorporateArlington, Virginia Leased Office facilities IGPHouston, Texas Campus facility AllGas Monetization and CorporateBirmingham, Alabama Owned Campus facility All and Corporate CampusOffice facility AllGreenford, MiddlesexUnited Kingdom Owned Office facilities North America: Arlington, Virginia Leased Office facilities IGP Edmonton, Alberta, Canada Leased Project facilities Services Houston, Texas Leased Office facilities All and corporate functions Monterrey, Nuevo Leon, Mexico Leased Office facilities Gas Monetization and Hydrocarbons Newark, Delaware Leased Office facilities Hydrocarbons Australia: Perth, Australia Leased Office and project facilities Gas Monetization and IGP South Brisbane, Queensland, Australia Leased Office and project facilities Hydrocarbons and IGP (1)At December 31, 2010, we had a 50% interest in a joint venture which owns a high-rise office building in which we lease office space. We also own or lease numerous small facilities that include our technology center, sales offices and project offices throughout the world. We own or lease marine fabrication facilities, which are currently for sale, covering approximately 300 acres in Scotland. All of our owned properties are unencumbered and we believe all properties that we currently occupy are suitable for their intended use.“Risk“Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Notes 913 and 1014 to our consolidated financial statements and the information discussed therein is incorporated by reference into this Item 3. (Removed and reserved)Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities salesales prices per share for our common stock as reported by the New York Stock Exchange and dividends declared: Common Stock Price Range Dividends
Declared High Low Per Share $ 23.00 $ 17.30 $ — 24.40 19.31 0.05 24.89 19.53 0.05 31.42 24.53 0.05 $ 17.67 $ 11.41 $ — 19.74 13.31 0.05 24.73 16.29 0.05 24.68 17.28 0.10 Common Stock Price Range
Declared High Low Fiscal Year 2013 First quarter ended March 31, 2013 $ 32.65 $ 28.24 $ — Second quarter ended June 30, 2013 $ 36.69 $ 27.60 $ 0.08 Third quarter ended September 30, 2013 $ 34.01 $ 29.42 $ 0.08 Fourth quarter ended December 31, 2013 $ 36.70 $ 29.32 $ 0.08 Fiscal Year 2012 First quarter ended March 31, 2012 $ 38.00 $ 27.68 $ 0.05 Second quarter ended June 30, 2012 $ 35.97 $ 22.73 $ 0.05 Third quarter ended September 30, 2012 $ 32.10 $ 22.09 $ 0.05 Fourth quarter ended December 31, 2012 $ 31.84 $ 25.95 $ 0.13 February 11, 2011,January 31, 2014, there were 139116 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.June 8, 2010, we initiated aFebruary 25, 2014, our Board of Directors authorized a new $350 million share repurchase program, which replaces and terminates the August 26, 2011 share repurchase program.shares in the open market or privately negotiated transactions to reduce and we may maintain, over time, our outstanding shares at approximately 150 million shares. We entered intostock. The authorization does not specify an agreement with an agent to conduct a designated portion of the repurchase program in accordance with Rules 10b-18 and 10b5-1 under the Securities Exchange Act of 1934. In October 2010, we repurchased approximately 0.6 million of our outstanding common shares which completed our repurchase of 10 million shares underexpiration date for the share repurchase program initiated on June 8, 2010.program. The following is a summary of share repurchases of our common stock settled during the three months ended December 31, 2010.Purchase Period Total Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs(a) 577,269 $ 24.75 577,269 — 10,813 $ 25.15 — — — $ — — — 31,282 $ 27.51 — — — $ — — — 275 $ 29.83 — — 577,269 $ 24.75 577,269 — 42,370 $ 26.92 — — Purchase Period October 1 – 31, 2013 Repurchase program — $ — — 7,584,764 Employee transactions 707 $ 33.20 — — November 1 – 29, 2013 Repurchase program — $ — — 7,584,764 Employee transactions 88 $ 33.95 — — December 2 – 31, 2013 Repurchase program — $ — — 7,584,764 Employee transactions 29 $ 31.02 — — Total Repurchase program — $ — — 7,584,764 Employee transactions 824 $ 33.20 — — (a) We may continueThe difference between total number of shares purchased and total number of shares purchased as part of publicly announced plans or programs pertains to repurchase shares ofrepurchases under our outstanding common shares as necessary to maintain, over time, our outstanding shares at approximately 150 million shares.(b) Reflectsacquired from employees in connection withthat may be repurchased pursuant to the settlement of income taxshare repurchase program authorized and related benefit withholding obligations arising from vesting in restricted stock units.announced on August 26, 2011.Our RevolvingFacility restricts, among other things, the total dollar amountAgreement, we may pay for dividends and equity repurchases ofare permitted to repurchase our common stock, to a maximum of $400 million inprovided that no such repurchases shall be made from the proceeds borrowed under the Credit Agreement, and that the aggregate duringpurchase price and dividends paid after December 2, 2013 does not exceed the term of the facility.Distribution Cap. At December 31, 2010, we have2013, the capacity to pay additional dividends or repurchase shares inremaining availability under the amount of $137 million after the declaration of dividends and shares repurchased. See Note 8 to our consolidated financial statements.Distribution Cap was approximately $619 million. The declaration, and payment or increase of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, general financial condition and liquidity, success in business activities, capital requirements and general business conditions.shares from November 16, 2006 (the date of our initial public offering) tostock for the end of the yearfive-year period ended December 31, 2013, with the cumulative total return on the Dow Jones Heavy Construction Industry Index and the Russell 1000 Index for the same period. The comparison assumes the investment of $100$100 on November 16, 2006,December 31, 2008, and reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.
12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/30/2012 12/31/2013 KBR $ 100.00 $ 126.46 $ 204.49 $ 188.30 $ 203.54 $ 216.94 Dow Jones Heavy Construction 100.00 113.81 145.55 119.54 144.42 188.76 Russell 1000 100.00 125.47 142.87 142.15 161.94 211.24 Years Ended December 31, 2010 2009 2008 2007 2006 (In millions, except for per share amounts) $ 10,099 $ 12,105 $ 11,581 $ 8,745 $ 8,805 609 536 541 294 152 395 364 356 204 34 — — 11 132 114 68 74 48 34 (20) 327 290 319 302 168 $ 2.08 $ 1.80 $ 1.84 $ 1.08 $ 0.39 — — 0.07 0.71 0.81 $ 2.08 $ 1.80 $ 1.91 $ 1.79 $ 1.20 $ 2.07 $ 1.79 $ 1.84 $ 1.08 $ 0.39 — — 0.07 0.71 0.81 $ 2.07 $ 1.79 $ 1.90 $ 1.78 $ 1.20 156 160 166 168 140 157 161 167 169 140 $ 0.15 $ 0.20 $ 0.25 $ — $ — $ 786 $ 941 $ 1,145 $ 1,861 $ 1,410 915 1,350 1,099 1,433 915 5,417 5,327 5,884 5,203 5,414 101 — — — — $ 2,204 $ 2,296 $ 2,034 $ 2,235 $ 1,829 $ 12,041 $ 14,098 $ 14,097 $ 13,051 $ 12,437 6.0 % 4.4 % 4.7 % 3.4 % 1.7% $ 66 $ 41 $ 37 $ 36 $ 47 $ 62 $ 55 $ 49 $ 31 $ 29 Years Ended December 31, 2013 2012 2011 2010 2009 Millions of dollars, except per share amounts Statement of Operations Data: Revenues $ 7,283 $ 7,770 $ 9,103 $ 9,962 $ 12,060 Gross profit 581 518 640 689 712 Equity in earnings of unconsolidated affiliates (a) 137 151 158 137 45 Impairment of goodwill and long-lived assets (b) — (180 ) — (5 ) (6 ) Operating income 471 299 587 609 536 Income from continuing operations, net of tax 327 202 540 395 364 Net income attributable to noncontrolling interests (98 ) (58 ) (60 ) (68 ) (74 ) Net income attributable to KBR 229 144 480 327 290 Basic net income attributable to KBR per share $ 1.55 $ 0.97 $ 3.18 $ 2.08 $ 1.80 Diluted net income attributable to KBR per share $ 1.54 $ 0.97 $ 3.16 $ 2.07 $ 1.79 Cash dividends declared per share (c) $ 0.24 $ 0.28 $ 0.20 $ 0.15 $ 0.20 Balance Sheet Data (as of the end of period): Total assets $ 5,516 $ 5,767 $ 5,673 $ 5,417 $ 5,327 Long-term nonrecourse project-finance debt 78 84 88 92 — Total shareholders’ equity $ 2,595 $ 2,511 $ 2,442 $ 2,204 $ 2,296 Other Financial Data (as of the end of period): Backlog of unfulfilled orders $ 14,414 $ 14,931 $ 10,931 $ 12,041 $ 14,098 (a) completedreclassified the saleprior year amounts to conform to our revised presentation as a component of the Production Services group in May 2006 and the dispositionoperating income but not a component of our 51% interest in Devonport Management Limited (“DML”) in June 2007. The results of operations of Production Services group and DML for all periods presented have been reported as discontinued operations.(b) Capital expenditures do not include expendituresIncluded in 2012 is a goodwill impairment charge of $178 million in our IGP business segment. Included in 2009 is a goodwill impairment charge of $6 million in our Other business segment. Included in 2012 and 2010 are impairment of long-lived asset charges of $2 million and $5 million, respectively, primarily related to the noncash investing activities for the purchase of computer software of $19 million in 2010equipment, land and the discontinued operations for DML of $7 million and $10 million for the years ended December 31, 2007 and 2006, respectively.(c) Depreciation and amortization expense does not include expenses related todiscontinued operations for DMLfourth quarter of $10 million and $18 million for the years ended 2012, we declared an additional dividend of $0.08 per share on December 31, 2007 and 2006, respectively.18, 2012. Consequently, in 2013 we declared only three dividends totaling $0.24 per share.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Annual Report.EnvironmentMarkets.reportable segment into two separate reportable segments, Gas Monetization and Hydrocarbons, such that now we have a total of five reportable segments: Gas Monetization, Hydrocarbons, IGP, Services and Other. Each reportable segment, excluding Other, is led by a separate Segment President who reports directly to our CODM. We providehave revised our business segment reporting to represent how we currently manage our business and recast prior periods to conform to the current business segment presentation.full rangelong completed project in Mexico that we believe will be recoverable in the future. See Note 14 to our consolidated financial statements for further discussion of engineering, procurementthe performance bonds.construction services for largegross profit of $324 million during the year. This segment is currently executing two multi-billion dollar LNG projects in Australia which are expected to continue throughout 2014. We are nearing completion of a major GTL project in Nigeria and complex upstreaman LNG project in Algeria, which we expected to successfully close out. Although progress has been made in our negotiations, we have not signed any agreements and thus are not able to release certain remaining contingencies. Gas Monetization is actively pursuing new LNG prospects but is not expecting an EPC award on these prospects until 2015 or beyond.including LNG and GTL facilities, onshore and offshore oil andsuch as ammonia plants for clients taking advantage of a relatively abundant supply of natural gas production facilities, industrial and other projects. We serve customers in the gas monetization, oil and gas, petrochemical, refining and chemical markets throughout the world. OurHowever, the mix of projects are generally long termhas trended toward more construction activities and as such the total gross profit for this segment was relatively flat in nature2013 when compared to 2012. We expect the global hydrocarbons markets to continue to improve in 2014 with energy demand driven by long-term global GDP growth.are impacted by factors including market conditions, financing arrangements, governmental approvalsinvestments in mining and environmental matters. Demandinfrastructure projects remain slow. However, IGP gross profit increased to $65 million in 2013 from $20 million in 2012 due to significant job losses on two projects in Indonesia in 2012 and an adverse ruling on a U.S. government contract, both of which were not repeated in 2013. We believe opportunities for our services dependsare growing with non-U.S. governments and with electric power generating companies investing in new natural gas-fired power generation plants in the U.S. and/or projects to improve air emissions at existing coal-fired power plants.our customers’ capital expendituresoil sands-related projects in western Canada. Gross profit increased $106 million from 2012 due to the higher volume of business and the impact in 2012 from profit reversals and project losses. We expect western Canada to remain a strong market for our construction market sectors.We have benefitedservices in recent years from increased capital expenditures from our petroleum2014.petrochemical customers driven by historically high crude oiltook an associated charge of approximately $10 million across the functions and natural gas pricesbusinesses. This charge is included in cost of revenues and general global economic expansion that occurred prior to mid-2008. We have indications thatand administrative expenses on the hydrocarbons market in most international regions has partially recovered from the worldwide economic recession and financial market condition.consolidated statement of income. We continue to see long term growthexamine our overhead and our expected revenue and workload and will continue to take measures in environmentally and economically driven energy projects and foran effort to appropriately size the organization as workloads vary going forward.licensed process technologies for offshore gas production, LNG, biofuels, motor fuels, chemicals and fertilizers. Feasibility studies and front-end engineering and design projects remain steady reflecting clients’ intentions to investthe December 2011 decline in capital intensive energy projects, albeit releasing and proceeding with projects in phases and conducting increased levels of economic analysis. For construction and maintenance in the United States, we see an improving market with a return of more material projects driven by low natural gas prices, improved refining utilization and increasing energy demands.Infrastructure, Government and Power Markets (“IGP”).A significant portion of our IGP business segment’s current activities supports the United States’ and the United Kingdom’s government operations in Iraq, Afghanistan and in other parts of the Middle East region. These operations have resulted in one of the largest military deployments since World War II, which has caused a parallel increase in government spending. The logistics support services that KBR provides the U.S. military are delivered under our LogCAP III, LogCAP IV and other contracts which are competitively bid contracts. Revenues under the LogCAP III project were approximately $2.8 billion, $4.8 billion, and $5.5 billion for the years ended December 31, 2010, 2009, and 2008, respectively. KBR is the only company providing services under the LogCAP III contract. Currently, the U.S. government is transitioning work from LogCAP III to LogCAP IV, which is a multiple award contract withcompletions or near completions on three contractors, including KBR, who can each bid and potentially win specific task orders. As troop deployments shift within the Middle East region, and as additional work is awarded under LogCAP IV, we have seen a decline in work under LogCAP III and we expect this decline will continue. We expect the U.K. military will remain engagedsignificant projects in the region, although their presence has shifted from Iraq to Afghanistan.We operateGas Monetization segment, project losses in diverse civil infrastructure markets, including transportation, waterthe IGP and waste treatmentServices business segments, and facilities maintenance. In addition to U.S. state, local and federal agencies, we provide these services to governments around the world including the U.K., Australia and the Middle East. In Australia, we also provide related services to the global mining industry. There has been a general trend of historic under-investment$178 million charge in infrastructure, particularly2012 related to the qualityimpairment of water, wastewater, roadsa portion of the goodwill from our acquisition of R&S in 2010. Partially offsetting these items were new awards and transit, airports, and educational facilities which has historically declined while demand for expanded and improved infrastructure has historically outpaced funding. We have seen increased activity related to these types of projects, however, the global economic recession has caused markets to remainin several market segments.America2012 compared to 2011; however, gross profit increased $168 million as a result of incentive awards, increased activity and the U.K., which has resultedadditional change orders on our largest LNG projects in delays or slow start-upsAlgeria and in Australia.major projects. Stimulus spending2011 and a general economic recovery should result in increased opportunities in the future across all sectors.In the industrial sector, we operate in a number of markets, including forest products, advanced manufacturing, minerals and metals and consumer products, primarily with a domestic focus but with our international opportunities increasing. Forest products, advanced manufacturing and consumer products are experiencing modest market improvements while the minerals and metals markets aregross profit increasing 15% from $161 million to $185 million driven by global demand for commodities. In the power sector, we serve regulated utilities, power cooperatives, municipalities and various non-regulated providers, primarily in the U.S. and U.K. markets. The power sector continues to be driven by long-term economic and demographic trends and changes in environmental regulations. Projects in the power sector are currently concentrated in emissions control, repowering, renewable power and new gas-fired power generation.We provide a wide range of construction and maintenance services to a variety of industries in the U.S. and Canada, including forest products, power, commercial and institutional buildings, general industrial and manufacturing. We continued to see an increase in bid requests and feasibility estimates from our clients and expect athe number of our marketslong-term technical service and engineering projects, recognition of license fee renewals, increased progress on existing projects primarily located in the U.S., the North Sea and Azerbaijan, as well as recognition of amounts related to strengthen in 2011.Summarythe settlement of Consolidated Results2010 compared to 2009Consolidated revenue in 2010 decreased approximately $2 billion, or 17%, to $10.1 billion compared to $12.1 billion in 2009 primarily driven by decreases in our IGP and Services segments. The decrease in the Fina Antwerp Olefins ("FAO") claim.includesdeclined by $1.4 billion in 2012, or 43%, compared to 2011 and gross profit decreased by $181 million due primarily to the completion of operations in Iraq with the U.S. government, reduced activity due to a $1.9 billion declinemarket slowdown and reduced investment in our NAGD business unit resultingAsia Pacific ("APAC") region, additional project costs and liquidated damages related to two projects in Indonesia associated with our acquisition of R&S, and an unfavorable ruling from an overall reduction in volume for U.S. military support activities primarily in Iraq under our LogCAP III contract. In 2010, the total number of staff working on the LogCAP III project decreased by approximately 56% including direct hires, subcontractors and local hires. Additionally, the U.S. Army has transitioned workCourt of Federal Claims ("COFC") regarding costs associated with dining facility services. Offsetting these declines were increases in Kuwait and Afghanistanactivity from new awards in certain sectors, a shift from the LogCAP III contract to the LogCAP IV contract. Although we have been awarded task orders undercontract supporting the LogCAP IV contract primarilyU.S. Department of State in Iraq, we expect our overall volume of work to continue to decreasenew projects in the region. Also contributingpower sector related to the decline in IGP revenue in 2010 were revenue decreases in the I&Mair emissions controls systems, coal gasification projects and P&I business units largely as a result of the completion of fieldworkwaste-to-energy expansion project, and increased activity on certain projects in early 2010the Middle East.declining workload from other projects nearing completion. Partially offsetting these declines in revenue was an increase in revenuethe overall decline in our IGD business unit primarily related to the ongoing presence of troopsU.S. construction business. The higher costs on these fixed-price projects resulted in Afghanistan where we provide contingency logistics, operations and maintenance and other services to the U.K. MoD and NATO. The Services segment also experienced a decline$75 million in revenue for 2010 primarily due to the completion several projects or projects being near completion. Revenueproject loss provisions in our Hydrocarbons business segment2012. Offsetting these losses was increased slightly overall primarilyincome from significant new awards in Canada driven by the Gas Monetization business unit and our Downstream business unit.Consolidated operating incomeconstruction activities on oil sands-related projects in 2010 increased approximately $73 million, or 14%, to $609 million compared to $536 million in 2009. Job income for 2010 from the IGP business segment was up approximately $84 million primarily from our NAGD business unit which increased by $117 million. In 2009, we recognized a net charge of $65 million related to the write-off of award fees previously accrued on the LogCAP III contract that did not recur in 2010. In 2010, we recognized job income related to LogCAP III award fees of $94 million for periods of performance from May 2008 through May 2010 which were awarded to us in the second and third quarters of 2010. Partially offsetting the increase related to award fees was lower volume of activity on the LogCAP III contract as a result of the overall reduction in volume of U.S. military support activities primarily in Iraq and higher charges for potentially unallowable costs. Our Hydrocarbons job income decreased by approximately $64 million largely due to the EPC 1 favorable arbitration award recognized in 2009 that did not recur in 2010 partially offset by increases in job income in our Gas Monetization and Downstream business units.2009 compared to 2008Consolidated revenue in 2009 increased approximately $524 million, or 5%, to $12.1 billion compared to $11.6 billion in 2008. The primary drivers of this increase were from our Hydrocarbons and Services segments. In the Hydrocarbons business segment, the Gas Monetization business unit revenue grew $599 million in 2009, or 28%, largely as a result of several cost reimbursable LNG and GTL projects. Although the worldwide economic recession and disrupted financial market conditions in 2009 continued to impact our customers in the hydrocarbons market, most of our ongoing LNG and GTL projects were under development and awarded prior to mid-2008 and continued to have a positive impact on Gas Monetization revenue growth and backlog. Our Services segment revenue increased $675 million in 2009, or 57%, primarily as a result of our July 1, 2008 acquisition of BE&K, an Alabama-based engineering, construction and maintenance services company that has greatly increased our presence in the North American engineering and construction markets. Revenue from our IGP business segment was down approximately $835 million, or 12%, primarily due to decreases in the NAGD and IGD business units which were down a combined $971 million in 2009, or 15%, compared to 2008. The majority of this decrease is due to our NAGD business unit where U.S. military troop level reductions in Iraq resulted in a significant impact to our staffing levels on the LogCAP III contract. In 2009, the total number of staff working on the LogCAP III project decreased by approximately 17% including direct hires, subcontractors and local hires. Also contributing to the decline in the IGP revenue in 2009 was the IGD business unit due to reduced levels of activities for the U.K. military in Iraq and Afghanistan as well as a number of engineering projects completed during the year.Consolidated operating income in 2009 decreased approximately $5 million, or 1%, to $536 million compared to $541 million in 2008. Job income for 2009 from our IGP business segment was down approximately $168 million in 2009 mainly as a result of the $130 million reduction in our award fee income as compared to the prior year and lower volume of activity on our LogCAP III contract. IGP business segment overheads increased $32 million, or 27%, primarily due to lower recoverability of certain costs as a result of decreased activity as well as higher bid and proposal expenses. Additionally, theServices segment overheads increased $32 million, or 82%, due to the additional overhead resulting from the BE&K acquisition on July 1, 2008. Income in 2009 from our Hydrocarbons business segment increased by approximately $133 million, or 94%, primarily due to the favorable arbitration award on the EPC 1 project performed for PEMEX in our Oil and Gas business unit which resulted in $183 million of job income for 2009 and was partially offset by decreases in profit on other projects.units,segments, corporate general and administrative expense, income taxes and other items, see the “Results of Operations” section below.AcquisitionRoberts & Schaefer CompanyOperations by Business SegmentOn2 to our consolidated financial statements. While certain business segments below do not meet the criteria for reportable segments in accordance with ASC 280 - Segment Reporting, we believe this supplemental information is relevant and meaningful to our investors.21, 2010,31, 2013, we reclassified equity in earnings of unconsolidated affiliates from revenues to a separate component of operating income on our consolidated statement of income. We reclassified the 2012 and 2011 amounts to conform to our revised presentation. For purposes of reviewing the results of operations, "gross profit" is calculated as business segment revenue less cost of revenue, which includes business segment overhead costs directly attributable to the business segment but excludes equity in earnings of unconsolidated affiliates. Years Ended December 31, 2013 vs. 2012 2012 vs. 2011 Millions of dollars 2013 2012 $ % 2011 $ % Revenue Gas Monetization $ 2,155 $ 3,006 $ (851 ) (28 )% $ 3,017 $ (11 ) — % Hydrocarbons 1,482 1,260 222 18 % 1,210 50 4 % Infrastructure, Government and Power 1,535 1,848 (313 ) (17 )% 3,261 (1,413 ) (43 )% Services 2,051 1,600 451 28 % 1,564 36 2 % Other 60 56 4 7 % 51 5 10 % Total $ 7,283 $ 7,770 $ (487 ) (6 )% $ 9,103 $ (1,333 ) (15 )% Gross profit Gas Monetization $ 324 $ 381 $ (57 ) (15 )% $ 213 $ 168 79 % Hydrocarbons 177 185 (8 ) (4 )% 161 24 15 % Infrastructure, Government and Power 65 20 45 225 % 201 (181 ) (90 )% Services 57 (49 ) 106 216 % 31 (80 ) (258 )% Other 15 16 (1 ) (6 )% 16 — — % Labor cost absorption not allocated to the business segments (57 ) (35 ) (22 ) (63 )% 18 (53 ) (294 )% Total $ 581 $ 518 $ 63 12 % $ 640 $ (122 ) (19 )% Equity in earnings of unconsolidated affiliates Gas Monetization $ 55 $ 33 $ 22 67 % $ 27 $ 6 22 % Hydrocarbons — 1 (1 ) (100 )% 5 (4 ) (80 )% Infrastructure, Government and Power 47 56 (9 ) (16 )% 67 (11 ) (16 )% Services 13 33 (20 ) (61 )% 26 7 27 % Other 22 28 (6 ) (21 )% 33 (5 ) (15 )% Total $ 137 $ 151 $ (14 ) (9 )% $ 158 $ (7 ) (4 )% Impairment of goodwill and long-lived assets Infrastructure, Government and Power $ — $ (178 ) $ 178 100 % $ — $ (178 ) — % Other — (2 ) 2 100 % — (2 ) — % Total $ — $ (180 ) $ 180 100 % $ — $ (180 ) — % Gain on disposition of assets $ 2 $ 32 $ (30 ) (94 )% $ 3 $ 29 n/m Amounts not allocated to the business segments Corporate general and administrative expense not allocated to the business segments $ (249 ) $ (222 ) $ (27 ) (12 )% $ (214 ) $ (8 ) (4 )% Total operating income $ 471 $ 299 $ 172 58 % $ 587 $ (288 ) (49 )% Year Ending December 31, 2013 Millions of dollars Business
Segment
Revenue Gas Monetization $ 2,155 $ — $ 2,155 Hydrocarbons 1,482 801 2,283 Infrastructure, Government and Power 1,535 1,250 2,785 Services 2,051 (2,051 ) — Other 60 — 60 Total KBR Revenue $ 7,283 $ — $ 7,283 Year Ending December 31, 2012 Millions of dollars Business
Segment
Revenue Gas Monetization $ 3,006 $ — $ 3,006 Hydrocarbons 1,260 739 1,999 Infrastructure, Government and Power 1,848 861 2,709 Services 1,600 (1,600 ) — Other 56 — 56 Total KBR Revenue $ 7,770 $ — $ 7,770 Year Ending December 31, 2011 Millions of dollars Business
Segment
Revenue Gas Monetization $ 3,017 $ — $ 3,017 Hydrocarbons 1,210 652 1,862 Infrastructure, Government and Power 3,261 912 4,173 Services 1,564 (1,564 ) — Other 51 — 51 Total KBR Revenue $ 9,103 $ — $ 9,103 December 31, Millions of dollars 2013 2012 Gas Monetization $ 6,158 $ 7,745 Hydrocarbons 2,619 1,354 Infrastructure, Government and Power 2,097 2,824 Services 2,544 2,025 Other 996 983 Total backlog $ 14,414 $ 14,931 December 31, Millions of dollars 2013 2012 Domestic U.S. cash $ 355 $ 242 International cash 675 610 Joint venture cash 69 201 Total $ 1,099 $ 1,053 sharesstock.ENI Holdings, Inc. (“ENI”). ENI issuch amounts may become available to us in the parentfuture should there be distribution of dividends to the Roberts & Schaefer Company (“R&S”)joint venture partners. We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture projects.a privatelyforeign cash and equivalents on which U.S. income taxes have not been recognized, excluding cash held EPC services company for material handlingby consolidated joint ventures, is estimated to be approximately $554 million of the $675 million of the total international cash referenced in the table above. We have estimated the amount of unrecognized deferred U.S. tax liability to be approximately $91 million, which includes the effects of foreign tax credits associated with the deferred income to reduce the U.S. tax liabilities.processing systems. Headquarteredis affected by the mix, terms and percentage of completion of our engineering and construction projects. We sometimes receive cash through billings to our customers on our larger engineering and construction projects and those of our consolidated joint ventures in Chicago, Illinois, R&S provides servicesadvance of incurring the related costs. In other projects our net investment in the project costs may be greater than available project cash and associated material handling infrastructurewe may utilize other cash on hand or availability under our Credit Agreement to satisfy any periodic operating cash requirements.miningform of letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our ability to maintain or increase our letter of credit and minerals, power, industrial, refining, aggregates, precioussurety bonding capacity, which may be further dependent on the timely release of existing letters of credit and base metals industries. The purchase pricesurety bonds. As the need for credit support arises, letters of credit will be issued under our Credit Agreement or arranged with our banks on a bilateral, syndicated or other basis. We believe we have adequate letter of credit capacity under our existing Credit Agreement and bilateral lines, as well as adequate surety bond capacity under our existing lines to support our operations and current backlog for the next twelve months.$280held in commercial bank time deposits with the primary objectives of preserving capital and maintaining liquidity.Cash flows activities summary December 31, Millions of dollars 2013 2012 2011 Cash flows provided by operating activities $ 290 $ 142 $ 650 Cash flows provided by (used in) investing activities (62 ) 52 (88 ) Cash flows used in financing activities (148 ) (116 ) (377 ) Effect of exchange rate changes on cash (34 ) 9 (5 ) Increase in cash and equivalents $ 46 $ 87 $ 180 plus preliminary in 2013 and resulted from our earnings, working capital and distributions of $17earnings received from unconsolidated affiliates of $180 million, which included cash acquiredpartially offset by our payment of $8 million. The total net cash paid at closing$108 million in outstanding performance bonds to PEMEX Exploration and Production ("PEP"), other uses driven by taxes and contributions of $289 million is subject to an escrowed holdback amount of $43approximately $54 million to secure post closing working capital adjustments, indemnifications obligations of the sellers and other contingent obligations related to the operations of the business. R&S and its acquired divisions will be integrated into our IGP business segment.pension funds. See Note 314 to our consolidated financial statements for further discussion of the R&S acquisition.AcquisitionCash provided by operations totaled $142 million in 2012 and resulted from our earnings, adjusted for items to reconcile to net income, of remaining$317 million and distributions of earnings received from unconsolidated affiliates, including repayment of advances to unconsolidated affiliates of $102 million, partially offset by working capital uses related to our business with the U.S. government and the Gas Monetization and Services business segments.M.W. Kellogg Limited.the 601 Jefferson building and the Clinton Drive campus facility. These proceeds were offset by capital expenditures of $75 million associated with information technology projects and leasehold and facility improvements.31, 2010,2, 2011, we obtained controlentered into a $1 billion, five-year unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of international banks. The Credit Agreement is available for cash borrowings and the issuance of letters of credit related to general corporate needs. The Credit Agreement expires in December 2016; however, given that projects generally require letters of credit that extend beyond one year in length, we will likely need to enter into a new or amended credit agreement no later than 2015. Amounts drawn under the Credit Agreement will bear interest at variable rates, per annum, based either on (1) the London interbank offered rate (“LIBOR”) plus an applicable margin of 1.50% to 1.75%, or (2) a base rate plus an applicable margin of 0.50% to 0.75%, with the base rate equal to the highest of (a) reference bank’s publicly announced base rate, (b) the Federal Funds Rate plus 0.5%, or (c) LIBOR plus 1%. The amount of the remaining 44.94% interestapplicable margin to be applied will be determined by our ratio of our MWKL subsidiary locatedconsolidated debt to consolidated EBITDA for the prior four fiscal quarters, as defined in the U.KCredit Agreement. The Credit Agreement provides for fees on letters of credit issued under the Credit Agreement at a rate equal to the applicable margin for LIBOR-based loans, except for performance letters of credit, which are priced at 50% of such applicable margin. We pay an issuance fee of 0.15% of the face amount of a letter of credit. We also pay a commitment fee of 0.25% per annum on any unused portion of the commitment under the Credit Agreement. As of December 31, 2013, there were $226 million in letters of credit and no cash borrowings outstanding.$165$619 million subject.certain post-closing adjustmentsprovide a Heavy Equipment Transporter Service to be determined during the first quarter of 2011.British Army. Under the terms of the arrangement, Fasttrax Limited operates and maintains 92 heavy equipment transporters ("HETs") for a term of 22 years. The purchase agreement,of the $165HETs by the joint venture was financed through a series of bonds secured by the assets of Fasttrax Limited totaling approximately £84.9 million (£107 million) initial purchase price(approximately $120 million at the exchange rate on the date of the transaction) and a bridge loan totaling approximately £12.2 million (approximately $17 million at the exchange rate on the date of the transaction) which are nonrecourse to KBR and its partner. The bridge loan was paidreplaced when the shareholders funded combined equity and subordinated debt in 2005. The secured bonds are an obligation of Fasttrax Limited and are not a debt obligation of KBR because they are nonrecourse to the joint venture partners. Accordingly, in the event of a default on January 5, 2011the term loan, the lenders may only look to the resources of Fasttrax Limited for repayment.recordedClass B 5.9% Fixed Rate Bonds in the amount of £16.7 million (approximately $24 million at the exchange rate on the date of the transaction). Principal payments on both classes of bonds commenced in March 2005 and are due in semi-annual installments over the term of the bonds, which mature in 2021. Subordinated notes payable to each of the 50% partners initially bear interest at 11.25% and increase to 16% over the term of the notes through 2025. For financial reporting purposes, only our partner’s portion of the subordinated notes appears in the consolidated financial statements. Payments on the subordinated debt commenced in March 2006 and are due in semi-annual installments over the term of the notes.“Obligationof December 31, 2013 are included in the commitments and contractual obligations table in the following section. See Note 9 for further discussion on equity method investments and variable interest entities and see Note 11 for further discussion on this debt.former noncontrolling shareholder”provide letters of credit, surety bonds or guarantees to our customers. Letters of credit are provided to certain customers and counterparties in the ordinary course of business as credit support for contractual performance guarantees, advanced payments received from customers and future funding commitments. We have approximately $2.2 billion in committed and uncommitted lines of credit to support the issuance of letters of credit and, as of December 31, 2013, we have utilized $687 million of our consolidated balance sheet. In addition,present capacity under lines of credit. Surety bonds are also posted under the terms of certain contracts to guarantee our performance. The letters of credit outstanding included $226 million issued under our Credit Agreement and $461 million issued under uncommitted bank lines at December 31, 2013. Of the total letters of credit outstanding, $249 million relate to our joint venture operations where the letters of credit are posted by our banks on our behalf using our capacity to support our agreed upon pro-rata share of obligations under various contracts executed by joint ventures of which we agreedare a member. As the need arises, future projects will be supported by letters of credit issued under our Credit Agreement or other lines of credit arranged on a bilateral, syndicated or other basis. We believe we have adequate letter of credit capacity under our Credit Agreement and bilateral lines of credit to paysupport our operations for the former noncontrolling shareholder 44.94%next twelve months.future proceeds collected on certain receivables owedDecember 31, 2013: Payments Due Millions of dollars 2014 2015 2016 2017 2018 Thereafter Total Operating leases $ 100 $ 88 $ 80 $ 62 $ 55 $ 399 $ 784 Purchase obligations (a) 18 4 1 1 1 3 28 Pension funding obligation (b) 46 46 46 46 46 234 464 Nonrecourse project finance debt 10 10 11 12 12 33 88 Total (c) $ 174 $ 148 $ 138 $ 121 $ 114 $ 669 $ 1,364 (a) In the ordinary course of business, we enter into commitments for the purchase or lease of software, materials, supplies and similar items. The purchase obligations can span several years depending on the duration of the projects. In general, the costs associated with those purchase obligations are expensed to correspond with the revenue earned on the related projects. The purchase obligations disclosed above do not include purchase obligations that we enter into with vendors in the normal course of business that support existing contracting arrangements with our customers. (b) (c) MWKLseveral projects. Included in the table above are claims included in project estimates-at-completion associated with the reimbursable portion of an EPC contract to construct an LNG facility for which we have recognized an additional $15contract revenue totaling $46 million net liability recorded as “Obligation to former noncontrolling shareholder”. The acquisition was recorded as an equity transactionclaims on this project represent incremental subcontractor costs that reduced noncontrolling interests, accumulated other comprehensive income (“AOCI”) and additional paid-in capital by $180 million.Acquisition of Energo EngineeringOn April 5, 2010, we acquired 100%are legally entitled to recover from the customer under the terms of the outstanding common stockcontract. We also have claims associated with one of Houston-based Energo Engineering (“Energo”)our APAC projects for approximately $16 millionwhich we have recognized contract revenue of $10 million. These claims are recorded in cash,"costs and estimated earnings in excess of billings on uncompleted contracts" on our accompanying consolidated balance sheets.an escrowed holdback amountpenalties for liquidated damages in the event claims are asserted for which we were responsible for the delays. These generally relate to specified activities that must be completed within a project by a set contractual date or achievement of $6 milliona specified level of output or throughput of a plant we construct. Each contract defines the conditions under which a customer may make a claim for liquidated damages. However, in some instances, liquidated damages are not asserted by the customer, but the potential to secure working capital adjustments, indemnification obligationsdo so is used in negotiating or settling claims and closing out the contract.the sellers,our performance and other contingent obligationslegal analysis, we have not accrued for possible liquidated damages related to the operationseveral projects totaling $10 million at December 31, 2013 and $2 million at December 31, 2012, (including amounts related to our share of the business. As a result of the acquisition,unconsolidated subsidiaries) that we recognized goodwill of $6 million and other intangible assets of $3 million. Energo provides Integrity Management (IM) and advanced structural engineering services to the offshore oil and gas industry. Energo’s results of operations were integrated into our Hydrocarbons segment.Technology License AgreementIn January 2010, we entered into a collaboration agreement with BP p.l.c. to market and license certain technology. In conjunction with this arrangement, we acquired a 25-year license granting us the exclusive right to the technology. As partial consideration for the license, we paid an initial fee of $20 million.Acquisition of Wabi Development CorporationIn October 2008, we acquired 100% of the outstanding common stock of Wabi Development Corporation (“Wabi”) for approximately $20 million in cash. As a result of the acquisition, we recognized goodwill of $5 million and other intangible assets of $5 million. Wabi is a privately held Canada-based general contractor, which provides services for the energy, forestry and mining industries. Wabi provides maintenance, fabrication, construction and construction management services to a variety of clients in Canada and Mexico. The integration of Wabi into our Services segment provides additional growth opportunities for our heavy hydrocarbon, forest products, oil sand, general industrial and maintenance services business.Acquisition of BE&K, Inc.On July 1, 2008, we acquired 100% of the outstanding common shares of BE&K, Inc., (“BE&K”) a privately held, Birmingham, Alabama-based engineering, construction and maintenance services company serving both domestic and international customers. BE&K’s international operations are located in Poland and Russia. The acquisition of BE&K enhances our ability to provide engineering, construction and maintenance services to a broader variety of industries in North America. We paid approximately $559 million in cash including certain stockholders equity adjustments as defined in the stock purchase agreement and direct transaction costs. BE&K and its acquired divisions have been integrated into our Hydrocarbons, IGP and Services segmentscould incur based upon completing the nature of the underlying projects as currently forecasted.customer relationships acquired. As a result of the acquisition, the condensed consolidated statements of income include the results of operations of BE&K since the date of acquisition. Seecontingencies is described in Note 315 to our consolidated financial statements and the information discussed therein is incorporated by reference into this Item 7.further discussion offinancial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the BE&K acquisition.Business ReorganizationDuring the first quarter of 2010, we reorganized our business segments into discrete business units, each focused on a specific segment of the market with identifiable customers, business strategies, and sales and marketing capabilities. The reorganization includes the realignment of certain underlying projects among our existing business units as well as the transfer of certain projects to several newly formed business units. Certain realigned business units are reportedjoint venture under the newly formed Hydrocarbons and Infrastructure, Government & Power (“IGP”) business segments. Our Services segment and Ventures business unit continue to operate on a stand-alone basis. See “Item 1. Business – Our Business Segments and Business Units” for further descriptionequity method of accounting, we do not eliminate any portion of our realigned business reorganization.how we develop our assumptions and judgments about future events and related estimationsestimates and how they can impact our financial statements. A criticalsignificant accounting estimate is one that requires our most difficult, subjective or complex estimates and assessments and is fundamental to our results of operations.Percentage of completion. Engineering and Construction Contracts. Revenue from long-term contracts to provide construction, engineering, design or similar services is reported onrecognized as contract performance progresses using the percentage-of-completion methodmethod. We estimate the progress towards completion to determine the amount of accounting. This method of accounting requires us to calculate jobrevenue and profit to be recognized in each reporting period, for each job based upon our projections of future outcomes, which include estimates of the total cost to complete the project; estimates of the project schedule and completion date; estimates of the extent of progress toward completion; and amounts of any probable unapproved claims and change orders included in revenue. Progress is generally based upon a cost incurred to total estimated costs at completion approach but we also use alternative methods including physical progress, man-hourslabor hours incurred to total estimated labor hours at completion or costs incurredothers depending on the type of job. Physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances.project.time.timeline. We recognize accrued liquidated damages as a reduction in revenues. We generally include an estimate of liquidated damages in contract costs when it is deemed probable that they will be paid. Anticipated losses on contracts are recorded in full in the period in which they become evident. Profits are recorded based upon the product of estimated contract profit at completion times the current percentage-complete for the contract.calculatingestimating the amount of total gross profit or loss on a long-term contract, we include unapproved change orders or claims in contract value when the collection is deemed probable based upon the four criteria for recognizing unapprovedto our clients as adjustments to revenues and claims under FASB ASC 605-35 regarding accounting for performance of construction-typeto vendors, subcontractors and certain production-type contracts. Including probable unapproved claims in this calculation increases the operating income (or reduces the operating loss) that would otherwise be recorded without consideration of the probable unapproved claims. Probable unapproved claimsothers as adjustments to total estimated costs. Claims against others are recorded up to the extent of the lesser of the amounts management expects to recover or to costs incurred and include no profit element. In all cases, the probableuntil such time as they are finalized and approved. See Note 5 for our discussion on unapproved claims included in determining contract profit or loss are less than the actual claim that will be or has been presented to the customer. We are actively engaged in claims negotiations with our customers,change orders and the success of claims negotiations has a direct impact on the profit or loss recorded for any related long-term contract. Unsuccessful claims negotiations could result in decreases in estimated contract profits or additional contract losses, and successful claims negotiations could result in increases in estimated contract profits or recovery of previously recorded contract losses.our “Risk“Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K.. These factors can affect the accuracy of our estimates and materially impact our future reported earnings.Estimates. Estimates. We record provisions for estimated losses on uncompleted contracts in the period in which such losses are identified. The cumulative effects of revisions to contract revenue and estimated completion costs are recorded in the accounting period in which the amounts become evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims, warranty claims, liquidated damages or other contractual penalties, adjustments for audit findings on USU.S. government contracts and contract closeout settlements.contracts. Most of thecontracts. Frequently, services provided to the United States government are governed by cost-reimbursable contracts. Generally, these contracts may contain both a base feefees (a fixed profit percentage applied to our actual costs to complete the work) and an incentive/award fee (a variable profit percentage applied to definitized costs, which is subject to our customer’s discretion and tied to the specific performance measures defined in the contract, such as adherence to schedule, health and safety, quality of work, responsiveness, cost performance, and business management).fees.perpursuant to the terms of the contract or the federal acquisition regulations.Award fees are generally evaluated and granted periodically by our customer. For contracts entered into prior to June 30, 2003, award fees are recognized during the term of the contract based on our estimate of amounts to be awarded. Once award fees are granted and task orders underlying the work are definitized, we adjust our estimate of award fees to actual amounts earned. Our estimates are often based on our past award experience for similar types of work. We periodically receive LogCAP III award fee scores and, based on these actual amounts, we adjust our accrual rate for future awards, if necessary. The controversial nature of this contract may cause actual awards to vary significantly from past experience. As discussed further in Note 9 to our consolidated financial statements, we are currently unable to reliably estimate award fees as a result of our customer’s unilateral decision to grant no award fees for certain performance periods. entered into subsequent to June 30, 2003, we analyze each activity within the contract to ensure that we adhere to the separation guidelines of FASB ASC 605 –- Revenue Recognition and FASB ASC 605-25 –- Multiple-Element Arrangements. For service-only contracts and service elements of multiple deliverable arrangements, award fees are recognized only when definitized and awarded by the customer. Award fees on government construction contracts are recognized during the term of the contract based on our estimate of the amount of fees to be awarded.Governmentgovernment costs that are expressly unallowable, or mutually agreed to be unallowable, or not allocable to governmentperbased on the applicable regulations. Revenue recorded for government contract work is reduced for our estimate of potentially refundableunallowable costs related to issues that may be categorized as disputed or unallowable as a result of cost overruns or the audit process. Our estimates of potentially unallowable costs are based upon, among other things, our internal analysis of the facts and circumstances, terms of the contracts and the applicable provisions of the FAR, quality of supporting documentation for costs incurred and subcontract terms, as applicable. From time to time, we engage outside counsel to advise us on certain matters in determining whether certain costs are allowable. We also review our analysis and findings with the ACOadministrative contracting officer (“ACO”) as appropriate. In some cases, we may not reach agreement with the DCAA or the ACO regarding potentially unallowable costs which may result in our filing of claims in various courts such as the Armed Services Board of Contract Appeals (“ASBCA”) or the United States Court of Federal Claims (“COFC”).COFC. We only include amounts in revenue related to disputed and potentially unallowable costs when we determine it is probable that such costs will result in revenue. We generally do not recognize additional revenue for disputed or potentially unallowable costs for which revenue has been previously reduced until we reach agreement with the DCAA and/or the ACO that such costs are allowable.FASB ASC 350 - Intangibles –- Goodwill and Other, we are required to test goodwill for impairment on an annual basis, and more frequently when negative conditions or other triggering events arise. Effective January 1, 2010, we elected to change our annualWe test goodwill for impairment testing to the fourth quarter of every year based on carrying values of our business unitsannually as of October 1 from our previous method of using our business unit carrying values as of September 30. An annual goodwill impairment test date of October 1 better aligns with our annual budget process which is completed during the fourth quarter of each year. In addition, performing our annual goodwill impairment test during the fourth quarter allows for a more thorough consideration of the valuations of our business units subsequent to the completion of our annual budget process but prior to our financial year end reporting date. As a result of this accounting change, there were no required adjustments to any of the financial statement line items in the accompanying financial statements.1. As of December 31, 2010,2013, we had goodwill totaling $947$772 million on our consolidated balance sheet.In the first quarter of 2010, we reorganized our business units, each focused on a specific segment of the market with identifiable customers, business strategies, and sales and marketing capabilities. For segment reporting purposes, the business units are grouped into four reportable segments: Hydrocarbons; Infrastructure, Government & Power; Services; and Other. Within those reportable segments we operate eleven business units which are also our operating segments as defined by FASB ASC 280 – Segment Reporting and our reporting units as defined by FASB ASC 350.sheets. In accordance with FASB ASC 350 - Intangibles - Goodwill and Other, we conduct our goodwill impairment testing at the reporting unit level which consists of our eleven business units. The reporting units include Gas Monetization, Oil & Gas, Downstream, Technology, North American Government & Defense, International Government & Defense, Power & Industrial, Infrastructure & Minerals, Services, Ventures, and the AllStates staffing business.Thelevel.iswas a quantitative analysis using a two-step process that involves comparing the estimated fair value of each businessreporting unit to the unit’sits carrying value, including goodwill. If the fair value of a businessreporting unit exceeds its carrying amount,value, the goodwill of the businessreporting unit is not considered impaired; therefore, the second step of the impairment test is unnecessary. If the carrying amountvalue of a businessreporting unit exceeds its fair value, we perform the second step of the goodwill impairment test to measure the amount of goodwill impairment loss to be recorded, as necessary.20102013 were determined using a combination of two methods, one based onutilizing market earnings multiples of peer companies identified for each business unit (the market approach), and the other based onderived from discounted cash flow models with estimated cash flows based on internal forecasts of revenues and expenses over a fourten year period plus a terminal value period (the income approach).Theestimateswe estimate fair value by applying earnings and revenue market multiples to a reporting unit’s operating performance for the trailing twelve-month period. The market multiples are derived from comparable publicly traded companies with operating and investment characteristics similar to those of each of our reporting units. The earnings multiples for the market approach ranged between 4.0 times and 11.0from 7.6 to 10.9 times the earnings for each of our reporting units. 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 eachthe reporting unit. To arrive at our future cash flows, we use estimates of economic and market assumptions, including growth rates in revenues, costs, estimates of future expected changes in operating margins, tax rates and cash expenditures. The risk-adjusted discount rates usedapplied to our future cash flows under the income approach ranged from 13.2%12.5% to 17.5%17.8%. The fair value derived from the weighting of these two methods provided appropriate valuations that, in aggregate, reasonably reconciled to our market capitalization, taking into account observable control premiums.unitunit's fair value for the purposes of our impairment testing. However, we may weigh one value more heavily than the other when conditions merit doing so.to prepare thein our goodwill impairment test. IfGiven this, if market conditions change compared to those used in our market approach, or if actual future results of operations fall below the projections used in the income approach, our goodwill could become impaired in the future.2010,2013, our market capitalization exceeded the carrying value of our consolidated net assets by $1.4$2.8 billion and, except for one reporting unit in our IGP business segment, the fair value of all our individual reporting units significantlysubstantially exceeded their respective carrying amounts as of that date. However, theThe fair valuesvalue for the Services, P&Ione reporting unit in our Hydrocarbons business segment and Allstatestwo reporting units in our IGP business segment exceeded their respective carrying values based on projected growth rates and other market inputs to our impairment test models that are more sensitive to the risk of future variances due to competitive market conditions as well asand reporting unit project execution. If future variances for these assumptions are negative and significant, the fair values of these reporting units may not substantially exceed their carrying values in future periods.execution risks.review our projected growth rates and other market inputsthen performed Step 2 of the goodwill impairment test which compares the implied fair value of goodwill to the carrying value of that goodwill. The implied fair value of the reporting unit's goodwill exceeds its carrying value by approximately $5 million or 6%. Therefore, no impairment was indicated, but changes in the actual performance versus the assumptions used in ourthe Step 2 impairment test models,could result in a future impairment.changesdefense services on a regional level. We have concluded that each will be considered a separate reporting unit for goodwill impairment testing purposes. As a result, we performed an additional impairment test immediately before and after this change in our business and other factors that could represent indicators of impairment. Subsequent toreporting units, utilizing the same methodology as our October 1, 2010 annual impairment test and no such indicatorsindication of impairment werewas identified.2009,2012, we recognized a noncash goodwill impairment charge of approximately $6$178 million related to the AllStates staffing reporting unitIGP business segment in connection with our annual goodwillinterim impairment test on September 30, 2009.review. The charge was primarily the result of the determination that both the actual and expected income and cash flows for our IGP business segment were substantially lower than previous forecasts due to losses from ongoing projects acquired as part of the acquisition of Roberts & Schaefer Company. We also identified a declinedeteriorationstaffing market,minerals markets and less than expected actual and projected income and cash flows for the effect of the recession on the market, and ourIGP business segment, which reduced forecasts of the sales, operating income and cash flows for this reporting unit that were identified through the course of our 2009 annual planning process. As of October 1, 2010, goodwillexpected in 2013 and intangibles for this reporting unit totaled approximately $18 million, including goodwill of $12 million.contingencies. contingencies. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. A current tax asset or liability is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences between the financial reporting basis and the income tax basis of assets and liabilities. A current tax asset or liability is recognized for the estimated taxes refundable or payable on tax returns for the current year. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law, and the effects of potential future changes in tax laws or rates are not considered.thisan assessment of realization. GivenThe company is relying on a forecast of future taxable income in making its determination regarding the inherent uncertainty involved withneed for a valuation allowance on the use of such assumptions, there candeferred tax assets related to state net operating losses. In the event our future taxable income is less than the forecasted amount, an additional valuation allowance may need to be significant variation between anticipated and actual results.recorded in the future. As of December 31, 2010,2013, we had net deferred tax assets of $116$390 million, which are net of deferred tax liabilities of $262$208 million and a valuation allowance of $32$44 million primarily related to certain U.S. state and foreign branch net operating losses. In 2010, we increased our valuation allowance by approximately $2 million primarily due to net operating losses generated in tax jurisdictions where future taxable income is not expected to be sufficient for us to recognize a tax benefit.numerous countries other than the United States.States and in numerous other countries. Consequently, we are subject to the jurisdictionjurisdictions of a significant number of taxing authorities. The income earned in these various jurisdictions is taxed on differing bases, including income actually earned, income deemed earned and revenue-based tax withholding. The final determination of our worldwide tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each jurisdiction. Changes in the operating environment, including changes in tax law and currency/repatriation controls, could impact the determination of our tax liabilities for a tax year.We record estimated reserves for uncertainif the position does notmust meet a more-likely-than-not recognition threshold to be sustained upon by review by taxing authorities.recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized as benefits in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The company recognizes potential interest and penalties related to uncertainunrecognized tax positions within the provision forbenefits in income taxes. and then utilize assumptions and estimates to determine the most likely outcome and provide taxes, interest and penalties as needed based on this outcome.913 and 1014 of our consolidated financial statements, as of December 31, 20102013 and 2009,2012, we have accrued an estimate of the probable and estimable costs for the resolution of some of our legal and investigation matters. For other matters for which the liability is not probable and reasonably estimable, we have not accrued any amounts. Attorneys in our legal department monitor and manage all claims filed against us and review all pending investigations. Generally, the estimate of probable costs related to these matters is developed in consultation with internal and outsideexternal legal counsel representing us. Our estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. The precision of these estimates is impacted byand the amountlikelihood of due diligence we have been able to perform.future changes depend on a number of underlying variables and a range of possible outcomes. We attempt to resolve these matters through settlements, mediation and arbitration proceedings when possible. If the actual settlement costs, final judgments or fines, after appeals, differ from our estimates after appeals, our future financial results may be materially and adversely affected. We record adjustments to our initial estimates of these types of contingencies in the periods when the change in estimate is identified.Pensions. Pensions. Our pension benefit obligations and expenses are calculated using actuarial models and methods, in accordance with FASB ASC 715 – Compensation—- Compensation - Retirement Benefits. Two of the more critical assumptions and estimates used in the actuarial calculations are the discount rate for determining the current value of plan benefitsbenefit obligations and the expected rate of return on planincludinginclude inflation rates and demographic factors such as retirement age, mortality and turnover,turnover. These assumptions and estimates are also evaluated periodically and updated accordingly to reflect our actual experience.determined annually by reviewing yieldscomputed using a yield curve approach that matches plan specific cash flows to a spot rate yield curve based on high-quality bonds that receive one of the two highest ratings given by a recognized rating agency and the expected duration of the obligations specific to the characteristics of the Company’s plans.high quality corporate bonds. The overall expected long-term rate of return on assets was determined by reviewing targeteda stochastic projection that takes into account asset allocations andallocation strategies, historical indexlong-term performance of the applicableindividual asset classes, on a long-term basisan analysis of at least 15 years.additional return (net of fees) generated by active management, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. Plan assets are comprised primarily of equity securities, fixed income funds and debt securities.securities, hedge funds, real estate and other funds. As we have both domestic and international plans, these assumptions differ based on varying factors specific to each particular country or economic environment.determinecalculate the projected benefit obligation at the measurement date for our U.S. pension plan decreased from 5.35%increased to 3.38% at December 31, 2009 to 4.84%2013 from 3.09% at December 31, 2010.2012. The discount rate utilized to determine the projected benefit obligation at the measurement date for our U.K. pension plans,plan, which constitutes all of our international plans and 95%96% of all plans, decreased from 5.84%to 4.45% at December 31, 2009 to 5.45%2013 from 4.50% at December 31, 2010.2012. An additional future decrease in the discount rate of 25 basis points for our pension plans would increase our projected benefit obligation by an estimated $2$101 million and $50$2 million for the USU.K. and UKU.S. plans, respectively, while a similar increase in the discount rate would reduce our projected benefit obligation by an estimated $2$96 million and $48$2 million for the USU.K. and UKU.S. plans, respectively. Our expected long-term rates of return on plan assets utilized at the measurement date decreased from 7.63% toremained unchanged at 7.00% for our U.S. pension planplans and remained unchanged at 7.0%increased to 6.45% from 6.15% for our U.K. pension plans.plans.being recognized using the corridor method over a period of 10 toapproximately 15 years, which represents the expected remaining service life ofa reasonable systematic method for amortizing gains and losses for the employee group. Our unrecognized actuarial gains and losses arise from several factors, including experience and assumptionsassumption changes in the obligations and the difference between expected returns and actual returns on plan assets. The difference between actual and expected returns is deferred as an unrecognized actuarial gain or loss and is recognized as future pension expense. Our pretax unrecognized actuarial loss in accumulated other comprehensive income at December 31, 20102013 was $538$829 million, of which $20$42 million is expected to be recognized as a component of our expected 20112014 pension expense. Lower than expected long-term rates of return on our plan assets and the previous curtailment of our existing pension plans could increase our future pension costs and contributions over historical levels.expense compared to $36 million in 2013. During 2010,2013, we made contributions to fund our defined benefit plans of $20$54 million. We currently expect to make contributions in 20112014 of approximately $68$46 million.1710 in the accompanying financial statements.Entities. Entities. We account for variable interest entities (“VIEs”)VIEs in accordance with FASB ASC 810 –- Consolidation which requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE. If a reporting enterprise meets these conditions then it has a controlling financial interest and is the primary beneficiary of the VIE. We have appliedAn unconsolidated VIE is accounted for under the requirementsequity method of FASB ASC 810 on a prospective basis from January 1, 2010.accounting.HydrocarbonsGas Monetization business segment are executed through such joint ventures. Typically, these joint ventures are funded by advances from the project owner, and accordingly, require little or no equity investment by the joint venture partners but may require subordinatedother financial support from the joint venture partners such as letters of credit, performance and financial guarantees or obligations to fund losses incurred by the joint venture. Other joint ventures, such as privately financed initiatives in our Ventures business unit, generally require the partners to invest equity and take an ownership position in an entity that manages and operates an asset post construction.activities includingactivities. These include the terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed and the parties involved in the design of the entity. We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity investments, subordinated debt financing, letters of credit, and financial and performance guarantees and contracted service providers. Once we identify the variable interests, we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities. Though infrequent, some of our VIE’s haveassessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions. Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment, significant service contracts and other subordinated financial support.Results of OperationsWe analyze the financial results for each of our four segments including the related business units within Hydrocarbons and IGP. The business segments presented are consistent with our reportable segments discussed in Note 5 to our consolidated financial statements. While certain of the business units and product service lines presented below do not meet the criteria for reportable segments in accordance with FASB ASC 280 – Segment Reporting, we believe this supplemental information is relevant and meaningful to our investors.In millions Years Ended December 31, Revenue (1) 2010 2009 Percentage
Change 2008 Dollar
Change Percentage
Change $ 2,829 $ 2,755 $ 74 3% $ 2,156 $ 599 28% 426 576 (150) (26)% 526 50 10% 584 478 106 22% 484 (6) (1)% 130 97 33 34% 84 13 15% 3,969 3,906 63 2% 3,250 656 20% 3,307 5,189 (1,882) (36)% 6,027 (838) (14)% 369 288 81 28% 421 (133) (32)% 271 337 (66) (20)% 431 (94) (22)% 352 474 (122) (26)% 244 230 94% 4,299 6,288 (1,989) (32)% 7,123 (835) (12)% 1,755 1,863 (108) (6)% 1,188 675 57% 55 21 34 162% (2) 23 1,150% 21 27 (6) (22)% 22 5 23% $ 10,099 $ 12,105 $ (2,006) (17)% $ 11,581 $ 524 5% (1)Our revenue includes both equity in the earnings of unconsolidated affiliates and revenue from the sales of services into the joint ventures. We often participate on larger projects as a joint venture partner and also provide services to the venture as a subcontractor. The amount included in our revenue represents our share of total project revenue, including equity in the earnings (loss) from joint ventures and revenue from services provided to joint ventures.For purposes of reviewing the results of operations, “business unit income” is calculated as revenue less cost of services managed and reported by the business unit and are directly attributable to the business unit. Business unit income excludes corporate general and administrative expenses and other non-operating income and expense items.In millions Years Ending December 31, 2010 2009 Dollar
Change Percentage
Change 2008 Dollar
Change Percentage
Change $ 252 $ 178 $ 74 42% $ 165 $ 13 8% 90 274 (184) (67)% 141 133 94% 117 59 58 98% 72 (13) (18)% 55 49 6 12% 41 8 20% 514 560 (46) (8)% 419 141 34% (4) — (4) — — — — (110) (96) (14) (15)% (87) (9) (10)% 400 464 (64) (14)% 332 132 40% 230 113 117 104% 260 (147) (57)% 88 71 17 24% 88 (17) (19)% 62 87 (25) (29)% 91 (4) (4)% 37 68 (31) (46)% 21 47 224% 417 339 78 23% 460 (121) (26)% (145) (151) 6 4% (119) (32) (27)% 272 188 84 45% 341 (153) (45)% 172 167 5 3% 139 28 20% (1) — (1) — 1 (1) (100)% (69) (71) 2 3% (39) (32) (82)% 102 96 6 6% 101 (5) (5)% 33 19 14 74% (4) 23 575% 3 2 1 50% 1 1 100% (3) (2) (1) (50)% (2) — —% 33 19 14 74% (5) 24 480% 12 9 3 33% 7 2 29% (1) — (1) — — — — — (6) 6 100% — (6) — (2) — (2) — 1 (1) (100)% (7) (6) (1) (17)% (5) (1) (20)% 2 (3) 5 167% 3 (6) (200)% 809 764 45 6% 772 (8) (1)% 12 (11) 23 209% (8) (3) (38)% (212) (217) 5 2% (223) 6 3% $ 609 $ 536 $ 73 14% $ 541 $ (5) (1)% (1)Labor cost absorption represents costs incurred by our central labor and resource groups (above) or under the amounts charged to the operating business units.Hydrocarbons Business SegmentGas Monetization. Revenue from Gas Monetization increased in 2010 by $74 million primarily due to increased activity from the Gorgon LNG and several other LNG projects. Revenue from these projects increased $442 million in the aggregate compared to 2009 primarily as a result of the transition from the FEED to the EPCM portion of the Gorgon project as well as absence of losses in 2009 from two joint ventures executing LNG projects that were substantially completed in 2010. Partially offsetting these increases in revenue was a decline in revenue of approximately $360 million due to lower procurement and subcontractor activity on the Skikda LNG projects and lower progress on the Pearl GTL project as well as projects that were completed in 2009.Gas Monetization job income increased approximately $74 million in 2010 compared to the same period of the prior year. Job income increased $117 million as a result of increased activity on the EPCM potion of the Gorgon LNG project aswell as change orders on an LNG project executed through a joint venture which is substantially completed. Additionally, job income increased due to the absence of a charge of $30 million in 2009 on an LNG project resulting from schedule delays, subcontractor claims and equipment failures. Partially offsetting the increases in job income were decreases of approximately $60 million in the aggregate on the Escravos and Pearl GTL projects and lower activity on another LNG project that was completed in 2009. Additionally, primarily due to actions and inactions on the part of the customer, we identified increases in the estimated cost to complete an LNG project due to a schedule delay which resulted in a non-cash charge of approximately $42 million to job income in the third quarter of 2010. We are evaluating our legal entitlement under the contract with our customer and will vigorously pursue all other available remedies which may reduce our exposure to the estimated project cost increases in future periods.During 2010, we negotiated a final settlement agreement with one of our commercial agents who provided services to various Gas Monetization projects which resulted in a non-cash increase to Gas Monetization job income of approximately $42 million in the third quarter of 2010. Prior to the settlement, the agent was reviewed and approved under our policies on business conduct.Revenue for 2009 in Gas Monetization increased by $599 million primarily due to increased activity from several projects including the Escravos GTL, Gorgon LNG and Skikda LNG projects. Revenue from these projects increased an aggregate $784 million in 2009. Our Escravos GTL and Skikda LNG project revenues increased primarily due to higher volumes of material procurement activity compared to the prior year. Revenue on our Gorgon LNG project increased as a result of the transition from the FEED to the EPCM portion of the project which was awarded in the third quarter of 2009. Partially offsetting the 2009 increases in Gas Monetization revenue were declines in revenue of approximately $228 million due to lower activity on the Pearl GTL project as well as increases in project costs due to schedule delays, subcontractor claims and equipment failures on other LNG projects that are nearing completion.Job income increased $63 million in the aggregate on the Escravos GTL and Gorgon LNG projects in 2009. We recognized higher incentive fees on the Escravos GTL project in 2009 than in the prior year and increased activity on the Gorgon LNG project due to the award of the EPCM portion of the project contributed to the increase in job income for 2009. Also, in 2008 we recognized a $20 million charge related to the settlement of the FCPA and bidding practices investigation in Nigeria which did not recur in 2009 further contributing to the increase in Gas Monetization job income in 2009. Partially offsetting these 2009 increases in Gas Monetization job income were increases in project costs on other LNG projects due to schedule delays, subcontractor claims and equipment failures as these projects near completion.Oil & Gas.Revenue in Oil & Gas decreased by $150 million and job income decreased by $184 million in 2010 over the prior year. The decrease in revenue and job income is primarily due to favorable arbitration award on the EPC 1 project performed for PEMEX which contributed approximately $183 million to revenues in 2009. Increased revenue and job income related to new project awards and higher progress on existing projects in 2010 partially offset the impact of the EPC1 award recognized in 2009. Additional legal costs related to the Barracuda arbitration and lower margins for the Jack St Malo and Kashagan projects in 2010 also contributed to the decline in job income.Revenue from Oil & Gas in 2009 increased largely as a result of the favorable arbitration award on the EPC 1 project performed for PEMEX which contributed approximately $183 million to the increase in 2009 revenues. Partially offsetting the increase in Oil & Gas revenues were decreases due to the slower progress on a number of offshore projects that were either completed or were nearing completion in 2009 including the AIOC project in Kazakhstan and Woodside North Rankin project in Australia. Job income in our Oil & Gas for 2009 increased primarily due to the $351 million favorable arbitration award on the EPC 1 project performed for PEMEX which resulted in $183 million of job income. Oil & Gas job income in 2008 included a $51 million gain related to a settlement with PEMEX on the EPC 28 project that did not recur in 2009.Downstream.Downstream revenue in 2010 increased by $106 million primarily due to increases on the Sonangol refining job in Africa and petrochemical projects in the Middle East including Shaybah, Ras Tanura and Yanbu, which increased approximately $207 million in the aggregate as a result of increased activity over the prior year. These increases in revenue were partially offset by lower revenues of $24 million on the Saudi Kayan project and $61 million on other projects nearing completion.Downstream job income in 2010 increased by approximately $58 million as compared to the same period of the prior year. The increase was primarily driven by increased activity on the Sonangol, Saudi Kayan, Ras Tanura and Yanbu projects which resulted in an increase in job income of $66 million in 2010. Additionally, Downstream job income in 2009 included $17 million in charges on our EBIC ammonia project due to additional costs related to the commissioning and start up of the plant which did not recur in 2010. Partially offsetting these increases in job income was a charge of approximately $9 million related to an account receivable reserve adjustment recorded in the second quarter of 2010 as well as decreases onseveral projects that were completed or nearing completion.Downstream revenue decreased by $6 million in 2009. Downstream was awarded with a number of refining projects in late 2008, including the Sonagol FEED project which increased revenue in 2009. Additionally, projects acquired in the July 1, 2008 acquisition of BE&K further increased revenue as a result of having a full years worth of activity in 2009. However, these increases were more than offset by the completion of several refining projects in 2009 as well as a significant decrease in activity on the EBIC ammonia plant project as it neared completion. Downstream job income in 2009 decreased primarily due to a $23 million reduction in profit on the EBIC ammonia plant project. As this project neared completion, we incurred additional costs associated with a delay in completing the plant’s reliability test which was successfully completed and formally accepted by the client in the third quarter of 2009. Partially offsetting this decrease was an aggregate increase in job income of $7 million in our refining operations primarily due to the increased activity of new refining projects awarded in late 2008.Technology. Technology revenue and job income in 2010 increased $33 and $6 million, respectively, primarily due to the progress achieved on a number of new projects including several grassroots ammonia and urea projects in Brazil, Turkmenistan and India, as well as petrochemical plants in China. These new projects contributed approximately $57 million to the increase in Technology revenue and approximately $29 million to the increase in Technology job income in 2010. Partially offsetting these increases were decreases in revenue and job income associated with the completion of engineering services on several ammonia projects located in Venezuela, Trinidad, and India, and other refining projects in Spain and Russia.Technology revenue and job income in 2009 increased by $13 million and $8 million, respectively. Revenue increased primarily due to the progress achieved on several ammonia projects including grassroots ammonia projects in Brazil and Trinidad and an ammonia plant revamp in India and new refining projects in India, Angola, and Indonesia which contributed approximately $34 million to the increase. These increases were partially offset by the completion of engineering services on several ammonia projects located in China and South America as well as several other projects that were completed in 2008. Technology job income for 2009 increased by $8 million primarily due to our grassroots ammonia projects in Venezuela and Trinidad and the ammonia plant revamp in India which contributed $17 million to the increase. Additionally, job income increased by approximately $6 million on our refining projects in India, Angola and Indonesia. These increases were partially offset by lower activity on our ammonia projects in China and South America and other projects that were completed in 2008 and early 2009.Infrastructure, Government and Power (“IGP”) Business SegmentNorth America Government and Defense (“NAGD”). Revenue from NAGD decreased approximately $1.9 billion in 2010. The decrease in NAGD revenue includes a $2 billion decline resulting from an overall reduction in volume for U.S. military support activities primarily in Iraq under our LogCAP III contract. The lower volume is primarily due to the continued reductions in staff and personnel on the project as military bases have closed and combat troop levels declined. We expect to continue providing services on certain task orders through 2011. Although the decreases in revenue on the LogCAP III project have been partially offset by an increase in revenue of $246 million on a task order under the LogCAP IV contract, we expect our overall volume of work to continue to decrease in Iraq throughout the remainder of 2011. Also contributing to the decrease in NAGD revenue is $130 million less revenue as a result of lower volumes of work under the CENTCOM project.Job income from NAGD increased by approximately $117 million primarily due to the net impact of the charge related to the write-off of award fees in 2009 on the LogCAP III contract previously accrued in 2008 and recognition of award fees in 2010 for periods of performance from May 2008 through May 2010 awarded to us in the second and third quarters of 2010. The net impact of this award fee activity resulted in an increase to job income of approximately $159 in 2010. The increases in NAGD job income due to the award fees were partially offset by lower volume of activity on our LogCAP III contract as a result of the overall reduction in volume of U.S. military support activities in 2010 primarily in Iraq which resulted in a decrease to job income of $74 million. Additionally, job income on the LogCAP III contract decreased due to the absence of a gain of $17 million in 2009 related to the billing of costs incurred in previous periods related to the litigation with one our LogCAP III subcontractors and a charge recorded in 2010 of $23 million associated with potentially unallowable costs.Revenue from NAGD decreased by $838 million in 2009 largely as a result of the overall reduction in volume of activity on our LogCAP III contract in Iraq. Revenue from the LogCAP III contract decreased $664 million in 2009 which was primarily driven by declines in troop levels throughout the year. Additionally, the U.S. Army was in the process of transitioning services in Kuwait and Afghanistan from the LogCAP III contract to the LogCAP IV contract which furthercontributed to the decrease in revenues for 2009. Additionally, revenue from NAGD decreased in 2009 as a result of the reduction in activity on the Los Alamos project and other domestic cost-reimbursable U.S. government projects. Revenue on these projects decreased approximately $189 million in the aggregate.Job income from NAGD was lower in 2009 by approximately $147 million primarily due to the net charge taken in 2009 as a result of reversing our award fee accruals for the performance period January 2008 through December 2009 which resulted in a decrease of $130 million to job income, as well as lower volume of activity on our LogCAP III contract. On February 19, 2010, we were notified by the U.S. Army’s Iraq Award Fee Evaluation Board for the LogCAP III project that KBR would not receive any award fees for the performance period from January 1, 2008 through April 30, 2008, for which we had previously accrued $20 million. As a result, we re-evaluated our assumptions used in the estimation process related to the remainder of the open performance periods from May 1, 2008 through December 31, 2009, that were based on our historic experience, and in light of the discretionary actions of the Award Fee Determining Official (“AFDO”) in February 2010, and our inability to obtain assurances to the contrary, we concluded that we were no longer able to estimate the fees to be awarded. Accordingly, we reversed the remaining balance of the accrued award fees. See Note 1 to our consolidated financial statements for further discussion of our award fee accruals. Additionally, we recognized a $19 million charge in 2009 as a result of an unfavorable judgment against us in litigation with one of our LogCAP III subcontractors and additional charges totaling $17 million related to the correction of errors primarily associated with legal fees on various U.S. government related matters. These decreases were partially offset by $17 million of charges recorded in 2008 related to the ASCO litigation and the revenue that was subsequently recognized in 2009 related to our recovery of these charges through billings to our customer. In addition, our charges for potentially unallowable costs in 2009 were lower than 2008.International Government and Defence (“IGD”). Revenue from IGD increased approximately $81 million and job income increased $17 million in 2010 compared to the prior year. The increase in revenue was primarily related to the ongoing presence of troops in Afghanistan where we provide contingency logistics, operations and maintenance and other services to the U.K. MoD and NATO under the TDA and NAMSA projects. Job income in the third quarter of 2010 increased due to higher construction margins on the Allenby & Connaught project due to increased volumes of construction activity as well as contingency releases related to warranty expirations on other projects.Revenues from our International Operations decreased in 2009 largely due to reduced levels of work volumes on U.K. MoD projects including the Tier 3 Basra project in Iraq and the Temporary Deployable Accommodations project. Job income from our International Operations decreased in 2009 primarily due to the Allenby & Connaught joint venture resulting from lower interest rate returns on project investments and strengthening of the U.S. Dollar to the British pound as well as lower volumes of activity on other projects for the U.K. MoD.Infrastructure and Minerals (“I&M”). Revenue from I&M decreased approximately $66 million in 2010 over the prior year due to lower overall activity on several projects. The projects were either completed in 2010 or scaled down as a result of the global economic conditions. Additionally, new project awards have been either delayed or canceled further contributing to the decrease. Job income from I&M decreased in 2010 by approximately $25 million primarily as a result of the overall decrease in project activity primarily in Australia and fewer project awards.Revenue from I&M decreased approximately $94 million in 2009 over the prior year due to lower overall activity across the market sectors and in particular due to a number of large projects being at maximum capacity in the prior year. Job income from I&M declined slightly by approximately $4 million in 2009.Power and Industrial (“P&I”). Revenue from P&I decreased approximately $122 million in 2010 over the prior year largely as a result of the completion of fieldwork on projects in early 2010 and reduced workload on projects as they near completion. These decreases were partially offset by increased volume on a new waste-to-energy refurbishment project in Florida and increased scope on other existing projects. Job income from P&I decreased by $31 million in 2010 primarily as a result of completion of the Georgia Power and Procter & Gamble projects, lower profits on the Red River project that is nearing completion, and the effect of a non-recurring $9 million gain in 2009 from collection of a fully-reserved project receivable. These declines were partially offset by improved job income of $10 million related to construction mobilization on the waste-to-energy refurbishment project in Florida.Revenue and job income from P&I increased approximately $230 million and $47 million, respectively, in 2009 compared to 2008 primarily as a result of the BE&K acquisition in July 2008. The improvement in job income was also driven by increased progress on certain projects and by a non-recurring $9 million gain in 2009 from the collection of a fully-reserved project receivable.Services SegmentServices revenue in 2010 decreased by $108 million as compared to 2009. Revenue declined $95 million in our U.S. Construction Group and a combined $93 million in our Building group and Canada operations. The primary driver for the declines was the completion several projects or projects being near completion and the lack of new project awards. These declines were partially offset by an increase in revenue of $82 million from our Industrial Services group primarily as a result of increased construction maintenance and services under a new multi-site contract for DuPont throughout the Eastern and Gulf Coast regions of the U.S., the Atlanta Public Schools project, as well as the increased levels of turnaround work based in Canada.Job income increased by approximately $5 million in 2010 over 2009. The increase in job income resulted from the increased activity on the multi-site DuPont project, the Atlanta Public Schools and the Hunt Refining projects as well as favorable change orders on a power plant contract. These increases were partially offset by the lower profits on projects in our Canadian and US Construction operations that are nearing completion.Services revenue in 2009 increased by $675 million primarily as a result of the business we obtained through the acquisition of BE&K on July 1, 2008, which contributed approximately $545 million to the increase. The increase in revenue from the BE&K acquisition was largely driven by the increased progress on the Hunt Refining project. Revenue from our Services legacy operations also increased as a result of continued growth in our North American Construction and Canadian operations. North American Construction revenue in 2009 increased approximately $67 million over 2008 due to increased progress on the Borger and Exxon Mobil Flare Gas projects in Texas. Revenue from our Canadian operations increased approximately $57 million due to the ramp up in field work on the Shell AOSP project and project mobilization on the Syncrude ESP project in late 2008.Job income increased by $28 million in 2009 largely due to the business we obtained through the acquisition of BE&K which contributed approximately $44 million to the increase. Additionally, job income increased $7 million in 2009 as a result of higher utilization of marine vessel support services provided through our MMM joint venture in the Gulf of Mexico. Partially offsetting these increases were reductions of approximately $21 million in job income primarily in our Canadian operations due to a transition in that nature of the work performed from fabrication of modules to direct hire field construction which generally is performed at lower profit margins.Ventures Business UnitOur Venture’s operations consist of investments in joint ventures accounted for under the equity method of accounting, net of tax. Ventures revenue was $55 million and job income was $33 million in 2010 as compared to revenue of $21 million and job income of $19 million in 2009. The increase in revenue is primarily attributable to the consolidation of Fasttrax Limited which was consolidated upon the adoption of ASC 810 in the first quarter of 2010. Fasttrax Limited is the primary contracting entity with the U.K. MoD in a project that owns and operates heavy equipment transport vehicles for the U.K. military. This variable interest entity, in which we have a 50% ownership interest, was previously accounted for using the equity method of accounting. Ventures job income increased during 2010 primarily due to the consolidation of Fasttrax Ltd. as well as improved performance of the EBIC ammonia plant project which became operational in 2009. The EBIC ammonia plant performance benefitted from a full year of operation in 2010, which resulted in increased sales volume and higher ammonia prices compared to 2009. In addition, job income from the Aspire Defence project improved in 2010 compared to 2009 resulting from the increase in the number of assets being accepted into service and lower maintenance costs.Ventures 2009 job income of $19 million increased $23 million from a job loss of $4 million compared to 2008. This job income increase of $23 million in 2009 was primarily due to the adoption by two of our U.K. road project joint ventures of a favorable U.K. tax ruling related to the tax depreciation of certain assets which resulted in an increase to “Equity earnings from unconsolidated affiliates” of approximately $8 million. This favorable U.K. tax ruling enabled Ventures to also recognize an additional $2 million of gain on a prior disposal of pre-emption share rights relating to these roads which was contingent upon this tax ruling. In addition, as a result of lower inflation in the U.K., certain Ventures investments benefited from significantly lower indexed linked bond interest cost in 2009. Job income increased approximately $3 million in 2009 on the Aspire Defence project as a result of higher progress and lower maintenance costs offset by significantly lower interest income due lower interest rates in the UK than the previous year. In addition, the EBIC ammonia plant was completed during the year and made its first shipment of ammonia in May 2009. The EBIC ammonia plant operations contributed an additional $3 million to the increase in Ventures job income in 2009.Unallocated amountsLabor cost absorption.Labor cost absorption income was $12 million in 2010 compared to labor cost absorption expense of $11 million in 2009 and $8 million in 2008. Labor cost absorption represents costs incurred by our central labor and resource groups net of the amounts charged to the operating business units. Labor cost absorption income improved in 2010 primarily due to higher chargeability and utilization in several of our engineering offices as well as a significantly higher headcount in the labor resource pool. Labor cost absorption expense in 2009 was primarily due to lower chargeability and utilization in several of our engineering offices as well as higher incentive compensation which was partially offset by lower headcount. Labor cost absorption expense in 2008 was primarily due to lower chargeability and utilization, partially offset by a $6 million charge recorded in 2008 related to the impact of Hurricane Ike in Houston, Texas.General and Administrative expense.General and administrative expense was $212 million, $217 million and $223 million for the years ended December 31, 2010, 2009 and 2008, respectively. General and administrative expense declined in 2010 due to lower incentive compensation costs, lower legal costs and reductions associated with other cost containment measures. Additionally, in 2009 we wrote-off costs associated with our contemplated West Houston campus project which did not recur in 2010. Partially offsetting these reductions were higher G&A costs associated with corporate development activities, higher U.K. pension costs driven by unfavorable changes in assumptions that impacted 2010 expense and other risk and benefit programs. General and administrative expense declined slightly in 2009 primarily due to 2008 charges related to Hurricane Ike along with lower costs from Halliburton for access to their HR Payroll system and lower state tax audit adjustments. Offsetting these reductions were increases in legal expenses related to both litigation and the FCPA monitor preparation; the write off of approximately $4 million in costs associated with our contemplated West Houston campus project after a decision to maintain our current area location; and higher incentive compensation related to the third year of our long-term incentive plans.Services Segment Revenues by Market SectorThe Services business segment provides construction management and maintenance services to clients in a number of markets that are also served by our other business units. Customer focus, attention to highly productive delivery, and a diverse market presence we believe are the keys to our success in delivering construction and maintenance services. Accordingly, the Services business segment focuses on these key success factors. The analysis below is supplementally provided to present the revenue generated by the Services segment based on the markets served, some of which are the same sectors served by our other business segments. The perspective highlights the markets served by our Services segment. Year Ending December 31, 2010 (in millions) Services
Revenue Total
Revenue by
Market Sectors $ 2,829 $ — $ 2,829 426 297 723 584 534 1,118 130 — 130 3,969 831 4,800 3,307 97 3,404 369 — 369 271 — 271 352 827 1,179 4,299 924 5,223 1,755 (1,755) — 76 — 76 $ 10,099 $ — $ 10,099 Year Ending December 31, 2009 (in millions) Services
Revenue
Revenue by
Market $ 2,755 $ — $ 2,755 576 337 913 478 538 1,016 97 — 97 3,906 875 4,781 5,189 59 5,248 288 — 288 337 — 337 474 929 1,403 6,288 988 7,276 1,863 (1,863) — 48 — 48 $ 12,105 $ — $ 12,105 Year Ending December 31, 2008 (in millions) Business Unit
Revenue Services
Revenue Total
Revenue by
Market
Sectors $ 2,156 $ — $ 2,156 526 206 732 484 323 807 84 — 84 3,250 529 3,779 6,027 53 6,080 421 — 421 431 — 431 244 606 850 7,123 659 7,782 1,188 (1,188) — 20 — 20 $ 11,581 $ — $ 11,581 Non-operating itemsNet interest expense was $17 million and $1 million for the year ended December 31, 2010 and 2009, respectively. Net interest income was $35 million for the year ended December 31, 2008. Gross interest expense was $23 million in 2010, $5 million in 2009 and $2 million in 2008. Interest expense increased in 2010 primarily as a result of increased commitment fees paid under the terms of our new credit facility, increased rates associated with outstanding performance-related and financial-related issued letters of credit, and fees paid to Halliburton for guarantees provided to us for various financial commitments. Additionally, interest expense recognized in 2010 on non-recourse project-finance debt was $7 million higher due to the consolidation of Fasttrax Limited effective January 1, 2010.The significant decline in interest income in 2009 was a result of the decrease in our average interest rates earned and our average cash and equivalents balance. Average interest rates earned on our invested cash declined as a result of thecurrent economic recession that began in late 2008 combined with a decline in our cash and equivalents which is generally invested in either time deposits with commercial banks or money market funds. The decrease in our average cash and equivalents balance from 2008 to 2009 is attributable to the acquisition of BE&K on July 1, 2008 with a purchase price of approximately $559 million, the use of cash in joint venture projects and a contract in progress, working capital requirements for our Iraq related work and total cumulative stock repurchases.Provision for income taxes was $191 million, $168 million, and $212 million for the years ended December 31, 2010, 2009, and 2008, respectively. Our effective tax rate was 32.6%, 31.5%, and 37% for the years ended December 31, 2010, 2009, and 2008, respectively. Our U.S. statutory tax rate for all years is 35%. Our effective tax rate for the year ended December 31, 2010 was lower than our statutory rate of 35% primarily due to favorable rate differentials on foreign earnings, benefits associated with income from unincorporated joint ventures and several favorable discrete tax items including the true-up of prior year U.S. income taxes and utilization of additional U.S. foreign tax credits during 2010. Our effective tax rate for 2009 was lower than our statutory rate of 35% primarily due to favorable rate differentials on foreign earnings compared to the U.S. tax rate, the favorable final determination of previously estimated 2008 domestic and foreign taxable income made in connection with the preparation and filing of our 2008 consolidated tax returns and the benefit associated with income on unincorporated joint ventures. Our effective tax rate for 2008 exceeded our statutory rate primarily due to certain dividends from foreign affiliates, the non-deductible fine resulting from our settlement of the FCPA investigation in Nigeria and domestic state taxes. For the year ended December 31, 2008, our valuation allowance was reduced from $33 million to $19 million primarily as a result of utilizing foreign branch net operating losses for which a valuation allowance had been previously established in prior years.Income from discontinued operations was zero for the years ended December 31, 2010 and 2009, and $11 million for the year ended December 31, 2008. Discontinued operations primarily represent revenues and gain on the sale of our 51% interest in DML in June 2007. In 2008, we recognized a tax benefit of $11 million related to foreign tax credits upon completion of a tax pool study related to DML.BacklogBacklog represents the dollar amount of revenue we expect to realize in the future as a result of performing work on contracts awarded and in progress. We generally include total expected revenue in backlog when a contract is awarded and/or the scope is definitized. For long-term contracts, the amount included in backlog is limited to five years. In many instances, arrangements included in backlog are complex, nonrepetitive in nature, and may fluctuate depending on expected revenue and timing. Where contract duration is indefinite, projects included in backlog are limited to the estimated amount of expected revenue within the following twelve months. Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract being 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 our management fee revenue of each project in backlog.For our projects related to unconsolidated joint ventures, we have included in the table below our percentage ownership of the joint venture’s revenue in backlog. However, because these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our revenue. Our backlog for projects related to unconsolidated joint ventures totaled $1.7 billion at December 31, 2010 and $2.1 billion at December 31, 2009. We also consolidate joint ventures which are majority-owned and controlled or are variable interest entities in which we are the primary beneficiary. Our backlog included in the table below for projects related to consolidated joint ventures with noncontrolling interests includes 100% of the backlog associated with those joint ventures and totaled $4.4 billion at December 31, 2010 and $4.6 billion at December 31, 2009.Backlog (1) December 31, 2010 2009 $ 5,509 $ 6,976 325 109 525 535 201 154 $ 6,560 $ 7,774 1,043 1,341 1,223 1,427 446 167 177 338 $ 2,889 $ 3,273 1,771 2,302 821 749 $ 12,041 $ 14,098 (1)All backlog is attributable to firm orders as of December 31, 2010 and 2009. Backlog attributable to unfunded government orders was $137 million at December 31, 2010 and $326 million as of December 31, 2009.We estimate that as of December 31, 2010, 55% of our backlog will be executed within one year. As of December 31, 2010, 21% of our backlog was attributable to fixed-price contracts and 79% was attributable to cost-reimbursable contracts. For contracts that contain both fixed-price and cost-reimbursable components, we classify the components as either fixed-price or cost-reimbursable according to the composition of the contract except for smaller contracts where we characterize the entire contract based on the predominant component.Hydrocarbons backlog declined approximately $1.2 billion primarily because of a decline in Gas Monetization backlog of approximately $1.5 billion due to work performed on the Gorgon LNG, Skikda LNG, Pearl GTL and other projects and with no new significant awards in 2010. These declines were partially offset by new awards of $495 million in our Oil & Gas and Technology business unit which was partially offset by $232 million of work performed on existing projects in our Oil & Gas business unit as well as certain ammonia and refining projects in our Technology business unit.IGP Backlog decreased by $384 million primarily as a result of work performed on existing projects of approximately $1 billion which were partially offset by new awards of $654 million primarily in North America Government and Defense and International Government and Defense as well as the acquisition of Roberts & Schafer which contributed approximately $214 million to the increase in I&M backlog. Work performed in our North America Government and Defense was approximately $485 million in 2010, primarily related to our LogCAP III and other support projects partially offset by new awards of $187 million on our LogCAP IV and other projects. International Government and Defence work performed totaled $433 million primarily related to Allenby and Connaught, CONLOG, Afghanistan ISP and TDA projects, which was partially offset by new awards in 2010, primarily from the NAMSA projects for the U.K. MoD.Services backlog declined $531 million primarily due to work performed of approximately $1.1 billion on various construction projects in the U.S. and Canada. These declines were partially offset by new awards of approximately $593 million which include major awards in our Building Group and Industrial Services product lines.Liquidity and Capital ResourcesOur operating cash flow can vary significantly from year to year and are affected by the mix, terms and percentage of completion of our engineering and construction projects. We often receive cash through advanced billings to our customers on our larger engineering and construction projects and those of our consolidated joint ventures. Joint venture cash balances are limited to joint venture activities and are not available for use on other projects, general cash needs or distributions to us without approval of the board of directors of the respective joint ventures. As client cash advances are used in execution of the project, they are recovered through regular or milestone billings to the customer. To the extent our net investment in the operating assets of a project is greater than available project cash balance, we may utilize other cash on hand or availability under our Revolving Credit Facility to satisfy any periodic operating cash requirements.Engineering and construction projects generally require us to provide credit enhancements to our customers including letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our ability to maintain our letter of credit and surety bonding capacity and the timely release of existing letters of credit and surety bonds. As the need arises, future projects will be supported by letters of credit issued under our Revolving Credit Facility or arranged with our banks on a bilateral basis. We believe we have adequate letter of credit capacity under our existing Revolving Credit Facility and bilateral lines of credit to support our operations for the next twelve months. Additionally, we believe our current surety bond capacity is adequate to support our current backlog of projects for the next twelve months.Cash and equivalents totaled $786 million at December 31, 2010 and $941 million at December 31, 2009, which included $136 million and $236 million, respectively, of cash held by our joint ventures that we consolidate for accounting purposes. Joint venture cash balances are limited to joint venture activities and are not available for use on other projects, general cash needs or distributions to us without approval of the board of directors of the respective joint ventures and we expect to use the cash to pay project costs.As of December 31, 2010, we had restricted cash of $21 million related to the amounts held in deposit with certain banks to collateralize standby letters of credit, of which $11 million is included in “Other current assets” and $10 million is included in “Other assets” in the accompanying consolidated financial statements.Our excess cash is generally invested in either time deposits with commercial banks with an Individual Rating of B or better by Fitch or money market funds governed under rule 2a-7 of the U.S. Investment Company Act of 1940 and rated AAA by Standard & Poor’s or Aaa by Moody’s Investors Service, respectively. As of December 31, 2010, substantially all of our excess cash is held in time deposits with commercial banks with the primary objectives of preserving capital and maintaining liquidity.We generally do not provide U.S. federal and state income taxes on the accumulated but undistributed earnings of non-United States subsidiaries except for certain entities in Mexico and certain other joint ventures. Taxes are provided as necessary with respect to earnings that are considered not permanently reinvested. For all other non-U.S. subsidiaries, no U.S. taxes are provided because such earnings are intended to be reinvested indefinitely to finance foreign activities. These accumulated but undistributed foreign earnings could be subject to additional tax if remitted, or deemed remitted, as a dividend. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable; however, the potential foreign tax credit associated with the deferred income would be available to reduce the resulting U.S. tax liabilities.Revolving Credit FacilityOn November 3, 2009, we entered into a syndicated, unsecured $1.1 billion three-year revolving credit agreement (the “Revolving Credit Facility”), with Citibank, N.A., as agent, and a group of banks and institutional lenders replacing the Prior Revolving Credit Facility, which was terminated at the same time as the closing of the Revolving Credit Facility. The Revolving Credit Facility is used for working capital and letters of credit for general corporate purposes and expires in November 2012. While there is no sub-limit for letters of credit under this facility, letters of credit fronting commitments at December 31, 2009 totaled $830 million and was expanded in January 2010 to $880 million, which we would seek to expand if necessary. Amounts drawn under the Revolving Credit Facility bear interest at variable rates based either on the London interbank offered rate (“LIBOR”) plus 3%, or a base rate plus 2%, with the base rate being equal to the highest of reference bank’s publicly announced base rate, the Federal Funds Rate plus 0.5%, or LIBOR plus 1%. The Revolving Credit Facility provides for fees on the letters of credit issued under the Revolving Credit Facility of 1.5% for performance and commercial letters of credit and 3% for all others. We are also charged an issuance fee of 0.05% for the issuance of letters of credit, a per annum commitment fee of 0.625% for any unused portion of the credit line, and a per annum fronting commitment fee of 0.25%. As of December 31, 2010, there were no outstanding borrowings/cash drawings and $278 million in letters of creditissued and outstanding under the Revolving Credit Facility.The Revolving Credit Facility includes financial covenants requiring maintenance of a ratio of consolidated debt to consolidated EBITDA of 3.5 to 1 and a minimum consolidated net worth of $2 billion plus 50% of consolidated net income for each quarter ending after September 30, 2009 plus 100% of any increase in shareholders’ equity attributable to the sale of equity securities. At December 31, 2010, we were in compliance with these ratios and other covenants mentioned below.The Revolving Credit Facility contains a number of covenants restricting, among other things, our ability to incur additional liens and sales of our assets, as well as limiting the amount of investments we can make. The Revolving Credit Facility also permits us, among other things, to declare and pay shareholder dividends and/or engage in equity repurchases not to exceed $400 million in the aggregate during the term of the facility and to incur indebtedness in respect of purchase money obligations, capitalized leases and refinancing or renewals secured by liens upon or in property acquired, constructed or improved in an aggregate principal amount not to exceed $200 million. Our subsidiaries may incur unsecured indebtedness not to exceed $100 million in aggregate outstanding principal amount at any time.Nonrecourse Project Finance DebtFasttrax Limited, a joint venture in which we indirectly own a 50% equity interest with an unrelated partner, was awarded a contract in 2001 with the U.K. MoD to provide a fleet of 92 heavy equipment transporters (“HETs”) to the British Army. Under the terms of the arrangement, Fasttrax Limited operates and maintains the HET fleet for a term of 22 years. The purchase of the HETs by the joint venture was financed through a series bonds secured by the assets of Fasttrax Limited totaling approximately £84.9 million and are non-recourse to KBR and its partner of which £12.2 million provided equity bridge financing. The bridge financing was replaced in 2005 with combined equity capital contributions and subordinated loans from the joint venture partners. The bonds are guaranteed by Ambac Assurance UK Ltd under a policy that guarantees the schedule of the principle and interest payments to the bond trustee in the event of non-payment by Fasttrax Limited.The guaranteed secured bonds were issued in two classes consisting of Class A 3.5% Index Linked Bonds in the amount of £56 million and Class B 5.9% Fixed Rate Bonds in the amount of £16.7 million. Payments on both classes of bonds commenced in March 2005 and are due in semi-annual installments over the term of the bonds which end in 2021. Subordinated notes payable to our 50% partner initially bear interest at 11.25% increasing to 16% over the term of the note through 2025. Payments on the subordinated debt commenced in March 2006 and are due in semi-annual installments over the term of the note.The combined principal installments for both classes of bonds and subordinated notes, including inflation adjusted bond indexation, due for the years ended December 31, 2010, 2011 and 2012 and thereafter total approximately £6 million, £6 million, £6 million and £61 million, respectively. For additional information see Note 15 of our consolidated financial statements.Since the inception of the project, we accounted for our investment in the project entity using the equity method of accounting. As a result of the adoption of Accounting Standards Update No. 2009-17 – Consolidation (Topic 810) “Improvements to Financial Reporting by Enterprises with Variable Interest Entities”, effective January 1, 2010 we concluded that we are the primary beneficiary of Fasttrax Limited because we control the activities that most significantly impact the economic performance of the entity. We applied the requirements of FASB ASC 810 on a prospective basis from the date of adoption. As such, our consolidated financial statements for 2010 include the accounts of Fasttrax Limited and accordingly, the cash and equivalents, property, plant and equipment, and the non-recourse project financing debt. The secured bonds are an obligation of Fasttrax Limited and will never be a debt obligation of KBR because they are non-recourse to the joint venture partners. Accordingly, in the event of a default on the term loan, the lenders may only look to the resources of Fasttrax Limited for repayment.Cash flow activities summary Years Ended December 31, Cash flow activities 2010 2009 2008 (In millions) $ 549 $ (36) $ 124 (397) (9) (556) (336) (166) (244) 7 7 (40) (177) (204) (716) 22 — — $ (155) $ (204) $ (716) Operating activities. Cash provided by operations totaled $549 million in 2010, compared to cash used by operations of $36 million in 2009. Of this, approximately $93 million represented distributions of earnings from our unconsolidated joint ventures and $116 million represented advances from our clients. Cash provided by operating activities during 2010 was primarily driven by strong overall earnings, cash cycle improvements, and active management of working capital to support project execution activities. On a consolidated basis, working capital, excluding cash, decreased by approximately $280 million during the year, which included a $180 million current obligation payable to JGC for it’s 44.94% interest in MWKL. Cash held by joint ventures that we consolidate for accounting purposes decreased by approximately $100 million.Cash used in operating activities was $36 million in 2009, compared to cash provided by operating activities of $124 million in 2008. Net income in 2009 included a non-cash gain of approximately $117 million, net of tax, related to the favorable award on the EPC 1 project arbitration.Cash provided by operating activities of $124 million for the year ended December 31, 2008 included payments from PEMEX related to the EPC 22 and EPC 28 arbitration awards totaling $185 million and $121 million in dividends from unconsolidated joint ventures, In addition, working capital requirements for our Iraq-related work decreased from $239 at December 31, 2007 to $76 at December 31, 2008, generating cash of approximately $163 million. Offsetting these cash increases were decreases in cash of approximately $342 million on our consolidated joint venture projects and a contract in progress. We also made contributions to our international and domestic pension plans of $74 million during 2008.Investing activities. Cash used in investing activities for 2010 totaled $397 million compared to $9 million during 2009. Cash used in investing activities was primarily related to the net cash paid of approximately $299 million for the acquisition of R&S and Energo Engineering. Capital expenditures were $66 million in 2010. During 2010, we paid $20 million for the exclusive right to certain technology under a 25-year licensing arrangement. We also made investments totaling $12 million in several equity method joint ventures.Cash used in investing activities for 2009 totaled $9 million compared to $556 million during 2008. The decline in cash used in investing activities was due to lower business acquisition activity in 2009 compared to 2008. We acquired BE&K in July 2008 for $494 million, net of cash acquired and post closing purchase price adjustments. In 2008, we also acquired TGI, Catalyst Interactive and Wabi Development Corporation for a combined purchase price of approximately $32 million, net of cash received. Capital expenditures were $41 million and $37 million for the years ended December 31, 2009 and 2008 respectively. In 2009, we received proceeds of approximately $32 million primarily from one of our joint ventures that executed a pro-rata share repurchase transaction, which partially offset our 2009 capital expenditures.Financing activities. Cash used in financing activities for 2010 totaled $336 million and included $233 million of payments to repurchase approximately 10 million shares of our common stock, $91 million related to distributions to noncontrolling interests of several of our consolidated joint ventures, and $32 million related to dividend payments to shareholders. These payments were partially offset by return of cash used to collateralize standby letters of credit of approximately $28 million.Cash used in financing activities was $166 million for the year ended December 31, 2009 and included $54 million for distributions to noncontrolling interests of several of our consolidated joint ventures, $32 million related to dividend payments to our shareholders and $31 million for payments to reacquire 2 million shares of our common stock. Additionally, our financing activities included $44 million related to the net cash collateralization of our standby letters of credit in accordance with certain agreements.Cash used in financing activities for the year ended December 31, 2008 totaled $244 million which was almost entirelyrelated to $196 million of payments to reacquire 8.4 million shares of our common stock and $53 million related to dividend payments to our shareholders and to minority shareholders of several of our consolidated joint ventures.Future sources of cash. Future sources of cash include cash flows from operations, including cash advances from our clients and cash derived from further cash cycle improvements, and advances under our Revolving Credit Facility.Future uses of cash.Future uses of cash will primarily relate to working capital requirements and acquisitions. In addition, we will use cash to fund capital expenditures, pension obligations, operating leases, cash dividends, share repurchases and various other obligations as they arise. Our capital expenditures will be focused primarily on information technology, real estate and equipment/facilities. See “Off balance sheet arrangements – commitments and other contractual obligations” below for a schedule of contractual obligations and other long-term liabilities that will require the use of cash.Off balance sheet arrangementsLetters of credit, surety bonds and bank guarantees.In connection with certain projects, we are required to provide letters of credit or surety bonds to our customers. Letters of credit are provided to customers in the ordinary course of business to guarantee advance payments from certain customers, support future joint venture funding commitments and to provide performance and completion guarantees on engineering and construction contracts. We have $1.9 billion in committed and uncommitted lines of credit to support letters of credit and as of December 31, 2010, and we had utilized $623 million of our credit capacity, including $37 million in letters of credit issued and outstanding under various facilities that are irrevocably and unconditionally guaranteed by Halliburton. Surety bonds are also posted under the terms of certain contracts primarily related to state and local government projects to guarantee our performance.The $623 million in letters of credit outstanding on KBR lines of credit was comprised of $278 million issued under our Revolving Credit Facility and $345 million issued under uncommitted bank lines at December 31, 2010. Of the total letters of credit outstanding, $274 relate to our joint venture operations and $22 million of the letters of credit have terms that could entitle a bank to require additional cash collateralization on demand. Approximately $182 million of the $278 million letters of credit issued under our Revolving Credit Facility have expiry dates close to or beyond the maturity date of the facility. Under the terms of the Revolving Credit Facility, if the original maturity date of November 2, 2012 is not extended then the issuing banks may require that we provide cash collateral for these extended letters of credit no later than 95 days prior to the original maturity date. As the need arises, future projects will be supported by letters of credit issued under our Revolving Credit Facility or arranged on a bilateral basis. We believe we have adequate letter of credit capacity under our existing Revolving Credit Facility and bilateral lines of credit to support our operations for the next twelve months.Halliburton has guaranteed certain letters of credit and surety bonds and provided parent company guarantees primarily related to the performance and financial commitments on the Allenby and Connaught project. We expect to cancel these letters of credit and surety bonds as we complete the underlying projects. Since the separation from Halliburton, we have arranged lines with multiple surety companies for our own standalone capacity. Since the arrangement of this stand alone capacity, we have been sourcing surety bonds from our own capacity without additional Halliburton credit support.We agreed to pay Halliburton a quarterly carry charge, which has increased in accordance with our extension provisions, for its guarantees of our outstanding letters of credit and surety bonds and agreed to indemnify Halliburton for all losses in connection with the outstanding credit support instruments and any new credit support instruments relating to our business for which Halliburton may become obligated. In 2010, we reduced the amount of letters of credit outstanding under Halliburton facilities from $289 million to $37 million primarily through transfers to existing uncommitted bank lines of KBR. During 2009 we paid an annual fee to Halliburton calculated at 0.40% of the outstanding performance-related letters of credit, 0.80% of the outstanding financial-related letters of credit guaranteed by Halliburton and 0.25% of the outstanding guaranteed surety bonds. Effective January 1, 2010, the annual fee increased to 0.90%, 1.65% and 0.50% of the outstanding performance-related and financial-related outstanding issued letters of credit and the outstanding guaranteed surety bonds, respectively.The current capacity of our Revolving Credit Facility is adequate for us to issue letters of credit necessary to replace all outstanding letters of credit issued under the various Halliburton facilities or those guaranteed by Halliburton and issue letters of credit for projects that we are currently pursuing should they be awarded to us.Commitments and other contractual obligations. The following table summarizes our significant contractual obligations and other long-term liabilities as of December 31, 2010: Payments Due Millions of dollars 2011 2012 2013 2014 2015 Thereafter Total $180 $— $— $— $— $— $180 69 59 55 53 51 508 795 49 14 13 7 — — 83 68 24 20 19 19 140 290 $366 $97 $88 $79 $70 $648 $1,348 (a)Represents our obligation to a former noncontrolling interest for the acquisition of the remaining 44.94% interest in MWKL.(b)The purchase obligations disclosed above do not include purchase obligations that we enter into with vendors in the normal course of business that support existing contracting arrangements with our customers. The purchase obligations with our vendors can span several years depending on the duration of the projects. In general, the costs associated with those purchase obligations are expensed to correspond with the revenue earned on the related projects.(c)The pension funding obligation comprised of payments related to our agreement with the trustees of one of our international plans to contribute £34 million over a 10-year period beginning in 2010 at an annual rate of approximately £5.5 million during the first three years and £2.5 million thereafter. In addition, during the fourth quarter of 2010, we agreed with the trustees of another international plan to contribute £25 million by January 31, 2011, and £130 million over a 13-year period beginning in 2011 at an annual rate of £10 million. The foreign pension funding obligations were converted to U.S. dollars using the conversion rate as of December 31, 2010.(d)Uncertain tax positions recorded pursuant to FASB ASC 740 – Income Taxes were $95 million, excluding $23 million in interest and penalties. The ultimate timing of when these obligations will be settled cannot be determined with reasonable assurance and have been excluded from the table above. Refer to Note 11 in our consolidated financial statements.The table above does not include our consolidated non-recourse project-finance debt of a VIE of $101 million. See Note 15 for additional information.Lease obligations.In February 2010, we executed two lease amendments for office space in two separate high-rise office buildings in Houston, Texas for the purpose of significantly expanding our current leased office space and to extend the original term of these leases to June 30, 2030. In the third quarter of 2010, we executed an additional lease agreement for office space located in an office building in Houston, Texas for the purpose of expanding our leased office space. The non-cancelable lease term expires on December 31, 2018.Other obligations.We had commitments to provide funds to our privately financed projects of $33 million as of December 31, 2010 primarily related to future equity funding on our Allenby and Connaught project. Our commitments to fund our privately financed projects are supported by letters of credit as described above. At December 31, 2010, approximately $17 million of the $33 million in commitments will become due within one year.We have an obligation to fund estimated losses on our uncompleted contracts which totaled $26 million at December 31, 2010. Approximately $24 million of this amount relates to our Escravos project, the majority of which is expected to be funded in 2011.Other factors affecting liquidityGovernment claims. Included in receivables in our balance sheets are unapproved claims for costs incurred under various government contracts totaling $163 million at December 31, 2010 of which $125 million is included in “Account receivable” and $38 million is included in “Unbilled receivables on uncompleted contracts.” Unapproved claims relate to contracts where our costs have exceeded the customer’s funded value of the task order. The unapproved claims at December 31, 2010 include approximately $123 million resulting from the de-obligation of 2004 and 2005 funding on certain task orders that were also subject to Form 1 notices relating to certain DCAA audit issues discussed above. This balance includes $71 million that was de-obligated in 2010 which consists of funds nearing the 5-year expiration date. We believe suchdisputed costs will be resolved in our favor at which time the customer will be required to obligate funds from appropriations for the year in which resolution occurs. The remaining unapproved claims balance of approximately $40 million represents primarily costs for which incremental funding is pending in the normal course of business. The majority of costs in this category are normally funded within several months after the costs are incurred. The unapproved claims outstanding at December 31, 2010 are considered to be probable of collection and have been previously recognized as revenue.Liquidated damages.Many of our engineering and construction contracts have milestone due dates that must be met or we may be subject to penalties for liquidated damages if claims are asserted and we were responsible for the delays. These generally relate to specified activities that must be met within a project by a set contractual date or achievement of a specified level of output or throughput of a plant we construct. Each contract defines the conditions under which a customer may make a claim for liquidated damages. However, in many instances, liquidated damages are not asserted by the customer, but the potential to do so is used in negotiating claims and closing out the contract.Based upon our evaluation of our performance and other legal analysis, we have not accrued for possible liquidated damages related to several projects, totaling $20 million at December 31, 2010 (including amounts related to our share of unconsolidated subsidiaries), that we could incur based upon completing the projects as currently forecasted.Halliburton indemnities. Halliburton has agreed to indemnify us and certain of our greater than 50%-owned subsidiaries for fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of claims made or assessed against us by U.S. and certain foreign governmental authorities or a settlement thereof, relating to investigations under the FCPA or analogous applicable foreign statutes related investigations with respect to the construction and subsequent expansion by TSKJ of a natural gas liquefaction complex in Nigeria. Halliburton has also agreed to indemnify us for out-of-pocket cash costs and expenses, or cash settlement or cash arbitration awards in lieu thereof, we may incur as a result of the replacement of certain subsea flow-line bolts installed in connection with the Barracuda-Caratinga project. See Note 10 to our Condensed Consolidated Financial Statements for further discussion.In February 2009, one of our subsidiaries pled guilty to violating and conspiring to violate the FCPA arising from the intent to bribe various Nigerian officials through commissions paid to agents working on behalf of TSKJ. The terms of the plea agreement with the DOJ called for the payment of a criminal penalty of $402 million, of which Halliburton was obligated to pay $382 million under the terms of the indemnity while we were obligated to pay $20 million in quarterly payments over a two-year period ending October 2010. We also agreed to a judgment by the SEC requiring, Halliburton and us, jointly and severally, to make payments totaling $177 million, all of which were paid by Halliburton under the terms of the indemnity. As of December 31, 2010 Halliburton has paid all installments to the DOJ and SEC, and such payments totaled $559 million. Of the $559 million in total payments, Halliburton paid $142 million in 2010 and $417 million in 2009, which have been reflected in the accompanying statement of cash flows as noncash operating activities. On October 1, 2010, we made the final payment to the DOJ related to our portion of the settlement agreement.Financial Instruments Market RiskWe invest excess cash and equivalents in short-term securities, primarily overnight time deposits, which carry a fixed rate of return per a given tenor. Additionally, a substantial portion of our cash balances are maintained in foreign countries.We have foreign currency exchange rate risk resulting from our international operations. We do not comprehensively hedge the exposure to currency rate changes; however, we selectively manage these exposures through the use of derivative instruments to mitigate our market risk from these exposures. The objective of our risk management program is to protect our cash flows related to sales or purchases of goods and services from market fluctuations in currency rates. We do not use derivative instruments for speculative trading purposes. We generally utilize currency options and forward exchange contracts to hedge foreign currency transactions entered into in the ordinary course of business. As of December 31, 2010, we had forward foreign exchange contracts of up to 41 months in duration to exchange major world currencies. The total gross notional amount of these contracts at December 31, 2010, 2009 and 2008 was $403 million, $406 million, and $274 million, respectively. These contracts had fair value asset of $6 million and $3 million at December 31, 2010 and 2009, and fair value liability of approximately $1 million at December 31, 2008.Transactions with Former ParentIn connection with our initial public offering in November 2006 and the separation of our business from Halliburton, we entered into various agreements, including, among others, a master separation agreement, transition services agreements and a tax sharing agreement. Pursuant to our master separation agreement, we agreed to indemnify Halliburton for, among other matters, all past, present and future liabilities related to our business and operations. We agreed to indemnify Halliburton for liabilities under various outstanding and certain additional credit support instruments relating to our businesses and for liabilities under litigation matters related to our business. Halliburton agreed to indemnify us for, among other things, liabilities unrelated to our business, for certain other agreed matters relating to the investigation of FCPA and related corruption allegations and the Barracuda-Caratinga project and for other litigation matters related to Halliburton’s business. See“MD&A – Legal Proceedings” for further discussion of matters related to the investigation of FCPA and related corruption allegations and the Barracuda-Caratinga project arbitration. Under the transition services agreements, Halliburton provided various interim corporate support services to us and we provided various interim corporate support services to Halliburton. The tax sharing agreement provides for certain allocations of U.S. income tax liabilities and other agreements between us and Halliburton with respect to tax matters.At December 31, 2010 and 2009, KBR had a $43 million and a $53 million balance payable to Halliburton, respectively, which consists of amounts KBR owes Halliburton primarily for estimated outstanding income taxes under the tax sharing agreement. See Note 11 for further discussion of amounts outstanding under the tax sharing agreement.Transactions with Joint VenturesWe perform many of our projects through incorporated and unincorporated joint ventures. In addition to participating as a joint venture partner, we often provide engineering, procurement, construction, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our revenues or expenses. We recognize the profit on our services provided to joint ventures that we consolidate and joint ventures that we record under the equity method of accounting primarily using the percentage-of-completion method.Our total revenue and profit from services provided to our unconsolidated joint ventures recorded in our consolidated statements of income is presented in the table below: December 31, Millions of dollars 2010 2009 2008 $ 145 $ 166 $ 202 $ 12 $ 1 $ 28 Recent Accounting PronouncementsInformation related to new accounting standards is described in Note 18 to the condensed consolidated financial statements.U.S. Government MattersAward feesIn accordance with the provisions of the LogCAP III contract, we earn profits on our services rendered based on a combination of a fixed fee plus award fees granted by our customer. Both fees are measured as a percentage rate applied to estimated and negotiated costs. Our customer is contractually obligated to periodically convene Award-Fee Boards, which are comprised of individuals who have been designated to assist the Award Fee Determining Official (“AFDO”) in making award fee determinations. Award fees are based on evaluations of our performance using criteria set forth in the contract, which include non-binding monthly evaluations made by our customers in the field of operations. Although these criteria have historically been used by the Award-Fee Boards in reaching their recommendations, the amounts of award fees are determined at the sole discretion of the AFDO.On February 19, 2010, KBR was notified by the AFDO that a determination had been made regarding the Company’s performance for the period January 2008 to April 2008 in Iraq. The notice stated that based on information received from various Department of Defense individuals and organizations after the date of the evaluation board held in June 2008, the AFDO made a unilateral decision to grant no award fees for the period of performance from January 2008 to April 2008.As a result of the AFDO’s adverse determination, in the fourth quarter of 2009, we reversed award fees that had previously been estimated as earned and recognized as revenue. Until we are able to reliably estimate fees to be awarded in the future, we will recognize award fees on the LogCAP III contract in the period they are awarded. In May 2010, we recognized an award fee of approximately $60 million representing approximately 47% of the available award fee pool for the period of performance from May 2008 through August 2009 which we recorded as an increase to revenue in the second quarter of 2010. In September 2010, we recognized an award fee of approximately $34 million representing approximately 66% of the available award fee pool for the period of performance from September 2009 through February 2010 on task orders in Iraq and from September 2009 through May 2010 on task orders in Afghanistan, which we recorded as an increase to revenue in the third quarter of 2010. We expect to receive award notifications for the subsequent performance periods through August 2010 in the first quarter of 2011.Prior to the fourth quarter of 2009, we recognized award fees on the LogCAP III contract using an estimated accrual of the amounts to be awarded. Once task orders underlying the work are definitized and award fees are granted, we adjusted our estimate of award fees to the actual amounts earned. We used 72% as our accrual rate through the third quarter of 2009.Government Compliance MattersThe negotiation, administration, and settlement of our contracts with the U.S. Government, consisting primarily of Department of Defense contracts, are subject to audit by the Defense Contract Audit Agency (“DCAA”), which serves in an advisory role to the Defense Contract Management Agency (“DCMA”) which is responsible for the administration of our contracts. The scope of these audits include, among other things, the allowability, allocability, and reasonableness of incurred costs, approval of annual overhead rates, compliance with the Federal Acquisition Regulation (“FAR”) and Cost Accounting Standard (“CAS”) Regulations, compliance with certain unique contract clauses, and audits of certain aspects of our internal control systems. Issues identified during these audits are typically discussed and reviewed with us, and certain matters are included in audit reports issued by the DCAA, with its recommendations to our customer’s administrative contracting officer. We attempt to resolve all issues identified in audit reports by working directly with the DCAA and the administrative contracting officer (“ACO”). When agreement cannot be reached, DCAA may issue a Form 1, “Notice of Contract Costs Suspended and/or Disapproved,” which recommends withholding the previously paid amounts or it may issue an advisory report to the ACO. KBR is permitted to respond to these documents and provide additional support. At December 31, 2010, we had open Form 1’s from the DCAA recommending suspension of payments totaling approximately $319 million associated with our contract costs incurred in prior years, of which approximately $160 million has been withheld from our current billings. As a consequence, for certain of these matters, we have withheld approximately $81 million from our subcontractors under the payment terms of those contracts. In addition, we have outstanding demand letters received from our customer requesting that we remit a total of $84 million of disapproved costs for which we currently do not intend to pay. We continue to work with our ACO’s, the DCAA and our subcontractors to resolve these issues. However, for certain of these matters, we have filed claims with the Armed Services Board of Contract Appeals or the United States Court of Federal Claims.KBR excludes from billings to the U.S. Government costs that are expressly unallowable, or mutually agreed to be unallowable, or not allocable to government contracts per applicable regulations. Revenue recorded for government contract work is reduced for our estimate of potentially refundable costs related to issues that may be categorized as disputed orunallowable as a result of cost overruns or the audit process. Our estimates of potentially unallowable costs are based upon, among other things, our internal analysis of the facts and circumstances, terms of the contracts and the applicable provisions of the FAR, quality of supporting documentation for costs incurred, and subcontract terms as applicable. From time to time, we engage outside counsel to advise us on certain matters in determining whether certain costs are allowable. We also review our analysis and findings with the ACO as appropriate. In some cases, we may not reach agreement with the DCAA or the ACO regarding potentially unallowable costs which may result in our filing of claims in various courts such as the Armed Services Board of Contract Appeals (“ASBCA”)or the United States Court of Federal Claims (“COFC”). We only include amounts in revenue related to disputed and potentially unallowable costs when we determine it is probable that such costs will result in revenue. We generally do not recognize additional revenue for disputed or potentially unallowable costs for which revenue has been previously reduced until we reach agreement with the DCAA and/or the ACO that such costs are allowable.Certain issues raised as a result of contract audits and other investigations are discussed below.Private Security. In February 2007, we received a Form 1 notice from the Department of the Army informing us of their intent to adjust payments under the LogCAP III contract associated with the cost incurred for the years 2003 through 2006 by certain of our subcontractors to provide security to their employees. Based on that notice, the Army withheld its initial assessment of $20 million. The Army based its initial assessment on one subcontract wherein, based on communications with the subcontractor, the Army estimated 6% of the total subcontract cost related to the private security costs. The Army previously indicated that not all task orders and subcontracts have been reviewed and that they may make additional adjustments. In August 2009, we received a Form 1 notice from the DCAA disapproving an additional $83 million of costs incurred by us and our subcontractors to provide security during the same periods. Since that time, the Army withheld an additional $24 million in payments from us bringing the total payments withheld to approximately $44 million as of December 31, 2010 out of the Form 1 notices issued to date of $103 million.The Army indicated that they believe our LogCAP III contract prohibits us and our subcontractors from billing costs of privately acquired security. We believe that, while the LogCAP III contract anticipates that the Army will provide force protection to KBR employees, it does not prohibit us or any of our subcontractors from using private security services to provide force protection to KBR or subcontractor personnel. In addition, a significant portion of our subcontracts are competitively bid fixed price subcontracts. As a result, we do not receive details of the subcontractors’ cost estimate nor are we legally entitled to it. Further, we have not paid our subcontractors any additional compensation for security services. Accordingly, we believe that we are entitled to reimbursement by the Army for the cost of services provided by us or our subcontractors, even if they incurred costs for private force protection services. Therefore, we believe that the Army’s position that such costs are unallowable and that they are entitled to withhold amounts incurred for such costs is wrong as a matter of law.In 2007, we provided at the Army’s request information that addresses the use of armed security either directly or indirectly charged to LogCAP III. In October 2007, we filed a claim to recover the original $20 million that was withheld which was deemed denied as a result of no response from the contracting officer. To date, we have filed appeals to the ASBCA to recover $44 million of the amounts withheld from us which is currently in the early stages of discovery. We believe these sums were properly billed under our contract with the Army. At this time, we believe the likelihood that a loss related to this matter has been incurred is remote. We have not adjusted our revenues or accrued any amounts related to this matter. This matter is also the subject of a separate claim filed by the Department of Justice (“DOJ”) for alleged violation of the False Claims Act as discussed further below under the heading “Investigations, Qui Tams and Litigation.”Containers. In June 2005, the DCAA recommended withholding certain costs associated with providing containerized housing for soldiers and supporting civilian personnel in Iraq. The DCMA agreed that the costs be withheld pending receipt of additional explanation or documentation to support the subcontract costs. We have not received a final determination by the DCMA and, as requested, we continue to provide information to the DCMA. As of December 31, 2010, approximately $26 million of costs have been suspended under Form 1 notices and withheld from us by our customer related to this matter of which $30 million has been withheld by us from our subcontractor. In April 2008, we filed a counterclaim in arbitration against our LogCAP III subcontractor, First Kuwaiti Trading Company, to recover approximately $51 million paid to the subcontractor for containerized housing as further described under the caption First Kuwaiti Trading Company arbitration below. We will continue working with the government and our subcontractor to resolve the remaining amounts. We believe that the costs incurred associated with providing containerized housing are reasonable and we intend to vigorously defend ourselves in this matter. We do not believe that we face a risk of significant loss from any disallowance of these costs in excess of the amounts we have withheld from subcontractors and the loss accruals we have recorded. At this time, the likelihood that a loss in excess of the amount accrued for this matter is remote.Dining facilities.In 2006, the DCAA raised questions regarding our billings and price reasonableness of costs related to dining facilities in Iraq. We responded to the DCMA that our costs are reasonable. As of December 31, 2010, we have outstanding Form 1 notices from the DCAA disapproving $165 million in costs related to these dining facilities until such time we provide documentation to support the price reasonableness of the rates negotiated with our subcontractor and demonstrate that the amounts billed were in accordance with the contract terms. We believe the prices obtained for these services were reasonable and intend to vigorously defend ourselves on this matter. We filed claims in the U.S. COFC to recover $58 million of the $80 million withheld from us by the customer. The claims proceedings are in the discovery process and no trial date has been set but is expected to occur in 2011. With respect to questions raised regarding billing in accordance with contract terms, as of December 31, 2010, we believe it is reasonably possible that we could incur losses in excess of the amount accrued for possible subcontractor costs billed to the customer that were possibly not in accordance with contract terms. However, we are unable to estimate an amount of possible loss or range of possible loss in excess of the amount accrued related to any costs billed to the customer that were not in accordance with the contract terms. We believe the prices obtained for these services were reasonable, we intend to vigorously defend ourselves in this matter and we do not believe we face a risk of significant loss from any disallowance of these costs in excess of amounts withheld from subcontractors. As of December 31, 2010, we had withheld $41 million in payments from our subcontractors pending the resolution of these matters with our customer.Additionally, one of our subcontractors, Tamimi, filed for arbitration to recover approximately $35 million for payments we have withheld from them pending the resolution of the Form 1 notices with our customer. In December 2010, the arbitration panel ruled that the subcontract terms were not sufficient to hold retention from Tamimi for price reasonableness matters and awarded the subcontractor $35 million plus interest thereon and certain legal costs. As a result of the arbitration award, we recorded an additional charge of $5 million in the fourth quarter of 2010 associated with the interest due on the accrued retention payable to Tamimi and other costs awarded. We also have a claim pending in the U.S. COFC to recover the $35 million from the U.S. government and we believe it is probable that we will recover such amount.Transportation costs. The DCAA, in performing its audit activities under the LogCAP III contract, raised a question about our compliance with the provisions of the Fly America Act. Subject to certain exceptions, the Fly America Act requires Federal employees and others performing U.S. Government-financed foreign air travel to travel by U.S. flag air carriers. There are times when we transported personnel in connection with our services for the U.S. military where we may not have been in compliance with the Fly America Act and its interpretations through the Federal Acquisition Regulations and the Comptroller General. As of December 31, 2010, we have accrued an estimate of the cost incurred for these potentially non-compliant flights with a corresponding reduction to revenue. The DCAA may consider additional flights to be noncompliant resulting in potential larger amounts of disallowed costs than the amount we have accrued. At this time, we cannot estimate a range of reasonably possible losses that may have been incurred, if any, in excess of the amount accrued. We will continue to work with our customer to resolve this matter.Construction services. As of December 31, 2010, we have outstanding Form 1 notices from the DCAA disapproving approximately $25 million in costs related to work performed under our CONCAP III contract with the U.S. Navy to provide emergency construction services primarily to Government facilities damaged by Hurricanes Katrina and Wilma. The DCAA claims the costs billed to the U.S. Navy primarily related to subcontract costs that were either inappropriately bid, included unallowable profit markup or were unreasonable. In April 2010, we met with the U.S. Navy in an attempt to settle the potentially unallowable costs. As a result of the meeting, approximately $7 million of the potentially unallowable costs was agreed in principle to be allowable and approximately $1 million unallowable. We are working with the ACO to finalize a settlement of this position. Settlement of the remaining disputed amounts is pending further discussions with the customer regarding the applicable provisions of the FAR and interpretations thereof, as well as providing additional supporting documentation to the customer. As of December 31, 2010, the U.S. Navy has withheld approximately $10 million from us. We believe we undertook adequate and reasonable steps to ensure that proper bidding procedures were followed and the amounts billed to the customer were reasonable and not in violation of the FAR. As of December 31, 2010, we have accrued our estimate of probable loss related to this matter; however, it is reasonably possible we could incur additional losses.Investigations, Qui Tams and LitigationThe following matters relate to ongoing litigation or investigations involving U.S. government contracts.McBride Qui Tam suit. In September 2006, we became aware of a qui tam action filed against us by a former employee alleging various wrongdoings in the form of overbillings of our customer on the LogCAP III contract. This case was originally filed pending the government’s decision whether or not to participate in the suit. In June 2006, the government formally declined to participate. The principal allegations are that our compensation for the provision of Morale, Welfare and Recreation (“MWR”) facilities under LogCAP III is based on the volume of usage of those facilities and that wedeliberately overstated that usage. In accordance with the contract, we charged our customer based on actual cost, not based on the number of users. It was also alleged that, during the period from November 2004 into mid-December 2004, we continued to bill the customer for lunches, although the dining facility was closed and not serving lunches. There are also allegations regarding housing containers and our provision of services to our employees and contractors. On July 5, 2007, the court granted our motion to dismiss the qui tam claims and to compel arbitration of employment claims including a claim that the plaintiff was unlawfully discharged. The majority of the plaintiff’s claims were dismissed but the plaintiff was allowed to pursue limited claims pending discovery and future motions. Substantially all employment claims were sent to arbitration under the Company’s dispute resolution program and were subsequently resolved in our favor. In January 2009, the relator filed an amended complaint which is nearing completion of the discovery process. Trial for this matter is expected in 2011. We believe the relator’s claim is without merit and that the likelihood that a loss has been incurred is remote. As of December 31, 2010, no amounts have been accrued.First Kuwaiti Trading Company arbitration.In April 2008, First Kuwaiti Trading Company, one of our LogCAP III subcontractors, filed for arbitration of a subcontract under which KBR had leased vehicles related to work performed on our LogCAP III contract. First Kuwaiti alleged that we did not return or pay rent for many of the vehicles and seeks damages in the amount of $134 million. We filed a counterclaim to recover amounts which may ultimately be determined due to the Government for the $51 million in suspended costs as discussed in the preceding section of this footnote titled “Containers.” Three arbitration hearings took place in 2010 in Washington, D.C. primarily related to claims involving unpaid rents and damages on lost or unreturned vehicles totaling approximately $77 million for which the arbitration panel awarded $7 million to FKTC plus an unquantified amount for repair costs on certain vehicles, damages suffered as a result of late vehicle returns, and interest thereon, to be determined at a later date. No payments are expected to occur until all claims are arbitrated and awards finalized. The next arbitration hearing is scheduled to occur in May 2011 and we believe any damages ultimately awarded to First Kuwaiti will be billable under the LogCAP III contract. Accordingly, we have accrued amounts payable and a related unbilled receivable for the amounts awarded to First Kuwaiti pursuant to the terms of the contract.Paul Morell, Inc. d/b/a The Event Source vs. KBR, Inc. TES is a former LogCAP III subcontractor who provided DFAC services at six sites in Iraq from mid-2003 to early 2004. TES sued KBR in Federal Court in Virginia for breach of contract and tortious interference with TES’s subcontractors by awarding subsequent DFAC contracts to the subcontractors. In addition, the Government withheld funds from KBR that KBR had submitted for reimbursement of TES invoices, and at that time, TES agreed that it was not entitled to payment until KBR was paid by the Government. Eventually KBR and the Government settled the dispute, and in turn KBR and TES agreed that TES would accept, as payment in full with a release of all other claims, the amount the Government paid to KBR for TES’s services. TES filed a suit to overturn that settlement and release, claiming that KBR misrepresented the facts. The trial was completed in June 2009 and in January 2010, the Federal Court issued an order against us in favor of TES in the amount of $15 million in actual damages and interest and $4 million in punitive damages relating to the settlement and release entered into by the parties in May 2005. As of December 31, 2010, we have recorded un-reimbursable expenses and a liability of $20 million for the full amount of the awarded damages. We have filed a notice of appeal with the Court.Electrocution litigation. During 2008, a lawsuit was filed against KBR alleging that the Company was responsible for an electrical incident which resulted in the death of a soldier. This incident occurred at the Radwaniyah Palace Complex. It is alleged in the suit that the electrocution incident was caused by improper electrical maintenance or other electrical work. We intend to vigorously defend this matter. KBR denies that its conduct was the cause of the event and denies legal responsibility. The case was removed to Federal Court where motion to dismiss was filed. The court issued a stay in the discovery of the case, pending an appeal of certain pre-trial motions to dismiss that were previously denied. In August 2010, the Court of Appeal dismissed our appeal concluding it did not have jurisdiction. The case is currently proceeding with the discovery process. We are unable to determine the likely outcome nor can we estimate a range of potential loss, if any, related to this matter at this time. As of December 31, 2010, no amounts have been accrued.Burn Pit litigation.KBR has been served with over 50 lawsuits in various states alleging exposure to toxic materials resulting from the operation of burn pits in Iraq or Afghanistan in connection with services provided by KBR under the LogCAP III contract. Each lawsuit has multiple named plaintiffs who purport to represent a large class of unnamed persons. The lawsuits primarily allege negligence, willful and wanton conduct, battery, intentional infliction of emotional harm, personal injury and failure to warn of dangerous and toxic exposures which has resulted in alleged illnesses for contractors and soldiers living and working in the bases where the pits are operated. All of the pending cases have been removed to Federal Court, the majority of which have been consolidated for multi-district litigation treatment. In the second quarter of 2010, we filed various motions including a motion to strike an amended consolidated petition filed by the plaintiffs and a motion to dismiss which the court has taken under advisement. In the September 2010, our motion to dismiss was denied. However, our motion to strike an amended consolidated petition filed by the plaintiffs was granted. The Court directed the parties to propose a plan for limited jurisdictional discovery. In December 2010, the Court stayed virtually all proceedingspending a decision from the Fourth Circuit Court of Appeals on three other cases involving the Political Question Doctrine and other jurisdictional issues. We intend to vigorously defend these matters. Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this time accurately predict the ultimate outcome nor can we estimate a range of potential loss, if any, related to this matter at this time. Accordingly, as of December 31, 2010, no amounts have been accrued.Convoy Ambush Litigation.In April 2004, a fuel convoy in route from Camp Anaconda to Baghdad International Airport for the U.S. Army under our LogCAP III contract was ambushed resulting in deaths and severe injuries to truck drivers hired by KBR. In 2005, survivors of the drivers killed and those that were injured in the convoy, filed suit in state court in Houston, Texas against KBR and several of its affiliates, claiming KBR deliberately intended that the drivers in the convoy would be attacked and wounded or killed. The suit also alleges KBR committed fraud in its hiring practices by failing to disclose the dangers associated with working in the Iraq combat zone. In September 2006, the case was dismissed based upon the court’s ruling that it lacked jurisdiction because the case presented a non-justiciable political question. Subsequently, three additional suits were filed, arising out of insurgent attacks on other convoys that occurred in 2004 and were likewise dismissed as non-justiciable under the Political Question Doctrine.The plaintiffs in all cases appealed the dismissals to the Fifth Circuit Court of Appeals which reversed and remanded the remaining cases to trial court. In July 2008, the trial court directed substantive discovery to commence including the re-submittal of dispositive motions on various grounds including the Defense Base Act and Political Question Doctrine. In February 2010, the trial court ruled in favor of the plaintiffs, denying two of our motions to dismiss the case. In March 2010, the trial court granted in part and denied in part our third motion to dismiss the case. We filed appeals on all issues with the Fifth Circuit Court of Appeals and have moved to stay all proceedings in the trial court pending the resolution of these appeals. The cases were removed from the trial docket and the Fifth Circuit Court of Appeals has heard all previous motions filed by both parties. In September 2010, the DOJ filed a brief in support of KBR’s position that the cases should be dismissed in their entirety based upon the exclusive provisions in the Defense Base Act. We are unable to determine the likely outcome of these cases at this time. As of December 31, 2010, no amounts have been accrued nor can we estimate the amount of potential loss, if any.DOJ False Claims Act complaint. On April 1, 2010, the DOJ filed a complaint in the U.S. District Court in the District of Columbia alleging certain violations of the False Claims Act related to the use of private security firms. The complaint alleges, among other things, that we made false or fraudulent claims for payment under the LogCAP III contract because we allegedly knew that they contained costs of services for or that included improper use of private security. We believe these sums were properly billed under our contract with the Army and that the use of private security was not prohibited under LogCAP III. We have filed motions to dismiss the complaint which are currently pending. We have not adjusted our revenues or accrued any amounts related to this matter.Legal ProceedingsForeign Corrupt Practices Act investigationsOn February 11, 2009 KBR LLC, entered a guilty plea related to the Bonny Island investigation in the United States District Court, Southern District of Texas, Houston Division (the “Court”). KBR LLC pled guilty to one count of conspiring to violate the FCPA and four counts of violating the FCPA, all arising from the intent to bribe various Nigerian officials through commissions paid to agents working on behalf of TSKJ on the Bonny Island project. The plea agreement reached with the DOJ resolves all criminal charges in the DOJ’s investigation into the conduct of KBR LLC relating to the Bonny Island project, so long as the conduct was disclosed or known to DOJ before the settlement, including previously disclosed allegations of coordinated bidding. The plea agreement called for the payment of a criminal penalty of $402 million, of which Halliburton was obligated to pay $382 million under the terms of the indemnity in the master separation agreement, while we were obligated to pay $20 million. We also agreed to a period of organizational probation of three years, during which we retain a monitor who assesses our compliance with the plea agreement and evaluate our FCPA compliance program over the three year period, with periodic reports to the DOJ.On the same date, the SEC filed a complaint and we consented to the filing of a final judgment against us in the Court. The complaint and the judgment were filed as part of a settled civil enforcement action by the SEC, to resolve the civil portion of the government’s investigation of the Bonny Island project. The complaint alleges civil violations of the FCPA’s antibribery and books-and-records provisions related to the Bonny Island project. The complaint enjoins us from violating the FCPA’s antibribery, books-and-records, and internal-controls provisions and requires Halliburton and KBR, jointly and severally, to make payments totaling $177 million, all of which has been paid by Halliburton pursuant to the indemnification under the master separation agreement. The judgment also requires us to retain an independent monitor on the same terms asthe plea agreement with the DOJ.Under both the plea agreement and judgment, we have agreed to cooperate with the SEC and DOJ in their investigations of other parties involved in TSKJ and the Bonny Island project.As a result of the settlement, in the fourth quarter 2008 we recorded the $402 million obligation to the DOJ and, accordingly, recorded a receivable from Halliburton for the $382 million that Halliburton was obligated to pay to the DOJ on our behalf. The resulting charge of $20 million to KBR was recorded in cost of sales of our Hydrocarbons business segment in the fourth quarter of 2008. Likewise, we recorded an obligation to the SEC in the amount of $177 million and a receivable from Halliburton in the same amount. As of December 31, 2010, Halliburton has paid all installments to the DOJ and SEC, and such payments totaled $559 million. Of the payments mentioned above, Halliburton paid $142 million in 2010 and $417 million in 2009, which have been reflected in the accompanying statement of cash flows as noncash operating activities. On October 1, 2010, we made the final payment to the DOJ related to our portion of the settlement agreement.As part of the settlement of the FCPA matters, we agreed to the appointment of a corporate monitor for a period of up to three years. We proposed the appointment of a corporate monitor and received approval from the DOJ in the third quarter of 2009. We are responsible for paying the fees and expenses related to the monitor’s review and oversight of our policies and activities relating to compliance with applicable anti-corruption laws and regulations.Because of the guilty plea by KBR LLC, we are subject to possible suspension or debarment of our ability to contract with governmental agencies of the United States and of foreign countries. We received written confirmation from the U.S. Department of the Army stating that it does not intend to suspend or debar KBR from DoD contracting as a result of the guilty plea by KBR LLC. The U.K. Ministry of Defence (“MoD”) has indicated that it does not have any grounds to debar the KBR subsidiary with which it contracts under its public procurement regulations. Although there has been a threat to challenge the MOD’s decision not to debar KBR, no formal proceedings have been issued since the threat was made. Therefore, we believe the risk of being debarred from contracting with the MOD is low. Although we do not believe we will be suspended or debarred of our ability to contract with other governmental agencies of the United States or any other foreign countries, suspension or debarment from the government contracts business would have a material adverse effect on our business, results of operations, and cash flow.Under the terms of the MSA, Halliburton has agreed to indemnify us, and any of our greater than 50%-owned subsidiaries, for our share of fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of claims made or assessed by a governmental authority of the United States, the United Kingdom, France, Nigeria, Switzerland or Algeria or a settlement thereof relating to FCPA and related corruption allegations, which could involve Halliburton and us through The M. W. Kellogg Company, M. W. Kellogg Limited (“MWKL”), or their or our joint ventures in projects both in and outside of Nigeria, including the Bonny Island, Nigeria project. Halliburton’s indemnity will not apply to any other losses, claims, liabilities or damages assessed against us as a result of or relating to FCPA matters and related corruption allegations or to any fines or other monetary penalties or direct monetary damages, including disgorgement, assessed by governmental authorities in jurisdictions other than the United States, the United Kingdom, France, Nigeria, Switzerland or Algeria, or a settlement thereof, or assessed against entities such as TSKJ, in which we do not have an interest greater than 50%. As of December 31, 2010, we are not aware of any uncertainties related to the indemnity from Halliburton or any material limitations on our ability to recover amounts due to us for matters covered by the indemnity from Halliburton.The U.K. Serious Fraud Office (“SFO”) conducted an investigation of activities by current and former employees of MWKL regarding the Bonny Island project. During the investigation process, MWKL self-reported to the SFO its corporate liability for corruption-related offenses arising out of the Bonny Island project and entered into a plea negotiation process under the “Attorney General’s Guidelines on Plea Discussions in Cases of Serious and Complex Fraud” issued by the Attorney General for England and Wales. In February 2011, MWKL reached a settlement with the SFO in which the SFO accepted that MWKL was not party to any unlawful conduct and assessed a civil penalty of approximately $11 million including interest and reimbursement of certain costs of the investigation. The settlement terms included a full release of all claims against MWKL, its current and former parent companies, subsidiaries and other related parties including their respective current or former officers, directors and employees with respect to the Bonny Island project. As of December 31, 2010, we recorded a liability to the SFO of $11 million included in “Other current liabilities” in our consolidated balance sheet. Due to the indemnity from Halliburton under the MSA, we recognized a receivable from Halliburton of approximately $6 million in “Due to former parent, net” in our consolidated balance sheet.In 2010, we learned that charges were filed in Nigeria against various parties including Halliburton, KBR and TSKJ Nigeria Limited based on the facts associated with our settlement of the DOJ’s FCPA investigation of the Bonny Island project. Prior to KBR being served with a suit, Halliburton negotiated a settlement with the Federal Government of Nigeria without anyadmission of liability or financial impact to KBR. With the settlement of this matter, all known investigations into the Bonny Island project have been concluded.Commercial Agent FeesWe have both before and after the separation from our former parent used commercial agents on some of our large-scale international projects to assist in understanding customer needs, local content requirements, vendor selection criteria and processes and in communicating information from us regarding our services and pricing. Prior to separation, it was identified by our former parent in performing its investigation of anti-corruption activities that certain of these agents may have engaged in activities that were in violation of anti-corruption laws at that time and the terms of their agent agreements with us. Accordingly, we have ceased the receipt of services from and payment of fees to these agents. Fees for these agents are included in the total estimated cost for these projects at their completion. In connection with actions taken by U.S. Government authorities, we have removed certain unpaid agent fees from the total estimated costs in the period that we obtained sufficient evidence to conclude such agents clearly violated the terms of their contracts with us. In the first and third quarters of 2009, we reduced project cost estimates by $16 million and $5 million, respectively, as a result of making such determinations. In September 2010, we executed a final settlement agreement with one of our agents in question after the agent was reviewed and approved under our policies on business conduct. Under the terms of the settlement agreement, the agent had, among other things, confirmed their understanding of and compliance with KBR’s policies on business conduct and represented that they have complied with anti-corruption laws as they relate to prior services provided to KBR. We negotiated final payment for fees to this agent on several projects in our Hydrocarbons segment resulting in an overall reduction of estimated project costs of approximately $60 million of which $42 million was recognized as a charge in the third quarter of 2010 and the remaining amount will be recognized over the remaining term of the project. As of December 31, 2010, the remaining unpaid agent fees of approximately $8 million are included in the estimated costs related to a completed project.Barracuda-Caratinga Project ArbitrationIn June 2000, we entered into a contract with Barracuda & Caratinga Leasing Company B.V., the project owner, to develop the Barracuda and Caratinga crude oilfields, which are located off the coast of Brazil. Petrobras is a contractual representative that controls the project owner. In November 2007, we executed a settlement agreement with the project owner to settle all outstanding project issues except for the bolts arbitration discussed below.At Petrobras’ direction, we replaced certain bolts located on the subsea flowlines that failed through mid-November 2005, and we understand that additional bolts failed thereafter, which were replaced by Petrobras. These failed bolts were identified by Petrobras when it conducted inspections of the bolts. In March 2006, Petrobras notified us they submitted this matter to arbitration claiming $220 million plus interest for the cost of monitoring and replacing the defective stud bolts and, in addition, all of the costs and expenses of the arbitration including the cost of attorneys’ fees. The arbitration is being conducted in New York under the guidelines of the United Nations Commission on International Trade Law (“UNCITRAL”). Petrobras contends that all of the bolts installed on the project are defective and must be replaced.During the time that we addressed outstanding project issues and during the conduct of the arbitration, KBR believed the original design specification for the bolts was issued by Petrobras, and as such, the cost resulting from any replacement would not be our responsibility. A hearing on legal and factual issues relating to liability with the arbitration panel was held in April 2008. In June 2009, we received an unfavorable ruling from the arbitration panel on the legal and factual issues as the panel decided the original design specification for the bolts originated with KBR and its subcontractors. The ruling concluded that KBR’s express warranties in the contract regarding the fitness for use of the design specifications for the bolts took precedence over any implied warranties provided by the project owner. Our potential exposure would include the costs of the bolts replaced to date by Petrobras, any incremental monitoring costs incurred by Petrobras and damages for any other bolts that are subsequently found to be defective. We believe that it is probable that we have incurred some liability in connection with the replacement of bolts that have failed during the contract warranty period which expired June 30, 2006. In May 2010, the arbitration tribunal heard arguments from both parties regarding various damage scenarios and estimates of the amount of KBR’s overall liability in this matter. The final arbitration arguments were made in August of 2010. Based on the damage estimates presented at this hearing, we estimate our minimum exposure, excluding interest, to be approximately $12 million representing our estimate for replacement of bolts that failed during the warranty period and were not replaced. As of December 31, 2010, we have a liability of $12 million and an indemnification receivable from Halliburton of $12 million. The amount of any remaining liability will be dependent upon the legal and factual issues to be determined by the arbitration tribunal in the final arbitration hearings. For the remaining bolts at dispute, we cannot determine that we have liability nor determine the amount of any such liability and no additional amounts have been accrued.Any liability incurred by us in connection with the replacement of bolts that have failed to date or related to the remaining bolts at dispute in the bolt arbitration is covered by an indemnity from our former parent Halliburton. Under the MSA, Halliburton has agreed to indemnify us and any of our greater than 50%-owned subsidiaries as of November 2006, for all out-of-pocket cash costs and expenses (except for ongoing legal costs), or cash settlements or cash arbitration awards in lieu thereof, we may incur after the effective date of the master separation agreement as a result of the replacement of the subsea flowline bolts installed in connection with the Barracuda-Caratinga project. As of December 31, 2010, we are not aware of any uncertainties related to the indemnity from Halliburton or any material limitations on our ability to recover amounts due to us for matters covered by the indemnity from Halliburton. We do not believe any outcome of this matter will have a material adverse impact to our operating results or financial position.“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Financial Instrument Market Risk” and Note 1421 of our consolidated financial statements and the information discussed therein is incorporated by reference into this Item 7A .7A. Page No. Page No. 59 6061 62 63 64 6520102013 and 2009,2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2010.2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.20102013 and 2009,2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010,2013, in conformity with U.S. generally accepted accounting principles.As discussed in Notes 1 and 15 to the consolidated financial statements, the Company changed its method of accounting for variable interest entities on a prospective basis as of January 1, 2010.2010,2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 201127, 2014 expressed an unqualifiedadverse opinion on the effectiveness of the Company’s internal control over financial reporting.23, 2011 Years ended December 31 2010 2009 2008 $ 9,962 $ 12,060 $ 11,493 137 45 88 10,099 12,105 11,581 9,273 11,348 10,820 212 217 223 5 — — — 6 — — (2 ) (3 ) 9,490 11,569 11,040 609 536 541 (17 ) (1 ) 35 (4 ) — (8 ) (2 ) (3 ) — 586 532 568 191 168 212 395 364 356 — — 11 395 364 367 68 74 48 $ 327 $ 290 $ 319 $ 327 $ 290 $ 308 — — 11 $ 327 $ 290 $ 319 $ 2.08 $ 1.80 $ 1.84 — — 0.07 $ 2.08 $ 1.80 $ 1.91 $ 2.07 $ 1.79 $ 1.84 — — 0.07 $ 2.07 $ 1.79 $ 1.90 156 160 166 157 161 167 $ 0.15 $ 0.20 $ 0.25 (1)Due to the effect of rounding, the sum of the individual per share amounts may not equal the total shown. Years ended December 31, 2013 2012 2011 Revenues $ 7,283 $ 7,770 $ 9,103 Cost of revenues (6,702 ) (7,252 ) (8,463 ) Gross profit 581 518 640 Equity in earnings of unconsolidated affiliates 137 151 158 General and administrative expenses (249 ) (222 ) (214 ) Impairment of goodwill and long-lived assets — (180 ) — Gain on disposition of assets 2 32 3 Operating income 471 299 587 Interest expense, net of interest income (5 ) (7 ) (18 ) Foreign currency gains (losses) — (2 ) 3 Other non-operating expenses (3 ) (2 ) — Income before income taxes and noncontrolling interests 463 288 572 Provision for income taxes (136 ) (86 ) (32 ) Net income 327 202 540 Net income attributable to noncontrolling interests (98 ) (58 ) (60 ) Net income attributable to KBR $ 229 $ 144 $ 480 Net income attributable to KBR per share: Basic $ 1.55 $ 0.97 $ 3.18 Diluted $ 1.54 $ 0.97 $ 3.16 Basic weighted average common shares outstanding 148 148 150 Diluted weighted average common shares outstanding 149 149 151 Cash dividends declared per share $ 0.24 $ 0.28 $ 0.20 Balance Sheetsmillions except share data) December 31 2010 2009 $ 786 $ 941 1,455 1,243 428 657 1,883 1,900 199 192 394 608 3,262 3,641 355 251 947 691 127 58 219 164 103 120 320 321 84 81 $ 5,417 $ 5,327 Liabilities and Shareholders’ Equity $ 921 $ 1,045 43 53 180 — 498 407 26 40 200 191 9 — 470 552 — 3 2,347 2,291 397 469 92 — 132 106 128 43 117 122 3,213 3,031 — — — — 1,981 2,103 (438) (444) 1,157 854 (454) (225) 2,246 2,288 (42) 8 2,204 2,296 $ 5,417 $ 5,327 Years ended December 31, 2013 2012 2011 Net income $ 327 $ 202 $ 540 Other comprehensive income (loss), net of tax: Cumulative translation adjustments (“CTA”): Cumulative translation adjustments, net of tax (36 ) (11 ) (17 ) Reclassification adjustment for CTA included in net income 1 (7 ) (2 ) Net cumulative translation adjustment, net of tax of $(27), $8 and $1 (35 ) (18 ) (19 ) Pension liability adjustments, net of tax: Pension liability adjustments, net of tax (122 ) (77 ) (110 ) Reclassification adjustment for pension liability losses included in net income 35 27 21 Net pension liability adjustments, net of taxes of $(18), $(14) and $(32) (87 ) (50 ) (89 ) Unrealized gains (losses) on derivatives: Unrealized holding gains (losses) on derivatives, net of tax 1 2 (5 ) Reclassification adjustments for losses included in net income (1 ) 4 2 Net unrealized gain (loss) on derivatives, net of taxes of $0, $(1) and $1 — 6 (3 ) Other comprehensive (loss), net of tax (122 ) (62 ) (111 ) Comprehensive income, net of tax 205 140 429 Less: Comprehensive income attributable to noncontrolling interests (106 ) (58 ) (59 ) Comprehensive income attributable to KBR $ 99 $ 82 $ 370 Statements of Comprehensive Incomemillions) Years ended December 31 2010 2009 2008 395 364 367 5 18 (117) 24 (15) (226) 2 (3) (1) (1) 1 (1) (1) — 1 424 365 23 (72) (80) (21) 352 285 2 December 31, 2013 2012 Assets Current assets: Cash and equivalents $ 1,099 $ 1,053 Accounts receivable, net of allowance for doubtful accounts of $18 and $15 1,063 1,087 Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") 458 589 Deferred income taxes 194 251 Other current assets 196 464 Total current assets 3,010 3,444 Property, plant, and equipment, net of accumulated depreciation of $397 and $356 (including net PPE of $67 and $72 owned by a variable interest entity) 415 390 Goodwill 772 779 Intangible assets, net of amortization 85 99 Equity in and advances to unconsolidated affiliates 156 217 Deferred income taxes 337 203 Claims and accounts receivable 628 518 Other assets 113 117 Total assets $ 5,516 $ 5,767 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 747 $ 756 Payable to former parent 105 49 Billings in excess of costs and estimated earnings on uncompleted contracts ("BIE") 392 439 Accrued salaries, wages and benefits 239 242 Other current liabilities 345 698 Total current liabilities 1,828 2,184 Pension obligations 477 391 Employee compensation and benefits 114 120 Income tax payable 70 90 Deferred income taxes 87 77 Other liabilities 345 394 Total liabilities 2,921 3,256 KBR shareholders’ equity: Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding — — Common stock, $0.001 par value, 300,000,000 shares authorized, 173,924,509 and 173,218,898 shares issued, and 148,195,208 and 147,584,764 shares outstanding — — Paid-in capital in excess of par ("PIC") 2,065 2,049 Accumulated other comprehensive loss ("AOCL") (740 ) (610 ) Retained earnings 1,902 1,709 Treasury stock, 25,729,301 shares and 25,634,134 shares, at cost (610 ) (606 ) Total KBR shareholders’ equity 2,617 2,542 Noncontrolling interests ("NCI") (22 ) (31 ) Total shareholders’ equity 2,595 2,511 Total liabilities and shareholders’ equity $ 5,516 $ 5,767 December 31 2010 2009 2008 $ 2,296 $ 2,034 $ 2,235 17 17 16 5 2 3 — (7) 2 (23) (32) (41) (8) — — (233) (31) (196) 3 2 — (108) (66) (21) 17 12 — (181) — 2 (4) — — — — 12 (1) — — — — (1) 424 365 23 $ 2,204 $ 2,296 $ 2,034 December 31, 2013 2012 2011 Balance at January 1, $ 2,511 $ 2,442 $ 2,204 Deferred tax and foreign currency adjustments to PIC — 17 — Share-based compensation 16 16 19 Common stock issued upon exercise of stock options 6 7 7 Post-closing adjustment related to acquisition of former NCI partner — — (5 ) Tax benefit increase related to share-based plans — 4 3 Dividends declared to shareholders (36 ) (42 ) (30 ) Adjustments pursuant to Accounting Referee's report on tax sharing agreement (7 ) — — Repurchases of common stock (7 ) (40 ) (118 ) Issuance of employee stock purchase plan ("ESPP") shares 4 3 3 Distributions to noncontrolling interests (108 ) (36 ) (63 ) Investments from noncontrolling interests 9 — — Change in NCI due to consolidation of previously unconsolidated JV 2 — — Other noncontrolling interests activity — — (7 ) Comprehensive income 205 140 429 Balance at December 31, $ 2,595 $ 2,511 $ 2,442 Years ended December 31, 2013 2012 2011 Cash flows from operating activities: Net income $ 327 $ 202 $ 540 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 68 65 71 Equity in earnings of unconsolidated affiliates (137 ) (151 ) (158 ) Deferred income tax (benefit) expense 24 18 (173 ) Gain on disposition of assets (2 ) (32 ) (3 ) Impairment of goodwill and long-lived assets — 180 — Other 21 35 17 Changes in operating assets and liabilities: Accounts receivable (7 ) (9 ) 265 Costs and estimated earnings in excess of billings on uncompleted contracts 80 (239 ) (32 ) Accounts payable 49 (14 ) (110 ) Billings in excess of costs and estimated earnings on uncompleted contracts (29 ) (93 ) 61 Accrued salary, wages and benefits (10 ) (8 ) 31 Reserve for loss on uncompleted contracts (44 ) 34 (4 ) Collection (repayment) of advances from (to) unconsolidated affiliates, net 14 (6 ) 14 Distributions of earnings received from unconsolidated affiliates 180 108 182 Payment on performance bonds for the EPC 1 project in Mexico (108 ) — — Income taxes payable (22 ) (62 ) 12 Pension funding (54 ) (30 ) (74 ) Retainage payable (35 ) (70 ) (28 ) Subcontractor advances 20 131 36 Other assets and liabilities (45 ) 83 3 Total cash flows provided by operating activities 290 142 650 Cash flows from investing activities: Acquisition or disposition of businesses 10 (3 ) — Purchases of property, plant and equipment (78 ) (75 ) (83 ) Proceeds from sale of assets and investments 6 127 6 (Investment in)/return of capital from equity method joint ventures — 3 (11 ) Total cash flows provided by (used in) investing activities $ (62 ) $ 52 $ (88 ) KBR, Inc.Consolidated Statements of Cash Flows(In millions) Years ended December 31 2010 2009 2008 $ 395 $ 364 $ 367 62 55 49 (137) (45) (88) 14 65 88 5 — — — 6 — 30 14 28 (182) 107 (124) 223 156 (45) (177) (355) 214 116 (98) (315) 9 (129) (40) (13) (37) (41) (16) (18) 68 93 54 121 6 (264) (149) 121 89 (9) 549 (36) 124 (299) — (526) (66) (41) (37) (12) — — (20) — — — — 7 — 32 — (397) (9) (556) (233) (31) (196) (91) (54) (28) (32) (32) (25) 5 2 3 — (7) 2 (13) — — 28 (44) — (336) (166) (244) 7 7 (40) (177) (204) (716) 22 — — 941 1,145 1,861 $ 786 $ 941 $ 1,145 $ 16 $ 7 $ 5 $ 64 $ 166 $ 200 $ 130 $ 417 $ (559) $ (130) $ (417) $ 579 $ (19) $ — $ — $ 180 $ — $ — Years ended December 31, 2013 2012 2011 Cash flows from financing activities: Acquisition of noncontrolling interest $ — $ — $ (178 ) Purchases of treasury stock (7 ) (40 ) (118 ) Distributions to noncontrolling interests (108 ) (36 ) (63 ) Investments from noncontrolling interests 9 — — Payments of dividends to shareholders (36 ) (37 ) (30 ) Net proceeds from issuance of common stock 6 7 7 Excess tax benefits from share-based compensation — 4 3 Payments on short-term and long-term borrowings (14 ) (14 ) (15 ) Return of cash collateral on letters of credit, net — — 17 Other 2 — — Total cash flows used in financing activities (148 ) (116 ) (377 ) Effect of exchange rate changes on cash (34 ) 9 (5 ) Increase in cash and equivalents 46 87 180 Cash and equivalents at beginning of period 1,053 966 786 Cash and equivalents at end of period $ 1,099 $ 1,053 $ 966 Supplemental disclosure of cash flows information: Cash paid for interest $ 12 $ 15 $ 22 Cash paid for income taxes (net of refunds) $ 127 $ 81 $ 201 Noncash operating activities Other assets change for Barracuda arbitration and FCPA matters (Note 15) $ (219 ) $ 22 $ 185 Other liabilities change for Barracuda arbitration and FCPA matters (Note 15) $ 219 $ (22 ) $ (185 ) Noncash financing activities Dividends declared $ 12 $ 12 $ 7 2006.2006 and is headquartered in Houston, Texas. KBR, Inc. and its wholly owned and majority-owned subsidiaries (collectively “KBR”referred to herein as "KBR", "the Company", "we", "us" or "our") is a global provider of engineering, procurement, construction, construction management, technology licensing, operations and maintenance and other support services company supporting the energy, petrochemicals, government services, industrialto a diverse customer base, including international and civil infrastructure sectors. Headquartered in Houston, Texas, we offer a wide range of services through our Hydrocarbons, Infrastructure, Governmentnational oil and Power (“IGP”), Servicesgas companies, independent refiners, petrochemical producers, fertilizer producers, regulated utilities, manufacturers, power and Other business segments. See Note 5 for additional financial information about our reportable business segments.financial position, results of operations and cash flowsaccounts of KBR and our wholly owned and majority-owned, controlled subsidiaries and variable interest entities whereof which we are the primary beneficiary (see Note 15). The equity method is used tobeneficiary. We account for investments in affiliates inover which we have the ability to exert significant influence overbut not a controlling financial interest using the affiliates’ operatingequity method of accounting. See Note 9 for further discussion on our equity investments and financial policies.variable interest entities. The cost method is used when we do not have the ability to exert significant influence. All material intercompany accountsbalances and transactions are eliminated in consolidation.Our revenue includes both the earnings of unconsolidated affiliates from revenues to a separate component of operating income on our consolidated statement of income. We reclassified the 2012 and revenue from sales of services2011 amounts to joint ventures. We often participate on larger projectsconform to our revised presentation as a joint venture partnercomponent of operating income but not a component of revenues.also provide services totransactions occurring after the joint venture as a subcontractor. The amountbalance sheet date but before the financial statements were issued and have included in our revenue represents total project revenue, including equity in the earnings from joint ventures, impairments of equity investments in joint ventures, if any, and revenue from services provided to joint ventures.Our are prepared in conformity with accounting principles generally accepted in the United States, requiringU.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the balance sheet dates,date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods.reporting period. Actual results could differ from those estimates.ProgressDepending on the type of job, progress is generally measured based upon physical progress, man-hours orexpended to total man-hours estimated at completion, costs incurred depending on the type of job. Physical progress is determined as a combination of input and output measures as deemed appropriate by the circumstances.to total estimated costs at completion or physical progress. All known or anticipated losses on contracts are provided for in the period they become evident. Claims and change orders that are in the process of being negotiatednegotiation with customers for extraadditional work or changes in the scope of work are included in contract value when collection is deemed probable. probable and the value can be reliably estimated.often require usand cost-reimbursable plus a fee or mark-up contracts, although a portion of our contracts are "hybrid" contracts containing both cost-reimbursable and fixed-price scopes. Both contract types may be modified by cost escalation provisions or other risk sharing mechanisms and incentive and penalty provisions. During the term of a project, the contract or components of the contract may be renegotiated to pay liquidated damages shouldinclude characteristics of a different contract type. When we notnegotiate any type of contract, we frequently are required to accomplish the scope of work and meet certain performance requirements, including completion of the projectcriteria within a specified time frame; otherwise, we could be assessed damages, which in accordance with a scheduled time.some cases are agreed-upon liquidated damages. We generally include an estimate of liquidated damages in contract costs when it is deemed probable that they will be paid.Accounting Profits are recorded based upon the product of estimated contract profit at completion times the current percentage-complete for governmentthe contract.governmentGovernment are governed by cost-reimbursable contracts. Generally, these contracts may contain both a base feefees (a fixed profit percentage applied to our actual costs to complete the work) and an award fee (a variable profit percentage applied to definitized costs, which is subject to our customer’s discretion and tied to the specific performance measures defined in the contract, such as adherence to schedule, health and safety, quality of work, responsiveness, cost performance and business management).recordedrecognized at the time services are performed, and such revenues include base fees, actual direct project costs incurred and an allocation of indirect costs. Indirect costs are applied using rates approved by our government customers. The general, administrative and overhead cost reimbursement rates are estimated periodically in accordance with government contract accounting regulations and may change based on actual costs incurred or based upon the volume of work performed. Revenue is reduced for our estimate of costs that either are in dispute with our customer or have been identified as potentially unallowable perpursuant to the terms of the contract or the federal acquisition regulations.We generally recognize award fees on the LogCAP III contract using an estimated accrual of the amounts to be awarded. Once task orders underlying the work are definitized and award fees are granted, we adjust our estimate of award fees to the actual amounts earned. However, as further discussed in Note 9, we are currently unable to reliably estimate award fees as a result of our customer’s unilateral decision to grant no award feescertain performance periods. In accordance with the provisions of the LogCAP III contract, we earn profits on our services rendered based on a combination of a fixed fee plus award fees granted by our customer. Both fees are measured as a percentage rate applied to estimated and negotiated costs. The LogCAP III customer is contractually obligated to periodically convene Award-Fee Boards, which are comprised of individuals who have been designated to assist the Award Fee Determining Official (“AFDO”) in making award fee determinations. Award fees are based on evaluations of our performance using criteria set forth in the contract, which include non-binding monthly evaluations made by our customers in the field of operations. Although these criteria have historically been used by the Award-Fee Boards in reaching their recommendations, the amounts of award fees are determined at the sole discretion of the AFDO. entered into subsequent to June 30, 2003, we analyze each activity within the contract to ensure that we adhere to the separation guidelines for revenue arrangements with multiple deliverables in accordance with FASB ASCFinancial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) 605 - Revenue Recognition. For service-only contractsservice elements of multiple deliverable arrangements, award fees are recognized only when definitizedlabor costs and awarded by the customer. The LogCAP IV contract is an example of a contract in which award fees are recognized only when definitized and awarded by the Customer because the initial task orders awarded to date have included only service-related deliverables. Under this contract and for all similar future contracts we will continue to accrue base fees as costs are incurred and will recognize award fees only when they have been awarded.Accounting for pre-contract costsPre-contract costs incurred in anticipation of a specific contract award are deferred only if the costs can be directly associated with a specific anticipated contract and their recoverability from that contract is probable. Pre-contractthose indirect costs related to unsuccessful bids are written off no later than the period we are informedcontract performance. Indirect costs, included in cost of revenues, include charges for such items as facilities, engineering, project management, quality control, bid and proposals and procurement. we are not awardedassociated with the specific contract. Costs related to one-time activitiesexecution of the contracts. General and administrative expenses include charges for such items as introducing a new product or service, conductingexecutive management, corporate business in a new territory, conducting business with a new class of customer, or commencing new operations are expensed when incurred.Legal expensesWe expense legal costs in the period in which such costs are incurred.equivalents all highly liquid investments with an original maturity of three months or less to be cash equivalents. CashSee Note 3 for our discussion on cash and equivalents include cash related to contracts in progress as well as cash held by our joint ventures that we consolidate for accounting purposes. Joint venture cash balancesequivalents.limited to joint venture activities andrecorded at the invoiced amount based on contracted prices. Amounts collected on accounts receivable are not available for other projects, general cash needs or distribution to us without approval of the board of directors of the respective joint ventures. Cash held by our joint ventures that we consolidate for accounting purposes totaled approximately $136 million and $236 million at December 31, 2010 and 2009, respectively. We expect to use the cash on these projects to pay project costs.Restricted cash consists of amounts held in deposit with certain banks to collateralize standby letters of credit. Our current restricted cash is included in “Other current assets” and our non-current restrictednet cash is included in “Other assets” on our consolidated financial statements. Our restricted cash balances are presentedprovided by operating activities in the table below: At December 31, Millions of dollars 2010 2009 $ 11 $ 35 10 11 $ 21 $ 46 Allowance for bad debtsbad debts through a review of several factors including historical collection experience, current aging statusdoubtful accounts based on the assessment of the customerclients’ willingness and ability to pay. In addition to such allowances, there are often items in dispute or being negotiated that may require us to make an estimate as to the ultimate outcome. Past due receivable balances are written off when our internal collection efforts have been unsuccessful in collecting the amounts due. See Note 4 for our discussion on accounts financial conditionreceivable.customers,discussion on U.S. government receivables.whetherEstimated Earnings in Excess of Billings on Uncompleted Contracts, Including Claims, and Advanced Billings and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contractsreceivables involve retentions.Goodwillexcess of contract costs and other intangiblesGoodwillprofits recognized to date using the percentage-of-completion method over billings to date on certain contracts. Billings in excess of costs and estimated earnings on uncompleted contracts represents the excess of costbillings to date over the amount of contract costs and profits recognized to date using the percentage-of-completion method on certain contracts. See Note 5 for our discussion on CIE and BIE.market valuevalues due to impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. The cost of netproperty, plant and equipment sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operating income for the respective period. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the shorter of the useful life of the improvement or the lease term. See Note 7 for our discussion on property, plant and equipment.combinationscombination that are not individually identified and in accordance with FASB ASC 350 Intangibles – Goodwill and Other, we are required to test goodwill for impairment on an annual basis, and more frequently when negative conditions or other triggering events arise. Effective January 1, 2010, we elected to changeseparately recognized. We perform our annual impairment review of goodwill impairment testing to the fourth quarter of every year based on carrying values of our business units as ofat October 1, from our previous method of using our business unit carrying values as of September 30. An annual goodwilland when a triggering event occurs between impairment test date oftests.better aligns with our annual budget process which is completed during the fourth quarter of each year. In addition, performing our annual goodwill impairment test during the fourth quarter allows for a more thorough consideration of the valuations of our business units subsequent to the completion of our annual budget process but prior to our financial year end reporting date. As a result of this accounting change, there were no required adjustments to any of the financial statement line items in the accompanying financial statements.The2013 annual impairment test for goodwill iswas a quantitative analysis using a two-step processgoodwill impairment test that first involves comparing the estimated fair value of each businessreporting unit to the unit’sits carrying value, including goodwill. If the fair value of a businessreporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and we must perform step two of the impairment test (measurement). If the fair value of the reporting unit exceeds its carrying amount, the goodwillstep two does not need to be performed. Under step two, an impairment loss is recognized for any excess of the business unit is not considered impaired; therefore, the second step of the impairment test is unnecessary. If the carrying amount of a business unit exceeds itsthe reporting unit’s goodwill over the implied fair value we performof that goodwill. The implied fair value of goodwill is determined by allocating the second stepfair value of the goodwill impairment testreporting unit in a manner similar to measurea purchase price allocation and the amountresidual fair value after this allocation is the implied fair value of goodwill impairment loss to be recorded, as necessary.20102013 were determined using a combination of two methods, one based onutilizing market earnings multiples of peer companies identified for each businessreporting unit (the market approach), and the other based onderived from discounted cash flow models with estimated cash flows based on internal forecasts of revenues and expenses over a fourten year period plus a terminal value period (the income approach). The market multiples are derived from comparable publicly traded companies with operating and investment characteristics similar to those of each of our reporting units. The earnings multiples for the market approach ranged between 4.0 times and 11.0 times the earnings for each of our reporting units. 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 eachthe reporting unit. The discountTo arrive at our future cash flows, we use estimates of economic and market assumptions, including growth rates used under the income approach ranged from 13.2% to 17.5%. The fair value derived from the weightingin revenues, costs, estimates of these two methods provided appropriate valuations that,future expected changes in aggregate, reasonably reconciled to our market capitalization, taking into account observable control premiums.unitunit's fair value for the purposes of our impairment testing. However, we may weigh one value more heavily than the other when conditions merit doing so.In addition to Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. The fair value derived from the earnings multiples and the discount rates disclosed above, certain other judgments and estimates are used to prepare the goodwill impairment test. If market conditions change compared to those used in our market approach, or if actual future resultsweighting of operations fall below the projections usedthese two methods provides appropriate valuations that, in the income approach, our goodwill could become impaired in the future.At October 1, 2010,aggregate, reasonably reconcile to our market capitalization, exceededtaking into account observable control premiums. See Note 8 for our discussion on our annual impairment test.our consolidated net assets by $1.4 billion andthe carrying value over the fair value of allthe intangible assets would be recognized as an impairment loss. See Note 8 for our individual reporting units significantly exceeded their respective carrying amounts asdiscussion on intangible assets.that date. However,accounting if the fair valuesinvestment gives us the ability to exercise significant influence over, but not control of, an investee. Significant influence generally exists if we have an ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate share of earnings or losses and distributions.Services, P&Iconsolidated statements of income, reflects our proportionate share of the investee's net income, including any associated affiliate taxes. Our proportionate share of the investee’s other comprehensive income (loss), net of income taxes, is recorded in the accompanying consolidated statements of shareholders’ equity and Allstates reporting units exceeded their respective carrying values based on projected growth rates and other market inputsconsolidated statements of comprehensive income (loss). In general, the equity investment in our unconsolidated affiliates is equal to our impairment test models that are more sensitive to the risk of future variances due to competitive market conditions as well as business unit execution risks.We review our projected growth rates and other market inputs used in our impairment test models, and changes in our business and other factors that could represent indicators of impairment. Subsequent to our October 1, 2010 annual impairment test, no such indicators of impairment were identified.Impairment of long-lived assetsWhen events or changes in circumstances indicate that long-lived assets other than goodwill may be impaired, an evaluation is performed. For an asset classified as held for use, the estimated future undiscounted cash flow associated with the asset are compared to the asset’s carrying amount to determine if a write-down to fair value is required. When an asset is classified as held for sale, the asset’s book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. Depreciation or amortization is ceased when an asset is classified as held for sale.whenat least annually and whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of suchan investment may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. Management assesses the fair value of its equity method investment using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third party comparable sales, internally developed discounted cash flow analysis and analysis from outside advisors. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment.expected future tax consequences attributable to differences between the financial statement carrying amounts of events that have beenexisting assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. A current tax asset or liability is recognized for the estimated taxes refundable or payable on tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the financial statementsyears in which those temporary differences are expected to be recovered or tax returns. A valuation allowance is provided forsettled. The effect on deferred tax assets if itand liabilities of a change in tax rates is more likely than notrecognized in income in the period that these items will not be realized. includes the enactment date.Based upon the levelAdditionally, we use forecasts of historicalcertain tax elements such as taxable income and projectionsforeign tax credit utilization in making this assessment of realization. Given the inherent uncertainty involved with the use of such estimates and assumptions, there can be significant variation between estimated and actual results.future taxablea tax year.overtax positions only if it is more-likely-than-not that those positions will be sustained. Recognized income tax positions are measured at the periodslargest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowances.We record estimated reserves for uncertain tax positions if the position does not meet a more-likely-than-not threshold to be sustained upon by review by taxing authorities. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized as benefitschange in the first subsequent financial reporting period in which that threshold is met.judgment occurs. The company recognizesrecords potential interest and penalties related to uncertainunrecognized tax positions withinbenefits in income tax expense.provisionnormal course of business. These examinations may result in assessments of additional taxes, which we work to resolve with the tax authorities and through the judicial process. Predicting the outcome of disputed assessments involves some uncertainty. Factors such as the availability of settlement procedures, willingness of tax authorities to negotiate and the operation and impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence the ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates to determine the most likely outcome and provide taxes, interest and penalties as needed based on this outcome. See Note 12 for our discussion on income taxes.At times, wesheet at fair value.sheet. Derivatives that are not accounted for as hedges under FASB ASC 815 –- Derivatives and Hedging, are adjusted to fair value and such changes are reflected through the results of operations. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings.revenues.revenues (which are generally not collateralized). A significant portionpercentage of our revenue from services is generated from transactions with the United States government, which was derived almost entirely from our IGP segment. Additionally, a considerable percentage of revenue from services is generated from transactions with the Chevron Corporation (“Chevron”), which wasis derived almost entirelyprimarily from our HydrocarbonsGas Monetization business segment, and in prior years from transactions with the U. S. government, which is derived from our IGP business segment. No other customers represented 10% or more of consolidated revenues in any of the periods presented. In addition, our receivables are generally not collateralized. information in the following tables haspresent summarized data related to our transactions with Chevron and the U.S. government and Chevron. Years ended December 31, Millions of dollars, except percentage amounts 2010 2009 2008 $ 3,277 $ 5,195 $ 6,180 $ 1,783 $ 1,375 $ 1,058 Years ended December 31, Millions of dollars, except percentage amounts 2010 2009 2008 32% 43% 53% 18% 11% 9% 33% 44% 45% 11% 7% 8% Revenues from major customers: Years ended December 31, Millions of dollars 2013 2012 2011 Chevron revenue $ 1,871 $ 2,302 $ 2,048 U.S. Government revenue $ 567 $ 688 $ 2,216 Percentages of revenues and accounts receivable from major customers: Years ended December 31, 2013 2012 2011 Chevron revenue percentage 26 % 30 % 22 % U.S. government revenue percentage 8 % 9 % 24 % Chevron receivables percentage 13 % 17 % 9 % U.S. government receivables percentage 5 % 5 % 17 % interest in consolidated subsidiariesinterests represent the equity investments of the minority owners in our consolidated balance sheets principally represents noncontrolling shareholders’ proportionate share of the equityjoint ventures and other subsidiary entities that we consolidate in our consolidated subsidiaries. Noncontrolling interest in consolidated subsidiariesfinancial statements.adjusted each period to reflect the noncontrolling shareholders’ allocation of income or the absorption of losses by noncontrolling shareholders on certain majority-owned, controlled investments.Foreign currency translationWe determine theU.S. dollar. The functional currency of our foreign entities based uponnon-U.S subsidiaries is typically the currency of the primary environment in which they operate. Where the functional currency for a non-U.S subsidiary is not the U.S. dollar, translation of all of the assets and liabilities (including long term assets, such as goodwill) to U.S. dollars is based on exchangeperiod.period and shareholders’ equity accounts are translated at historical rates. Translation gains or losses, net of income tax effects, are reported as a component ofin "accumulated other comprehensive income (loss). Gains or losses from foreign currency transactions are included in results of operations, with the exception of intercompany foreign transactions that are of a long-term investment nature, which are recorded in “Other comprehensive income”loss" on our consolidated balance sheets.variable interest entities (“VIEs”)VIEs in accordance with FASB ASC 810 –- Consolidation which requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE. If a reporting enterprise meets these conditions, then it has a controlling financial interest and is the primary beneficiary of the VIE. We have applied the requirements of FASB ASC 810 on a prospective basis from the date of adoption. The adoption of FASB ASC 810 resulted in the consolidation of the Fasttrax Limited VIE which is discussed belowOur unconsolidated VIE's are accounted for under the caption “Fasttrax Limited Project.”such as a governmental agency or a commercial enterprise, and are generally dissolved upon completion of the project or program. Many of our long-term energy-related construction projects in our HydrocarbonsGas Monetization business segment are executed through such joint ventures. Typically, these joint ventures are funded by advances from the project owner, and accordingly, require little or no equity investment by the joint venture partners but may require subordinated financial support from the joint venture partners such as letters of credit, performance and financial guarantees or obligations to fund losses incurred by the joint venture. Other joint ventures, such as privately financed initiatives in our Ventures business unit,operations, generally require the partners to invest equity and take an ownership position in an entity that manages and operates an asset post construction.810-10,810 - Consolidation, we perform a qualitative assessment to determine whether we are the primary beneficiary once an entity is identified as a VIE. Thereafter, we continue to re-evaluate whether we are the primary beneficiary of the VIE in accordance with ASC 810 - Consolidation. A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed and the parties involved in the design of the entity. We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity investments, and financial and performance guarantees and contracted service providers. Once we identify the variable interests, we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities. Though infrequent, some of our VIE’s haveassessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions. Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment, significant service contracts and other subordinated financial support.Stock-based compensationapply the fair value recognition provisions of FASB ASC 718-10account for share-based payments, including grants of employee stock options, restricted stock-based awards and performance cash units, in accordance with ASC 718 - Compensation-Stock Compensation, which requires that all share-based payments (to the extent that they are compensatory) be recognized as an expense in our consolidated statements of operations based on their fair values and the estimated number of shares we ultimately expect to account for and report equity-based compensation. FASB ASC 718-10 requires equity-basedvest. We recognize share-based compensation expense to be measured based on a straight-line basis over the grant-date fair value of the award. For performance-based awards, compensation expense is measured based on the grant-date fair valueservice period of the award, and the fair value of that awardwhich is remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period or the vesting period are recognized as compensation cost on a straight line basis over that period.no greater than 5 years. See Note 1318 for detailed informationour discussion on stock-basedshare-based compensation and incentive plans.Included in “Other“Advances to subcontractors” and included in “Otherpresented below: December 31, Millions of dollars 2013 2012 Barracuda arbitration and FCPA matters (Note 15) $ — $ 219 Prepaid expenses 72 64 VAT 24 16 Refundable income taxes 64 98 Other miscellaneous assets 36 67 Total other current assets $ 196 $ 464 “Retainage payablespresented below: December 31, Millions of dollars 2013 2012 Barracuda arbitration and FCPA matters (Note 15) $ — $ 219 Retainage payable 102 136 Income taxes payable 60 116 Deferred tax liability 55 44 Other miscellaneous liabilities 128 183 Total other current liabilities $ 345 $ 698 subcontractors.” Our “Advances2013, which resulted in a net unfavorable impact to subcontractors”gross profit of $25 million and “Retainage payablesan after tax unfavorable impact to subcontractors”net income of $17 million for the year ended December 31, 2013. The error related to the accounting over the last several years for foreign currency in the determination of revenue on one of our long term construction projects with multiple currencies. We evaluated the cumulative error on both a quantitative and qualitative basis under the guidance of ASC 250 - Accounting Changes and Error Corrections. We determined that the cumulative impact of the error did not affect the trend of net income, cash flows or liquidity and therefore did not have a material impact to previously issued financial statements for the years ended December 31, 20102012 and 2009 is presented below: At December 31, Millions of dollars 2010 2009 $ 176 $ 200 $ 226 $ 217 Note 2. Income per ShareBasic income per share is based upon the weighted average number of common shares outstanding during the period. Dilutive income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued, using the treasury stock method. A reconciliation of the number of shares used for the basic and diluted income per share calculations is as follows: Years ended December 31, Millions of Shares 2010 2009 2008 156 160 166 1 1 1 157 161 167 For purposes of applying the two-class method in computing earnings per share, net earnings allocated to participating securities was approximately $2 million, or $0.01 per share,2011. Additionally, we determined our consolidated financial statements for the fiscal years 2010, 2009, and 2008. The diluted earnings per share calculation did not include 1.1 million, 2.0 million, and 0.8 million antidilutive weighted average shares for the yearsyear ended December 31, 2010,2013 were not materially impacted by the error correction. Years ended December 31, Millions of dollars 2013 2012 2011 Revenue: Gas Monetization $ 2,155 $ 3,006 $ 3,017 Hydrocarbons 1,482 1,260 1,210 Infrastructure, Government and Power 1,535 1,848 3,261 Services 2,051 1,600 1,564 Other 60 56 51 Total $ 7,283 $ 7,770 $ 9,103 Gross profit (loss): Gas Monetization $ 324 $ 381 $ 213 Hydrocarbons 177 185 161 Infrastructure, Government and Power 65 20 201 Services 57 (49 ) 31 Other 15 16 16 Labor cost absorption not allocated to the business segments (57 ) (35 ) 18 Total $ 581 $ 518 $ 640 Equity in earnings of unconsolidated affiliates: Gas Monetization $ 55 $ 33 $ 27 Hydrocarbons — 1 5 Infrastructure, Government and Power 47 56 67 Services 13 33 26 Other 22 28 33 Total $ 137 $ 151 $ 158 Segment operating income Gas Monetization $ 379 $ 414 $ 240 Hydrocarbons 177 186 167 Infrastructure, Government and Power 112 (103 ) 267 Services 70 (16 ) 58 Other 39 75 51 Labor cost absorption not allocated to the business segments (57 ) (35 ) 18 Corporate general and administrative expense not allocated to the business segments (249 ) (222 ) (214 ) Total operating income $ 471 $ 299 $ 587 Capital expenditures: Gas Monetization $ — $ — $ — Hydrocarbons — 1 — Infrastructure, Government and Power 2 1 3 Services 7 5 3 Other (a) 69 68 77 Total $ 78 $ 75 $ 83 Depreciation and amortization: Gas Monetization $ — $ — $ — Hydrocarbons 1 1 2 Infrastructure, Government and Power 11 13 14 Services 8 8 9 Other 48 43 46 Total $ 68 $ 65 $ 71 (a) Other includes corporate capital expenditures for ERP of $53 million, $55 million, and $20 million for the years ended December 2013, 2012, and 2011, respectively. December 31, Millions of dollars 2013 2012 Total assets: Gas Monetization $ 2,267 $ 2,150 Hydrocarbons 1,253 1,161 Infrastructure, Government and Power 2,506 2,551 Services 1,030 1,020 Other (a) (1,540 ) (1,115 ) Total $ 5,516 $ 5,767 Goodwill: Gas Monetization $ 85 $ 85 Hydrocarbons 170 170 Infrastructure, Government and Power 222 225 Services 286 287 Other 9 12 Total $ 772 $ 779 Equity in and advances to related companies: Gas Monetization $ 6 $ 37 Hydrocarbons — 2 Infrastructure, Government and Power (b) (85 ) (76 ) Services 49 54 Other (b) 186 200 Total $ 156 $ 217 (a) Includes intercompany obligations. (b) The credit balance in the IGP business segment is related to activity on the same project performed by a joint venture within the "Other" business segment, resulting in a net equity in and advances to related companies position of $19 million and $24 million as of December 31, 2013 and 2012, respectively. Years ended December 31, Millions of dollars 2013 2012 2011 Revenue: United States $ 2,470 $ 2,118 $ 1,979 Asia Pacific (includes Australia) 1,913 1,910 1,424 Africa 593 1,610 2,079 Europe 575 582 519 Middle East (excluding Iraq) 590 568 701 Iraq 322 445 1,969 Canada 747 431 299 Other Countries 73 106 133 Total $ 7,283 $ 7,770 $ 9,103 December 31, Millions of dollars 2013 2012 Property, Plant & Equipment, Net: United States $ 272 $ 238 United Kingdom 83 92 Other Countries 60 60 Total $ 415 $ 390 December 31, 2013 Millions of dollars International (a) Domestic (b) Total Operating cash $ 197 $ 215 $ 412 Time deposits 478 140 618 Cash held in joint ventures 60 9 69 Total $ 735 $ 364 $ 1,099 December 31, 2012 Millions of dollars International (a) Domestic (b) Total Operating cash $ 169 $ 233 $ 402 Time deposits 441 9 450 Cash held in joint ventures 65 136 201 Total $ 675 $ 378 $ 1,053 (a) Includes deposits held in non-U.S. operating accounts considered to be permanently reinvested outside the U.S. and for which no incremental U.S. tax has been provisioned or paid (b) Includes U.S. dollar and foreign currency deposits held in operating accounts that constitute onshore cash for tax purposes but may reside either in the U.S. or in a foreign country December 31, 2013 Millions of dollars Trade Retainage Total Gas Monetization $ 262 $ — $ 262 Hydrocarbons 284 31 315 Infrastructure, Government and Power 137 15 152 Services 278 54 332 Other 2 — 2 Total $ 963 $ 100 $ 1,063 December 31, 2012 Millions of dollars Trade Retainage Total Gas Monetization $ 261 $ — $ 261 Hydrocarbons 225 15 240 Infrastructure, Government and Power 242 12 254 Services 270 56 326 Other 6 — 6 Total $ 1,004 $ 83 $ 1,087 December 31, Millions of dollars 2013 2012 Gas Monetization $ 44 $ 165 Hydrocarbons 146 131 Infrastructure, Government and Power 131 171 Services 132 117 Other 5 5 Total $ 458 $ 589 December 31, Millions of dollars 2013 2012 Gas Monetization $ 30 $ 121 Hydrocarbons 139 101 Infrastructure, Government and Power 200 174 Services 23 43 Other — — Total $ 392 $ 439 December 31, Millions of dollars 2013 2012 Amounts included in project estimates-at-completion at January 1 $ 167 $ 19 Changes in estimates-at-completion 109 150 Approved (161 ) (2 ) Amounts included in project estimates-at-completion at December 31, for unapproved change orders and claims $ 115 $ 167 Amounts recorded in revenues on a percentage-of-completion basis at December 31 $ 93 $ 140 December 31, Millions of dollars 2013 2012 Hydrocarbons $ 401 $ 293 Infrastructure, Government and Power 226 224 Other 1 1 Total $ 628 $ 518 2008, respectively.approximately $106 million for 2013 performance bonds recovery, plus interest. The judgment also requires that each party pay value added tax on the amounts each has been ordered to pay. See Note 14 for further discussion on our EPC 1 arbitration.3. Business Combinations7. Property, Plant and Other TransactionsBusiness CombinationsENI Holdings, Inc.(Equipment
Useful December 31, Millions of dollars 2013 2012 Land N/A $ 19 $ 19 Buildings and property improvements 5-40 213 210 Equipment and other 3-25 580 517 Total 812 746 Less accumulated depreciation (397 ) (356 ) Net property, plant and equipment $ 415 $ 390 “Roberts & Schaefer Company”).Onyears ended December 21, 2010,31, 2013, 2012, and 2011, respectively.completedheld a 50% interest sold the acquisition of 100%office building in which we lease office space for our corporate headquarters and offices in Houston, Texas, for $175 million. Since we continue to lease the office building from the new owner under essentially the same lease terms, the $44 million pre-tax gain on the sale was deferred and is being amortized using the straight-line method over the remaining term of the outstanding common shareslease, which expires in 2030. We recognized $3 million and less than $1 million of ENI Holdings, Inc. (“ENI”). ENIamortization of deferred gain at December 31, 2013 and 2012, respectively, on our consolidated statements of income. Deferred gain of $3 million at December 31, 2013 and 2012, respectively, is recorded in "other current liabilities" on our consolidated balance sheets, and the parentdeferred gain of $39 million and $41 million at December 31, 2013 and 2012, respectively, is recorded in "other liabilities" on our consolidated balance sheets.Millions of dollars Gas Monetization Hydrocarbons IGP Services Other Total Balance at December 31, 2011 $ 85 $ 164 $ 403 $ 287 $ 12 $ 951 Other changes — 6 — — — 6 Impairment of goodwill — — (178 ) — — (178 ) Balance at December 31, 2012 85 170 225 287 12 779 Other changes — — (3 ) (1 ) (3 ) (7 ) Balance at December 31, 2013 $ 85 $ 170 $ 222 $ 286 $ 9 $ 772 the Roberts & Schaefer Company (“R&S”), a privately held, EPC services company for material handling and processing systems. Headquartered in Chicago, Illinois, R&S provides services and associated processing infrastructure to customers$3 million decrease in the mining and minerals, power, industrial, refining, aggregates, precious and base metals industries.The purchase price was $280 million plus preliminary net working capital of $17 million which included cash acquired of $8 million. The total net cash paid at closing of $289 million is subject to post-closing adjustments to be determined in the first quarter of 2011. The purchase price is subject to an escrowed holdback amount of $43 million to secure post closing working capital adjustments, indemnifications obligations of the sellers and other contingent obligationsOther business segment related to the operationssale of a portion of a subsidiary, Allstates Technical Services, and $4 million in the IGP and Services business segments related to translation losses on the foreign goodwill balances.business. R&S will be integrated intoreporting unit to its carrying value. At the annual testing date of October 1, 2013, the result of the first step of our goodwill impairment test indicated the carrying value of one reporting unit in our IGP segment. We expensed approximately $1 million relatedbusiness segment exceeded its fair value. This is the same reporting unit discussed below in relation to the acquisitiongoodwill impairment in 2012. As a result, we performed the second step of R&Sthe goodwill impairment test in 2010 primarily relatedorder to legal fees, consultation fees, travel and other miscellaneous expenses.In accordance with Accounting Standards Codification 805, “Business Combinations”, (“ASC 805”), the purchase of R&S was accounted for using the acquisition method which requires an acquirer to recognize and measure the identifiable assets acquired and the liabilities assumed at their fair values asamount of the acquisition date.potential impairment loss, if any. The following presents the preliminary allocationsecond step of the purchase price to ENI’s identifiable assets acquired and liabilities assumed based ongoodwill impairment test compares the estimates of theirimplied fair values at the acquisition date.Preliminary allocation of purchase price: Amount
Estimated
Useful Life
$ 8 34 16 3 (35) (6) (22) (7) (9) 35 2-10 years 17 8-10 years 4 1.5-10 years 56 250 $ 297 Goodwill represents the excessvalue of the purchase price overreporting unit's goodwill to the carrying value of that goodwill. Step two requires significant unobservable inputs (Level 3 fair value measurements) in the calculation. We determine the implied fair value of goodwill in the same manner as we use in determining the amount of goodwill to be recognized in a business combination. Applying this methodology, we assigned the fair value of the underlying net tangiblereporting unit estimated in step one to all the assets and intangible assets. Goodwill was recognized primarily as a resultliabilities of acquiring an assembled workforce, expertise and capabilities in the material handling and processing systems market, cost saving opportunities and other synergies.reporting unit. The acquisition generated goodwill of approximately $250 million none of which is expected to be deductible for income tax purposes.Of the total purchase price, $56 million has been allocated to customer relationships, trade names and other intangibles. Customer relationships represent existing contracts and the underlying customer relationships and backlog and will be amortized on a straight-lined basis over the period in which the economic benefits are expected to be realized. Tradename intangibles include the Roberts & Schaefer’s and Soros brands and will be amortized on a straight-lined basis over an estimated useful life of 8-10 years. Theimplied fair value of acquired intangible assetsthe reporting unit's goodwill is provisional pending receipt of the final valuation for these assets.Energo.On April 5, 2010, we acquired 100% of the outstanding common stock of Houston-based Energo Engineering (“Energo”) for approximately $16 million in cash, subject to an escrowed holdback amount of $6 million to secure working capital adjustments, indemnification obligations of the sellers, and other contingent obligations related to the operation of the business. As a result of the acquisition, we recognized goodwill of $6 million and other intangible assets of $3 million. Energo provides Integrity Management (IM) and advanced structural engineering services to the offshore oil and gas industry. Energo’s results of operations were integrated into our Hydrocarbons segment.BE&K, Inc. On July 1, 2008, we acquired 100% of the outstanding common shares of BE&K, Inc., (“BE&K”) a privately held, Birmingham, Alabama-based engineering, construction and maintenance services company. The acquisition of BE&K enhances our ability to provide contractor and maintenance services in North America. The agreed-upon purchase price was $550 million in cash subject to certain indemnifications and stockholder’s equity adjustments as defined in the stock purchase agreement. BE&K and its acquired divisions have been integrated into our Services, Hydrocarbons and IGP segments based upon the nature of the underlying projects acquired.The purchase consideration paid was approximately $559 million, which included $550 million in cash paid at closing, $7 million in cash paid related to stockholder’s equity based purchase price adjustments and $2 million of direct transaction costs. Long-lived assets largely reflect a value of replacing the assets, which takes into account changes in technology, usage, and relative obsolescence and depreciation of the assets. In addition, assets that would not normally be recorded in ordinary operations (i.e., customer relationships and other intangibles) were recorded at their estimated fair values. The excess of preliminary purchase price over the estimated fair values of the net assets acquired was recorded as goodwill.Our allocation of the purchase price to the fair value of the major assets acquired and liabilities assumed atreporting unit over the date of acquisition has been adjustedamounts assigned to reflect the agreed upon stockholder’s equity and final asset valuation adjustments. Adjustments primarily related to the estimates used in the opening balance sheet valuation for certain intangibles, accounts receivables, accounts payables and otherits assets and liabilities, as well asliabilities. The result of our step two test indicated that the settlementimplied fair value of escrow obligations. goodwill exceeded its carrying value and that the goodwill was not impaired.2009,the third quarter of 2012 in connection with our interim impairment review, we decreasedrecognized a noncash goodwill related to BE&K by approximately $7 million due to an impairment charge of $6$178 million and purchase price allocation adjustments of $1 million related to the completion ofa reporting unit within our BE&K asset valuation.Turnaround Group of Texas, Inc.In April 2008, we acquired 100% ofIGP business segment. The charge was primarily the outstanding common stock of Turnaround Group of Texas, Inc. (“TGI”). TGI is a Houston-based turnaround management and consulting company that specializes in the planning and execution of turnarounds and outages in the petrochemical, power, and pulp & paper industries. The total purchase consideration for this stock purchase transaction was approximately $7 million. As a result of the acquisition, we recognized goodwill of $5 milliondetermination that both the actual and other intangible assets of $2 million. Beginning in April 2008, TGI’s results of operations were included in our Services segment.Catalyst Interactive.In April 2008, we acquired 100% of the outstanding common stock of Catalyst Interactive, an Australian e-learningexpected income and training solution provider that specializes in the defense, government and industry training sectors. The total purchase consideration for this stock purchase transaction was approximately $5 million. As a result of the acquisition, we recognized goodwill of approximately $3 million and other intangible assets of approximately $2 million. Beginning in April 2008, Catalyst Interactive’s results of operations were included in our IGP segment.Wabi Development Corporation.In October 2008, we acquired 100% of the outstanding common stock of Wabi Development Corporation (“Wabi”) for approximately $20 million in cash. As a result of the acquisition, we recognized goodwill of $5 million and other intangible assets of $5 million. Wabi is a privately held Canada-based general contractor, which provides servicescash flows for the energy, forestry and mining industries. Wabi provides maintenance, fabrication, construction and construction management services to a variety of clients in Canada and Mexico. The integration of Wabi into ourServices segment provides additional growth opportunities for our heavy hydrocarbon, forest products, oil sand, general industrial and maintenance services business.Other TransactionsM.W. Kellogg Limited (“MWKL”). On December 31, 2010, we obtained control of the remaining 44.94% interest in our MWKL subsidiary located in the U.K for approximately $165 million (£107 million) subject to certain post-closing adjustments to be determined during the first quarter of 2011. Under the terms of the purchase agreement, the $165 million initial purchase price was paid on January 5, 2011 and recorded as “Obligation to former noncontrolling interest” in our consolidated balance sheet. In addition, we agreed to pay the former noncontrolling interest 44.94% of future proceeds collected on certain receivables owed to MWKL. Furthermore, the former noncontrolling interest agreed to indemnify us for 44.94% of certain MWKL liabilities to be settled and paid in the future. As a result, we recognized an additional $15 million net liability recorded as “Obligation to former noncontrolling interest”. The acquisition was recorded as an equity transaction that reduced noncontrolling interests, accumulated other comprehensive income (“AOCI”) and additional paid-in capital by $180 million. We recognized direct transaction costs associated with the acquisition of approximately $1 million as a direct charge to additional paid in capital.Technology License Agreement. Effective December 24, 2009, we entered into a collaboration agreement with BP p.l.c. to market and license certain technology. In conjunction with this arrangement, we acquired a license granting us the exclusive right to the technology. In January 2010, as partial consideration for the license, we paid an initial fee of $20 million, which will be amortized on a straight-line basis over the shorter of its estimated useful life or the 25-year life of the arrangement. We currently estimate the useful life to be 25 years.Note 4. Percentage-of-Completion ContractsRevenue from contracts to provide construction, engineering, design, or similar services is reported on the percentage-of-completion method of accounting using measurements of progress toward completion appropriate for the work performed. Commonly used measurements are physical progress, man-hours, and costs incurred.Billing practices for these projects are governed by the contract terms of each project based upon costs incurred, achievement of milestones, or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of accounting. Billings in excess of recognized revenue are recorded in “Advance billings on uncompleted contracts.” When billings are lessreporting unit were substantially lower than recognized revenue, the difference is recorded in “Unbilled receivables on uncompleted contracts.” With the exception of claims and change orders that are in the process of being negotiated with customers, unbilled receivables are usually billed during normal billing processes following achievement of the contractual requirements.Recording of profits and losses on percentage-of-completion contracts requires an estimate of the total profit or loss over the life of each contract. This estimate requires consideration of contract value, change orders and claims reduced by costs incurred and estimated costs to complete. Anticipated losses on contracts are recorded in full in the period they become evident. Except in a limited number of projects that have significant uncertainties in the estimation of costs, we do not delay income recognition until projects have reached a specified percentage of completion. Generally, profits are recorded from the commencement date of the contract based upon the total estimated contract profit multiplied by the current percentage complete for the contract.When calculating the amount of total profit or loss on a percentage-of-completion contract, we include unapproved claims in total estimated contract value when the collection is deemed probable based upon the four criteria for recognizing unapproved claims in accordance with FASB ASC 605-35 related to accounting for performance of construction-type and certain production-type contracts. Including unapproved claims in this calculation increases the operating income (or reduces the operating loss) that would otherwise be recorded without consideration of the probable unapproved claims. Probable unapproved claims are recorded to the extent of costs incurred and include no profit element. In all cases, the probable unapproved claims included in determining contract profit or loss are less than the actual claim that will be or has been presented to the customer.When recording the revenue and the associated unbilled receivable for unapproved claims, we only accrue an amount equal to the costs incurred related to probable unapproved claims. The amounts of unapproved claims and change orders included in determining the profit or loss on contracts and recorded in current and non-current unbilled receivables on uncompleted contracts are as follows: Years ended December 31, Millions of dollars 2010 2009 $ 19 $ 33 10 61 3 2 As of December 31, 2010, the probable unapproved claims related to a completed project. See Note 9 for a discussion of U.S. government contract claims, which are not included in the table above.Included in the table above are contracts with probable unapproved claims that will likely not be settled within one year totaling $19 million and $20 million at December 31, 2010 and 2009, respectively, which are reflected as a non-current asset in “Noncurrent unbilled receivables on uncompleted contracts” on the condensed consolidated balance sheets. Other probable unapproved claims and change orders that we believe will be settled within one year, have been recorded as a current asset in “Unbilled receivables on uncompleted contracts” on the condensed consolidated balance sheets.PEMEX Arbitration.In 1997 and 1998 we entered into three contracts with PEMEX, the project owner, to build offshore platforms, pipelines and related structures in the Bay of Campeche offshore Mexico. The three contracts were known as EPC 1, EPC 22 and EPC 28. All three projects encountered significant schedule delays and increased costsprevious forecasts due to problems with design work, late delivery and defects in equipment, increases in scope and other changes. PEMEX tookpossession of the offshore facilities of EPC 1 in March 2004 after having achieved oil production but prior to our completion of our scope of work pursuant to the contract.We filed for arbitration with the International Chamber of Commerce (“ICC”) in 2004 claiming recovery of damages of $323 million for EPC 1 and PEMEX subsequently filed counterclaims totaling $157 million. The EPC 1 arbitration hearings were held in November 2007. In December 2009, the ICC ruled in our favor and we were awarded a total of approximately $351 million including legal and administrative recovery fees as well as interest. PEMEX was awarded approximately $6 million on counterclaims, plus interest on a portion of that sum. The amount of the award exceeded the book value of our claim receivable resulting in our recognition of a $183 million of operating income and $117 million of net income in the fourth quarter of 2009. The arbitration award is legally binding and we filed a proceeding in U.S. Federal Court to recognize the award pursuant to which hearings were held in July 2010. The Court entered judgment on November 2, 2010 in our favor. The judgment included an award of approximately $356 million in our favor as of October 5, 2010, plus interest thereon until paid. PEMEX initiated an appeal and a stay related to the enforcement of the judgment which was granted by the Lower District Court and PEMEX was required to post collateral of $395 million with the court registry.PEMEX has attempted to nullify the award in Mexican court. The Mexican trial court rejected PEMEX’s nullification petition. PEMEX has filed additional appeals in the Mexican Courts. We will respond to further efforts by PEMEX to nullify our award as may be required. Although it is possible we could resolve and collect the amounts duelosses from PEMEX in the next 12 months, we believe the timing of the collection of the award is uncertain and therefore, we have continued to classify the amount due from PEMEX as a long term receivable included in “Noncurrent unbilled receivable on uncompleted contracts” as of December 31, 2010. No adjustments have been made to our receivable balance since recognition of the initial award in the fourth quarter of 2009. Depending on the timing and amount ultimately settled with PEMEX, we could recognize an additional gain upon collection of the award.Note 5. Business Segment InformationWe provide a wide range of services, but the management of our business is heavily focused on majorongoing projects within each of our reportable segments. At any given time, a relatively few number of projects and joint ventures represent a substantial part of our operations. Our equity in earnings and losses of unconsolidated affiliates that are accounted for using the equity method of accounting is included in revenue of the applicable segment.Business ReorganizationOur reportable segments are consistent with the financial information that our chief executive officer (“CEO”), who is our chief operating decision maker, reviews to evaluate operating performance and make resource allocation decisions. In the first quarter of 2010, we reorganized our business into discrete engineering and construction business units, each focused on a specific segment of the market with identifiable customers, business strategies, and sales and marketing capabilities. The reorganization includes the realignment of certain underlying projects among our existing business units as well as the transfer of certain projects to several newly formed business units as further described below. Certain realigned business units are reported under the newly formed Hydrocarbons and Infrastructure, Government & Power (“IGP”) business segments which are reportable segments as defined by the criteria in Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) 280 – Segment Reporting. Each business segment is led by a business segment president who reports directly to our chief operating decision maker. Our Services segment continues to operate as a stand-alone reportable segment reporting directly to our chief operating decision maker. Our Ventures business unit was not impacted by the reorganization. We have revised our segment reporting to represent how we now manage our business, restating prior periods to conform to the current segment presentation.The following is a description of our reportable segments:Hydrocarbons. Our Hydrocarbons business segment serves the Hydrocarbon industry by providing services ranging from prefeasibility studies to designing, and construction to commissioning of process facilities in remote locations around the world. We are involved in hydrocarbon processing which includes constructing liquefied natural gas (“LNG”) plants in several countries. Our global teams of engineers also execute and provide solutions for projects in the biofuel, carbon capture, oil and gas, olefins and petrochemical markets. The Hydrocarbons business segment includes the Gas Monetization, Oil & Gas, Downstream, and Technology business units. Prior to the 2010 business reorganization, the Downstream and Technology business units were reportedacquired as part of the Other segment and our Gas Monetization and Oil & Gas business units were collectively reported as the Upstream segment.Our Gas Monetization business unit designs and constructs facilities that enable our customers to monetize theirnatural gas resources. We design and build LNG and gas-to-liquids (“GTL”) facilities that allow for the economical development and transportation of resources from locations across the globe. Additionally, we make significant contributions in gas processing development, equipment design and innovative construction methods. Our Oil & Gas business unit delivers onshore and offshore oil and natural gas production facilities which include platforms, floating production and subsea facilities, and pipelines. We also implement the infrastructure needed to make intricate projects feasible by managing projects ranging from deepwater through landfalls, to onshore environments, in remote desert regions, tropical rain forests, and major river crossings. Our Downstream business unit provides a complete range of engineering, procurement, construction and construction services (“EPC-CS”) services, as well as program and project management, consulting, front-end engineering and design (“FEED”) for refineries, petrochemical and other plants. Our Technology business unit provides expertise related to differentiated process technologies for the coal monetization, petrochemical, refining and syngas markets.Infrastructure, Government & Power. Our IGP business segment serves the Infrastructure, Government & Power industries delivering effective solutions to defense and governmental agencies worldwide, providing base operations, facilities management, border security, engineering, procurement and construction (“EPC”) services, and logistics support. We also deliver project management support and services for an array of complex initiatives and provide project management for the airfield design and construction program, runway expansion and widening, bridges, new cargo infrastructure and drainage improvements. For the industrial manufacturing sector, we provide a full range of EPC services to a variety of heavy industrial and advanced manufacturing markets, frequently employing our clients’ proprietary knowledge and technologies in strategically critical projects. For the power market, we use our full-scope EPC expertise to execute projects which play a distinctive role in increasing the world’s power generation capacity from multiple fuel sources and in enhancing the efficiency and environmental compliance of existing power facilities. The IGP business segment includes the North American Government and Defense (“NAGD”), International Government and Defence (“IGD”), Infrastructure and Minerals (“I&M”), and the Power and Industrial (“P&I”) business units. On December 21, 2010, we completed the acquisition of 100% of the outstanding common shares of ENI Holdings, Inc. (“ENI”). ENI is the parent to the Roberts & Schaefer Company (“R&S”), a privately held, EPC services companyCompany. See Note 20 for material handlingfurther discussion on the acquisition.processing systems. R&S provides servicesother. The cost and associated processing infrastructure to customers in the mining and minerals, power, industrial, refining, aggregates, precious and base metals industries. R&S will be integrated into our Infrastructure, Government and Power segment.Services. Our Services segment delivers full-scope construction, construction management, fabrication, operations/maintenance, commissioning/startup and turnaround expertise to customers worldwide to a broad variety of markets including oil and gas, petrochemicals and hydrocarbon processing, power, alternate energy, pulp and paper, industrial and manufacturing, and consumer product industries. Specifically, Services is organized around four major product lines; U.S. Construction, Industrial Services, Building Group and Canada. Our U.S. Construction product line delivers direct hire construction, construction management for construction only projects to a variety of markets and works closely with the Hydrocarbons group and Power and Industrial business unit to provide construction execution support on all domestic EPC projects. Our Industrial Services product line is a diversified maintenance organization operating on a global basis providing maintenance, on-call construction, turnaround and specialty services to a variety of markets. This group works with allaccumulated amortization of our other operating unitsintangible assets were as follows: December 31, Millions of dollars 2013 2012 Intangibles not subject to amortization $ 11 $ 11 Intangibles subject to amortization 186 192 Total intangibles 197 203 Accumulated amortization of intangibles (112 ) (104 ) Net intangibles $ 85 $ 99 identify potentialamortization are amortized over their estimated useful lives of up to 25 years. These intangible assets are tested annually for pull through opportunities and to identify upcoming EPC projects at oneimpairment or more often if events or circumstances change that would create a triggering event. We performed an undiscounted cash flow analysis in conjunction with our annual goodwill impairment test. No impairment of the 80 plus locations where we have embedded KBR personnel. intangibles was identified.Building Group product line provides general commercial contractor-related services to education, food and beverage, health care, hospitality and entertainment, life science and technology, and mixed-use building clients. intangibles amortization expense is presented below: Years ended December 31, Millions of dollars 2013 2012 2011 Intangibles amortization expense $ 14 $ 15 $ 16 Canada product lineexpected intangibles amortization expense for the next five years is a diversified construction and fabrication operation providing direct hire construction, module assembly, fabrication and maintenance services to our Canadian customers. This product line serves a number of markets including oil and gas customers operating in the oil sands, pulp and paper, mining and industrial markets.Certain of our business units meet the definition of operating segments contained in FASB ASC 280 – Segment Reporting, but individually do not meet the quantitative thresholds as a reportable segment, nor do they share a majority of the aggregation criteria with another operating segment. These operating segments are reported on a combined basis as “Other” and include our Ventures and Allstates business units as well as corporate expenses not included in the operating segments’ results. Our segment information has been prepared in accordance with FASB ASC 280 – Segment Reporting.Our reportable segments follow the same accounting policies as those described in Note 2 (Significant Accounting Policies). Our equity in pretax earnings and losses of unconsolidated affiliates that are accounted for using the equity method of accounting is included in revenue and operating income of the applicable segment.Reportable segment performance is evaluated by our chief operating decision maker using operating segment income which is defined as operating segment revenue less the cost of services and segment overhead directly attributable to theoperating segment. Reportable segment income excludes certain cost of services and general and administrative expenses directly attributable to the operating segment that is managed and reported at the corporate level, and corporate general and administrative expenses. We believe this is the most accurate measure of the ongoing profitability of our operating segments.Labor cost absorption in the following table represents costs incurred by our central service labor and resource groups (above) or under the amounts charged to the operating segments. Additionally, in the following table depreciation and amortization associated with corporate assets is allocated to our operating segments for determining operating income or loss.The tables below present information on our reportable segments.Operations by Reportable Segment Years ended December 31, 2010 2009 2008 $ 3,969 $ 3,906 $ 3,250 4,299 6,288 7,123 1,755 1,863 1,188 76 48 20 $ 10,099 $ 12,105 $ 11,581 $ 400 $ 464 $ 332 272 188 341 102 96 101 35 16 (2) 809 764 772 12 (11 ) (8) (212 ) (217 ) (223) $ 609 $ 536 $ 541 $ 1 $ 2 $ 1 8 9 12 2 4 3 55 26 21 $ 66 $ 41 $ 37 $ 40 $ (30 ) $ 25 40 27 46 33 28 20 24 20 (3) $ 137 $ 45 $ 88 $ 3 $ 3 $ 4 6 5 6 12 19 9 41 28 30 $ 62 $ 55 $ 49 Within KBR, not all assets are associated with specific segments. Those assets specific to segments include receivables, inventories, certain identified property, plant and equipment and equity in and advances to related companies, and goodwill. The remaining assets, such as cash and the remaining property, plant and equipment, are considered to be shared among the segments and are therefore reported as General corporate assets.Balance Sheet Information by Operating Segment December 31, 2010 2009 $ 2,136 $ 1,906 2,836 2,609 590 578 (145 ) 234 $ 5,417 $ 5,327 $ 249 $ 243 399 149 287 287 12 12 $ 947 $ 691 $ 49 $ 8 13 8 33 30 124 118 $ 219 $ 164 Revenue by country is determined based on the location of services provided. Long-lived assets by country are determined based on the location of tangible assets.Selected Geographic Information Years ended December 31, Millions of dollars 2010 2009 2008 $ 2,082 $ 2,550 $ 1,761 2,891 4,239 5,033 2,094 2,260 1,538 995 1,224 1,337 1,030 624 719 585 607 815 422 601 378 $ 10,099 $ 12,105 $ 11,581 December 31, Millions of dollars 2010 2009 $ 178 $ 141 111 42 66 68 $ 355 $ 251 Millions of dollars 2014 $ 11 2015 $ 10 2016 $ 10 2017 $ 10 2018 $ 9 6. Goodwill9. Equity Method Investments and IntangibleVariable Interest EntitiesMillions of dollars 2013 2012 Balance at January 1, $ 217 $ 190 Investments — (21 ) Equity in earnings of unconsolidated affiliates 137 151 Dividends (180 ) (108 ) Advances (14 ) 6 Cumulative translation adjustment (5 ) 2 Other 1 (3 ) Balance at December 31, $ 156 $ 217 December 31, Millions of dollars 2013 2012 Accounts Receivable, net of allowance for doubtful accounts $ 6 $ 28 Costs and estimated earnings in excess of billings on uncompleted contracts $ 2 $ 3 Billings in excess of costs and estimated earnings on uncompleted contracts $ 24 $ 6 December 31, Millions of dollars 2013 2012 Current assets $ 4,114 $ 3,129 Noncurrent assets 4,222 4,159 Total assets $ 8,336 $ 7,288 Current liabilities $ 3,679 $ 2,460 Noncurrent liabilities 4,400 4,424 Total KBR-partner equity 145 286 Noncontrolling interests 112 118 Total partners' equity 257 404 Total liabilities and partners' equity $ 8,336 $ 7,288 Years ended December 31, Millions of dollars 2013 2012 2011 Revenue $ 4,800 $ 3,442 $ 2,638 Operating income $ 660 $ 777 $ 666 Net income $ 355 $ 363 $ 314 Year ended December 31, 2013 Millions of dollars VIE Total assets VIE Total liabilities Aspire Defence project $ 2,985 $ 2,920 $ 20 Ichthys LNG project $ 2,737 $ 2,731 $ 1 U.K. Road projects $ 1,314 $ 1,479 $ 34 EBIC Ammonia project $ 529 $ 293 $ 29 Fermoy Road project $ 228 $ 248 $ 3 Millions of dollars Year ended December 31, 2012 VIE Total assets VIE Total liabilities Aspire Defence project $ 2,981 $ 2,926 Ichthys LNG project $ 1,417 $ 1,324 U.K. Road projects $ 1,387 $ 1,539 EBIC Ammonia project $ 675 $ 379 Fermoy Road project $ 255 $ 253 Year ended December 31, 2013 VIE Total assets VIE Total liabilities Gorgon LNG project $ 448 $ 476 Escravos Gas-to-Liquids project $ 43 $ 72 Fasttrax Limited project $ 96 $ 98 Year ended December 31, 2012 VIE Total assets VIE Total liabilities Gorgon LNG project $ 580 $ 620 Escravos Gas-to-Liquids project $ 267 $ 320 Fasttrax Limited project $ 101 $ 105 Goodwill$26 millionBusiness Reorganization. and property, plant and equipment of approximately $67 million, net of accumulated depreciation as of December 31, 2013. See Note 11 for further details regarding our nonrecourse project-finance debt of this VIE consolidated by KBR, including the total amount of debt outstanding at December 31, 2013. Pension Benefits Benefit obligation United States Int’l United States Int’l Millions of dollars 2013 2012 Change in projected benefit obligations Projected benefit obligations at beginning of period $ 91 $ 1,862 $ 88 $ 1,660 Service cost — 2 — 2 Interest cost 3 79 3 81 Foreign currency exchange rate changes — 37 — 63 Actuarial (gain) loss (5 ) 129 5 115 Other — (2 ) — (2 ) Benefits paid (10 ) (59 ) (5 ) (57 ) Projected benefit obligations at end of period $ 79 $ 2,048 $ 91 $ 1,862 Accumulated benefit obligations at end of period $ 79 $ 2,048 $ 91 $ 1,862 Pension Benefits Plan assets United States Int’l United States Int’l Millions of dollars 2013 2012 Change in plan assets Fair value of plan assets at beginning of period $ 71 $ 1,491 $ 64 $ 1,354 Actual return on plan assets 8 65 9 117 Employer contributions 1 53 3 27 Foreign currency exchange rate changes — 33 — 52 Benefits paid (10 ) (59 ) (5 ) (57 ) Other — (3 ) — (2 ) Fair value of plan assets at end of period $ 70 $ 1,580 $ 71 $ 1,491 Funded status $ (9 ) $ (468 ) $ (20 ) $ (371 ) Pension obligations United States Int’l United States Int’l Millions of dollars 2013 2012 Amounts recognized on the consolidated balance sheet Pension obligations $ (9 ) $ (468 ) $ (20 ) $ (371 ) Pension Benefits United States Int’l United States Int’l United States Int’l Millions of dollars 2013 2012 2011 Components of net periodic benefit cost Service cost $ — $ 2 $ — $ 2 $ — $ 1 Interest cost 3 79 3 81 4 86 Expected return on plan assets (5 ) (86 ) (4 ) (93 ) (4 ) (98 ) Settlements/curtailments 2 — — — — — Recognized actuarial loss 2 33 2 25 1 20 Net periodic benefit cost $ 2 $ 28 $ 1 $ 15 $ 1 $ 9 Pension Benefits Millions of dollars United States Int’l Net actuarial loss, net of tax of $10 and $210, respectively $ 18 $ 590 Total in accumulated other comprehensive loss $ 18 $ 590 Pension Benefits Millions of dollars United States International Actuarial loss $ 2 $ 31 Total $ 2 $ 31 Pension Benefits United States Int’l United States Int’l United States Int’l 2013 2012 2011 Discount rate 3.09 % 4.50 % 3.74 % 4.90 % 4.84 % 5.45 % Expected return on plan assets 7.00 % 6.15 % 7.00 % 6.60 % 7.00 % 7.00 % Weighted-average assumptions used to determine benefit obligations at measurement date Pension Benefits United States Int’l United States Int’l 2013 2012 Discount rate 3.38 % 4.45 % 3.09 % 4.50 % Target Allocation - Asset Class 2014 Targeted Asset Allocation United States Int'l Cash and cash equivalents 25 % — % Equity funds and securities 30 % 19 % Fixed income funds and securities 45 % 56 % Hedge funds — % 8 % Real estate funds — % 5 % Other — % 12 % Total 100 % 100 % International Plans 2014 Targeted 2013 Targeted Percentage Range Percentage Range Minimum Maximum Minimum Maximum Equity funds and securities — % 51 % — % 51 % Fixed income funds and securities — % 100 % — % 100 % Hedge funds — % 20 % — % 20 % Real estate funds — % 10 % — % 10 % Other — % 35 % — % 35 % Domestic Plans 2014 Targeted 2013 Targeted Percentage Range Percentage Range Minimum Maximum Minimum Maximum Cash and cash equivalents 25 % 25 % — % — % Equity funds, securities and other 39 % 51 % 56 % 71 % Fixed income funds and securities 24 % 36 % 29 % 44 % Fair Value Measurements at Reporting Date Millions of dollars Total Level 1 Level 2 Level 3 Asset Category at December 31, 2013 United States plan assets Equity funds $ 15 $ 10 $ 5 $ — Equity securities 17 16 1 — Fixed income funds 8 8 — — Government bonds 4 — 4 — Corporate bonds 8 — 8 — Cash and cash equivalents 18 — 18 — Total United States plan assets $ 70 $ 34 $ 36 $ — International plan assets Equity funds $ 378 $ 116 $ 261 $ 1 Equity securities 51 50 1 — Fixed income funds 768 400 335 33 Hedge funds 130 — 25 105 Real estate funds 69 — 36 33 Other funds 120 — 69 51 Cash and cash equivalents 50 50 — — Other 14 7 — 7 Total international plan assets $ 1,580 $ 623 $ 727 $ 230 Total plan assets at December 31, 2013 $ 1,650 $ 657 $ 763 $ 230 Fair Value Measurements at Reporting Date Millions of dollars Total Level 1 Level 2 Level 3 Asset Category at December 31, 2012 United States plan assets Equity funds $ 25 $ 19 $ 6 $ — Equity securities 22 22 — — Fixed income funds 10 10 — — Government bonds 4 — 4 — Corporate bonds 9 — 9 — Cash and cash equivalents 1 — 1 — Total United States plan assets $ 71 $ 51 $ 20 $ — International plan assets Equity funds $ 357 $ 94 $ 263 $ — Equity securities 40 39 1 — Fixed income funds 784 410 330 44 Hedge funds 115 — 27 88 Real estate funds 62 — 35 27 Other funds 110 — 57 53 Cash and cash equivalents 13 11 2 — Other 10 3 — 7 Total international plan assets $ 1,491 $ 557 $ 715 $ 219 Total plan assets at December 31, 2012 $ 1,562 $ 608 $ 735 $ 219 Millions of dollars Total Equity Funds Fixed Income Funds Hedge Funds Real Estate Funds Other Funds Other International plan assets Balance at December 31, 2011 $ 10 $ — $ — $ — $ — $ — $ 10 Return on assets held at end of year 6 — 2 3 1 — — Purchases, sales and settlements 198 — 41 83 25 52 (3 ) Foreign exchange impact 5 — 1 2 1 1 — Balance at December 31, 2012 $ 219 $ — $ 44 $ 88 $ 27 $ 53 $ 7 Return on assets held at end of year 20 — (1 ) 15 3 3 — Return on assets sold during the year 3 — 3 — — — — Purchases, sales and settlements, net (15 ) 1 (12 ) — 2 (6 ) — Foreign exchange impact 3 — (1 ) 2 1 1 — Balance at December 31, 2013 $ 230 $ 1 $ 33 $ 105 $ 33 $ 51 $ 7 Pension Benefits Millions of dollars United States Int’l 2014 $ 3 $ 64 2015 $ 24 $ 66 2016 $ 4 $ 68 2017 $ 4 $ 71 2018 $ 4 $ 73 Years 2019 – 2023 $ 21 $ 405 Millions of dollars December 31, 2013 2012 Deferred compensation plans obligations $ 66 $ 58 Millions of dollars December 31, 2013 Current nonrecourse project-finance debt of a VIE consolidated by KBR $ 10 Noncurrent nonrecourse project-finance debt of a VIE consolidated by KBR $ 78 Total nonrecourse project-finance debt of a VIE consolidated by KBR $ 88 Millions of dollars Payments Due 2014 $ 10 2015 $ 10 2016 $ 11 2017 $ 12 2018 $ 12 Beyond 2018 $ 33 Years ended December 31, Millions of dollars 2013 2012 2011 Current income taxes: Federal $ (7 ) $ 61 $ (19 ) Foreign (109 ) (130 ) (183 ) State 4 1 (3 ) Total current (112 ) (68 ) (205 ) Deferred income taxes: Federal 13 12 110 Foreign (44 ) (42 ) 62 State 7 12 1 Total deferred (24 ) (18 ) 173 Provision for income taxes $ (136 ) $ (86 ) $ (32 ) Years ended December 31, Millions of dollars 2013 2012 2011 United States $ (142 ) $ (366 ) $ 12 Foreign 605 654 560 Total $ 463 $ 288 $ 572 Years ended December 31, 2013 2012 2011 U.S. statutory federal rate 35.0 % 35.0 % 35.0 % Rate differentials on foreign earnings (3.1 ) (7.9 ) (3.8 ) Non-deductible goodwill impairment — 21.6 — State and local income taxes (0.6 ) 0.2 0.4 Foreign, federal and state tax adjustments (0.6 ) (2.9 ) (5.4 ) Halliburton tax sharing agreement arbitration 8.1 — — Barracuda arbitration award indemnification — (2.8 ) (12.1 ) Tax benefit from Australian joint venture losses — (3.2 ) (5.6 ) U.S. taxes provided on 50% of Australian earnings 1.2 3.9 — Valuation allowance 1.3 3.4 (1.4 ) Uncertain tax position changes (3.9 ) (9.9 ) (1.8 ) Taxes on unconsolidated affiliates (3.4 ) (3.2 ) — Taxes on unincorporated joint ventures (6.0 ) (5.0 ) (1.8 ) U.K. tax rate change 2.8 3.5 1.2 Other permanent items, net (1.4 ) (2.8 ) 0.9 Total effective tax rate on pretax earnings 29.4 % 29.9 % 5.6 % Years ended December 31, Millions of dollars 2013 2012 Deferred tax assets: Employee compensation and benefits $ 176 $ 185 Foreign tax credit carryforwards 179 24 Accrued foreign tax credit carryforwards 81 — Loss carryforwards 123 74 Insurance accruals 25 29 Allowance for bad debt 8 9 Accrued liabilities 50 69 Barracuda arbitration award indemnification — 79 Total 642 469 Valuation allowances (44 ) (36 ) Net deferred tax asset 598 433 Deferred tax liabilities: Construction contract accounting $ (87 ) $ (15 ) Intangibles (49 ) (47 ) Depreciation and amortization (43 ) (25 ) Other (29 ) (13 ) Total (208 ) (100 ) Deferred income tax asset, net $ 390 $ 333 Millions of dollars 2013 2012 2011 Balance at January 1 $ 95 $ 120 $ 95 Increases in tax positions for current year 4 6 37 Increases in tax positions for prior years 15 13 11 Decreases in tax positions for prior years (36 ) (25 ) (5 ) Reductions in tax positions for audit settlements — (11 ) (7 ) Reductions in tax positions for lapse of statute of limitations (2 ) (9 ) (11 ) Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions (7 ) 1 — Balance at December 31 $ 69 $ 95 $ 120 reorganizedreceived Form 1s from the DCAA disapproving billed costs related to work performed under our business into discrete business units, each focused on a specific segment of the market with identifiable customers, business strategies, and sales and marketing capabilities. Certain realigned business units are reported under the newly formed Hydrocarbons and IGP segments. We have revised our segment reporting to represent how we now manage our business, restating prior periods to conform to the current segment presentationCONCAP III contract with the significant changesU.S. Navy to provide emergency construction services primarily to government facilities damaged by Hurricanes Katrina and Wilma. The Form 1 was issued for $25 million in presentation discussed below.In millions Hydrocarbons IGP Services Other Total 159 31 397 107 694 84 118 (118) (84) — 243 149 279 23 694 — — — (6) (6) — — 3 — 3 — — 5 (5) — 243 149 287 12 691 — 250 — — 250 6 — — — 6 $ 249 $ 399 $ 287 $ 12 $ 947 increase in goodwill was primarily due to the acquisitiongovernment had previously paid $15 million and has withheld payments of R&S in December 2010 and Energo in April 2010. See Note 3 for further discussion of these acquired entities.In the third quarter of 2009, we recognized a goodwill impairment charge of approximately $6 million related to the AllStates staffing business unit in connection with our annual goodwill impairment test on September 30, 2009. The charge was primarily the result of a decline in the staffing market, the effect of the recession on the market, and our reduced forecasts of the sales, operating income and cash flows for this reporting unit that were identified through the course of our annual planning process. As of October 1, 2010, goodwill and intangibles for this reporting unit totaled approximately $18 million, including goodwill of $12$10 million.Intangible AssetsIntangible assets are comprised of customer relationships, contracts, backlog, trade name licensing agreements and other. 20102013, we have recorded $10 million due from the government related to these matters in "claims and 2009, the cost and accumulated amortizationaccounts receivable" on our consolidated balance sheets. As of our intangible assets were as follows: At December 31, 2010 2009 $ 11 $ 10 190 106 201 116 (74) (58) $ 127 $ 58 Intangibles subject to amortization are amortized over their estimated useful lives of up to 15 years. Our intangible amortization expense for the years ended December 31, 2010, 2009 and 2008 is presented below:Millions of dollars Intangibles
amortization
expense $ 11 $ 15 $ 12 Our expected intangibles amortization expense2013, we have accrued our estimate of probable loss related to an unfavorable settlement of this matter recorded in future periods is presented below: Expected future
intangibles
amortization
expense $ 15 $ 14 $ 13 $ 11 $ 10 Note 7. Property, Plant and EquipmentOther than those assets"other liabilities" on our consolidated balance sheets. At this time, we believe that have been written downthe likelihood we would incur a loss related to their fair values due to impairment, property, plant, and equipment are reported at cost less accumulated depreciation, which is generally provided on the straight-line method over the estimated useful livesthis matter in excess of the assets. Some assets are depreciated on accelerated methods. Accelerated depreciation methods are also used for tax purposes, wherever permitted. Upon sale or retirement of an asset,amounts we have accrued is remote.related costs and accumulated depreciation are removed frombilled to the accounts and any gain or loss is recognized.Property, plant and equipment are composed of the following:
Useful Millions of dollars 2010 2009 N/A $ 31 $ 31 5-44 212 203 3-20 446 281 689 515 (334) (264) $ 355 $ 251 In the fourth quarter of 2010, we recognized a $5 million impairment charge on long-lived assets associated with a technology center in our Hydrocarbons segmentU.S. Navy primarily related to equipment, landsubcontract costs that were either inappropriately bid, included unallowable profit markup or were unreasonable. In February 2012, the Contracting Officer rendered a Contracting Officer Final Determination (“COFD”) disallowing $15 million of direct costs. We filed an appeal with the ASBCA in June 2012. We believe we undertook adequate and buildings. Our Hydrocarbons segment intendsreasonable steps to replaceensure that proper bidding procedures were followed and the functionamounts billed to the government were reasonable and not in violation of the technology operating centerFAR.alliancesthe Form 1 process, the negotiation, administration and joint-venturessettlement of our contracts, consisting primarily of DoD contracts, are subject to audit by the DCAA, which serves in an advisory role to the DCMA. The DCMA is responsible for the administration of our contracts. The scope of these audits include, among other things, the allowability, allocability and reasonableness of incurred costs, provisional approval of annual billing rates, approval of annual overhead rates, compliance with third parties rather than direct ownership. the FAR and Cost Accounting Standards (“CAS”), compliance with certain unique contract clauses and audits of certain aspects of our internal control systems. We attempt to resolve all issues identified in audit reports by working directly with the DCAA and the Administrative Contracting Officers ("ACOs").decision to sellbillings are in compliance with our contract terms. In some cases, we may not reach agreement with the assets, we adjustedDCAA or the carrying values to fair valueACOs regarding potentially unallowable costs which may result in our filing of claims in various courts such as the ASBCA or the U.S. COFC. We have accrued our estimate of potentially unallowable costs using a combination of specific estimates and our settlement rate experience with the government. As of December 31, 20102013, we have accrued $44 million as our estimate of probable loss as a reduction to "claims and accounts receivable" and in "other liabilities" on our consolidated balance sheets.faircosts will result in the collection of revenue. We generally do not recognize additional revenue for disputed or potentially unallowable costs for which revenue has been previously reduced until we reach agreement with the DCAA and/or the ACOs that such costs are allowable.was based on third-party market pricesthe task order. We have $108 million of claims primarily from de-obligated funding on certain task orders that were also subject to Form 1s relating to certain DCAA audit issues discussed above. We believe such disputed costs will be resolved in our favor at which time the government will be required to obligate funds from appropriations for similar assets.the year in which resolution occurs. These claims are recorded in "claims and accounts receivable" on our consolidated balance sheets. Of the remaining claims balance of $129 million, $120 million is recorded in "claims and accounts receivable" and the remaining is recorded in "CIE" on our consolidated balance sheets. These claims represent costs for which incremental funding is pending in the normal course of business along with specific items listed above. The claims outstanding at December 31, 2013 are considered to be probable of collection and have been previously recognized as revenue.8. Debt and Other Credit FacilitiesRevolving Credit FacilityOn November 3, 2009, we entered into a new syndicated, unsecured $1.1 billion three-year revolving credit agreement (the “Revolving Credit Facility”), with Citibank, N.A., as agent, and a group of banks and institutional lenders replacing our previous facility, which was terminated when we entered into the new Revolving Credit Facility. The Revolving Credit Facility is used for working capital and letters of credit for general corporate purposes and expires in November 2012. While there is no sub-limit for letters of credit under this facility, letters of credit fronting commitments at December 31, 2010 totaled $880 million, which we would seek to expand if necessary. Amounts drawn under the Revolving Credit Facility will bear interest at variable rates based either on the London interbank offered rate (“LIBOR”) plus 3%, or a base rate plus 2%, with the base rate being equal to the highest of reference bank’s publicly announced base rate, the Federal Funds Rate plus 0.5%, or LIBOR plus 1%. The Revolving Credit Facility provides for fees on the undrawn amounts of letters of credit issued under the Revolving Credit Facility of 1.5% for performance and commercial letters of credit and 3% for all others. We are also charged an issuance fee of 0.05% for the issuance of letters of credit, a per annum commitment fee of 0.625% for any unused portion of the credit line, and a per annum fronting commitment fee of 0.25%. As of December 31, 2010, there were no outstanding advances and $278 million in letters of credit issued and outstanding under the Revolving Credit Facility.The Revolving Credit Facility includes financial covenants requiring maintenance of a ratio of consolidated debt to consolidated EBITDA of 3.5 to 1 and a minimum consolidated net worth of $2 billion plus 50% of consolidated net income for each quarter ending after September 30, 2009 plus 100% of any increase in shareholders’ equity attributable to the sale of equity securities.The Revolving Credit Facility contains a number of covenants restricting, among other things, our ability to incur additional liens and sales of our assets, as well as limiting the amount of investments we can make. The Revolving Credit Facility also permits us, among other things, to declare and pay shareholder dividends and/or engage in equity repurchases not to exceed $400 million in the aggregate and to incur indebtedness in respect of purchase money obligations, capitalized leases and refinancing or renewals secured by liens upon or in property acquired, constructed or improved in an aggregate principal amount not to exceed $200 million. At December 31, 2010, the remaining limit of the above mentioned covenant that we can use to re-acquire KBR common stock or to pay dividends is approximately $137 million. Our subsidiaries may incur unsecured indebtedness not to exceed $100 million in aggregate outstanding principal amount at any time.Letters of creditIn connection with certain projects, we are required to provide letters of credit or surety bonds to our customers. Letters of credit are provided to customers in the ordinary course of business to guarantee advance payments from certain customers, support future joint venture funding commitments and to provide performance and completion guarantees on engineering and construction contracts. We have $1.9 billion in committed and uncommitted lines of credit to support letters of credit and as of December 31, 2010 and we had utilized $623 million of our credit capacity for letters of credit, including $37 million in letters of credit issued and outstanding under various Halliburton facilities that are irrevocably and unconditionally guaranteed by our former parent. Surety bonds are also posted under the terms of certain contracts primarily related to state and local government projects to guarantee our performance.The $623 million in letters of credit outstanding on KBR lines of credit was comprised of $278 million issued under our Revolving Credit Facility and $345 million issued under uncommitted bank lines at December 31, 2010. Of the total letters of credit outstanding, $274 million relate to our joint venture operations and $22 million of the letters of credit have terms that could entitle a bank to require cash collateralization on demand. Approximately $182 million of the $278 million letters of credit issued under our Revolving Credit Facility have expiry dates close to or beyond the maturity date of the facility. Under the terms of the Revolving Credit Facility, if the original maturities date of November 2, 2012 is not extended then the issuing banks may require that we provide cash collateral for these extended letters of credit no later than 95 days prior to the original maturity date. As the need arises, future projects will be supported by letters of credit issued under our Revolving Credit Facility or arranged on a bilateral basis. We believe we have adequate letter of credit capacity under our existing Revolving Credit Facility and bilateral lines of credit to support our operations for the next twelve months.Halliburton has guaranteed certain letters of credit and surety bonds and provided parent company guarantees related to our performance and financial commitments on certain projects. We expect to cancel these letters of credit and surety bonds as we complete the underlying projects. We agreed to pay Halliburton a quarterly carry charge, which has increased in accordance with our extension provisions, for its guarantees of our outstanding letters of credit and surety bonds and agreed to indemnify Halliburton for all losses in connection with the outstanding credit support instruments and any new creditsupport instruments relating to our business for which Halliburton may become obligated following the separation. During 2009, we paid an annual fee to Halliburton calculated at 0.40% of the outstanding performance-related letters of credit, 0.80% of the outstanding financial-related letters of credit guaranteed by Halliburton and 0.25% of the outstanding guaranteed surety bonds. Effective January 1, 2010, the annual fee increased to 0.90%, 1.65% and 0.50% of the outstanding performance-related and financial-related outstanding issued letters of credit and the outstanding guaranteed surety bonds, respectively.Nonrecourse Project Finance DebtIn 2001, Fasttrax Limited, a joint venture in which we own a 50% equity interest with an unrelated partner, was awarded a contract with the U.K. MoD to provide a fleet of 92 heavy equipment transporters (“HETs”) to the British Army. Under the terms of the arrangement, Fasttrax Limited will operate and maintain the HET fleet for a term of 22 years. The purchase of the HETs by the joint venture was financed through a series bonds secured by the assets of Fasttrax Limited totaling approximately £84.9 million and are non-recourse to KBR and its partner of which £12.2 million provided equity bridge financing. The bridge financing was replaced in 2005 with combined equity capital contributions and subordinated loans from the joint venture partners. The bonds are guaranteed by Ambac Assurance UK Ltd under a policy that guarantees the schedule of the principle and interest payments to the bond trustee in the event of non-payment by Fasttrax Limited. See Note 15 for additional details on Fasttrax Limited non-recourse project finance debt of a VIE that is consolidated by KBR.Note 9. United States Government Contract WorkWe provide substantial work under our government contracts to the United States Department of Defense and other governmental agencies. These contracts include our worldwide United States Army logistics contracts, known as LogCAP III and IV, and the U.S. Army Europe (“USAREUR”) contract.Given the demands of working in Iraq and elsewhere for the U.S. government, as discussed further below, we have disagreements and have experienced performance issues with the various government customers for which we work. When performance issues arise under any of our government contracts, the government retains the right to pursue remedies, which could include termination, under any affected contract. If any contract were so terminated, we may not receive award fees under the affected contract, and our ability to secure future contracts could be adversely affected, although we would receive payment for amounts owed for our allowable costs under cost-reimbursable contracts. Other remedies that could be sought by our 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 government. Further, the negative publicity that could arise from disagreements with our customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry, reduce our ability to compete for new contracts, and may also have a material adverse effect on our business, financial condition, results of operations, and cash flow.We have experienced and expect to be a party to various claims against us by employees, third parties, soldiers, subcontractors and others that have arisen out of our work in Iraq such as claims for wrongful termination, assaults against employees, personal injury claims by third parties and army personnel, and subcontractor claims. While we believe we conduct our operations safely, the environments in which we operate often lead to these types of claims. We believe the vast majority of these types of claims are governed by the Defense Base Act or precluded by other defenses. We have a dispute resolution program under which most employment claims are subject to binding arbitration. However, as a result of amendments to the Department of Defense Appropriations Act of 2010, certain types of employee claims cannot be compelled to binding arbitration. An unfavorable resolution or disposition of these matters could have a material adverse effect on our business, results of operations, financial condition and cash flow.Award FeesIn accordance with the provisions of the LogCAP III contract, we earn profits on our services rendered based on a combination of a fixed fee plus award fees granted by our customer. Both fees are measured as a percentage rate applied to estimated and negotiated costs. Our customer is contractually obligated to periodically convene Award-Fee Boards, which are comprised of individuals who have been designated to assist the Award Fee Determining Official (“AFDO”) in making award fee determinations. Award fees are based on evaluations of our performance using criteria set forth in the contract, which include non-binding monthly evaluations made by our customers in the field of operations. Although these criteria have historically been used by the Award-Fee Boards in reaching their recommendations, the amounts of award fees are determined at the sole discretion of the AFDO.On February 19, 2010, KBR was notified by the AFDO that a determination had been made regarding the Company’sperformance for the period January 2008 to April 2008 in Iraq. The notice stated that based on information received from various Department of Defense individuals and organizations after the date of the evaluation board held in June 2008, the AFDO made a unilateral decision to grant no award fees for the period of performance from January 2008 to April 2008.As a result of the AFDO’s adverse determination, in the fourth quarter of 2009, we reversed award fees that had previously been estimated as earned and recognized as revenue. Until we are able to reliably estimate fees to be awarded in the future, we will recognize award fees on the LogCAP III contract in the period they are awarded. In May 2010, we recognized an award fee of approximately $60 million representing approximately 47% of the available award fee pool for the period of performance from May 2008 through August 2009 which we recorded as an increase to revenue in the second quarter of 2010. In September 2010, we recognized an award fee of approximately $34 million representing approximately 66% of the available award fee pool for the period of performance from September 2009 through February 2010 on task orders in Iraq and from September 2009 through May 2010 on task orders in Afghanistan, which was recorded as an increase to revenue in the third quarter of 2010.Prior to the fourth quarter of 2009, we recognized award fees on the LogCAP III contract using an estimated accrual of the amounts to be awarded. Once task orders underlying the work are definitized and award fees are granted, we adjusted our estimate of award fees to the actual amounts earned. We used 72% as our accrual rate through the third quarter of 2009.Government Compliance MattersThe negotiation, administration, and settlement of our contracts with the U.S. Government, consisting primarily of Department of Defense contracts, are subject to audit by the Defense Contract Audit Agency (“DCAA”), which serves in an advisory role to the Defense Contract Management Agency (“DCMA”) which is responsible for the administration of our contracts. The scope of these audits include, among other things, the allowability, allocability, and reasonableness of incurred costs, approval of annual overhead rates, compliance with the Federal Acquisition Regulation (“FAR”) and Cost Accounting Standard (“CAS”) Regulations, compliance with certain unique contract clauses, and audits of certain aspects of our internal control systems. Issues identified during these audits are typically discussed and reviewed with us, and certain matters are included in audit reports issued by the DCAA, with its recommendations to our customer’s administrative contracting officer (“ACO”). We attempt to resolve all issues identified in audit reports by working directly with the DCAA and the ACO. When agreement cannot be reached, DCAA may issue a Form 1, “Notice of Contract Costs Suspended and/or Disapproved,” which recommends withholding the previously paid amounts or it may issue an advisory report to the ACO. KBR is permitted to respond to these documents and provide additional support. At December 31, 2010, we had open Form 1’s from the DCAA recommending suspension of payments totaling approximately $319 million associated with our contract costs incurred in prior years, of which approximately $160 million has been withheld from our current billings. As a consequence, for certain of these matters, we have withheld approximately $81 million from our subcontractors under the payment terms of those contracts. In addition, we have outstanding demand letters received from our customer requesting that we remit a total of $84 million of disapproved costs for which we currently do not intend to pay. We continue to work with our ACO’s, the DCAA and our subcontractors to resolve these issues. However, for certain of these matters, we have filed claims with the Armed Services Board of Contract Appeals or the United States Court of Federal Claims.KBR excludes from billings to the U.S. Government costs that are expressly unallowable, or mutually agreed to be unallowable, or not allocable to government contracts per applicable regulations. Revenue recorded for government contract work is reduced for our estimate of potentially refundable costs related to issues that may be categorized as disputed or unallowable as a result of cost overruns or the audit process. Our estimates of potentially unallowable costs are based upon, among other things, our internal analysis of the facts and circumstances, terms of the contracts and the applicable provisions of the FAR, quality of supporting documentation for costs incurred, and subcontract terms as applicable. From time to time, we engage outside counsel to advise us on certain matters in determining whether certain costs are allowable. We also review our analysis and findings with the ACO as appropriate. In some cases, we may not reach agreement with the DCAA or the ACO regarding potentially unallowable costs which may result in our filing of claims in various courts such as the Armed Services Board of Contract Appeals (“ASBCA”) or the United States Court of Federal Claims (“COFC”). We only include amounts in revenue related to disputed and potentially unallowable costs when we determine it is probable that such costs will result in revenue. We generally do not recognize additional revenue for disputed or potentially unallowable costs for which revenue has been previously reduced until we reach agreement with the DCAA and/or the ACO that such costs are allowable.Certain issues raised as a result of contract audits and other investigations are discussed below.Private Security. In February 2007, we received a Form 1 notice from the Department of the Army informing us of their intent to adjust payments under the LogCAP III contract associated with the cost incurred for the years 2003 through2006 by certain of our subcontractors to provide security to their employees. Based on that notice, the Army withheld its initial assessment of $20 million. The Army based its initial assessment on one subcontract wherein, based on communications with the subcontractor, the Army estimated 6% of the total subcontract cost related to the private security costs. The Army previously indicated that not all task orders and subcontracts have been reviewed and that they may make additional adjustments. In August 2009, we received a Form 1 notice from the DCAA disapproving an additional $83 million of costs incurred by us and our subcontractors to provide security during the same periods. Since that time, the Army withheld an additional $24 million in payments from us bringing the total payments withheld to approximately $44 million as of December 31, 2010 out of the Form 1 notices issued to date of $103 million.The Army indicated that they believe our LogCAP III contract prohibits us and our subcontractors from billing costs of privately acquired security. We believe that, while the LogCAP III contract anticipates that the Army will provide force protection to KBR employees, it does not prohibit us or any of our subcontractors from using private security services to provide force protection to KBR or subcontractor personnel. In addition, a significant portion of our subcontracts are competitively bid fixed price subcontracts. As a result, we do not receive details of the subcontractors’ cost estimate nor are we legally entitled to it. Further, we have not paid our subcontractors any additional compensation for security services. Accordingly, we believe that we are entitled to reimbursement by the Army for the cost of services provided by us or our subcontractors, even if they incurred costs for private force protection services. Therefore, we believe that the Army’s position that such costs are unallowable and that they are entitled to withhold amounts incurred for such costs is wrong as a matter of law.In 2007, we provided at the Army’s request information that addresses the use of armed security either directly or indirectly charged to LogCAP III. In October 2007, we filed a claim to recover the original $20 million that was withheld which was deemed denied as a result of no response from the contracting officer. To date, we have filed appeals to the ASBCA to recover $44 million of the amounts withheld from us which is currently in the early stages of discovery. We believe these sums were properly billed under our contract with the Army. At this time, we believe the likelihood that a loss related to this matter has been incurred is remote. We have not adjusted our revenues or accrued any amounts related to this matter. This matter is also the subject of a separate claim filed by the Department of Justice (“DOJ”) for alleged violation of the False Claims Act as discussed further below under the heading “Investigations, Qui Tams and Litigation.”Containers. In June 2005, the DCAA recommended withholding certain costs associated with providing containerized housing for soldiers and supporting civilian personnel in Iraq. The DCMA agreed that the costs be withheld pending receipt of additional explanation or documentation to support the subcontract costs. We have not received a final determination by the DCMA and, as requested, we continue to provide information to the DCMA. As of December 31, 2010, approximately $26 million of costs have been suspended under Form 1 notices and withheld from us by our customer related to this matter of which $30 million has been withheld by us from our subcontractor. In April 2008, we filed a counterclaim in arbitration against our LogCAP III subcontractor, First Kuwaiti Trading Company, to recover approximately $51 million paid to the subcontractor for containerized housing as further described under the caption First Kuwaiti Trading Company arbitration below. We will continue working with the government and our subcontractor to resolve the remaining amounts. We believe that the costs incurred associated with providing containerized housing are reasonable and we intend to vigorously defend ourselves in this matter. We do not believe that we face a risk of significant loss from any disallowance of these costs in excess of the amounts we have withheld from subcontractors and the loss accruals we have recorded. At this time, the likelihood that a loss in excess of the amount accrued for this matter is remote.Dining facilities.In 2006, the DCAA raised questions regarding our billings and price reasonableness of costs related to dining facilities in Iraq. We responded to the DCMA that our costs are reasonable. As of December 31, 2010, we have outstanding Form 1 notices from the DCAA disapproving $165 million in costs related to these dining facilities until such time we provide documentation to support the price reasonableness of the rates negotiated with our subcontractor and demonstrate that the amounts billed were in accordance with the contract terms. We believe the prices obtained for these services were reasonable and intend to vigorously defend ourselves on this matter. We filed claims in the U.S. COFC to recover $58 million of the $80 million withheld from us by the customer. The claims proceedings are in the discovery process and no trial date has been set but is expected to occur in 2011. With respect to questions raised regarding billing in accordance with contract terms, as of December 31, 2010, we believe it is reasonably possible that we could incur losses in excess of the amount accrued for possible subcontractor costs billed to the customer that were possibly not in accordance with contract terms. However, we are unable to estimate an amount of possible loss or range of possible loss in excess of the amount accrued related to any costs billed to the customer that were not in accordance with the contract terms. We believe the prices obtained for these services were reasonable, we intend to vigorously defend ourselves in this matter and we do not believe we face a risk of significant loss from any disallowance of these costs in excess of amounts withheld from subcontractors. As of December 31, 2010, we had withheld $41 million in payments from our subcontractors pending the resolution of these matters with our customer.Additionally, one of our subcontractors, Tamimi, filed for arbitration to recover approximately $35 million for payments we have withheld from them pending the resolution of the Form 1 notices with our customer. In December 2010, the arbitration panel ruled that the subcontract terms were not sufficient to hold retention from Tamimi for price reasonableness matters and awarded the subcontractor $35 million plus interest thereon and certain legal costs. As a result of the arbitration award, we recorded an additional charge of $5 million in the fourth quarter of 2010 associated with the interest due on the accrued retention payable to Tamimi and other costs awarded. We also have a claim pending in the U.S. COFC to recover the $35 million from the U.S. government and we believe it is probable that we will recover such amounts.Transportation costs. The DCAA, in performing its audit activities under the LogCAP III contract, raised a question about our compliance with the provisions of the Fly America Act. Subject to certain exceptions, the Fly America Act requires Federal employees and others performing U.S. Government-financed foreign air travel to travel by U.S. flag air carriers. There are times when we transported personnel in connection with our services for the U.S. military where we may not have been in compliance with the Fly America Act and its interpretations through the Federal Acquisition Regulations and the Comptroller General. As of December 31, 2010, we have accrued an estimate of the cost incurred for these potentially non-compliant flights with a corresponding reduction to revenue. The DCAA may consider additional flights to be noncompliant resulting in potential larger amounts of disallowed costs than the amount we have accrued. At this time, we cannot estimate a range of reasonably possible losses that may have been incurred, if any, in excess of the amount accrued. We will continue to work with our customer to resolve this matter.Construction services. As of December 31, 2010, we have outstanding Form 1 notices from the DCAA disapproving approximately $25 million in costs related to work performed under our CONCAP III contract with the U.S. Navy to provide emergency construction services primarily to Government facilities damaged by Hurricanes Katrina and Wilma. The DCAA claims the costs billed to the U.S. Navy primarily related to subcontract costs that were either inappropriately bid, included unallowable profit markup or were unreasonable. In April 2010, we met with the U.S. Navy in an attempt to settle the potentially unallowable costs. As a result of the meeting, approximately $7 million of the potentially unallowable costs was agreed in principle to be allowable and approximately $1 million unallowable. We are working with the ACO to finalize a settlement of this position. Settlement of the remaining disputed amounts is pending further discussions with the customer regarding the applicable provisions of the FAR and interpretations thereof, as well as providing additional supporting documentation to the customer. As of December 31, 2010, the U.S. Navy has withheld approximately $10 million from us. We believe we undertook adequate and reasonable steps to ensure that proper bidding procedures were followed and the amounts billed to the customer were reasonable and not in violation of the FAR. As of December 31, 2010, we have accrued our estimate of probable loss related to this matter; however, it is reasonably possible we could incur additional losses.Investigations, Qui Tams and LitigationThe following matters relate to ongoing litigation or investigations involving U.S. government contracts.McBride Qui Tam suit. In September 2006, we became aware of a qui tam action filed against us by a former employee alleging various wrongdoings in the form of overbillings of our customer on the LogCAP III contract. This case was originally filed pending the government’s decision whether or not to participate in the suit. In June 2006, the government formally declined to participate. The principal allegations are that our compensation for the provision of Morale, Welfare and Recreation (“MWR”) facilities under LogCAP III is based on the volume of usage of those facilities and that we deliberately overstated that usage. In accordance with the contract, we charged our customer based on actual cost, not based on the number of users. It was also alleged that, during the period from November 2004 into mid-December 2004, we continued to bill the customer for lunches, although the dining facility was closed and not serving lunches. There are also allegations regarding housing containers and our provision of services to our employees and contractors. On July 5, 2007, the court granted our motion to dismiss the qui tam claims and to compel arbitration of employment claims including a claim that the plaintiff was unlawfully discharged. The majority of the plaintiff’s claims were dismissed but the plaintiff was allowed to pursue limited claims pending discovery and future motions. Substantially all employment claims were sent to arbitration under the Company’s dispute resolution program and were subsequently resolved in our favor. In January 2009, the relator filed an amended complaint which is nearing completion of the discovery process. Trial for this matter is expected in 2011. We believe the relator’s claim is without merit and that the likelihood that a loss has been incurred is remote. As of December 31, 2010, no amounts have been accrued.First Kuwaiti Trading Company arbitration.In April 2008, First Kuwaiti Trading Company, one of our LogCAP III subcontractors, filed for arbitration of a subcontract under which KBR had leased vehicles related to work performed on our LogCAP III contract. First Kuwaiti alleged that we did not return or pay rent for many of the vehicles and seeks damages in the amount of $134 million. We filed a counterclaim to recover amounts which may ultimately be determined due to theGovernment for the $51 million in suspended costs as discussed in the preceding section of this footnote titled “Containers.” Three arbitration hearings took place in 2010 in Washington, D.C. primarily related to claims involving unpaid rents and damages on lost or unreturned vehicles totaling approximately $77 million for which the arbitration panel awarded $7 million to FKTC plus an unquantified amount for repair costs on certain vehicles, damages suffered as a result of late vehicle returns, and interest thereon, to be determined at a later date. No payments are expected to occur until all claims are arbitrated and awards finalized. The next arbitration hearing is scheduled to occur in May 2011 and we believe any damages ultimately awarded to First Kuwaiti will be billable under the LogCAP III contract. Accordingly, we have accrued amounts payable and a related unbilled receivable for the amounts awarded to First Kuwaiti pursuant to the terms of the contract.Paul Morell, Inc. d/b/a The Event Source vs. KBR, Inc. TES is a former LogCAP III subcontractor who provided DFAC services at six sites in Iraq from mid-2003 to early 2004. TES sued KBR in Federal Court in Virginia for breach of contract and tortious interference with TES’s subcontractors by awarding subsequent DFAC contracts to the subcontractors. In addition, the Government withheld funds from KBR that KBR had submitted for reimbursement of TES invoices, and at that time, TES agreed that it was not entitled to payment until KBR was paid by the Government. Eventually KBR and the Government settled the dispute, and in turn KBR and TES agreed that TES would accept, as payment in full with a release of all other claims, the amount the Government paid to KBR for TES’s services. TES filed a suit to overturn that settlement and release, claiming that KBR misrepresented the facts. The trial was completed in June 2009 and in January 2010, the Federal Court issued an order against us in favor of TES in the amount of $15 million in actual damages and interest and $4 million in punitive damages relating to the settlement and release entered into by the parties in May 2005. As of December 31, 2010, we have recorded un-reimbursable expenses and a liability of $20 million for the full amount of the awarded damages. We have filed a notice of appeal with the Court.Electrocution litigation. During 2008, a lawsuit was filed against KBR alleging that the Company was responsible for an electrical incident which resulted in the death of a soldier. This incident occurred at the Radwaniyah Palace Complex. It is alleged in the suit that the electrocution incident was caused by improper electrical maintenance or other electrical work. We intend to vigorously defend this matter. KBR denies that its conduct was the cause of the event and denies legal responsibility. The case was removed to Federal Court where motion to dismiss was filed. The court issued a stay in the discovery of the case, pending an appeal of certain pre-trial motions to dismiss that were previously denied. In August 2010, the Court of Appeal dismissed our appeal concluding it did not have jurisdiction. The case is currently proceeding with the discovery process. We are unable to determine the likely outcome nor can we estimate a range of potential loss, if any, related to this matter at this time. As of December 31, 2010, no amounts have been accrued.Burn Pit litigation.KBR has been served with over 50 lawsuits in various states alleging exposure to toxic materials resulting from the operation of burn pits in Iraq or Afghanistan in connection with services provided by KBR under the LogCAP III contract. Each lawsuit has multiple named plaintiffs who purport to represent a large class of unnamed persons. The lawsuits primarily allege negligence, willful and wanton conduct, battery, intentional infliction of emotional harm, personal injury and failure to warn of dangerous and toxic exposures which has resulted in alleged illnesses for contractors and soldiers living and working in the bases where the pits are operated. All of the pending cases have been removed to Federal Court, the majority of which have been consolidated for multi-district litigation treatment. In the second quarter of 2010, we filed various motions including a motion to strike an amended consolidated petition filed by the plaintiffs and a motion to dismiss which the court has taken under advisement. In the September 2010, our motion to dismiss was denied. However, our motion to strike an amended consolidated petition filed by the plaintiffs was granted. The Court directed the parties to propose a plan for limited jurisdictional discovery. In December 2010, the Court stayed virtually all proceedings pending a decision from the Fourth Circuit Court of Appeals on three other cases involving the Political Question Doctrine and other jurisdictional issues. We intend to vigorously defend these matters. Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this time accurately predict the ultimate outcome nor can we reliably estimate a range of possible loss, if any, related to this matter at this time. Accordingly, as of December 31, 2010, no amounts have been accrued.Convoy Ambush Litigation.In April 2004, a fuel convoy in route from Camp Anaconda to Baghdad International Airport for the U.S. Army under our LogCAP III contract was ambushed resulting in deaths and severe injuries to truck drivers hired by KBR. In 2005, survivors of the drivers killed and those that were injured in the convoy, filed suit in state court in Houston, Texas against KBR and several of its affiliates, claiming KBR deliberately intended that the drivers in the convoy would be attacked and wounded or killed. The suit also alleges KBR committed fraud in its hiring practices by failing to disclose the dangers associated with working in the Iraq combat zone. In September 2006, the case was dismissed based upon the court’s ruling that it lacked jurisdiction because the case presented a non-justiciable political question. Subsequently, three additional suits were filed, arising out of insurgent attacks on other convoys that occurred in 2004 and were likewise dismissed as non-justiciable under the Political Question Doctrine.The plaintiffs in all cases appealed the dismissals to the Fifth Circuit Court of Appeals which reversed and remanded the remaining cases to trial court. In July 2008, the trial court directed substantive discovery to commence including the re-submittal of dispositive motions on various grounds including the Defense Base Act and Political Question Doctrine. In February 2010, the trial court ruled in favor of the plaintiffs, denying two of our motions to dismiss the case. In March 2010, the trial court granted in part and denied in part our third motion to dismiss the case. We filed appeals on all issues with the Fifth Circuit Court of Appeals and have moved to stay all proceedings in the trial court pending the resolution of these appeals. The cases were removed from the trial docket and the Fifth Circuit Court of Appeals has heard all previous motions filed by both parties. In September 2010, the DOJ filed a brief in support of KBR’s position that the cases should be dismissed in their entirety based upon the exclusive provisions in the Defense Base Act. We are unable to determine the likely outcome of these cases at this time nor can we reliable estimate a range of possible loss, if any. Accordingly, as of December 31, 2010, no amounts have been accrued.DOJ False Claims Act complaint. On April 1, 2010, the DOJ filed a complaint in the U.S. District Court in the District of Columbia alleging certain violations of the False Claims Act related to the use of private security firms. The complaint alleges, among other things, that we made false or fraudulent claims for payment under the LogCAP III contract because we allegedly knew that they contained costs of services for or that included improper use of private security. We believe these sums were properly billed under our contract with the Army and that the use of private security was not prohibited under LogCAP III. We have filed motions to dismiss the complaint which are currently pending. We have not adjusted our revenues or accrued any amounts related to this matter.Other MattersClaims.Included in receivables in our consolidated balance sheets are unapproved claims for costs incurred under various government contracts totaling $163 million at December 31, 2010 of which $125 million is included in “Accounts receivable” and $38 million is included in “Unbilled receivables on uncompleted contracts.” Unapproved claims relate to contracts where our costs have exceeded the customer’s funded value of the task order. The unapproved claims at December 31, 2010 include approximately $123 million resulting from the de-obligation of 2004 and 2005 funding on certain task orders that were also subject to Form 1 notices relating to certain DCAA audit issues discussed above. This amount includes $71 million that was de-obligated in 2010 which consists of funds nearing the 5-year expiration date. We believe such disputed costs will be resolved in our favor at which time the customer will be required to obligate funds from appropriations for the year in which resolution occurs. The remaining unapproved claims balance of approximately $40 million represents primarily costs for which incremental funding is pending in the normal course of business. The majority of costs in this category are normally funded within several months after the costs are incurred. The unapproved claims outstanding at December 31, 2010 are considered to be probable of collection and have been previously recognized as revenue.Note 10.14. Other Commitments and ContingenciesinvestigationsOn(“FCPA”) Investigations 11, 2009, KBR LLC, entered a guilty plea related to violations of the Bonny Island investigationFCPA in the United States District Court, Southern District of Texas, Houston Division (the “Court”). KBR LLC pled guilty, related to one count of conspiring to violate the FCPA and four counts of violating the FCPA, all arising from the intent to bribe various Nigerian officials through commissions paid to agents working on behalf of TSKJ on the Bonny Island project.investigation. The plea agreement reached with the DOJ resolvesresolved all criminal charges in the DOJ’s investigation into the conduct of KBR LLC relating to the Bonny Island project, so long as the conduct was disclosed or known to DOJ before the settlement, including previously disclosed allegations of coordinated bidding. The plea agreementand called for the payment of a criminal penalty of $402 million, of which Halliburton was obligated to pay $382 million underpenalty. In addition, we settled a civil enforcement action by the terms of the indemnity in the master separation agreement, while we were obligated to pay $20 million.U.S. Securities and Exchange Commission ("SEC"). We also agreed to a period of organizational probation ofover a three years, during which we retain ayear period that ended on February 17, 2012. The monitor who assesses ourcertified that KBR’s current anti-corruption compliance program is appropriately designed and implemented to ensure compliance with the plea agreementFCPA and evaluate our FCPA compliance program over the three year period, with periodic reports to the DOJ.On the same date, the SEC filed a complaint and we consented to the filing of a final judgment against us in the Court. The complaint and the judgment were filed as part of a settled civil enforcement action by the SEC, to resolve the civil portion of the government’s investigation of the Bonny Island project. The complaint alleges civil violations of the FCPA’s antibribery and books-and-records provisions related to the Bonny Island project. The complaint enjoins us from violating the FCPA’s antibribery, books-and-records, and internal-controls provisions and requires Halliburton and KBR, jointly and severally, to make payments totaling $177 million, all of which has been paid by Halliburton pursuant to the indemnification under the master separation agreement. The judgment also requires us to retain an independent monitor on the same terms as the plea agreement with the DOJ.Under both the plea agreement and judgment, we have agreed to cooperate with the SEC and DOJ in their investigations of other parties involved in TSKJ and the Bonny Island project.As a result of the settlement, in the fourth quarter 2008 we recorded the $402 million obligation to the DOJ and, accordingly, recorded a receivable from Halliburton for the $382 million that Halliburton was obligated to pay to the DOJ on our behalf. The resulting charge of $20 million to KBR was recorded in cost of sales of our Hydrocarbons business segment in the fourth quarter of 2008. Likewise, we recorded an obligation to the SEC in the amount of $177 million and a receivable from Halliburton in the same amount. As of December 31, 2010, Halliburton has paid all installments to the DOJ and SEC, and such payments totaled $559 million. Of the payments mentioned above, Halliburton paid $142 million in 2010 and $417 million in 2009, which have been reflected in the accompanying statement of cash flows as noncash operating activities. On October 1, 2010, we made the final payment to the DOJ related to our portion of the settlement agreement.As part of the settlement of the FCPA matters, we agreed to the appointment of a corporate monitor for a period of up to three years. We proposed the appointment of a corporate monitor and received approval from the DOJ in the third quarter of 2009. We are responsible for paying the fees and expenses related to the monitor’s review and oversight of our policies and activities relating to compliance with applicable anti-corruption laws and regulations.Because of the guilty plea by KBR LLC, we are subject to possible suspension or debarment of our ability to contractlaws. governmental agencies of the United States and of foreign countries. We received written confirmation from the U.S. Department of the Army stating that it does not intend to suspend or debar KBR from DoD contracting as a result of the guilty plea by KBR LLC. The U.K. Ministry of Defence (“MoD”) has indicated that it does not have any grounds to debar the KBR subsidiary with which it contracts under its public procurement regulations. Although there has been a threat to challenge the MOD’s decision not to debar KBR, no formal proceedings have been issued since the threat was made. Therefore, we believe the risk of being debarred from contracting with the MOD is low. Although we do not believe we will be suspended or debarred of our ability to contract with other governmental agencies of the United States or any other foreign countries, suspension or debarment from the government contracts business would have a material adverse effect on our business, results of operations, and cash flow.Under the terms of the Master Separation Agreement (“MSA”), Halliburton has agreed to indemnify us, and any of our greater than 50%-owned subsidiaries, for our share of fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of claims made or assessed by a governmental authority of the United States, the United Kingdom France, Nigeria, Switzerland or Algeria or a settlement thereof relating to FCPA and related corruption allegations, which could involve Halliburton and us through The M. W. Kellogg Company, M. W. Kellogg Limited (“MWKL”("U.K."), or their or our joint ventures in projects both in and outside of Nigeria, including the Bonny Island, Nigeria project. Halliburton’s indemnity will not apply to any other losses, claims, liabilities or damages assessed against us as a result of or relating to FCPA matters and related corruption allegations or to any fines or other monetary penalties or direct monetary damages, including disgorgement, assessed by governmental authorities in jurisdictions other than the United States, the United Kingdom, France, Nigeria, Switzerland or Algeria, or a settlement thereof, or assessed against entities such as TSKJ, in which we do not have an interest greater than 50%. As of December 31, 2010, we are not aware of any uncertainties related to the indemnity from Halliburton or any material limitations on our ability to recover amounts due to us for matters covered by the indemnity from Halliburton.The U.K. Serious Fraud Office (“SFO”) conducted an investigation of activities by current and former employees of MWKL regarding the Bonny Island project. During the investigation process, MWKL self-reported to the SFO its corporate liability for corruption-related offenses arising out of the Bonny Island project and entered into a plea negotiation process under the “Attorney General’s Guidelines on Plea Discussions in Cases of Serious and Complex Fraud” issued by the Attorney General for England and Wales. In February 2011, MWKL reached a settlement with the SFO in which the SFO accepted that MWKL was not party to any unlawful conduct and assessed a civil penalty of approximately $11 million including interest and reimbursement of certain costs of the investigation.penalty. The settlement terms included a full release of all claims against MWKL, its current and former parent companies, subsidiaries and other related parties including their respective current or former officers, directors and employees with respect to the Bonny Island project. AsDecember 31, 2010, we recordedopening a liabilityformal investigation into corruption related to the SFO of $11 million included in “Other current liabilities” in our consolidated balance sheet. Due toBonny Island project discussed above. In accordance with the indemnity from Halliburtonclauses under the MSA,master separation agreement, we recognizednotified Halliburton and they have responded that the matter does not fall within the scope of their indemnity. We disagree with Halliburton's position and have taken necessary actions to preserve our rights. We have been working with the ADBG to resolve the issue and have now reached an agreement in principle with the ADBG. The Negotiated Resolution Agreement with the ADBG will likely include a receivablefinancial assessment equivalent to approximately $6.6 million as well as a three-year debarment from HalliburtonADBG-sponsored contracts of approximately $6 million in “Due to former parent, net” in our consolidated balance sheet.In 2010, we learned charges were filed in Nigeria against various parties including Halliburton, KBR and TSKJ Nigeria Limited based on the facts associated with our settlement of the DOJ’s FCPA investigation ofits three joint venture partners used to participate in the Bonny Island project. In December 2010, prior to KBR being served with a suit, Halliburton negotiated and paid a settlementWe have accrued the financial penalty in "accounts payable" on our consolidated balance sheets. There can be no assurances that such an agreement with the FederalGovernment of Nigeria without any admission of liability or financial impact to KBR. The settlement resulted in the dismissal of all charges against all parties. With the settlement of this matter, all known investigations in the Bonny Island project have been concluded.Commercial Agent FeesWe have both before and after the separation from our former parent used commercial agents on some of our large-scale international projects to assist in understanding customer needs, local content requirements, vendor selection criteria and processes and in communicating information from us regarding our services and pricing. Prior to separation, it was identified by our former parent in performing its investigation of anti-corruption activities that certain of these agents may have engaged in activities that were in violation of anti-corruption laws at that timeADBG will be reached, and the terms of their agent agreements with us. Accordingly, we have ceased the receipt of services from and payment of fees to these agents. Fees for these agents are included in the total estimated cost for these projects at their completion. In connection with actions taken by U.S. Government authorities, we have removed certain unpaid agent fees from the total estimated costs in the period that we obtained sufficient evidence to conclude such agents clearly violated the terms of their contracts with us. In the first and third quarters of 2009, we reduced project cost estimates by $16 million and $5 million, respectively, as a result of making such determinations. In September 2010, we executed a final settlement agreement with one of our agents in question after the agent was reviewed and approved under our policies on business conduct. Under the terms of the settlement agreement are subject to the agent had, among other things, confirmed their understandingnegotiation and execution of definitive agreements with the ADBG.compliance with KBR’s policies on business conductPEP Arbitrationrepresented that they have complied with anti-corruption laws as they relate to prior services provided to KBR. We negotiated final payment for fees to this agent on several projects in our Hydrocarbons segment resulting in an overall reduction of estimated project costs of approximately $60 million in the third quarter of 2010. As of December 31, 2010, the remaining unpaid agent fees of approximately $8 million are included in the estimated costs related to a completed project.Barracuda-Caratinga Project ArbitrationIn June 2000,1998, we entered into a contractBarracuda & Caratinga Leasing Company B.V.,PEP, the project owner, to developbuild offshore platforms, pipelines and related structures in the BarracudaBay of Campeche, offshore Mexico. PEP is part of PEMEX, the national oil company of Mexico. The three contracts were known as EPC 1, EPC 22 and Caratinga crude oilfields, which are located offEPC 28. All three projects encountered significant schedule delays and increased costs due to problems with design work, late delivery and defects in equipment, increases in scope and other changes. During 2008, we were successful in litigating and collecting on valid international arbitration awards against PEP on the coastEPC 22 and EPC 28 projects.Brazil. Petrobras isthe offshore facilities of EPC 1 in March 2004 after having achieved oil production but prior to our completion of our scope of work pursuant to the contract. As a contractual representative that controlsresult of the project owner. In November 2007,ensuing dispute, we executed a settlement agreementfiled for arbitration with the project owner to settle all outstanding project issues exceptInternational Chamber of Commerce ("ICC") in 2004 claiming recovery of damages of approximately $323 million for the bolts arbitration discussed below.At Petrobras’ direction, we replaced certain bolts located onEPC 1 project. PEP subsequently filed counterclaims totaling subsea flowlines that failed through mid-November 2005,ICC ruled in our favor, and we understandwere awarded a total of approximately $351 million including legal and administrative recovery fees as well as interest. PEP was awarded approximately $6 million on counterclaims, plus interest on a portion of that additional bolts failed thereafter, which were replaced by Petrobras. These failed bolts were identified by Petrobras when it conducted inspectionssum. In connection with this award, we recognized a gain of $117 million net of tax in 2009.bolts. In March 2006, Petrobras notified us they submitted thisCollegiate Court in Mexico, described below, would have affected the trial court’s ruling.claiming $220award and about whether we have a full and fair remedy in Mexico.plus interest forto be recovered, which includes the cost of monitoring and replacing the defective stud bolts and, in addition, all of the costs and expensesoriginal confirmation of the arbitration includingaward and approximately $106 million for performance bonds discussed below, plus interest. The judgment also requires that each party pay value added tax on the costamounts each has been ordered to pay. PEP filed a notice of attorneys’ fees.appeal to the U.S. Court of Appeals for the Second Circuit on October 16, 2013 and posted security for the judgment pending appeal. The case is now on appeal before the U.S. Court of Appeals. PEP has filed its initial brief and KBR will file its answer brief around the end of the first quarter of 2014.conducted in New York underappealed to the guidelinesLuxembourg Supreme Court.United Nations Commissionseizure order, we filed an action in Luxembourg seeking to enforce the ICC award. In March 2013, we received an order from the Luxembourg court recognizing the award. On June 25, 2013, PEMEX and PEP filed an appeal challenging the enforcement order. The hearing on International Trade Law (“UNCITRAL”). Petrobras contendsthe appeal is scheduled for May 12, 2014. We cannot begin the validation proceeding until the appeal is concluded and this could take several months.allwe determine have assets which can be used to pay the award.bolts installedICC arbitration award in December 2009, the panel determined that KBR had performed on the project, and we believe recovery on the bonds by PEP was precluded by the ICC Award. PEP filed an action in Mexico in June 2010 against the Mexican bond company to collect the bonds even though the arbitration award determined the limited amounts to be paid to PEP on their counterclaims and offset those claims against the award in favor of KBR.defectivecurrently serving that writ on PEP and must be replaced.DuringPEMEX. Since the timedecision by the Luxembourg Court of Appeals dissolved the first writ as to PEMEX, we have lifted the second writ as to PEMEX. The second writ remains in effect as to PEP.we addressed outstanding project issues and duringincluded the conductamount paid on the bonds plus interest. We will pursue reimbursement of the arbitration, KBR believedsums paid in the original design specificationcurrent enforcement action in the U.S. District Court for the bolts was issuedSouthern District of New York, the courts of Luxembourg, or by Petrobras, andour recently filed NAFTA arbitration seeking to recover the bonds as such,an unlawful expropriation of assets by the cost resulting from any replacement would not begovernment of Mexico.responsibility. A hearing on legal and factual issues relating to liability with the arbitration panel was held in April 2008. In June 2009, we received an unfavorable ruling from the arbitration panel on the legal and factual issues as the panel decided the original design specification for the bolts originated with KBR and its subcontractors. The ruling concluded that KBR’s express warranties in the contract regarding the fitness for usetreatment of the design specifications for the bolts took precedence over any implied warranties provided by the project owner. Our potential exposure would include the costs of the bolts replaced to date by Petrobras, any incremental monitoring costs incurred by Petrobrasclaims, we have recorded $401 million in claims and damages for any other bolts that are subsequently found to be defective. Weaccounts receivable as we believe that it is probable that we have incurred some liability in connection withwill recover the replacement of bolts that have failed duringamounts awarded to us, including interest and expense and the contract warranty period which expired June 30, 2006. In May 2010, the arbitration tribunal heard arguments from both parties regarding various damage scenarios and estimates of the amount of KBR’s overall liability in this matter. The final arbitration arguments were made in August of 2010. Basedamounts we recently paid on the damage estimates presented at this hearing,bonds. PEP has sufficient assets in the U.S. and Luxembourg, which we estimate our minimum exposure, excluding interest, to be approximately $12 million representing our estimate for replacement of bolts that failed during the warranty period and were not replaced. As of December 31, 2010,believe we have a liability of $12 million and an indemnification receivable from Halliburton of $12 million. The amount of any remaining liability will be dependent upon the legal and factual issuesable to be determined by the arbitration tribunal in the final arbitration hearings. For the remaining bolts at dispute, we cannot determine that we have liability nor determine the amount of any such liability and no additional amounts have been accrued.Any liability incurred by us in connection with the replacement of bolts that have failed to date or related to theremaining bolts at dispute in the bolt arbitration is covered by an indemnity from our former parent Halliburton. Under the MSA, Halliburton has agreed to indemnify us and any of our greater than 50%-owned subsidiaries as of November 2006, for all out-of-pocket cash costs and expenses (except for ongoing legal costs), or cash settlements or cash arbitration awards in lieu thereof, we may incur after the effective date of the master separation agreementattach as a result of the replacementrecognition of the subsea flowline bolts installed in connection withICC arbitration award. Although it is possible we could resolve and collect the Barracuda-Caratinga project. As of December 31, 2010, we are not aware of any uncertainties related to the indemnity from Halliburton or any material limitations on our ability to recover amounts due to us for matters covered byfrom PEP in the indemnity from Halliburton. We do not believe any outcome of this matter will have a material adverse impact to our operating results or financial position.Foreign tax lawsWe conduct operations in many tax jurisdictions throughout the world. Tax laws in certain of these jurisdictions are not as mature as those found in highly developed economies. As a consequence, althoughnext 12 months, we believe we are in compliance with such laws, interpretations of these laws could be challenged by the foreign tax authorities. In many of these jurisdictions, non-income based taxes such as property taxes, sales and use taxes, and value-added taxes are assessed on our operations in that particular location. While we strive to ensure compliance with these various non-income based tax filing requirements, there have been instances where potential non-compliance exposures have been identified. In accordance with accounting principles generally accepted in the United States of America, we make a provision for these exposures when it is both probable that a liability has been incurred and the amounttiming of the exposure can be reasonably estimated. To date, such provisions have been immaterial,collection of the award is uncertain and we believe that,therefore, consistent with our prior practice, as of December 31, 2010,2013, we adequately provided for such contingencies. However, it is possible that our results of operations, cash flows, and financial position could be adversely impacted if one or more non-compliance tax exposures are asserted by any ofcontinue to classify the jurisdictions where we conduct our operations.have not completed our analysis of the sitecontinue to monitor conditions at sites we own or owned and until further information is available, we are only able to estimate a possible range of remediation costs. These locations were primarily utilized for manufacturing or fabrication work and are no longer in operation. The use of these facilities created various environmental issues including deposits of metals, volatile and semi-volatile compounds and hydrocarbons impacting surface and subsurface soils and groundwater. The range of remediation costs could change depending on our ongoing site analysis and the timing and techniques used to implement remediation activities. We do not expect costs related to environmental matters will have a material adverse effect on our condensed consolidated financial position or results of operations. Based on the information presently available to us, we have accrued approximately $7$2 million for the assessment and remediation costs associated with all environmental matters and could possibly incur an additional $1 million for which represents the low end of the range of possible costs that could be as much as $14 million. (“PRP”) in various clean-up actions taken by federal and state agencies in the U.S. Based on the early stages of these actions, weWe are unable to determine whether we will ultimately be deemed responsible for any costs associated with these actions.Liquidated damagesLeases Many of our engineering and construction contracts have milestone due dates that must be met or we may be subject to penalties for liquidated damages if claims are asserted and we were responsible for the delays. These generally relate to specified activities that must be met within a project by a set contractual date or achievement of a specified level of output or throughput of a plant we construct. Each contract defines the conditions under which a customer may make a claim for liquidated damages. However, in some instances, liquidated damages are not asserted by the customer, but the potential to do so is used in negotiating claims and closing out the contract.Based upon our evaluation of our performance and other legal analysis, we have not accrued for possible liquidated damages related to several projects totaling $20 million at December 31, 2010 and $18 million at December 31, 2009 (including amounts related to our share of unconsolidated subsidiaries), that we could incur based upon completing theprojects as currently forecasted.Leases$165$159 million $233, $149 million and $203$145 million in 2010, 20092013, 2012 and 2008,2011, respectively.Millions of dollars Future rental
payments $ 69 $ 59 $ 55 $ 53 $ 51 $ 508 Millions of dollars 2014 $ 100 2015 $ 88 2016 $ 80 2017 $ 62 2018 $ 55 Beyond 2018 $ 399 Eldridge Park I Building Lease. On September 30, 2010, we executed a lease agreement for office space located in a high-rise office building in Houston, Texas for the purpose of expanding our leased office space. The non-cancelable lease term expires on December 31, 2018. The lease term includes a rent holiday from the beginning of the lease through December 31, 2011; and a total combined leasehold improvement allowance of $4 million. Annual base rent, excluding termination fees, based on currently planned occupancy ranges from $1.6 million to $1.8 million.In February 2010, we executed two lease amendments for office space located in two separate high-rise office buildings in Houston, Texas for the purpose of significantly expanding our current leased office space and to extend the original term of the leases to June 30, 2030. These amendments did not change our historical accounting for these agreements as operating leases. The essential provisions of the lease amendments are as follows:Lease. TheLease. In November 2012, the joint venture in which we hold a 50% interest sold the 601 Jefferson building in which we lease amendment extendsoffice space in Houston, Texas. We continue to lease the originalbuilding from the new owner under the same lease agreement and terms, except for the elimination of an early termination and contraction option, for which we were paid an $11 million modification fee. This lease incentive will be amortized over the remaining term of the lease, which runs through June 30, 2030 and includes renewal options for three consecutive additional periods from 5 to 10 years each at prevailing market rates. Annual base rent for the leased office space escalates ratably over the lease term from $10 million to $15 million.$9$2 million to $14 million. The lease amendment includes$4 million. For a leasehold improvement allowance of $29 million primarily for the construction of leasehold improvements. The lease may be terminated under a one-timesmall fee we have agreed to change our early termination option in March 2022date for all or a portion of the leased premises subjectfrom 2022 to 2026.termination fee. The 601 Jefferson building is owned by a joint venture in which KBR owns 50% interest with an unrelated party owning the remaining 50% interest. The joint venture is funding the leasehold improvement allowance through joint venture partner capital contributions from each partner on a pro-rata basis.500 Jefferson Building Lease. The lease amendment extends the original term of the lease to June 30, 2030master separation agreement, transition services agreements and includes renewal options for three consecutive additional periods from 5 to 10 years each at prevailing market rates. The lease terms include a rent holiday for the first six months of the lease beginning July 1, 2010. Annual base rent for the leased office space escalates ratably over the lease term from $2 million to $3 million. The lease amendment includes a leasehold improvement allowance of $6 million primarily for the construction of leasehold improvements. The lease may be terminated under a one-time option in March 2022 for all, or a portion, of the leased premises subject to a termination fee.OtherWe had commitments to provide funds to our privately financed projects of $33 million as of December 31, 2010 and $52 million as of December 31, 2009. Commitments to fund these projects are supported by letters of credit as discussed in Note 8. At December 31, 2010, approximately $17 million of the $33 million in commitments will become due within one year.Note 11. Income TaxesThe components of the provision (benefit) for income taxes are as follows: Years ended December 31 Millions of dollars 2010 2009 2008 $ 56 $ (3) $ (41) 118 99 165 3 7 — 177 103 124 15 (39) 107 (1) 105 (13) — (1) (6) 14 65 88 $ 191 $ 168 $ 212 KBR is subject to a tax sharing agreement. Pursuant to our master separation agreement, primarily covering periods priorwe agreed to indemnify Halliburton for, among other matters, past, present and future liabilities related to our business and operations. We agreed to indemnify Halliburton for liabilities under various outstanding and certain additional credit support instruments relating to our business and for liabilities under litigation matters related to our business. Halliburton agreed to indemnify us for, among other things, liabilities unrelated to our business, for certain other agreed matters relating to the separation frominvestigation of FCPA and related corruption allegations and the Barracuda-Caratinga project and for other litigation matters related to Halliburton’s business. See Note 14 for further discussion on the FCPA and related corruption allegations. Under the transition services agreements, Halliburton which occurred in April 2007.provided various interim corporate support services to us and we provided various interim corporate support services to Halliburton. The tax sharing agreement provides in part,for certain allocations of U.S. income tax liabilities and other agreements between us and Halliburton with respect to tax matters.KBR will be responsibleit alleged we owed under the tax sharing agreement for any audit settlements relatedvarious other tax-related transactions pertaining to its business activity for periods prior to itsour separation from Halliburton. We believe that the master separation agreement precludes the filing of this claim.for which KBR recorded a charge to equity of $17 million in 2007. AsHalliburton subsequently challenged the arbitration panel's jurisdiction over this dispute in Texas State Court. The Texas State Court denied Halliburton's request and Halliburton filed an appeal which is awaiting a decision.December 31, 2010, wethe date the claim arose or would reasonably have recorded a $43 million payablebeen discovered by the claimant and that the parties were to Halliburtonreturn to the accounting referee within thirty days for tax related itemsdetermination of the remaining claims under the tax sharing agreement. See Note 16The remaining tax-related issues in dispute were referred to the accounting referee as provided for further discussionunder the terms of the tax sharing agreement.transactionstax provision by $38 million, reduced Paid-in Capital by $7 million (as indicated in a table in Note 16) and recognized a deferred tax asset of $29 million for available foreign tax credits. As of December 31, 2013, we have recorded $105 million to our "Payable to former parent," on our consolidated balance sheets, which is net of $22 million awarded to KBR by the accounting referee. Halliburton.United States and foreign componentsarbitration was conducted in New York under the guidelines of income from continuing operations before income taxes and noncontrolling interests were as follows: Years ended December 31 Millions of dollars 2010 2009 2008 $ 105 $ (128) $ (50) 481 660 618 $ 586 $ 532 $ 568 The reconciliations between the actual provision for income taxes on continuing operations and that computed by applying the United States statutory rate to income from continuing operations before income taxes and noncontrolling interests are as follows: Years ended December 31 2010 2009 2008 35.0% 35.0% 35.0% (2.9) (2.3) 1.6 — 0.4 1.6 0.2 0.9 0.1 2.1 (1.0) (1.2) 0.2 1.7 0.1 (2.6) (2.0) — 0.6 (1.2) 0.1 32.6% 31.5% 37.3% We generally do not provide U.S. federal and state income taxesNations Commission on International Trade Law.accumulated but undistributed earningspanel’s estimate to replace all subsea bolts, including those that did not manifest breaks, as well as legal and other costs incurred by the claimant in the arbitration and interest thereon since the date of non-United States subsidiaries exceptthe award. The panel rejected our argument, and the case law relied upon by us, that we were only liable for certain entities in Mexico and certain other joint ventures. Taxes are provided as necessary with respect to earningsbolts that are considered not permanently reinvested. For all other non-U.S. subsidiaries, no U.S. taxes are provided because such earnings are intendedwere discovered to be reinvested indefinitely to finance foreign activities. These accumulated but undistributed foreign earnings could be subject to additional tax if remitted, or deemed remitted, as a dividend. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable; however, the potential foreign tax credit associated with the deferred income would be available to reduce the resulting U.S. tax liabilities.The primary components of our deferred tax assets and liabilities and the related valuation allowances are as follows: Years ended December 31 Millions of dollars 2010 2009 $ 11 $ 2 159 182 109 104 63 44 30 18 11 10 23 18 — 16 — 1 4 8 $ 410 $ 403 $ (104) $ (101) (39) (30) (16) (11) (8) — (95) (54) $ (262) $ (196) (32) (30) $ 116 $ 177 At December 31, 2010, we had $167 million of net operating loss carryforwards that expire from 2011 through 2020, loss carryforwards of $72 million that expire after 2020 and $53 million of foreign net operating loss carryforwards with indefinite expiration dates.For the year ended December 31, 2010, our valuation allowance was increased from $30 million to $32 million primarily as a result of net operating losses for which we do not believe we will be able to utilize in certain foreign locations.KBR is the parent of a group of domestic companies which are in the U.S. consolidated federal income tax return. We also file income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to examination by tax authorities for U.S. federal or state and local income tax for years before 2003, or for non-U.S. income tax for years before 1998.We account for uncertain tax positions in accordance with guidance in FASB ASC 740 which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the financial statements. A reconciliation of the beginning and ending amount of uncertain tax positions is as follows:In millions December 31, 2010 $ 41 64 (9 ) (1 ) $ 95 The total amount of uncertain tax positions that, if recognized, would affect our effective tax rate was approximately $75 million as of December 31, 2010. The difference between this amount and the amounts reflected in the tabular reconciliation above relates primarily to deferred U.S. federal and non-U.S. income tax benefits on uncertain tax positions related to U.S. federal and non-U.S. income taxes. In the next twelve months, it is reasonably possible that our uncertain tax positions could change by approximately $7 million duebroken prior to the expiration of the statute of limitations.recognize interestbelieve the arbitration award to Petrobras is deductible by KBR for tax purposes and penalties related to uncertainthe indemnification payment will be treated by KBR for tax positions within the provision for income taxes in our consolidated statement of income. As of December 31, 2010 and 2009, we had accrued approximately $23 million and $14 million, respectively, in interest and penalties. During the year ended December 31, 2010, 2009 and 2008, we recognized approximately $10 million, $1 million and $1 million, respectively in net interest and penalties charges related to uncertain tax positions.As of December 31, 2010, the uncertain tax positions and accrued interest and penalties were not expected to be settled within one year and therefore are classified in noncurrent income tax payable. Increasespurposes as a result of positions taken during 2010 or in prior years were $64 million of which approximately $50 million relatedcontribution to balance sheet reclassifications from tax-related liability accounts or were offset bycapital and accordingly is not taxable. In 2011 and 2012, we recorded discrete tax benefits recognizedof the current year and therefore did not have an impact on the effective tax rate in 2010. The remaining $14 million increase relates primarily to uncertain tax positions that were not previously accrued and, consequently, had an unfavorable impact on our effective tax rate in 2010.Other tax related matters. On June 28, 2007, we completed the disposition of our 51% interest in DML to Babcock International Group plc. In connection with the sale, we received $345 million in cash proceeds, net of direct transaction costs for our 51% interest in DML. The sale of DML resulted in a gain of approximately $101 million, net of tax of $115 million, in the year ended December 31, 2007. During the preparation of our 2007 tax return in 2008, we identified additional foreign tax credits upon completion of a tax pool study resulting from the sale of our interest in DML in the U.K. Approximately $11 millionlight of the foreign tax credits weredirect payment by Halliburton to BCLC and its public announcement that they have recorded as a tax benefit related to this transaction. Based on advice from outside legal counsel, we have determined that it is more likely than not that we are the proper taxpayer to recognize this benefit although the underlying uncertainties with respect to the tax treatment of the transaction may ultimately lead to alternate outcomes.discontinued operations inshareholders’ equity:Millions of dollars Total PIC AOCL NCI Balance at December 31, 2010 $ 2,204 $ 1,981 $ 1,157 (454 ) $ (438 ) $ (42 ) Share-based compensation 19 19 — — — — Common stock issued upon exercise of stock options 7 7 — — — — Post-closing adjustment related to acquisition of former NCI partner (5 ) (5 ) — — — — Tax benefit increase related to share-based plans 3 3 — — — — Dividends declared to shareholders (30 ) — (30 ) — — — Repurchases of common stock (118 ) — — (118 ) — — Issuance of ESPP shares 3 — — 3 — — Distributions to noncontrolling interests (63 ) — — — — (63 ) Other noncontrolling interests activity (7 ) — — — — (7 ) Net income 540 — 480 — — 60 Other comprehensive (loss), net of tax (111 ) — — — (110 ) (1 ) Balance at December 31, 2011 $ 2,442 $ 2,005 $ 1,607 $ (569 ) $ (548 ) $ (53 ) Deferred tax and foreign currency adjustments (a) 17 17 — — — — Share-based compensation 16 16 — — — — Common stock issued upon exercise of stock options 7 7 — — — — Tax benefit increase related to share-based plans 4 4 — — — — Dividends declared to shareholders (42 ) — (42 ) — — — Repurchases of common stock (40 ) — — (40 ) — — Issuance of ESPP shares 3 — — 3 — — Distributions to noncontrolling interests (36 ) — — — — (36 ) Net income 202 — 144 — — 58 Other comprehensive (loss), net of tax (62 ) — — — (62 ) — Balance at December 31, 2012 $ 2,511 $ 2,049 $ 1,709 $ (606 ) $ (610 ) $ (31 ) Adjustment pursuant to Accounting Referee's report on tax sharing agreement (7 ) (7 ) — — — — Share-based compensation 16 16 — — — — Common stock issued upon exercise of stock options 6 6 — — — — Dividends declared to shareholders (36 ) — (36 ) — — — Repurchases of common stock (7 ) — — (7 ) — — Issuance of ESPP shares 4 1 — 3 — — Investments by noncontrolling interests 9 — — — — 9 Change in NCI due to consolidation of previously unconsolidated JV and other transactions 2 — — — — 2 Distributions to noncontrolling interests (108 ) — — — — (108 ) Net income 327 — 229 — — 98 Other comprehensive income (loss), net of tax (122 ) — — — (130 ) 8 Balance at December 31, 2013 $ 2,595 $ 2,065 $ 1,902 $ (610 ) $ (740 ) $ (22 ) 2008.2012, we recorded out-of-period adjustments in our deferred tax accounts, most of which relate to years before 2010. These adjustments were not material to 2012 or the periods to which they relate. The out-of-period adjustments were $3 million to our current period tax expense and $9 million to our equity accounts. The adjustments recorded to our equity accounts were $16 million to PIC and $(7) million to AOCL. December 31, Millions of dollars 2013 2012 2011 Accumulated CTA, net of tax of $0, $27 and $19 $ (131 ) $ (88 ) $ (70 ) Accumulated pension liability adjustments, net of tax of $(221), $(203) and $(189) (608 ) (521 ) (471 ) Accumulated unrealized losses on derivatives, net of tax of $0, $0 and $1 (1 ) (1 ) (7 ) Total accumulated other comprehensive loss $ (740 ) $ (610 ) $ (548 ) Millions of dollars Accumulated CTA Accumulated pension liability adjustments Accumulated unrealized losses on derivatives Total Balance at December 31, 2012 $ (88 ) $ (521 ) $ (1 ) $ (610 ) Other comprehensive income adjustments before reclassifications (44 ) (122 ) 1 (165 ) Amounts reclassified from accumulated other comprehensive income 1 35 (1 ) 35 Balance at December 31, 2013 $ (131 ) $ (608 ) $ (1 ) $ (740 ) Millions of dollars December 31, 2013 Affected line item in the Condensed Consolidated Statements of Income Accumulated CTA Realized CTA $ (1 ) Loss (gain) on disposition of assets, net Tax expense — Provision for income taxes Net CTA realized $ (1 ) Net of tax Accumulated pension liability adjustments Amortization of actuarial loss (b) $ (53 ) See (b) below Tax benefit 18 Provision for income taxes Net pension liability adjustment realized $ (35 ) Net of tax Accumulated unrealized losses on derivatives Realized losses on derivatives $ 1 Cost of revenues Tax benefit — Provision for income taxes Net realized loss on derivatives $ 1 Net of tax Millions of shares Shares Balance at December 31, 2011 172.3 Common stock issued 0.9 Balance at December 31, 2012 173.2 Common stock issued 0.7 Balance at December 31, 2013 173.9 Millions of shares and dollars Shares Amount Balance at December 31, 2011 24.2 $ 569 Treasury stock acquired, net of ESPP shares issued 1.4 37 Balance at December 31, 2012 25.6 606 Treasury stock acquired, net of ESPP shares issued 0.1 4 Balance at December 31, 2013 25.7 $ 610 Number of shares 2013 2012 2011 Number of shares authorized 7,584,764 7,975,906 10,000,000 Number of shares repurchased under the authorization — 391,142 2,024,094 Number of authorized shares available for repurchase as of December 31, 7,584,764 7,584,764 7,975,906 12. Shareholders’ EquityThe following tables summarize our shareholders’ equity activity:Millions of dollars Total Paid-in
Capital in
Excess of
par Retained
Earnings Treasury Stock Accumulated
Other
Comprehensive
Income (Loss) Noncontrolling
Interests $ 2,235 $ 2,070 $ 319 — $ (122 ) $ (32 ) (1 ) — (1 ) — — — 16 16 — — — — 3 3 — — — — 2 2 — — — — (41 ) — (41 ) — — — (196 ) — — (196 ) — — (21 ) — — — — (21 ) 2 — — — — 2 12 — — — — 12 367 — 319 — — 48 (117 ) — — — (107 ) (10 ) (226 ) — — — (209 ) (17 ) (1 ) — — — (1 ) — (1 ) — — — (1 ) — 1 — — — 1 — 23 $ 2,034 $ 2,091 $ 596 (196 ) $ (439 ) $ (18 ) 17 17 — — — — 2 2 (7 ) (7 ) — — — — (32 ) — (32 ) — — — (31 ) — — (31 ) — — 2 — — 2 — — (66 ) — — — — (66 ) 12 — — — — 12 364 — 290 — — 74 18 — — — 15 3 (15 ) — — — (18 ) 3 (3 ) — — — (3 ) — 1 — — — 1 — 365 $ 2,296 $ 2,103 $ 854 $ (225 ) $ (444 ) $ 8 17 17 — — — — 5 5 (23 ) — (23 ) — — — (8 ) (8 ) — — — — (233 ) — — (233 ) — — 3 — (1 ) 4 — — (108 ) — — — — (108 ) 17 — — — — 17 (181 ) (136 ) — — (19 ) (26 ) (4 ) — — — — (4 ) (1 ) — — — — (1 ) 395 — 327 — — 68 5 — — — 3 2 24 — — — 22 2 2 — — — 2 — (1 ) — — — (1 ) — (1 ) — — — (1 ) — 424 $ 2,204 $ 1,981 $ 1,157 $ (454 ) $ (438 ) $ (42 ) Accumulated other comprehensive income (loss) December 31 Millions of dollars 2010 2009 2008 $ (52) $ (54) $ (69) (382) (386) (368) (4) (4) (2) $ (438) $ (444) $ (439) Accumulated comprehensive loss for years ended December 31, 2010, 2009 and 2008 include approximately $14 million, $8 million, and $8 million for the amortization of actuarial loss, net of taxes. The year ended December 31, 2008 also includes the amortization of prior service cost of $1 million.Shares of common stockMillions of shares and dollarsSharesAmount Balance at December 31, 2008170$— Common stock issued1— Balance at December 31, 2009171— Common stock issued—— Balance at December 31, 2010 171$ — Shares of treasury stockMillions of shares and dollars Shares Amount 8 $ 196 2 29 10 225 10 229 20 $ 454 DividendsWe declared dividends totaling $23 million in 2010 and $32 million in 2009. As of December 31, 2010, we had accrued dividends of $8 million.Note 13. Stock-based18. Share-based Compensation and Incentive Plans2010, 2009,2013, 2012 and 2008 stock-based2011 share-based compensation awards were granted to employees under KBR stock-basedshare-based compensation plans. 2006 Stock and Incentive Plan2006 Stock and Incentive Plan (KBR 2006 Plan)("KBR Stock Plan"), which provides for the grant of any or all of the following types of stock-based awards:share-based compensation listed below:2006Stock Plan, 1012 million shares of common stock have been reserved for issuance to employees and non-employee directors. The plan specifies that no more than 3.55.5 million shares can be awarded as restricted stock or restricted stock units or pursuant to cash performance2010,2013, approximately 4.94.3 million shares were available for future grants under the KBR 2006Stock Plan, of which approximately 12.3 million shares remained available for restricted stock awards or restricted stock unit awards.KBR Transitional Stock Adjustment PlanThe KBR Transitional Stock Adjustment Plan was adopted solely for the purpose to convert Halliburton equity awards to KBR equity awards. No new awards can be made under this plan. Upon our separation from Halliburton on April 5, 2007, Halliburton stock options and restricted stock awards granted to KBR employees under Halliburton’s 1993 Stock and Incentive Plan were converted to KBR stock options and restricted stock awards. A total of 1,217,095 Halliburton stock options and 612,857 Halliburton restricted stock awards were converted into 1,966,061 KBR stock options with a weighted average exercise price per share of $9.35 and 990,080 restricted stock awards with a weighted average grant-date fair value per share of $11.01. The conversion ratio for restricted stock was based on comparative KBR and Halliburton share prices. The conversion ratio was based upon the volume weighted average stock price of KBR and Halliburton shares for a three-day average.The converted equity awards are subject to substantially the same terms as they were under the Halliburton 1993 Stock and Incentive Plan prior to conversion. All stock options under Halliburton’s 1993 Stock and Incentive Plan were granted at the fair market value of the common stock at the grant date. Employee stock options vest ratably over a three- or four-year period and generally expire 10 years from the grant date.The fair value of each option was estimated based on the date of grant using the Black-Scholes Merton option pricing model. The following assumptions were used in estimating the fair value of the KBR stock options for KBR employees at the date of modification:KBR transitional stock options assumption summary Range Start End 0.25 5.5 29.03 % 37.43% 4.5 % 5.07% — — The expected term of KBR options was based upon the average of the life of the option and the vesting period of the option. The simplified estimate of expected term was utilized as we lack sufficient history to estimate an expected term for KBR options. Volatility for KBR options was based upon a blended rate that used the historical and implied volatility of common stock for KBR and selected peers. The risk-free interest rate applied to KBR options was based on the U.S. Treasury yield curve in effect at the date of modification.2006Stock Plan, effective as of the closing date of the KBR initial public offering, stock options are granted with an exercise price not less than the fair market value of the common stock on the date of the grant and a term no greater than 10 years. The term and vesting periods are established at the discretion of the Compensation Committee at the time of each grant. We amortize the fair value of the stock options over the vesting period on a straight-line basis. Options are granted from shares authorized by our boardBoard of directors. Directors. Years ended December 31, KBR stock options assumptions summary 2010 2009 0.8 1.4 6.5 6.5 $ 9.49 $ 6.57 Years ended December 31, KBR stock options ranged assumptions summary 2010 2009 Range Range Start End Start End 44.91 48.03 % 50.05 68.40 % 0.74 0.95 % 0.88 1.72 % 1.76 2.84 % 2.18 2.95 % No KBR stock options were granted in 2008. Years ended December 31, KBR stock options assumptions summary 2013 2012 Granted stock options (millions of shares) 0.9 0.8 Weighted average expected term (in years) 6.5 6.3 Weighted average grant-date fair value per share $ 11.40 $ 14.93 Years ended December 31, KBR stock options range assumptions summary 2013 2012 Range Range Start End Start End Expected volatility range 39.98 % 41.89 % 41.41 % 53.10 % Expected dividend yield range 0.89 % 1.11 % 0.57 % 0.80 % Risk-free interest rate range 0.98 % 2.09 % 0.86 % 1.48 % both 20102013, 2012 and 2009,2011, the fair value of options at the date of grant was estimated using the Black-Scholes MertonBlack-Scholes-Merton option pricing model. The expected volatility of KBR options granted in each year is based upon a blended rate that uses the historical and implied volatility of common stock for KBR and selected peers. The expected term of KBR options granted in each year is based upon the average of the life of the option and the vesting period of the option. The simplified estimate of expected term is utilized as we lack sufficient history to estimate an expected term for KBR options. The estimated dividend yield is based upon KBR’s annualized dividend rate divided by the market price of KBR’s stock on the option grant date. The risk-free interest rate is based upon the yield of USU.S. government issued treasury bills or notes on the option grant date.stock-basedshare-based compensation plans for the year ended December 31, 2010.KBR stock options activity summary Number of
Shares Weighted
Average
Exercise Price
per Share Weighted
Average
Remaining
Contractual
Term (years) Aggregate
Intrinsic
Value (in
millions) 2,715,835 $ 13.55 6.75 15.75 801,108 21.15 (360,225) 14.44 (174,935) 15.48 (33,137) 17.78 2,948,646 $ 15.29 6.84 $ 44.77 1,470,750 $ 14.02 4.96 $ 24.19 KBR stock options activity summary Number of Shares Outstanding at December 31, 2012 3,013,518 $ 24.00 6.86 $ 24.76 Granted 912,031 30.25 Exercised (410,931 ) 15.03 Forfeited (170,909 ) 32.44 Expired (69,086 ) 31.36 Outstanding at December 31, 2013 3,274,623 $ 26.27 6.93 $ 22.49 Exercisable at December 31, 2013 1,860,125 $ 21.86 5.57 $ 20.73 2010, 2009,2013, 2012 and 20082011 were $4$7 million $1, $9 million and $4$10 million, respectively. As of December 31, 2010,2013, there was $8$11 million of unrecognized compensation cost, net of estimated forfeitures, related to non-vested KBR stock options, expected to be recognized over a weighted average period of approximately 1.851.78 years. Stock option compensation expense was $5$9 million in 2010, $42013, $8 million in 20092012 and $3$7 million in 2008. 2011. stock-basedshare-based compensation arrangements was $2$3 million for the period ended December 31, 2010 in 2013 and $12012 and $2 million for both periods ended December 31, 2009 and 2008. in 2011.2006Stock Plan are restricted as to sale or disposition. These restrictions lapse periodically over an extendeda period of time not exceeding 10 years. Restrictions may also lapse for early retirement and other conditions in accordance with our established policies. Upon termination of employment, shares on which restrictions have not lapsed must be returned to us, resulting in restricted stock forfeitures. The fair market value of the stock on the date of grant is amortized and ratably charged to income over the period during which the restrictions lapse on a straight-line basis. For awards with performance conditions, an evaluation is made each quarter as to the likelihood of meeting the performance criteria being met. Stock-basedcriteria. Share-based compensation is then adjusted to reflect the number of shares expected to vest and the cumulative vesting period met to date.20102013 under KBR’s 2006 Stock and Incentive Plan.Restricted stock activity summary Number of
Shares Weighted
Average
Grant-Date
Fair Value per
Share 1,510,520 $ 21.35 358,665 21.28 (563,836) 21.78 (167,906) 21.24 1,137,443 $ 21.13 Restricted stock activity summary Nonvested shares at December 31, 2012 665,030 $ 27.83 Granted 383,284 30.64 Vested (274,504 ) 26.44 Forfeited (105,044 ) 30.23 Nonvested shares at December 31, 2013 668,766 $ 29.64 2010, 2009,2013, 2012 and 20082011 were $21.28, $12.34,$30.64, $33.13 and $30.54,$35.16, respectively. Restricted stock compensation expense was $12$7 million during 2010 and $13 for 2013, $8 million for both 20092012 and 2008.$12 million for 2011. Total income tax benefit recognized in net income for stock-basedshare-based compensation arrangements was $4$3 million in 2010, $52013 and 2012 and $4 million in 2009 and $4 million in 2008.2011. As of December 31, 2010,2013, there was $18$15 million of unrecognized compensation cost, net of estimated forfeitures, related to KBR’s nonvested restricted stock and restricted stock units, which is expected to be recognized over a weighted average period of 2.73.4 years. The total fair value of shares vested was $13$8 million in 2010, $122013, $12 million in 2009,2012 and $14$16 million in 20082011 based on the weighted-average fair value on the vesting date. The total fair value of shares vested was $12$7 million in 2010, $152013, $9 million in 2009,2012 and $10$11 million in 20082011 based on the weighted-average fair value on the date of grant.2006Stock Plan, for Cash Performance Awards granted in the year 2010,2013, 2012 and 2011, performance is based 75%100% on average Total Shareholder Return (“TSR”), as compared to the average TSR of KBR’s peers, and 25% on KBR’s Return on Capital (“ROC”). For awards granted in the years 2009 and 2008, performance is based 50% on cumulative TSR, as compared to our peer group and 50% on KBR’s ROC.peers. The cash performance award units may only be paid in cash. In accordance with the provisions of FASB ASC 718-10,718 - Compensation-Stock Compensation, the TSR portion of the performance award units are classified as liability awards and remeasured at the end of each reporting period at fair value until settlement. The fair value approach uses the Monte Carlo valuation method which analyzes the companies comprising KBR’s peer group, considering volatility, interest rate, stock beta and TSR through the grant date. The ROC calculation is based on the company’s weighted average net income from continuing operations plus (interest expense x (1-effective tax rate)), divided by average monthly capital from continuing operations. The ROC portion of the Cash Performance Award is also classified as a liability award and remeasured at the end of each reporting period based on our estimate of the amount to be paid at the end of the vesting period.2006Stock Plan, in 2010,2013, we granted 25.230 million performance based award units (“Cash Performance Awards”) with a three-yearthree-year performance period from January 1, 20102013 to December 31, 2012.2015. In 20092012, we granted 20.429 million Cash Performance Awards with a three-year performance period from January 1, 2012 to December 31, 2014. In 2011, we granted 28 million Cash Performance Awards with a performance period from January 1, 20092011 to December 31, 2011. In 2008, we granted 24.3 million Cash Performance Awards with a performance period from January 1, 2008 to 2013. At December 31, 2010.2013, Cash Performance Awards forfeited, were approximately 6net of previous plan payout, totaled $10 million in 2013, $8 million in 2012 and $6 million in 2010, 4 million in 2009, and 2 million in 2008.2011. At December 31, 2010,2013, the outstanding balance for Cash Performance Award units was 58.4 million.Awards is 68.6 million units. No Cash Performance Awards will vest until such earned Cash Performance Awards, if any, are paid, subject to approval of the performance results by the certification committee.2010, 2009,2013, 2012 and 2008,2011, we recognized $26$8 million $30, $18 million and $16$34 million, respectively, in expense for the Cash Performance Awards. The expense associated with these optionsCash Performance Awards is included in cost of services and general and administrativetheour consolidated balance sheetsheets were $48$23 million at December 31, 20102013 of which $27$20 million will become due within one year, and $49$48 million at December 31, 2009.2010,2013 and 2012, our employees purchased approximately 169,000131,000 and 138,000 shares, respectively, through the KBR ESPP. These shares were reissued from our treasury share account.Stock-based compensationbeforeas of the modification. Share-based compensation expense consists of $10 million recorded to cost of services on the consolidated income statements, while the remaining $6 million is recorded to general and administrative expenses on the consolidated income statements. The benefits of tax deductions in excess of the compensation cost recognized for the options (excess tax benefits) are classified as addition toadditional paid-in-capital, and cash retained as a result of these excess tax benefits is presented in the statementstatements of cash flows as financing cash inflows.Stock-based compensation summary table Years ended December 31 Millions of dollars 2010 2009 2008 $ 17 $ 17 $ 16 $ 6 $ 6 $ 5 $ 2 $ 1 $ — $ — $ (7) $ 2 Share-based compensation summary table Years ended December 31 Millions of dollars 2013 2012 2011 Share-based compensation $ 16 $ 16 $ 19 Total income tax benefit recognized in net income for share-based compensation arrangements $ 6 $ 6 $ 6 Incremental compensation cost $ 1 $ 1 $ 1 Tax benefit increase (decrease) related to share-based plans $ — $ 4 $ 3 stock-basedshare-based awards which allowed certain employees to retain their awards after leaving the company. Excess tax benefits realized from the exercise of stock-basedshare-based compensation awards has been recognized as paid-in capital in excess of par. Years ended December 31, Millions of shares 2013 2012 2011 Basic weighted average common shares outstanding 148 148 150 Stock options and restricted shares 1 1 1 Diluted weighted average common shares outstanding 149 149 151 14.20. Business Combinations and Other Transactionsthe major currencies, which are generally the currencies of the countries forin which we do the majority of our international business. These contractsinstruments generally have an expiration date of two years or less. Forward exchange contracts, which are commitments to buy or sell a specified amount of a foreign currency at a specified price and time, are generally used to manage identifiable foreign currency commitments. Forward exchange contracts and foreign exchange option contracts, which convey the right, but not the obligation to sell or buy a specified amount of foreign currency at a specified price, are generally used to manage exposures related to assets and liabilities denominated in a foreign currency. None of the forward or option contracts are exchange traded. While derivative instruments are subject to fluctuations in value, the fluctuations are generally offset by the value of the underlying exposures being managed.exposures. The use of some contracts may limit our ability to benefit from favorable fluctuations in foreign exchange rates.flowflows denominated in foreign currencies. We utilizeuse the derivative instruments described above to manage the foreign currency exposures related to specific assets and liabilities, that are denominated in foreign currencies; however, we have not elected to account for these instruments as hedges for accounting purposes. Additionally, we utilizeuse the derivative instruments described above to manage forecasted cash flowflows denominated in foreign currencies generally related to long-term engineering and construction projects. Since 2003, we have designatedWe designate these contracts related to engineering and construction projects as cash flow hedges. The ineffective portion of these hedges is included in operating income in the accompanying consolidated statements of income. During 2010, 20092013, 2012 and 20082011 no hedge ineffectiveness was recognized. Unrealized gains and losses include amounts attributable to cash flow hedges placed by our consolidated and unconsolidated subsidiaries and are included in "accumulated other comprehensive income in the accompanyingloss" on our consolidated balance sheets. We had approximately $2$1 million in unrealized net gains $1 million inas of December 31, 2013 and 2012, respectively, and no unrealized net losses and $1 million in unrealized net gains on these cash flow hedges as of December 31, 2010, 2009 and 2008, respectively.2011. Changes in the timing or amount of the future cash flow being hedged could result in hedges becoming ineffective and, as a result, the amount of unrealized gain or loss associated with that hedge would be reclassified from accumulated other comprehensive incomeloss into earnings. At December 31, 2010,2013, the maximum length of time over which we are hedging our exposure to the variability in future cash flow associated with foreign currency forecasted transactions is 41 months. Estimated amounts to be recognized in earnings in 2010 are not significant.$403$771 million $406, $517 million and $274$352 million at December 31, 2010, 2009,2013, 2012 and 2008,2011, respectively. The notional amounts of our foreign exchange contracts do not generally represent amounts exchanged by the parties, and thus, are not a measure of our exposure or of the cash requirements relating to these contracts. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as exchange rates. These contract assets (liabilities) had a fair value of risk.risk. Financial instruments that potentially subject us to concentrations of credit risk are primarily cash equivalents, investments and trade receivables. It is our practice to place our cash equivalents in time deposits and investments in high-quality investment securities with various banks, financial institutions and investment institutions.managers. We derive the majority of our revenues from engineering and construction services to the energy industry and services provided to the United States government. There are concentrations of receivables in the United States and the United Kingdom. We maintain an allowance for losses based upon the expected collectability of all trade accounts receivable.sheetsheets and a capacity for timely payment of financial commitments which is unlikely to be adversely affected by foreseeable events.risk.risk. Certain of our unconsolidated subsidiaries and joint-ventures are exposed to interest rate risk through their variable rate borrowings. We manage ourThis variable-rate exposure to this variable-rate debtis managed with interest rate swaps that are jointly owned through our investments.swaps. We had unrealized net losses on the interest rate cash flow hedgesswaps held by our unconsolidated subsidiaries and joint-ventures of approximately $5$2 million $4, $2 million and $3$4 million as of December 31, 2010, 2009,2013, 2012 and 2008,2011, respectively.sheetsheets at fair value and are based upon third partythird-party quotes.FASB ASC 820-10 addresses fair value measurements and disclosures, defining fair value, establishing a framework for using fair value to measure assets and liabilities, and expanding disclosures about fair value measurements. This standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. ASC 820-10 establishes a three-tier value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows:Level 1 – Observable inputs such as unadjusted quoted prices for identical assets or liabilities in active markets.Level 2 –Inputs other than the quoted prices in active markets that are observable either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices that are in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.included below: Fair Value Measurements at Reporting Date Using Millions of dollars December 31,
2010
in Active
Markets for
Identical Assets
Other
Observable
Inputs
Unobservable
Inputs $ 1,351 $ 753 $ 576 $ 22 $ 16 $ 12 $ 4 $ — $ 8 $ — $ 8 $ — $ 2 $ — $ 2 $ — See Note 17not material for additional details related to the fair values of our pension plan asset.Note 15. Equity Method Investments and Variable Interest EntitiesWe conduct some of our operations through joint ventures which are in partnership, corporate, undivided interest and other business forms and are principally accounted for using the equity method of accounting. Additionally, the majority of our joint ventures are also variable interest entities which are further described under “Variable Interest Entities”. The following is a description of our significant investments accounted for on the equity method of accounting that are not variable interest entities.Equity Method InvestmentsBrown & Root Condor Spa (“BRC”). BRC is a joint venture in which we owned 49% interest. During the third quarter of 2007, we sold our 49% interest and other rights in BRC to Sonatrach for approximately $24 million resulting in a pre-tax gain of approximately $18 million which is included in “Equity in earnings (losses) of unconsolidated affiliates”. As of December 31, 2010, we have not collected the remaining $18 million due from Sonatrach for the sale of our interest in BRC, which is included in “Accounts receivable.” In the fourth quarter of 2008, we filed for arbitration in an attempt to force collection. An arbitration hearing occurred in January 2011 for which we expect a decision in mid-2011. We believe the amount owed to us is probable of recovery.MMM.MMM is a joint venture formed under a Partners Agreement related to the Mexico contract with PEMEX. The MMM joint venture was set up under Mexican maritime law in order to hold navigation permits to operate in Mexican waters. The scope of the business is to render services of maintenance, repair and restoration of offshore oil and gas platforms and provisions of quartering in the territorial waters of Mexico. KBR holds a 50% interest in the MMM joint venture. In 2009, the MMM joint venture repurchased outstanding equity interests from each of the joint venture partners on a pro-rata basis. We accounted for the transaction as a return of our initial investment resulting in a $28 million reduction of “Equity in and advances to related companies” in our Consolidated Balance Sheet.Consolidated summarized financial information for all jointly owned operations including variable interest entities that are accounted for using the equity method of accounting is as follows:Balance Sheets December 31, Millions of dollars 2010 2009 $ 2,694 $ 3,217 3,949 3,973 $ 6,643 $ 7,190 $ 1,658 $ 1,804 4,541 5,550 444 (164) $ 6,643 $ 7,190 Statements of Operations Years ended December 31, Millions of dollars 2010 2009 2008 $ 2,497 $ 2,535 $ 2,642 $ 617 $ 221 $ 79 $ 334 $ 63 $ (45) Unconsolidated VIEsThe following is a summary of the significant variable interest entities in which we have a significant variable interest, but we are not the primary beneficiary: Year ended December 31, 2010 Unconsolidated VIEs VIE Total assets VIE Total liabilities Maximum
exposure to loss $ 1,506 $ 1,531 $ 30 $ 240 $ 269 $ 3 $ 2,913 $ 2,885 $ 62 $ 604 $ 388 $ 38 $ 164 $ 148 $ 29 Year ended December 31, 2009 Unconsolidated VIEs VIE Total assets VIE Total liabilities $ 1,660 $ 1,603 $ 271 $ 295 $ 3,037 $ 3,020 $ 598 $ 489 $ 410 $ 467 U.K. Road projects.We are involved in four privately financed projects, executed through joint ventures, to design, build, operate, and maintain roadways for certain government agencies in the United Kingdom. We have a 25% ownership interest in each of these joint ventures and account for them using the equity method of accounting. The joint ventures have obtained financing through third parties that is nonrecourse to the joint venture partners. These joint ventures are variable interest entities; however, we are not the primary beneficiary of these joint ventures. Our maximum exposure to loss represents our equity investments in these ventures.Fermoy Road project.We participate in a privately financed project executed through certain joint ventures formed to design, build, operate, and maintain a toll road in southern Ireland. The joint ventures were funded through debt and were formed with minimal equity. These joint ventures are variable interest entities; however, we are not the primary beneficiary of the joint ventures. We have up to a 25% ownership interest in the project’s joint ventures, and we are accounting for these interests using the equity method of accounting.Allenby & Connaught project.In April 2006, Aspire Defence, a joint venture between us, Carillion Plc. and two financial investors, was awarded a privately financed project contract, the Allenby & Connaught project, by the MoD to upgrade and provide a range of services to the British Army’s garrisons at Aldershot and around Salisbury Plain in the United Kingdom. In addition to a package of ongoing services to be delivered over 35 years, the project includes a nine-year construction program to improve soldiers’ single living, technical and administrative accommodations, along with leisure and recreational facilities. Aspire Defence manages the existing properties and is responsible for design, refurbishment, construction and integration of new and modernized facilities. We indirectly own a 45% interest in Aspire Defence, the project company that is the holder of the 35-year concession contract. In addition, we own a 50% interest in each of two joint ventures that provide the construction and the related support services to Aspire Defence. As of December 31, 2010, our performance through the construction phase is supported by $73 million in letters of credit and approximately $15 million in surety bonds. Furthermore, our financial and performance guarantees are joint and several, subject to certain limitations, with our joint venture partners. The project is funded through equity and subordinated debt provided by the project sponsors and the issuance of publicly held senior bonds which are nonrecourse to us. The entities we hold an interest in are variable interest entities; however, we are not the primary beneficiary of these entities. We account for our interests in each of the entities using the equity method of accounting. Our maximum exposure to construction and operating joint venture losses is limited to the funding of any future losses incurred by those entities under their respective contracts with the project company. As of December 31, 2010, our assets and liabilities associated with our investment in this project, within our consolidated balance sheet, were $31 million and $2 million, respectively. The $60 million difference between our recorded liabilities and aggregate maximum exposure to loss was primarily related to our equity investments and $33 million remaining commitment to fund subordinated debt to the project in the future.periods presented.EBIC Ammonia project. We have an investment in a development corporation that has an indirect interest in the Egypt Basic Industries Corporation (“EBIC”) ammonia plant project located in Egypt. We are performing the engineering, procurement and construction (“EPC”) work for the project and operations and maintenance services for the facility. We own 65% of this development corporation and consolidate it for financial reporting purposes. The development corporation owns a 25% ownership interest in a company that consolidates the ammonia plant which is considered a variable interest entity. The development corporation accounts for its investment in the company using the equity method of accounting. The variable interest entity is funded through debt and equity. Indebtedness of EBIC under its debt agreement is non-recourse to us. We are not the primary beneficiary of the variable interest entity. As of December 31, 2010, our assets and liabilities associated with our investment in this project, within our consolidated balance sheet, were $55 million and $9 million, respectively. The $29 million difference between our recorded liabilities and aggregate maximum exposure to loss was related to our investment balance and other receivables in the project as of December 31, 2010.Other Liquefied Natural Gas (“LNG”) projects.We have equity ownership in two joint ventures to execute EPC projects. Our equity ownership ranges from 33% to 50%, and these joint ventures are variable interest entities. We are not the primary beneficiary and thus account for these joint ventures using the equity method of accounting. Our aggregate, maximum exposure to loss related to these entities was primarily comprised of our equity investment and contract receivables with both joint ventures. Our maximum exposure to loss primarily represent our equity investments in and other receivables due from these joint ventures.Consolidated VIEsThe following is a summary of the significant VIEs where we are the primary beneficiary: Year ended December 31, 2010 Consolidated VIEs VIE Total assets VIE Total liabilities $ 106 $ 112 $ 356 $ 423 $ 174 $ 167 $ 347 $ 372 Year ended December 31, 2009 Consolidated VIEs VIE Total assets VIE Total liabilities $ 387 $ 482 $ 157 $ 138 $ 109 $ 109 Fasttrax Limited project.Effective January 1, 2010, upon the adoption of the newly issued guidance in FASB ASC 810 – Consolidation, we determined that we are the primary beneficiary of this project entity because we control the activities that most significantly impact economic performance of the entity. This variable interest entity, in which we have a 50% ownership interest, was previously accounted for using the equity method of accounting because no party absorbed the majority of the expected losses which was the determining factor under the superseded standard. We have applied the requirements of FASB ASC 810 on a prospective basis from the date of adoption. Upon consolidation of this joint venture, consolidated current assets increased by $26 million primarily related to cash and equivalents, consolidated noncurrent assets increased by $89 million related to property, plant and equipment, consolidated current liabilities increased by $10 million primarily related to accounts payable, and noncurrent liabilities increased by $112 million related to the outstanding senior bonds and subordinated debt issued to finance the JV’s operations. No gain or loss was recognized by KBR upon consolidation of this VIE. Assets collateralizing the JV’s senior bonds include cash and equivalents of $21 million and property, plant, and equipment of approximately $80 million, net of accumulated depreciation of $38 million as of December 31, 2010. The bonds of the SPV, being non-recourse to KBR, are shown on the face of our condensed consolidated balance sheet as “Non-recourse project-finance debt.”In December 2001, the Fasttrax Joint Venture (the “JV”) was created to provide to the United Kingdom Ministry of Defense (“MOD”) a fleet of 92 new heavy equipment transporters (“HETs”) capable of carrying a 72-ton Challenger II tank. The JV owns, operates and maintains the HET fleet and provides heavy equipment transportation services to the British Army. The purchase of the assets was completed in 2004, and the operating and service contracts related to the assets extend through 2023. The JV’s entity structure includes a parent entity and its 100%-owned subsidiary, Fasttrax Ltd (the “SPV”). KBR and its partner own each 50% of the parent entity.The JV’s purchase of the assets was funded through the issuance of several series guaranteed secured bonds totaling approximately £84.9 million issued by the SPV including £12.2 million which was replaced in 2005 when the shareholders funded combined equity and subordinated debt of approximately £12.2 million. The bonds are guaranteed by Ambac Assurance U.K. Ltd under a policy that guarantees the schedule of principle and interest payments to the bond trustee in the event of non-payment by Fasttrax. The total amount of non-recourse project-finance debt of a VIE consolidated by KBR at December 31, 2010, is summarized in the following table. Consolidated amount of non-recourse project-finance debt of a VIEMillions of DollarsDecember 31, 2010Current non-recourse project-finance debt of a VIE consolidated by KBR $9 Noncurrent non-recourse project-finance debt of a VIE consolidated by KBR $92 Total non-recourse project-finance debt of a VIE consolidated by KBR $101 The guaranteed secured bonds were issued in two classes consisting of Class A 3.5% Index Linked Bonds in the amount of £56 million and Class B 5.9% Fixed Rate Bonds in the amount of £16.7 million. Principal payments on both classes of bonds commenced in March 2005 and are due in semi-annual installments over the term of the bonds which end in 2021. Subordinated notes payable to our 50% partner initially bear interest at 11.25% increasing to 16% over the term of the note through 2025. Payments on the subordinated debt commenced in March 2006 and are due in semi-annual installments over the term of the note. The following table summarizes the combined principal installments for both classes of bonds and subordinated notes, including inflation adjusted bond indexation over the next five-years and beyond as of December 31, 2010: Millions of pounds Debt Payments £ 6 £ 6 £ 6 £ 6 £ 7 £ 48 Escravos Gas-to-Liquids (“GTL”) project.During 2005, we formed a joint venture to engineer and construct a gas monetization facility. As noted in the VIE summary table above, we own 50% equity interest and determined that we are the primary beneficiary of the joint venture which is consolidated for financial reporting purposes. There are no consolidated assets that collateralize the joint venture’s obligations. However, at December 31, 2010 and 2009, the joint venture hadapproximately $84 million and $128 million of cash, respectively, which mainly relate to advanced billings in connection with the joint venture’s obligations under the EPC contract.Pearl GTL project. In July 2006, we were awarded, through a 50%-owned joint venture (as noted in the VIE summary table above), a contract with Qatar Shell GTL Limited to provide project management and cost-reimbursable engineering, procurement and construction management services for the Pearl GTL project in Ras Laffan, Qatar. The project, which is expected to be completed by 2011, consists of gas production facilities and a GTL plant. The joint venture is considered a VIE. We consolidate the joint venture for financial reporting purposes because we are the primary beneficiary.Gorgon LNG project.As noted in the VIE summary table above, we have a 30% ownership in an Australian joint venture which was awarded a contract by Chevron for cost-reimbursable FEED and EPCM services to construct a LNG plant. The joint venture is considered a VIE, and, as a result of our being the primary beneficiary, we consolidate this joint venture for financial reporting purposes.Note 16. Transactions with Former Parent and Other Related Party TransactionsIn connection with the initial public offering in November 2006 and the separation of our business from Halliburton, in April 2007, we entered into various agreements with Halliburton including, among others, a master separation agreement, tax sharing agreement, transition services agreements and an employee matters agreement. Pursuant to our master separation agreement, we agreed to indemnify Halliburton for, among other matters, all past, present and future liabilities related to our business and operations. We agreed to indemnify Halliburton for liabilities under various outstanding and certain additional credit support instruments relating to our businesses and for liabilities under litigation matters related to our business. Halliburton agreed to indemnify us for, among other things, liabilities unrelated to our business, for certain other agreed matters relating to the investigation of FCPA and related corruption allegations and the Barracuda-Caratinga project and for other litigation matters related to Halliburton’s business. Under the transition services agreements, Halliburton provided various interim corporate support services to us and we provided various interim corporate support services to Halliburton. The tax sharing agreement provides for certain allocations of U.S. income tax liabilities and other agreements between us and Halliburton with respect to tax matters.Our balance payable to our former parent, Halliburton, at December 31, 2010 and 2009, of $43 million and $53 million, respectively, was comprised of amounts owed to Halliburton primarily for estimated outstanding income taxes under the tax sharing agreement. See Note 11 for further discussion of amounts outstanding under the tax sharing agreement.We perform many of our projects through incorporated and unincorporated joint ventures. In addition to participating as a joint venture partner, we often provide engineering, procurement, construction, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our revenues or expenses. We recognize the profit on our services provided to joint ventures that we consolidate and joint ventures that we record under the equity method of accounting primarily using the percentage-of-completion method.Our total revenue and profit from services provided to our unconsolidated joint ventures recorded in our consolidated statements of income is presented in the table below: December 31, Millions of dollars 2010 2009 2008 $ 145 $ 166 $ 202 $ 12 $ 1 $ 28 Note 17. Retirement PlansWe have various plans that cover our employees. These plans include defined contribution plans and defined benefit plans. Our plans plan assets and obligations related to other postretirement plans are immaterial.Our defined contribution plans provide retirement benefits in return for services rendered. These plans provide an individual account for each participant and have terms that specify how contributions to the participant’s account are to be determined rather than the amount of pension benefits the participant is to receive. Contributions to these plans are based on pretax income and/or discretionary amounts determined on an annual basis. Our expense for the defined contribution plans totaled $64 million in 2010, $61 million in 2009, and $47 million in 2008.Additionally, we participate in a Canadian multi-employer plan to which we contributed $12 million in 2010, $17 million in 2009, and $9 million in 2008;Our defined benefit plans are funded pension plans, which define an amount of pension benefit to be provided, usually as a function of age, years of service, or compensation.We account for our defined benefit pension plan in accordance with FASB ASC 715 – Compensation – Retirement Benefits, which requires an employer to:recognize on its balance sheet the funded status (measured as the difference between the fair value of plan assets and the benefit obligation) of pension plan;recognize, through comprehensive income, certain changes in the funded status of a defined benefit plan in the year in which the changes occur;measure plan assets and benefit obligations as of the end of the employer’s fiscal year; anddisclose additional information.Benefit obligation and plan assetsWe used a December 31 measurement date for all plans in 2010 and 2009. Plan asset, expenses, and obligation for retirement plans are presented in the following tables. Pension Benefits Benefit obligation United States Int’l United States Int’l Millions of dollars 2010 2009 $ 80 $ 1,528 $ 73 $ 1,256 — 1 — 2 4 85 5 77 — — — 1 — — — (8) — (52) — 93 3 27 8 153 (6) (51) (6) (46) $ 81 $ 1,538 $ 80 $ 1,528 $ 81 $ 1,538 $ 80 $ 1,528 Pension Benefits Plan assets United States Int’l United States Int’l Millions of dollars 2010 2009 $ 57 $ 1,231 $ 46 $ 985 8 134 12 200 6 14 5 18 — (42) — 74 (6) (51) (6) (46) $ 65 $ 1,286 $ 57 $ 1,231 $ (16) $ (252) $ (23) $ (297) — — — — $ (16) $ (252) $ (23) $ (297) $ (16) $ (252) $ (23) $ (297) 4.84% 5.45% 5.35% 5.84% N/A N/A N/A N/A Assumed long-term rates of return on plan assets, discount rates for estimating benefit obligations, and rates of compensation increases vary for the different plans according to the local economic conditions. The overall expected long-term rate of return on assets was determined by reviewing targeted asset allocations and historical index performance of the applicable asset classes on a long-term basis of at least 15 years. The discount rate was determined by reviewing yields on high-quality bonds that receive one of the two highest ratings given by a recognized rating agency and the expected duration of the obligations specific to the characteristics of the Company’s plans.Plan fiduciaries of the Company’s retirement plans set investment policies and strategies and oversee its investment direction, which includes selecting investment managers, commissioning asset-liability studies and setting long-term strategic targets. Long-term strategic investment objectives include preserving the funded status of the plan and balancing risk and return and have a wide diversification of asset types, fund strategies and fund managers. Targeted asset allocation ranges are guidelines, not limitations, and occasionally plan fiduciaries will approve allocations above or below a target range.The 2011 and 2010 targeted asset allocation ranges for the International plans, by asset class, are as follows:International Plans – Asset Class 2011 Targeted 2010 Targeted Percentage Range Percentage Range Minimum Maximum Minimum Maximum 56% 61% 48% 53% 35% 40% 43% 48% — 4% — 4% The targeted asset allocation ranges for the Domestic plans for both 2011 and 2010, by asset class, are as follows:Domestic Plans – Asset Class Targeted Percentage Range Minimum Maximum 49% 73% 30% 44% — 2% The inputs and methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a description of the primary valuation methodologies used for assets measured at fair value:Common Stocks and Corporate Bonds: Valued at the closing price reported on the active market on which the individual securities are traded.Corporate Bonds, Government Bonds and Mortgage Backed Securities: Valued at quoted prices in markets that are not active, broker dealer quotations, or other methods by which all significant inputs are observable, either directly or indirectly.Common Collective Trust Funds: Valued at the net asset value per unit held at year end as quoted by the funds.Mutual Funds: Valued at the net asset value of shares held at year end as quoted in the active market.Real Estate: Valued at net asset value per unit held at year end as quoted by the manager.Annuities: Valued by computing the present value of the expected benefits based on the demographic information of the participants.Other: Estimated income to be received on the Plan assets as computed by our trusteeThe methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement as of the reporting date.A summary of total investments for KBR’s pension plan assets measured at fair value at December 31, 2010 is presented below. See Note 14 for a detailed description of fair value measurements and the hierarchy established for Level 1, 2 and 3 valuation inputs. Fair Value Measurements at Reporting Date Using Millions of dollars Total Level 1 Level 2 Level 3 $ 28 $ 27 $ 1 $ — 15 15 — — 4 — 4 — 15 8 7 — 1 — 1 — 2 2 — — $ 65 $ 52 $ 13 $ — $ 188 $ 188 $ — $ — 460 440 20 — 269 — 269 — 293 19 274 — 2 2 — — 5 — — 5 8 — — 8 52 52 — — 9 — — 9 $ 1,286 $ 701 $ 563 $ 22 $ 1,351 $ 753 $ 576 $ 22 $ 25 $ 25 $ — $ — 10 10 — — 4 — 4 — 15 8 7 — 1 — 1 — 1 1 — — 1 — 1 — $ 57 $ 44 $ 13 $ — $ 123 $ 123 $ — $ — 433 433 — — 266 — 266 — 344 14 330 — 1 — 1 — 6 — — 6 7 — — 7 44 44 — — 7 — — 7 $ 1,231 $ 614 $ 597 $ 20 $ 1,288 $ 658 $ 610 $ 20 The fair value measurement of plan assets using significant unobservable inputs (level 3) changed during 2010 due to the following:Level 3 fair value measurement rollforward for 2010 Millions of dollars Total Annuity
Contracts Real Estate Other $ 20 $ 6 $ 7 $ 7 1 — 1 — 1 (1) — 2 $ 22 $ 5 $ 8 $ 9 Level 3 fair value measurement rollforward for 2009 Millions of dollars Total Annuity
Contracts Real Estate Other $ 15 $ 6 $ 6 $ 3 1 — 1 — 4 — — 4 $ 20 $ 6 $ 7 $ 7 The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2010, net of tax were as follows: Pension Benefits United States Int’l Millions of dollars 2010 $ 19 $ 363 $ 19 $ 363 Expected cash flowsContributions. Funding requirements for each plan are determined based on the local laws of the country where such plan resides. In certain countries the funding requirements are mandatory while in other countries they are discretionary. We expect to contribute $63 million to our international pension plans and $5 million to our domestic plan in 2011.Benefit payments. The following table presents the expected benefit payments over the next 10 years. Pension Benefits United States Int’l $ 7 $ 53 $ 7 $ 56 $ 6 $ 59 $ 7 $ 61 $ 6 $ 65 $ 30 $ 376 Net periodic cost Pension Benefits United States Int’l United States Int’l United States Int’l 2010 2009 2008 $ — $ 1 $ — $ 2 $ — $ 8 4 85 5 77 4 90 (3) (90) (4) (84) (4) (102) — — — — — (1) — — 1 (4) — — 1 18 1 11 — 12 $ 2 $ 14 $ 3 $ 2 $ — $ 7 Pension Benefits United
States Int’l United
States Int’l United
States Int’l 2010 2009 2008 5.35% 5.84 % 6.15% 5.98 % 6.13% 5.70 % 7.00% 7.00 % 7.63% 7.00 % 7.81% 7.00 % N/A NA % N/A 4.00 % N/A 4.30 % Estimated amounts that will be amortized from accumulated other comprehensive income, net of tax, into net periodic benefit cost in 2011 are as follows: Pension Benefits Millions of dollars United States International $ 1 $ 14 $ 1 $ 14 18.22. Recent Accounting PronouncementsIn October 2009,(“ASU”("ASU") 2009-13, Revenue Recognition (Topic 605)No. 2014-05, Service Concession Arrangements. A service concession agreement is an arrangement between a public-sector entity (a governmental body or an entity to which the responsibility for the public service has been delegated) and an operating entity under which the operating entity operates the grantor's infrastructure (for example, airports, roads and bridges). The operating entity may also provide the construction, upgrading or maintenance services of the grantor's infrastructure. This ASU specifies that an operating entity should not account for a service concession arrangement within the scope of this ASU as a lease in accordance with ASC 840 - Multiple-Deliverable Revenue Arrangements. ASU 2009-13 addresses the accounting for multiple-deliverable arrangementsLeases. An operating entity should refer to enable vendorsother ASUs as applicable to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling pricevarious aspects of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidanceservice concession arrangement. The amendments also eliminatesspecify that the residual method of allocationinfrastructure used in a service concession agreement should not be recognized as property, plant and requires that arrangement consideration be allocated at the inceptionequipment of the arrangement to all deliverablesoperating entity. The amendments in this ASU are effective using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectivelymodified retrospective approach for revenue arrangements entered into or materially modified in fiscal yearsinterim and annual reporting periods beginning on or after JuneDecember 15, 2010.2014. The adoption of this accounting standard update didASU 2014-05 is not expected to have a material impact on our financial position, results of operations or cash flows and disclosures.In January 2010,flows.2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires some new disclosuresstates that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, except as follows. The unrecognized tax benefit should be presented in the financial statements as a liability and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objectiveshould not be combined with deferred tax assets to the extent (a) a net operating loss carryforward, a similar tax loss or a tax credit carryforward is to improve these disclosures and, thus, increasenot available at the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:A reporting entity should disclose separatelydate under the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; andIn the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements.In addition, ASU 2010-06 clarifies the requirementstax law of the following existing disclosures:For purposesapplicable jurisdiction to settle any additional income taxes that would result from the disallowance of reporting fair value measurement for each classa tax position or (b) the tax law of assets and liabilities, a reportingthe applicable jurisdiction does not require the entity needs to use, judgmentand the entity does not intend to use, the deferred tax assets for such purpose. The amendments in determining the appropriate classes of assets and liabilities; andA reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.Thethis ASU isare effective prospectively for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted.2013. The adoption of this accounting standard update didASU 2013-11 is not expected to have a material impact on our financial position, results of operations or cash flows and disclosures.In December 2010,flows.2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 22013-10, Inclusion of the Goodwill Impairment TestFed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Reporting Units with Zero or Negative Carrying Amounts.Hedge Accounting Purposes. This ASU reflectspermits the decision reachedFed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815 - Derivatives and Hedging, in EITF Issue No. 10-A.addition to the U.S. Treasury Rate and the LIBOR rate. The amendments in this ASU modify Step 1 ofalso removes the goodwill impairment testrestriction on using different benchmark rates for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.similar hedges. The amendments in this ASU are effective prospectively for fiscal years, and interim periods within those years, beginningqualifying new or re-designated hedging relationships entered into on or after December 15, 2010. EarlyJuly 17, 2013. The adoption of ASU 2013-10 is not permitted. We are evaluating the impact of this account standard update. However, we do not expect the adoption of this accounting standard update willexpected to have a material impact on our financial position, results of operations or cash flows and disclosures.In December 2010,flows.2010-29, Business Combinations (Topic 805): DisclosureNo. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Supplementary Pro Forma Information for Business Combinations.Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This ASU reflectsrequires that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, then the decision reachedparent is required to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in EITF Issue No. 10-G.the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance still applies. In the case of an equity method investment that is not a foreign entity, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. Additionally, the amendmentsaffect any public entity as defined by Topic 805, Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the firstinterim and annual reporting periodperiods beginning on or after December 15, 2010. Early adoption is permitted. We are evaluating the impact of this account standard update. However, we do not expect the2013. The adoption of this accounting standard update willASU 2013-05 is not expected to have a material impact on our financial position, results of operations or cash flowsflows.disclosures.19.16.20102013 and 20092012 are presented in the following table. In the following table, the sum of basic and diluted “Net income attributable to KBR per share” for the four quarters may differ from the annual amounts due to the required method of computing weighted average number of shares in the respective periods. Additionally, due to the effect of rounding, the sum of the individual quarterly earnings per share amounts may not equal the calculated year earnings per share amount. Quarter (in millions, except per share amounts) First Second Third Fourth Year $ 2,631 $ 2,671 $ 2,455 $ 2,342 $ 10,099 99 199 163 148 609 59 122 117 97 395 13 16 20 19 68 46 106 97 78 327 $ 0.29 $ 0.66 $ 0.62 $ 0.52 $ 2.08 $ 0.29 $ 0.66 $ 0.62 $ 0.51 $ 2.07 $ 3,200 $ 3,101 $ 2,840 $ 2,964 $ 12,105 144 137 131 124 536 95 83 97 89 364 18 16 24 16 74 77 67 73 73 290 $ 0.48 $ 0.42 $ 0.46 $ 0.46 $ 1.80 $ 0.48 $ 0.42 $ 0.45 $ 0.45 $ 1.79 Net income attributable to KBR for the quarter ended December 31, 2009 includes a correction of errors related to prior periods which resulted in a decrease to net income of approximately $12 million, net of tax of $6 million, or approximately $0.08 per share.(in millions, except per share amounts) First Second Third Fourth Year 2013 Total revenue $ 1,829 $ 1,950 $ 1,780 $ 1,724 $ 7,283 Gross profit (a) 156 140 201 84 581 Equity in earnings of unconsolidated affiliates 30 46 31 30 137 Operating income 133 123 166 49 471 Net income (a) 97 111 87 32 327 Net income attributable to noncontrolling interests (9 ) (21 ) (63 ) (5 ) (98 ) Net income attributable to KBR 88 90 24 27 229 Net income attributable to KBR per share: Net income attributable to KBR per share—Basic $ 0.59 $ 0.61 $ 0.16 $ 0.19 $ 1.55 Net income attributable to KBR per share—Diluted $ 0.59 $ 0.61 $ 0.16 $ 0.18 $ 1.54 2012 Total revenue $ 1,964 $ 2,029 $ 1,949 $ 1,828 $ 7,770 Gross Profit 126 150 182 60 518 Equity in earnings of unconsolidated affiliates 37 33 43 38 151 Operating income (b) 112 129 (11 ) 69 299 Net income (loss) 98 112 (60 ) 52 202 Net income attributable to noncontrolling interests (7 ) (8 ) (21 ) (22 ) (58 ) Net income (loss) attributable to KBR 91 104 (81 ) 30 144 Net income attributable to KBR per share: Net income (loss) attributable to KBR per share—Basic $ 0.61 $ 0.70 $ (0.55 ) $ 0.20 $ 0.97 Net income (loss) attributable to KBR per share—Diluted $ 0.61 $ 0.70 $ (0.55 ) $ 0.20 $ 0.97 (a) As discussed in Note 1, we corrected an error, originating in periods prior to 2013. The correction of this error resulted in a net unfavorable impact to gross profit of $25 million in our Gas Monetization business segment for the year ended December 31, 2013, including $22 million in the fourth quarter. The correction of this error resulted in an after tax unfavorable impact to net income of $17 million for the year ended December 31, 2013, including $14 million in the fourth quarter. (b) Included in 2012 is a goodwill impairment charge of $178 million in our IGP business segment, as well as an impairment of long-lived asset charge of $2 million related to equipment, land and buildings. Based onevaluation, our Chief Executive Officer and Chief Financial Officer concluded thatas of December 31, 2013, our disclosure controls and procedures were not effective as of December 31, 2010 to providein providing reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act isof 1934 was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controlsregulations, and procedures include controls and procedures designed to ensure that such information required to be disclosed in reports filed or submitted under the Exchange Act iswas accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.ChangesInternal Control Over Financial ReportingThere hasall control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no changeassurance that any design will succeed in achieving its stated goals under all potential future conditions.internal control overconsolidated financial reporting that occurred duringstatements were prepared in accordance with generally accepted accounting principles and reflect its financial position and results of operations as of and for the three monthsyear ended December 31, 20102013. We identified that have materially affected, or are reasonably likelythe known financial error was attributable to materially affect,one major project that is near completion. As a result, notwithstanding the Company’s internal control overmaterial weakness as described above, management concluded that the consolidated financial reporting.as(as defined in the Securities Exchange Act Rule 13a-15(f) under the Exchange Act). InternalOur internal control over financial reporting no matter how wellis a process designed has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with respect to financial statement preparation and presentation. Further, becausegenerally accepted accounting principles. Because of changes in conditions, the effectiveness ofits inherent limitations, internal control over financial reporting may vary over time.Undernot prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the supervision andrisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the participation of our management,policies or procedures may deteriorate.we conducted an evaluation to assessassessed the effectiveness of our internal control over financial reporting as of December 31, 2010, based upon2013. In making this assessment, our management used the criteria set forthfor effective internal control over financial reporting described in the Internal Control–Integrated“Internal Control-Integrated Framework (1992)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on ourthis assessment, we have concludedmanagement has determined that asbecause of December 31, 2010,the material weaknesses described below, our internal control over financial reporting was not effective as of December 31, 2013.effective. Oura deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.KPMG LLP, has issued audit reports on its reportassessment of internal control over financial reporting and our consolidated financial statements that are included in Item 8 of this Annual Report on Form 10-K.as of during the three months ended December 31, 2010, which follows.2010,2013, based on criteria established inInternal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).KBR, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Annual Report on Internal Control Over Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.In our opinion, KBR, Inc. maintained, all material respects, effective internal control over financial reporting, as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizationssuch that there is a reasonable possibility that a material misstatement of the Treadway Commission.20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2010,2013, and related consolidated financial statement schedule. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2013 consolidated financial statements, and this report does not affect our report dated February 23, 201127, 2014, which expressed an unqualified opinion on those consolidated financial statementsstatements.23, 201127, 2014None.20112014 Annual Meeting of Stockholders.20112014 Annual Meeting of Stockholders.20112014 Annual Meeting of Stockholders.20112014 Annual Meeting of Stockholders.20112014 Annual Meeting of Stockholders.1. (a) (a)2 Financial Statement Schedules: Page No. (a) 2.Financial Statement Schedules:Page No.(a) (b) 119(b)20102013 1203. Exhibits: 3. Exhibits:
Number 2.1 2.1 Agreement and Plan of Merger dated as of May 6, 2008, by and among KBR, Inc., BE&K, Inc., and Whitehawk Sub, Inc., (incorporated by reference to Exhibit 2.1 to KBR’s Current Report on Form 8-K; File No. 001-33416) 3.1 3.1 KBR Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to KBR’s registration statementcurrent report on Form S-1;8-K filed June 7, 2012; Registration No. 333-133302)3.2 3.2* Amended and Restated Bylaws of KBR, Inc. (incorporated by reference to Exhibit 3.1 to KBR’s Form 10-Q for the period ended June 30, 2008; File No. 1-33146)4.1 4.1 Form of specimen KBR common stock certificate (incorporated by reference to Exhibit 4.1 to KBR’s registration statement on Form S-1; Registration No. 333-133302) 10.1 10.1 Master Separation Agreement between Halliburton Company and KBR, Inc. dated as of November 20, 2006 (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.2 10.2 Tax Sharing Agreement, dated as of January 1, 2006, by and between Halliburton Company, KBR Holdings, LLC and KBR, Inc., as amended effective February 26, 2007 (incorporated by reference to Exhibit 10.2 to KBR’s Annual Report on Form 10-K for the year ended December 31, 2006; File No. 001-33146) 10.3 Amended and Restated Registration Rights Agreement, dated as of February 26, 2007, between Halliburton Company and KBR, Inc. (incorporated by reference to Exhibit 10.3 to KBR’s Annual Report on Form 10-K for the year ended December 31, 2006; File No. 001-33146)10.4 10.5 10.4 Transition Services Agreement dated as of November 20, 2006, by and between Halliburton Energy Services, Inc. and KBR, Inc. (Halliburton as service provider) (incorporated by reference to Exhibit 10.5 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.6 10.5 Employee Matters Agreement dated as of November 20, 2006, by and between Halliburton Company and KBR, Inc. (incorporated by reference to Exhibit 10.6 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.7 10.6 Intellectual Property Matters Agreement dated as of November 20, 2006, by and between Halliburton Company and KBR, Inc. (incorporated by reference to Exhibit 10.7 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.8+ Severance and change in control agreement with William P. Utt, President and Chief Executive Officer of KBR. (incorporated by reference to Exhibit 10.7 to KBR’s current report on Form 8-K dated January 7, 2009; File No. 1-33146)10.9 (incorporated by reference to Exhibit 10.18 to KBR’s registration statement on Form S-1; Registration No. 333-133302)10.10+ 10.8 Five Year Revolving Credit Agreement dated as of December 2, 2011 among KBR, Inc. 2006 Stock, the Banks party thereto, The Royal Bank of Scotland PLC, as Syndication Agent, ING Bank, N.V. and Incentive Plan (as amended June 27, 2007)The Bank of Nova Scotia, as Co-Documentation Agents, Citigroup Global Markets Inc., RBS Securities Inc. ING Bank, N.V., and The Bank of Nova Scotia as Joint Lead Arrangers and Bookrunners, and Citibank, N.A., as Administrative Agent. (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 10-Q for the quarter ended June 30, 2007;8-K dated December 7, 2011; File No. 1-33146)10.11+ 10.9+ KBR, Inc. 2006 Stock and Incentive Plan (As Amended and Restated March 7, 2012) (incorporated by reference to KBR's definitive Proxy Statement dated April 5, 2012; File No. 1-33146) 10.10* KBR, Inc. Senior Executive Performance Pay Plan (incorporated by reference to Exhibit 10.21 to KBR’s Form 10-K for the fiscal year ended December 31, 2006; File No. 1-33146)10.12+ 10.11* KBR, Inc. Management Performance Pay Plan (incorporated by reference to Exhibit 10.22 to KBR’s Form 10-K for the fiscal year ended December 31, 2006; File No. 1-33146)10.13+ 10.12+ KBR, Inc. Transitional Stock Adjustment Plan (incorporated by reference to Exhibit 10.23 to KBR’s Form 10-K for the fiscal year ended December 31, 2006; File No. 1-33146) 10.14+ 10.13+ KBR Dresser Deferred Compensation Plan (incorporated by reference to Exhibit 4.5 to KBR’s Registration Statement on Form S-8 filed on April 13, 2007) ExhibitNumber Description10.15+ .10.16+ 10.15+ KBR Benefit Restoration Plan (incorporated by reference to Exhibit 10.4 to KBR’s current report on Form 8-K dated April 9, 2007; File No. 1-33146) .10.17+
Number 10.16+ KBR Elective Deferral Plan (incorporated by reference to Exhibit 10.5 to KBR’s current report on Form 8-K dated April 9, 2007; File No. 1-33146) .10.18+ Restricted Stock Unit Agreement pursuant to 10.17+ KBR Inc. 2006 Stock and IncentiveNon-Employee Directors Elective Deferral Plan (incorporated by reference to Exhibit 10.2exhibit 10.1 to KBR’sKBR's current report on Form 10-Q for the quarter ended June 30, 2007;8-K dated December 11, 2013; File No. 1-33146)10.19+ 10.18+ Form of Stock Option Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146) 10.20+ 10.19+ Form of KBR Restricted Stock Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.4 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146) 10.21+ 10.20+ Form of KBR, Inc. Transitional Stock Adjustment Plan Stock Option Award (incorporated by reference to Exhibit 10.5 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146) 10.22+ KBR, Inc. Transitional Stock Adjustment Plan Restricted Stock Award (incorporated by reference to Exhibit 10.6 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146)10.23+ 10.24+ 10.22+ Form of revised KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.510.25 to KBR’s Form 10-Q10-K for the quarteryear ended September 30, 2007;December 31, 2010; File No. 1-33146)*10.25+ 10.23+ Form of revised KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan.Plan (incorporated by reference to Exhibit 10.25 to KBR’s annual report on Form 10-K for the year ended December 31, 2012; File No. 1-33146)10.26+ 10.24+ Form of revised Nonstatutory Stock Option Agreement for US and Non-US Employees pursuant to KBR, Inc. , 2009 Employee 2006 Stock Purchaseand Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s quarterly report on Form 10-Q for the quarterperiod ended June 30, 2008;March 31, 2013; File No. 1-33146)10.27+ 10.25+ Form of revised Restricted Stock Unit Agreement (U.S. Employee) pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.2 to KBR’s quarterly report on Form 10-Q for the period ended March 31, 2013; File No. 1-33146) 10.26+ Form of revised Restricted Stock Unit Agreement (International Employee) pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.5 to KBR’s quarterly report on Form 10-Q for the period ended March 31, 2013; File No. 1-33146) 10.27+ Form of revised Restricted Stock Unit Agreement (Director) pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3 to KBR’s quarterly report on Form 10-Q for the period ended March 31, 2013; File No. 1-33146) 10.28+ Form of revised Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.4 to KBR’s quarterly report on Form 10-Q for the period ended March 31, 2013; File No. 1-33146) 10.29+* Form of Restricted Stock Unit Agreement (Three-Year Cliff Vesting) pursuant to KBR, Inc. 2006 Stock and Incentive Plan 10.30+ Form of Severance and Change in Control Agreement (incorporated by reference to Exhibit 10.1 to KBR’s Form 10-Q for the quarter ended September 30, 2008; File No. 1-33146) 10.28 Three Year Revolving Credit Agreement dated as of November 3, 2009 among KBR, Inc., the Lenders party thereto, BBVA Compass, as Syndication Agent, The Royal Bank of Scotland PLC, Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, Citigroup Global Markets Inc. and RBS Securities Inc., as Co-Lead Arrangers, and Citibank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated November 3, 2009; File No. 1-33146)10.29+ 10.30+ 10.32+ Severance and Change of Control Agreement effective as of January 18, 2010, between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Mark S. Williams (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated January 18, 2010; File No. 1-33416) 10.31+
Number 10.33+ Severance and Change of Control Agreement effective as of August 16, 2010, between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Dennis S. Baldwin (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated August 16, 2010,2010; File No. 1-33146)10.34+ Severance and Change of Control Agreement effective as of December 31, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Dennis S. Baldwin;William P. Utt (incorporated by reference to Exhibit 10.33 to KBR's annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146)ExhibitNumber Description10.35+ Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and John L. Rose (incorporated by reference to Exhibit 10.33 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.36+ Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Andrew D. Farley (incorporated by reference to Exhibit 10.34 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.37+ Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and David L. Zimmerman (incorporated by reference to Exhibit 10.35 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.38+ Amendment to the 2008 Severance and Change in Control Agreements effective as of December 31, 2008 (incorporated by reference to Exhibit 10.36 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.39+ Amendment to the Severance and Change in Control Agreement with Susan K. Carter effective as of January 15, 2010 (incorporated by reference to Exhibit 10.37 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.40+ Severance and Change of Control Agreement effective as of July 9, 2012, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Ivor Harrington (incorporated by reference to Exhibit 10.1 to KBR's current report on Form 8-K dated July 9, 2012; File No. 1-33146) 10.41+ Severance and Change of Control Agreement effective as of December 11, 2011, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Roy Oelking (incorporated by reference to Exhibit 10.38 to KBR’s annual report on Form 10-K for the year ended December 31, 2012; File No. 1-33146) 10.42+ Severance and Change of Control Agreement effective as of April 8, 2013, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Andrew Summers (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated March 6, 2013; File No. 1-33146) 10.43+ Severance and Change of Control Agreement effective as of December 14, 2011, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Mitch Dauzat (incorporated by reference to Exhibit 10.1 to KBR’s quarterly report on Form 10-Q for the period ended September 30, 2013; File No. 1-33146) 10.44+ Severance and Change of Control Agreement effective as of October 28, 2013, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Brian Ferraioli (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated October 28, 2013; File No. 1-33146) 10.45+ Transition Agreement dated December 13, 2013 among KBR, Inc., KBR Technical Services, Inc., a Delaware corporation, and William P. Utt (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated December 11, 2013; File No. 1-33146) *21.1 List of subsidiaries Consent of KPMG LLP - LLP—Houston, Texas Certification byof the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).Section 302 of the Sarbanes-Oxley Act of 2002.
NumberDescription *31.2 Certification byof the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).Section 302 of the Sarbanes-Oxley Act of 2002. Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document ***101.LABXBRL Taxonomy Extension Labels Linkbase Document***101.PREXBRL Taxonomy Extension Presentation Linkbase Document *Filed with this Form 10-K **Furnished with this Form 10-K ***In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.+ on Supplementary Information the date of February 23, 2011,27, 2014, we reported on the consolidated balance sheets of KBR, Inc. and subsidiaries as of December 31, 20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2010,2013, which reports appearreport appears in the December 31, 2010 Annual Report2013 annual report on Form 10-K of KBR, Inc. and subsidiaries. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule (Schedule II) included in the Company’s Annual Report on Form 10-K.accompanying index. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidatedthis financial statement schedule based on our audits.As discussed in Notes 1 and 15 to the consolidated financial statements, the Company changed its method of accounting for variable interest entities on a prospective basis as of January 1, 2010./s/ KPMG LLPHouston, TexasFebruary 23, 2011/s/ KPMG LLP Houston, Texas February 27, 2014 II - II—Valuation and Qualifying Accounts (Millions of Dollars) Additions Descriptions Balance at
Beginning
Period Charged to
Costs and
Expenses Charged to
Other
Accounts Deductions Balance at
End of Period $ 26 $ 13 $ — $ (12) (a) $ 27 $ 40 $ 1 $ — $ (15) $ 26 $ 116 $ — $ 34 (b) $ (9) $ 141 $ 19 $ 6 $ 3 $ (2) (a) $ 26 $ 76 $ 3 $ — $ (39) $ 40 $ 112 $ — $ 9 (b) $ (5) $ 116 $ 23 $ 1 $ 1 $ (6) (a) $ 19 $ 117 $ 27 $ — $ (68) $ 76 $ 99 $ — $ 18 (b) $ (5) $ 112 Additions Descriptions Deductions Year ended December 31, 2013: Deducted from accounts and notes receivable: Allowance for doubtful accounts $ 15 $ 5 $ — $ (2 )(a) $ 18 Reserve for losses on uncompleted contracts $ 56 $ 9 $ — $ (53 ) $ 12 Reserve for potentially disallowable costs incurred under government contracts $ 122 $ — $ 2 (b) $ (32 ) $ 92 Year ended December 31, 2012: Deducted from accounts and notes receivable: Allowance for doubtful accounts $ 24 $ 6 $ — $ (15 )(a) $ 15 Reserve for losses on uncompleted contracts $ 22 $ 53 $ — $ (19 ) $ 56 Reserve for potentially disallowable costs incurred under government contracts $ 127 $ — $ 5 (b) $ (10 ) $ 122 Year ended December 31, 2011: Deducted from accounts and notes receivable: Allowance for doubtful accounts $ 27 $ (2 ) $ — $ (1 )(a) $ 24 Reserve for losses on uncompleted contracts $ 26 $ 13 $ — $ (17 ) $ 22 Reserve for potentially disallowable costs incurred under government contracts $ 141 $ — $ 22 (b) $ (36 ) $ 127 (a) (b) 23, 201127, 2014KBR, INC. /s/ William P. Utt William P. Utt William P. UttPresident and Chief Executive Officer 23, 2011Signature Title /s/ William P. Utt President, Chief Executive Officer and Director William P. Utt (Principal Executive Officer) /s/ SusanBrian K. CarterFerraioli Executive Vice President and Chief Financial Officer SusanBrian K. CarterFerraioli (Principal Financial Officer) /s/ Dennis Baldwin Senior Vice President and Chief Accounting Officer Dennis Baldwin (Principal Accounting Officer) /s/ W. Frank Blount Director W. Frank Blount W. Frank Blount /s/ Loren K. Carroll Director Loren K. Carroll Loren K. Carroll/s/ Linda Z. Cook Director Linda Z. Cook /s/ Jeffrey E. Curtiss Director Jeffrey E. Curtiss Jeffrey E. Curtiss /s/ John R. Huff Director John R. Huff John R. Huff /s/ Lester L. Lyles Director Lester L. Lyles Lester L. Lyles /s/ Richard J. Slater Director Richard J. Slater Richard J. Slater/s/ Jack B. Moore Director Jack B. Moore Description 2.1 2.1 Agreement and Plan of Merger dated as of May 6, 2008, by and among KBR, Inc., BE&K, Inc., and Whitehawk Sub, Inc., (incorporated by reference to Exhibit 2.1 to KBR’s Current Report on Form 8-K; File No. 001-33416) 3.1 3.1 KBR Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to KBR’s registration statementcurrent report on Form S-1;8-K filed June 7, 2012; Registration No. 333-133302)3.2 3.2* Amended and Restated Bylaws of KBR, Inc. (incorporated by reference to Exhibit 3.1 to KBR’s Form 10-Q for the period ended June 30, 2008; File No. 1-33146)4.1 4.1 Form of specimen KBR common stock certificate (incorporated by reference to Exhibit 4.1 to KBR’s registration statement on Form S-1; Registration No. 333-133302) 10.1 10.1 Master Separation Agreement between Halliburton Company and KBR, Inc. dated as of November 20, 2006 (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.2 10.2 Tax Sharing Agreement, dated as of January 1, 2006, by and between Halliburton Company, KBR Holdings, LLC and KBR, Inc., as amended effective February 26, 2007 (incorporated by reference to Exhibit 10.2 to KBR’s Annual Report on Form 10-K for the year ended December 31, 2006; File No. 001-33146) 10.3 Amended and Restated Registration Rights Agreement, dated as of February 26, 2007, between Halliburton Company and KBR, Inc. (incorporated by reference to Exhibit 10.3 to KBR’s Annual Report on Form 10-K for the year ended December 31, 2006; File No. 001-33146)10.4 10.5 10.4 Transition Services Agreement dated as of November 20, 2006, by and between Halliburton Energy Services, Inc. and KBR, Inc. (Halliburton as service provider) (incorporated by reference to Exhibit 10.5 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.6 10.5 Employee Matters Agreement dated as of November 20, 2006, by and between Halliburton Company and KBR, Inc. (incorporated by reference to Exhibit 10.6 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.7 10.6 Intellectual Property Matters Agreement dated as of November 20, 2006, by and between Halliburton Company and KBR, Inc. (incorporated by reference to Exhibit 10.7 to KBR’s current report on Form 8-K dated November 20, 2006; File No. 001-33146) 10.8+ Severance and change in control agreement with William P. Utt, President and Chief Executive Officer of KBR. (incorporated by reference to Exhibit 10.7 to KBR’s current report on Form 8-K dated January 7, 2009; File No. 1-33146)10.9 (incorporated by reference to Exhibit 10.18 to KBR’s registration statement on Form S-1; Registration No. 333-133302)10.10+ 10.8 2006 Stock, the Banks party thereto, The Royal Bank of Scotland PLC, as Syndication Agent, ING Bank, N.V. and Incentive Plan (as amended June 27, 2007)The Bank of Nova Scotia, as Co-Documentation Agents, Citigroup Global Markets Inc., RBS Securities Inc. ING Bank, N.V., and The Bank of Nova Scotia as Joint Lead Arrangers and Bookrunners, and Citibank, N.A., as Administrative Agent. (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 10-Q for the quarter ended June 30, 2007;8-K dated December 7, 2011; File No. 1-33146)10.11+ 10.9+ 10.10* KBR, Inc. Senior Executive Performance Pay Plan (incorporated by reference to Exhibit 10.21 to KBR’s Form 10-K for the fiscal year ended December 31, 2006; File No. 1-33146)10.12+ 10.11* KBR, Inc. Management Performance Pay Plan (incorporated by reference to Exhibit 10.22 to KBR’s Form 10-K for the fiscal year ended December 31, 2006; File No. 1-33146)10.13+ 10.12+ KBR, Inc. Transitional Stock Adjustment Plan (incorporated by reference to Exhibit 10.23 to KBR’s Form 10-K for the fiscal year ended December 31, 2006; File No. 1-33146) 10.14+ 10.13+ KBR Dresser Deferred Compensation Plan (incorporated by reference to Exhibit 4.5 to KBR’s Registration Statement on Form S-8 filed on April 13, 2007) ExhibitNumber Description10.15+ .10.16+ 10.15+ KBR Benefit Restoration Plan (incorporated by reference to Exhibit 10.4 to KBR’s current report on Form 8-K dated April 9, 2007; File No. 1-33146) .10.17+ 10.16+ KBR Elective Deferral Plan (incorporated by reference to Exhibit 10.5 to KBR’s current report on Form 8-K dated April 9, 2007; File No. 1-33146) .10.18+ Restricted Stock Unit Agreement pursuant to 10.17+ KBR Inc. 2006 Stock and IncentiveNon-Employee Directors Elective Deferral Plan (incorporated by reference to Exhibit 10.2exhibit 10.1 to KBR’sKBR's current report on Form 10-Q for the quarter ended June 30, 2007;8-K dated December 11, 2013; File No. 1-33146)10.19+ 10.18+ Form of Stock Option Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146) 10.20+ 10.19+ Form of KBR Restricted Stock Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.4 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146) 10.21+ 10.20+ Form of KBR, Inc. Transitional Stock Adjustment Plan Stock Option Award (incorporated by reference to Exhibit 10.5 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146) 10.22+ KBR, Inc. Transitional Stock Adjustment Plan Restricted Stock Award (incorporated by reference to Exhibit 10.6 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146)10.23+ 10.24+ 10.22+ Form of revised KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.510.25 to KBR’s Form 10-Q10-K for the quarteryear ended September 30, 2007;December 31, 2010; File No. 1-33146)*10.25+ 10.23+ Plan.Plan (incorporated by reference to Exhibit 10.25 to KBR’s annual report on Form 10-K for the year ended December 31, 2012; File No. 1-33146)10.26+ 10.24+ , 2009 Employee 2006 Stock Purchaseand Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s quarterly report on Form 10-Q for the quarterperiod ended June 30, 2008;March 31, 2013; File No. 1-33146)10.27+ 10.25+ 10.26+ 10.27+ 10.28+ 10.29+* 10.30+ Form of Severance and Change in Control Agreement (incorporated by reference to Exhibit 10.1 to KBR’s Form 10-Q for the quarter ended September 30, 2008; File No. 1-33146) 10.28 Three Year Revolving Credit Agreement dated as of November 3, 2009 among KBR, Inc., the Lenders party thereto, BBVA Compass, as Syndication Agent, The Royal Bank of Scotland PLC, Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, Citigroup Global Markets Inc. and RBS Securities Inc., as Co-Lead Arrangers, and Citibank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated November 3, 2009; File No. 1-33146)10.29+ 10.30+ 10.32+ Severance and Change of Control Agreement effective as of January 18, 2010, between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Mark S. Williams (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated January 18, 2010; File No. 1-33416) 10.31+ 10.33+ Severance and Change of Control Agreement effective as of August 16, 2010, between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Dennis S. Baldwin (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated August 16, 2010,2010; File No. 1-33146)10.34+ Severance and Change of Control Agreement effective as of December 31, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Dennis S. Baldwin;William P. Utt (incorporated by reference to Exhibit 10.33 to KBR's annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146)ExhibitNumber Description10.35+ Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and John L. Rose (incorporated by reference to Exhibit 10.33 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.36+ Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Andrew D. Farley (incorporated by reference to Exhibit 10.34 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.37+ Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and David L. Zimmerman (incorporated by reference to Exhibit 10.35 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146) 10.38+ 10.39+ 10.40+ Severance and Change of Control Agreement effective as of July 9, 2012, by and between KBR Technical Services, Inc., a Delaware corporation, KBR, Inc., and Ivor Harrington (incorporated by reference to Exhibit 10.1 to KBR's current report on Form 8-K dated July 9, 2012; File No. 1-33146) 10.41+ 10.42+ 10.43+ 10.44+ 10.45+ *21.1 List of subsidiaries Consent of KPMG LLP - LLP—Houston, Texas Certification byof the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).Section 302 of the Sarbanes-Oxley Act of 2002.Description *31.2 Certification byof the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).Section 302 of the Sarbanes-Oxley Act of 2002. Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document *** 101.LAB XBRL Taxonomy Extension Labels Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document Filed with this Form 10-K ** Furnished with this Form 10-K *** Submitted pursuant to Rule 405 and 406T of Regulation S-T. ***In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act,Management contracts or otherwise subject to the liability of that section, and shall not be part of any registration statementcompensatory plans or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.arrangements+ Management contracts or compensatory plans or arrangements