Management's Discussion and Analysis of Financial Condition and Results of Operations
MoD
Ministry of Defence
MTS
Mission Technology Solutions
NASA
National Aeronautics and Space Administration
NCI
Noncontrolling interests
NYSE
The New York Stock Exchange
OCIs
Organizational conflicts of interest
OECD
Organization for Economic Co-operation and Development
PCAOB
Public Company Accounting Oversight Board
PFIs
Private financed initiatives and projects
PIC
Paid-in capital in excess of par
PPE
Property, Plant and Equipment
ROU
Right of use
RPA
Master Accounts Receivable Purchase Agreement
SEC
U.S. Securities and Exchange Commission
Securities Act
Securities Act of 1933, as amended
SOFR
Secured Overnight Financing Rate
SONIA
Sterling Overnight Index Average
STS
Sustainable Technology Solutions
United Kingdom
United States
U.S. GAAP
Accounting principles generally accepted in the United States
U.K. MFTS
U.K. Military Flying Training System
VIEs
Variable interest entities
Forward-Looking and Cautionary Statements
This Annual Report on Form 10-K contains certain statements that are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Some of the statements contained in this Annual Report on Form 10-K are forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "plan," "expect" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future financial performance and results of operations, and include information related to the proposed spin-off of our Mission Technology Solutions business into a stand-alone, publicly traded company.
We have based these statements on our assumptions and analyses in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, factors that could cause actual future results to differ materially include the risks and uncertainties disclosed under “Item 1A. Risk Factors” contained in Part I and other relevant sections of this Annual Report on Form 10-K.
Many of these factors are beyond our ability to control or predict. Any of the following factors, as well as the risks and uncertainties disclosed under “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K, and the risk factors and other cautionary statements contained in our other filings with the SEC, or a combination of these factors, could materially and adversely affect our future financial condition or results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially and adversely from those projected in the forward-looking statements. We caution against putting undue reliance on forward-looking statements or projecting any future results based on such statements or on present or prior earnings levels. In addition, each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statement.
Summary Risk Factors
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. This summary should be read together with the more detailed description of each risk factor disclosed under "Item 1A. Risk Factors" contained in Part I of this Annual Report on Form 10-K.
Risks Related to Operations of Our Business
• Any loss, cancellation or delay in one or more projects by our significant customers in the future could negatively affect our financial performance.
• Our results of operations and cash flows depend on the award of new contracts and the timing of the performance of existing contracts.
• Ongoing international conflicts may adversely affect our business and results of operations.
• If there are any successful intellectual property infringement proceedings against us, our competitive position could be adversely impacted.
• Uncertainty over global tariffs may negatively impact our business and results of operations.
• We may not properly leverage or appropriately invest in technology advancements, which could result in the potential loss of market share and profits.
• We may use artificial intelligence, machine learning, data science and similar technologies in our business, and challenges with properly managing such technologies could result in reputational harm, competitive harm, and legal liability, and adversely affect our business, financial condition and results of operations.
• If we are unable to attract and retain senior management and key technical professionals with appropriate government qualifications, our ability to pursue and compete for projects to grow our business may be adversely affected.
• The nature of our business exposes us to potential liability claims and contract disputes that may exceed or be excluded from existing insurance coverage.
• Dependence on third-party subcontractors, suppliers and equipment manufacturers could adversely affect our financial performance on contracts.
• Employee, agent or partner misconduct, or our overall failure to comply with laws or regulations, could weaken our ability to win contracts, which could result in reduced revenues and profits.
• We depend on our teaming arrangements and relationships with other contractors and subcontractors. If we are not able to maintain these relationships, or if these parties fail to satisfy their obligations to us or the customer, our business, financial condition and results of operations could be adversely affected.
• We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.
• We conduct a portion of our operations through joint ventures and partnerships, which exposes us to risks and uncertainties, many of which are outside of our control.
• The nature of our contracts subjects us to risks associated with cost overruns, operating cost inflation and potential claims for liquidated damages.
• Our backlog of unfilled orders is subject to unexpected adjustments and cancellations.
• We have made and may continue to make business combinations, which may present certain risks and uncertainties.
• International and political events may adversely affect our operations.
• Internal or external cybersecurity or privacy breaches, or systems and information technology interruption or failure could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
• Global pandemics, epidemics, outbreaks of infectious diseases or public health crises have disrupted our business and could have a material adverse effect on our future results of operations and financial performance.
• An impairment of all or part of our goodwill or our intangible assets could have a material adverse impact on our net earnings and net worth.
• Our actual results could differ from the estimates and assumptions used to prepare our financial statements.
• We ship a significant amount of cargo using seagoing vessels, exposing us to certain maritime risks.
Risks Related to the Planned Spin-Off of Mission Technology Solutions
• We are subject to risks related to our plan to spin off our Mission Technology Solutions business into a standalone, publicly traded company.
• Following the Planned Spin-Off, we and the spun-off Mission Technology Solutions business may face stranded costs, loss of economies of scale, and higher operating expenses than currently anticipated, which could materially adversely affect our profitability.
• Our operations may be significantly disrupted during and following the Planned Spin-Off process, and we will be dependent on the spun-off entity’s performance under various transition agreements, the failure of which could materially harm our business.
Risks Related to Our Industry
• The U.S. government awards its contracts through a rigorous competitive process and our efforts to obtain future contracts may be unsuccessful.
• Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance and our ability to control costs.
• The U.S. government may issue or revise existing rules, regulations and directives, adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.
• Heightened competition could impact our ability to obtain contracts which could reduce our market share and profits.
• Our U.S. government contract work is regularly reviewed and audited and these reviews can lead to withholding or delay of payments to us and other remedies against us.
• Several of our contracts with the U.S. government are classified, which may limit investor insight into portions of our business.
• Demand for our services provided under government contracts are directly affected by spending by our customers.
• Fluctuations in commodity prices and outlook may affect our customers’ investment decisions and result in existing project cancellations or delays.
Risks Related to Financial Conditions and Markets
• Current or future economic conditions, including recession or inflation, in the credit markets may negatively affect the ability to operate our or our customers’ businesses, finance working capital, implement our acquisition strategy and access our cash and short-term investments.
• We may be unable to obtain new contract awards if we are unable to provide our customers with letters of credit, surety bonds or other credit enhancements.
• Our Senior Credit Facility imposes restrictions that limit our operating flexibility and may result in additional expenses.
• Our indebtedness and the associated covenants could adversely affect our ability to obtain additional financing.
• We may be required to contribute additional cash to meet any unfunded benefit obligations associated with our defined benefit plans.
• We are subject to foreign currency exchange risks.
Risks Related to Our Common Stock
• If we need to sell or issue additional shares of common stock to refinance existing debt or to finance future acquisitions or operations, our existing shareholder ownership could be diluted.
• Provisions in our charter documents, Delaware law and our Senior Credit Facility may inhibit a takeover or impact operational control that could adversely affect the value of our common stock.
• We may change our dividend policy in the future.
Risks Related to Regulations, Compliance and Litigation
• We could be adversely impacted if we fail to comply with international export and domestic laws.
• We are subject to anti-bribery laws in the U.S. and other jurisdictions, violations of which could result in suspension or debarment of our ability to contract with governments and customers.
• Certain of our work sites are inherently dangerous and we are subject to various environmental and worker health and safety laws and regulations.
• Our effective tax rate and tax positions may vary.
• Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.
• Our failure to comply with the laws and regulations governing OCIs could lead to penalties, including termination of one or more of our U.S. government contracts.
• Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration, or other legal proceedings could require us to pay potentially large damage awards or penalties and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.
Risks Related to Climate
• There are rapidly evolving views from stakeholders with respect to global climate risks and the related emphasis on sustainability practices, which could affect our business.
• Climate risks and related environmental issues could have a material adverse impact on our business, financial condition and results of operations.
• We may be unable to achieve our sustainability commitments and targets which could result in the loss of investors and customers and damage to our reputation.
PART I
Item 1. Business
Company Overview
KBR, Inc., a Delaware corporation ("KBR" or, the "Company"), delivers science, technology, engineering and logistics support solutions to the U.S. federal government, allied nations and commercial clients around the world . Drawing from its culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full-life cycle capabilities to help clients meet their most pressing challenges. Our capabilities and offerings include the following:
• Leading national security and defense systems engineering; rapid prototyping; test and evaluation; aerospace acquisition support; data analytics and systems and platform integration; and sustainment engineering;
• Operational expertise in areas such as space domain awareness; C5ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support;
• Advanced digital, artificial intelligence, machine learning and information operations solutions in areas such as cyber analytics and cybersecurity; space and air dominance; connected battlespace; national security intelligence; data analytics; mission planning systems; virtual/augmented reality and technical training; and artificial intelligence and machine learning;
• Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences
• Engineering and project management solutions to advance energy security, sustainable decarbonization; energy transition and asset optimization; proprietary, sustainability-focused process licensing; energy transition and security advisory services; and digitally-enabled asset optimization solutions; and
• Professional advisory services across the defense, renewable energy and critical infrastructure sectors;
KBR's strategic growth vectors include:
• Defense modernization;
• National security space superiority;
• Health and human performance;
• Sustainable energy and industrial technology;
• High-end defense engineering;
• Energy security and energy transition; and
• Digital asset modernization and optimization.
Our Business
Our people make the difference. We leverage dynamic teams that combine deep mission understanding, market-leading technical expertise and an unwavering operational focus to deliver solutions to solve our clients’ most complex issues. In the fiscal year ended January 2, 2026 ("fiscal 2025"), KBR’s operating model continued to shift toward agile, technology-driven, solutions-oriented delivery and was streamlined to increase strategic focus and to move upmarket into differentiated areas that we believe will provide attractive returns and consistent growth with favorable cash conversion.
Our key areas of strategic focus are as follows:
• National Security and Defense. KBR delivers full life cycle support solutions to defense, intelligence, space, aviation and other programs and missions to military and other government agencies primarily in the U.S., U.K. and Australia under long-term programs with key technical, scientific or mission-specific differentiation. KBR's full-spectrum, digitally enabled services span research and development, advanced prototyping, acquisition support, systems engineering, systems assurance and technology, C5ISR, cyber analytics, cybersecurity, space domain awareness, test and evaluation, data analytics and integration, systems integration and program management, global supply chain management, digital transformation, and operations readiness and support. Key customers include U.S. Department of War agencies such as the U.S. Army, Navy, Air Force, Space Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; the U.K. Ministry of Defence, other U.K. Crown Services; the Royal Australian Air Force, Navy and Army; and other national governments; and a wide range of commercial and industrial companies. Areas of long-term strategic focus include defense modernization, space superiority, and health and human performance.
• Sustainable Energy and Industrial Technologies. We design and bring to market patented, proprietary process technology which we license to enable safe, energy efficient, and cost competitive production of energy and special chemical products to meet growing global consumer demand. With our proprietary technology, we also offer proprietary equipment, integration services, and catalysts that enable our clients to convert their raw material to valuable end products. We market high-end advisory and consulting services focused on broad-based energy transition and net-zero carbon emission solutions; high-end engineering, design and program management centered around energy security, decarbonization, energy efficiency, environmental impact and asset optimization; and digitally enabled operating and monitoring solutions. Key customers include governments and commercial and industrial companies. Areas of long-term strategic focus include sustainable technology solutions, energy transition, energy security and technology-led asset optimization.
Our deployment priorities are to fund organic growth, maintain responsible leverage, maintain an attractive dividend, make strategic, accretive acquisitions and repurchase shares. Our acquisition thesis is centered around moving upmarket, expanding capabilities and broadening customer sets across strategic growth vectors. KBR also develops and prioritizes investment in technologies that are disruptive, innovative and sustainability and safety-focused. These technologies and engineering solutions enable clients to achieve a safer, more secure and more sustainable global future.
Competitive Advantages
We operate in global markets with customers who demand innovation, technical and domain expertise and digitally enabled, technology-led sustainable solutions. We seek to differentiate ourselves in areas in which we believe we have a competitive advantage. These include:
• Our People
◦ Distinctive mission-focused and inclusive team ethos and culture, which we refer to as “ONE KBR”.
◦ Internationally recognized subject matter experts with deep domain knowledge.
◦ Employee base that includes individuals with high-level security clearance.
• Sustainability Leadership
◦ Our Zero Harm philosophy includes ten key areas of sustainability focus across our company.
◦ Safe and responsible operations are essential, and our Zero Harm culture prioritizes the safety and security of our people as well as the active management of our environmental impact.
◦ We have a dedicated global Sustainability Committee made up of leaders from across key corporate and business functions, and the chair of that committee reports quarterly to the Board of Directors.
◦ We have achieved carbon neutrality annually since 2019 and have established net-zero carbon ambition.
◦ As an industry sustainability leader, we have invested and will continue to invest in the development of disruptive, innovative clean energy solutions and special chemicals that promote a cleaner, greener future and a sustainable world.
◦ As a world leader in ammonia technology, we are a leading hydrogen energy enabler, with a fully developed, proprietary, end-to-end green ammonia solution, K-GreeN TM .
◦ We are the exclusive licensor of Hydro-PRT TM , a cutting-edge, scalable technology that utilizes supercritical steam to convert a wide range of single-use and other plastics into virgin-grade feedstocks used to produce new plastics, delivering a truly circular economy.
• Technical Excellence and Digital Solutions
◦ High-end differentiated capabilities spanning government and commercial missions, including data analytics and integration, model-based systems engineering, smart asset optimization, and more.
◦ Portfolio of over 85 innovative, sustainable, proprietary process technologies, expertise and solutions.
◦ Innovative, advanced digital capabilities to improve operations, reliability and environmental impact, including artificial intelligence and machine learning.
◦ Virtual and augmented reality visualizations in controlled environments that provide greater perspective and insights and more comprehensive training.
• Customer Relationships
◦ Customer missions and objectives placed at the center of our planning and delivery model.
◦ Decades of enduring relationships with government and commercial client base.
• Financial Strength
◦ Diverse portfolio of multi-year, mission-critical programs creating stability and resilience.
◦ Low capital intensity business model generating favorable operating cash flows.
◦ Strong liquidity with ample capacity for growth.
Our Business Segments
We provide a wide range of professional services, and the management of our business is heavily focused on major projects or programs within each of our reportable segments. At any given time, government programs and joint ventures represent a substantial part of our operations.
Our business is organized into two core business segments and one non-core business segment as follows:
Core business segments
• Mission Technology Solutions
• Sustainable Technology Solutions
Non-core business segment
• Corporate
Our business segments are described below.
Mission Technology Solutions. Our Mission Technology Solutions business segment provides full life-cycle support solutions to defense, intelligence, space, aviation and other programs and missions for military and other government agencies primarily in the U.S., U.K. and Australia. KBR's full-spectrum solutions span research and development, advanced prototyping, acquisition support, systems engineering, C5ISR, cyber analytics, space domain awareness, test and evaluation, data analytics and integration, systems integration and program management, global supply chain management, operations readiness and support and professional advisory services across the defense, energy security and transition and critical infrastructure sectors. Included in Mission Technology Solutions is the business of LinQuest Corporation ("LinQuest"), an engineering, data analytics and digital integration company acquired in fiscal 2024 and Infrastar Limited acquired in fiscal 2025. See Note 4. "Acquisitions" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on these acquisitions. Additionally, the disposal of HomeSafe is reported as discontinued operations and HomeSafe's operations are excluded from Mission Technology Solutions results reflected within our consolidated financial statements. See Note 21. “Discontinued Operations” to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding the HomeSafe disposal.
Sustainable Technology Solutions. Our Sustainable Technology Solutions business segment is anchored by our portfolio of over 85 innovative, proprietary, sustainability-focused process technologies that reduce emissions, increase efficiency and/or accelerate and enable energy transition across the industrial base in four primary verticals: ammonia/syngas, chemical/petrochemicals, clean refining and circular process/circular economy solutions. STS also provides highly synergistic services including advisory and consulting focused on energy security, broad-based energy transition and net-zero carbon emission solutions, high-end engineering, design and program management centered around decarbonization, energy efficiency, environmental impact and asset optimization, as well as our digitally-enabled operating and monitoring solutions. Through early planning and scope definition, advanced technologies and facility life-cycle optimization, our STS business segment works closely with customers to provide what we believe is the optimal approach to maximize their return on investment.
Corporate. Our non-core segment includes corporate expenses and selling, general and administrative expenses not allocated to the business segments above.
To streamline and optimize our processes, we realigned our segments effective for the year ended January 2, 2026. As part of this realignment, our Government Solutions reportable segment has been renamed Mission Technology Solutions while Sustainable Technology Solutions has retained its name. The international business contained within Government Solutions has been integrated into both Mission Technology Solutions and Sustainable Technology Solutions. All information in this Annual Report on Form 10-K is presented in accordance with the realigned reportable segments and all prior period information was recast to reflect the realigned reportable segments. Effective for fiscal year 2026, a portion of a business unit within our Mission Technology Solutions segment will become part of our Sustainable Technology Solutions segment. We will begin reporting new segment information due to this change beginning the first fiscal quarter of 2026.
Mission Technology Solutions Spin-off
In September 2025, we announced our intention to spin off our Mission Technology Solutions business into a separate, U.S. publicly-traded company (the "Planned Spin-Off"). The Planned Spin-Off is intended to be tax-free to us and our shareholders for U.S. federal income tax purposes and targeting completion in the second half of the fiscal year ended January 1, 2027 ("fiscal 2026"). The spin-off will be subject to final approval by our Board of Directors and other customary conditions, including receipt of a favorable opinion of legal counsel and/or a private letter ruling from the U.S. Internal Revenue Service with respect to the tax treatment of the transaction for U.S. federal income tax purposes, the effectiveness of a registration statement on Form 10 filed with the SEC, satisfactory completion of financing and other regulatory approvals. Because the intended transaction is a spin-off, the Mission Technology Solutions business is not classified as held for sale and will be reported as continuing operations.
Significant Customers
We provide services and technology to a diverse customer base, including domestic and foreign governments and commercial and industrial companies.
We generate significant revenues within our MTS business segment from key U.S. government customers including U.S. DoW agencies such as the U.S. Army, Navy, Air Force, Space Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; and from the U.K government. No other customers represented 10% or more of consolidated revenues in any of the periods presented. The following table summarizes our revenues from contracts with U.S. and U.K. government agencies for which we are the prime contractor, as well as for those contracts in which we are a subcontractor and the ultimate customer is a U.S. or U.K. government agency, respectively.
Revenues and percentage of consolidated revenues from major customers:
Year ended
Dollars in millions
January 2, 2026
January 3, 2025
December 29, 2023
U.S. government
U.K. government
Information relating to our customer concentration is described in “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K. Also, see further explanations in Note 1. "Significant Accounting Policies" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Significant Joint Ventures and Alliances
We enter into joint ventures and alliances with other industry participants to capitalize on the strengths of each party, provide greater flexibility in delivering our services based on expertise, cost and geographical efficiency, increase the number of opportunities that can be pursued, reduce exposure and diversify risk. Our significant joint ventures and alliances are described below. All joint venture ownership percentages presented are stated as of January 2, 2026.
Aspire Defence Limited, a joint venture owned by KBR and two financial investors, provides a range of facilities life cycle management services at the British Army’s garrisons at Aldershot and across the Salisbury Plain in the U.K. KBR owns 45% of Aspire Defence Limited, which is a VIE, that is reported within our MTS business segment using the equity method of accounting.
The Affinity joint venture, with Elbit Systems Ltd., procures, operates and maintains aircraft and aircraft-related assets over an 18-year contract period, in support of the U.K. MFTS project. KBR owns a 50% interest in Affinity. In addition, KBR owns a 50% interest in the two joint ventures, Affinity Capital Works and Affinity Flying Services, which provide procurement, operations and management support services under subcontracts with Affinity. The project-related entities are VIEs and the investments are accounted for within our MTS business segment using the equity method of accounting.
Brown & Root Industrial Services is a joint venture with One Equity Partners and offers maintenance services, turnarounds and small capital projects, primarily in North America, in which we own 50% equity interest. The investment is accounted for within our STS business segment using the equity method of accounting and we have determined that the joint venture is not a VIE.
JKC Australia LNG is a joint venture contracted to perform the engineering, procurement, supply, construction and commissioning of onshore LNG facilities for a client in Darwin, Australia. The project is being executed through two entities (collectively, "JKC"), which are VIEs, in which we own a 30% equity interest. The investment is accounted for within our STS business segment using the equity method of accounting.
KZJV is a joint venture with Zachry Group that performs certain design, engineering, procurement and construction-related services for a LNG facility in Plaquemines Parish, Louisiana. KBR owns a 45% interest in KZJV, which is a VIE. The investment is accounted for within our STS business segment using the equity method of accounting.
HomeSafe, a joint venture with Tier One Relocation, was established to be the exclusive provider of household goods move management services for the U.S. Armed Forces, U.S. DoW civilians and their families. HomeSafe informed us on June 18, 2025, that U.S. Transportation Command unexpectedly terminated HomeSafe's role in the Global Household Goods Contract. KBR owns a 72% interest in HomeSafe. The HomeSafe joint venture is a VIE that is consolidated for financial reporting purposes. As of January 2, 2026 all of HomeSafe's operations, including run-off operations, have ceased. We disposed of HomeSafe in the second quarter of fiscal 2025 and determined that this disposal met the requirements to be reported as discontinued operations. As such, the results of HomeSafe are presented as discontinued operations within this Annual Report on Form 10-K. HomeSafe was previously reported within our MTS business segment.
Additional information relating to our joint ventures is described in Part II, Item 8 of this Annual Report on Form 10-K in Note 9. "Equity Method Investments and Variable Interest Entities" to our consolidated financial statements.
Backlog of Unfulfilled Orders
Backlog is our estimate of the U.S. dollar amount of future revenues we expect to realize as a result of performing work on awarded contracts. For projects within our unconsolidated joint ventures, we have included our percentage ownership of the joint venture’s estimated revenues in backlog to provide an indication of future work to be performed. The future revenues we expect to realize in backlog were $16,864 million and $16,605 million as of January 2, 2026 and January 3, 2025, respectively, with approximately 17% related to work being executed by joint ventures accounted for using the equity method of accounting. We estimate as of January 2, 2026, 36% of our backlog will be recognized as revenues or equity in earnings of unconsolidated affiliates within fiscal year 2026. For additional information regarding backlog, see our discussion within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this Annual Report on Form 10-K.
Government Contracts and Regulations
Our business is heavily regulated. We contract with numerous U.S. government agencies and entities, principally the U.S. DoW, NASA and certain intelligence agencies. When working with these and other U.S. government agencies and entities, we must comply with various laws and regulations relating to the formation, administration and performance of contracts. U.S. government contracts are generally subject to the FAR, which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. government, other agency-specific regulations that implement or supplement the FAR, such as the DoW FAR Supplement and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost, contract termination and adjustment and audit requirements. Among other things, these laws and regulations:
• require certification and disclosure of all cost and pricing data in connection with certain contract negotiations;
• define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-type U.S. government contracts;
• require compliance with CAS;
• require reviews by the DCAA, DCMA and other regulatory agencies for compliance with a contractor’s business systems;
• restrict the use and dissemination of and require the protection of unclassified contract-related information and information classified for national security purposes and the export of certain products and technical data; and
• prohibit competing for work if an actual or potential organizational conflict of interest, as defined by these laws and regulations, related to such work exists and/or cannot be appropriately mitigated, neutralized or avoided.
Our MTS business in the U.S. primarily performs work under cost-reimbursable contracts with the DoW and other U.S. governmental agencies. If the U.S. government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations, these costs are disallowed or, if already reimbursed, we may be required to
refund the reimbursed amounts to the customer. Such conditions may also include interest and other financial penalties. If performance issues arise under any of our government contracts, the customer retains the right to pursue remedies, which could include termination under any affected contract. Generally, our customers have the contractual right to terminate or reduce the amount of work under our contracts at any time. For more information, see “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K.
Our MTS business also participates in PFI contracts, such as the Aspire Defence and U.K. MFTS projects. PFIs are long-term contracts that outsource the responsibility for the construction, procurement, financing, operation and maintenance of government-owned assets to the private sector. These PFI contracts predominately contain fixed-price elements. The PFI projects in which KBR participates are all located in the U.K. with contractual terms ranging from 15 to 35 years and involve the provision of services to various types of assets ranging from acquisition and maintenance of major military equipment and housing to transportation infrastructure. Under most of these PFI contracts, the primary deliverables of the contracting entity are the initial construction or procurement of assets for the customer and the subsequent provision of lifecycle management services for the life of such assets. The amount of renumeration from the customer to the contracting entity is negotiated on each contract and varies depending on the specific terms for each PFI.
Contract Types
The Company performs work under contracts that broadly consist of fixed-price, cost-reimbursable, time-and-materials or a combination of the three.
Under fixed-price contracts , we perform a defined scope of work for a specified fee to cover all costs and any profit element. Fixed-price contracts entail risk to us because they require us to predetermine the work to be performed, the project execution schedule and all the costs associated with the scope of work. Additionally, unit-rate contracts are considered fixed-price contracts with the only variable being units of work to be performed. Further, our fixed-price contracts may include cost escalation and other features that allow for increases in price should certain events occur or conditions change. Fixed-price contracts are typically subject to change orders if the scope of work changes or unforeseen conditions arise resulting in adjustments to the fixed price. Although fixed-price contracts involve greater risk than cost-reimbursable contracts, they also are potentially more profitable because the owner/customer pays a premium to transfer project risks to us.
Time-and-materials contracts typically provide for negotiated fixed hourly rates for specified categories of direct labor. The rates cover the cost of direct labor, indirect expense and fee. These contracts can also allow for reimbursement of cost of material plus a fee, if applicable. In U.S. government contracting, this type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence. With respect to time-and-materials contracts, we assume the price risk because our costs of performance may exceed negotiated hourly rates. In commercial and non-U.S. government contracting, this contract is generally used for defined and non-defined scope contracts where there is a higher degree of uncertainty and risks of work. These types of contracts may also provide for a guaranteed maximum price where the total cost plus the fee cannot exceed an agreed upon guaranteed maximum price or not-to-exceed provisions.
Under cost-reimbursable contracts , the price is generally variable based upon our actual allowable costs incurred for materials, equipment, reimbursable labor hours, overhead and G&A expenses. Profit on cost-reimbursable contracts may be in the form of a fixed fee or a mark-up applied to costs incurred, or a combination of the two. The fee may also be an incentive fee based on performance indicators, milestones or targets and can be based on customer discretion or in the form of an award fee determined based on customer evaluation of the Company's performance against contractual criteria. Cost-reimbursable contracts may also provide for a guaranteed maximum price where the total fee plus the total cost cannot exceed an agreed upon guaranteed maximum price. Cost-reimbursable contracts are generally less risky because the owner/customer retains many of the project risks, however it generally requires us to use our best efforts to accomplish the scope of the work within a specified time and budget. Cost-reimbursable contracts with the U.S. government are generally subject to the FAR and are competitively priced based on estimated or actual costs of providing the contractual goods or services. The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U.S. government and its agencies. Pricing for non-U.S. government agencies and commercial customers is based on specific negotiations with each customer.
Raw Materials and Suppliers
Equipment and materials essential to our business are obtained from a variety of global sources. The principal equipment and materials we use in our business are subject to availability and price fluctuations due to customer demand, producer capacity and market conditions. We monitor the availability and price of equipment and materials on a regular basis. Our procurement function seeks to leverage our size and buying power to ensure that we have access to key equipment and materials at low prices and ideal delivery schedules. We purchase our required materials and equipment from a variety of sources. We have not experienced, and do not anticipate experiencing, any significant procurement difficulties as a result of political and economic conditions and regional conflict and war that have resulted in significant supply chain disruptions and inflation globally and within the United States. However, a number of factors that we may not be able to predict or control could result in increased costs for materials as well as global trade relationships, regional conflict and wars and other general market and political conditions. These potential increased costs could reduce profitability on our contracts, particularly those that are fixed price. See “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K for more information.
Intellectual Property
The use of intellectual property generally benefits our STS business segment. We have developed, acquired or otherwise have the right to license leading technologies, including technologies held under license from third parties, used for the production of a range of essential products in the areas of transportation fuels, petrochemicals and polymers, fertilizers, semi-submersibles and specialty chemicals. The technologies we license include the transformation of raw materials into commodity chemicals, such as phenol, which is used in the production of consumer end products and our ammonia process technologies used in the conversion of natural gas to ammonia with a fully developed, proprietary, end-to-end solutions for both fossil-based and green ammonia (K-GreeN TM ) . We are the exclusive licensor of Hydro-PRT TM , a cutting-edge, scalable technology that utilizes supercritical water to convert a wide range of single-use and other waste plastics into commercial raw materials used to produce new plastics, a circular solution and our Sustainable Aviation Fuel technology (PureSAF SM ) extends our decarbonization efforts into the aviation sector. We also offer technologies for conversion and refinement of minerals that are necessary for electrification of a range of industries. We believe our technology portfolio and experience in the commercial application of these technologies and our related know-how differentiates us, enables our sustainability strategy and enhances our margins.
Our rights to make use of technologies licensed to us are governed by written agreements of varying durations, including some with fixed terms that are subject to renewal based on mutual agreement. Generally, each agreement may be further extended and we have historically been able to renew existing agreements before they expire. The same agreements are supportive of the expansion of the third party partner's relevant intellectual property portfolio to the mutual benefit of both parties. We expect these and other similar agreements to be extended so long as it is mutually advantageous to both parties at the time of renewal. For technologies we own, we protect our rights, know-how and trade secrets through patents and confidentiality agreements.
Seasonality
Our operations are not generally affected by seasonality. However, various factors can affect the distribution of our sales between accounting periods, including the timing of government awards, the availability of government funding, product deliveries and customer acceptance. Additionally, weather and natural phenomena can temporarily affect the performance of our services.
Environmental Regulation
Our business involves design, management, operations and maintenance at various project sites throughout the world, which may be in and around sensitive environmental areas, such as rivers, lakes and wetlands. Our operations may require us to manage, handle, transport and dispose of toxic or hazardous substances, which are subject to stringent and complex laws relating to environmental protection.
Significant fines, penalties and other sanctions may be imposed for non-compliance with environmental and worker health and safety laws and regulations, and some laws provide for joint and several strict liabilities for remediation of releases of hazardous substances, rendering a person liable for environmental damage, without regard to negligence or fault on the part of such person. These laws and regulations may expose us to liability arising out of the conduct of operations or conditions caused by others, or for our acts that were in compliance with all applicable laws at the time these acts were performed. For
example, there are a number of governmental laws that strictly regulate the handling, removal, treatment, transportation and disposal of toxic and hazardous substances, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980, and comparable national and state laws that impose strict, joint and several liabilities for the entire cost of cleanup, without regard to whether a company knew of or caused the release of hazardous substances. In addition, some environmental regulations can impose liability for the entire clean-up costs on owners, operators, transporters and other persons arranging for the treatment or disposal of such hazardous substances related to contaminated facilities or project sites. Other environmental laws applicable to our and customers' operations affecting us include, but are not limited to, the Resource Conservation and Recovery Act, the National Environmental Policy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and Health Act and the Toxic Substances Control Act as well as other comparable foreign and state laws. Liabilities related to environmental contamination or human exposure to hazardous substances or a failure to comply with any applicable environmental and worker health and safety laws and regulations could result in substantial costs to us, including cleanup costs, fines, civil or criminal sanctions, third-party claims for property damage, personal injury or cessation of remediation activities.
Additional information relating to environmental regulations is described in "Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K.
Human Capital Management
Every day, the people of KBR help solve some of the world’s most challenging scientific, technological and engineering problems. From our promising new interns to world-renowned experts, this Team of Teams delivers for our customers, so in turn, we put them first. At the end of fiscal 2025, we employed approximately 36,000 people performing multi-faceted, complex and mission critical roles in over 28 countries. In addition, our unconsolidated joint ventures employ approximately 9,000 employees.
Our Employee Value Proposition ("EVP") is the unique set of experiences and offerings that help differentiate KBR from other competitors for our employees’ time and talents and describes in practical terms how we put our people first.
Purpose & Values
At the center of our EVP is Purpose, because at KBR, we do work that matters, helping to solve the great challenges of our time while striving to create a secure, safer and more sustainable world. Our vision is to bring together the best and brightest employees to deliver technology and solutions that help our customers accomplish their most critical missions and objectives, and this important work enables us to attract and retain some of the world’s best talent, who thrive in this purposeful environment.
Our Values unite us across global cultures, guiding our behavior and decision making throughout KBR. We have embedded our values in our business processes, established them as a foundation for our learning and development activities and regularly celebrate employees who epitomize our values-led behavior. While our One KBR Values unite us, as a global business operating in distinct markets and environments, we recognize and respect that our cultures are different. Acknowledging these differences, our ethos weaves a golden thread through KBR. Our employees take enormous pride in being part of an organization with a philosophical, practical and proven commitment to fostering an environment in which our people can belong, connect and grow.
Health and Safety
We are subject to numerous worker health and safety laws and regulations across the globe. Our commitment to the health and safety of each employee as well as anyone we work with is the foundation of our Zero Harm culture. We know that our employees’ willingness to implement each commitment into their daily work tasks is vital to our operations and has contributed to our industry-leading safety performance among our customers, partners and peers.
The six core processes that comprise our Transactional Health, Safety, Security, Environmental ("HSSE") Management that lead to Transformational Leadership are non-negotiable KBR safety standards that are required to be observed and followed by employees and contractors at all locations and projects. By requiring our employees to personally internalize and adhere to these standards, we aim to safeguard our individual health and safety and the well-being of all those around us.
We provide the tools our people need to achieve the mindset of 24/7 Zero Harm such as our Courage to Care Conversation program, which is instrumental in developing a continual awareness of unsafe acts through observation, intervention and conversation. The goal of the Courage to Care Conversation is to continuously evaluate the work environment and to focus on people and their actions.
Thanks to our people's commitment to our Zero Harm culture, we recorded another consecutive year of industry-leading HSSE performance, with a total recordable incident rate of 0.033.
Our Journey to Zero Harm has allowed us to create a company culture where safe execution is non-negotiable and people take responsibility and accountability. When it comes to safety, we strive for one number: Zero.
Ethics and Compliance
KBR's ethics and our Code of Business Conduct (the “Code”) are rooted in our values and provide the standards and support to help us successfully navigate issues, make the right decisions, and conduct our business with the integrity that reflects our heritage and ethical reputation. Additionally, our Code is essential to how we as a Team of Teams interact with the world around us and to our success.
We believe that an ethical culture, where employees are treated fairly, respectfully and without favoritism, is key to employee satisfaction and retention. We promote a speak-up culture where employees are comfortable making reports of possible unethical behavior and workplace issues. The Business Integrity Team provides an easy to access Ethics Hotline and numerous other channels for employees to receive advice, confidentially or anonymously, on ethical or other inquiries. Employees speaking up and reporting issues enable us to address and remediate these issues early and effectively while instilling confidence that employee concerns are heard and addressed.
Retaliation undermines a speak-up culture and is not tolerated. Our Code and our Business Integrity program set forth our anti-retaliation commitment, which is reinforced in our communications and our annual Ethics training. To further convey to the workforce that reports of unethical behavior are investigated and remediated, the Ethics training incorporates examples of past misconduct incidents.
Career
As well as providing meaningful work from day one, our employees and job applicants are attracted to KBR because of the opportunity to develop personally and reach their full potential. Providing the opportunity to ‘Grow’ at KBR is a key component in our EVP. We have a good reputation among our employees for providing growth opportunities and have continued to focus on enhancing these growth prospects in several ways throughout fiscal 2025 with the introduction of formal mentoring and sponsorship programs, skills for the future offerings and an internal career pathways forum. In addition, we invest in training our employees across a range of topics that align with and enhance our values, including programs that focus on leadership, ethics and technical development.
Technical Professionals
For our Technical Talent, our One KBR Tech Fellows program provides funding and opportunities for these world-leading scientists and technical professionals to conduct advanced research into topics ranging from carbon capture to machine learning. Our Fellows also provide valuable input into strategy development, business development and talent development within KBR. Understanding the importance of internal advancement for attracting and retaining top technical talent, we introduced the Career Opportunities Technical Talent Guide to outline technical career growth through roadmaps, expectations for each career journey stages and resources and tools. KBR Communities of Interest ("COIs") are also designed to foster technical development by providing collaborative, virtual forums for subject matter experts and those who support them. Our COIs continue to evolve, ensuring that subject matter experts across the globe can connect and collaborate on Data Science and Digital Technologies, Sustainability and Energy Transition, Human Performance and other technical specialties that inform our customers’ and society’s greatest challenges today.
Leadership
Our flagship leadership program, the Global Leadership Development Program, is expanding to go beyond training to develop capabilities in being effective future executive leaders. As well as developing strategic thinking through research
projects ranging from sustainability investments to digital supply chain solutions, these leaders attend intense learning events focused on executive skills and leading courageously and with integrity. The course cultivates peer networks, sharpens enterprise mindsets and builds commercial and strategy acumen. We also strengthen our future leadership by running regular Manager Excellence Programs, and in 2025 our Front-Line Leaders Program supported over 600 employees globally who were newly transitioning into these critical leadership roles.
Talent Development & Succession Planning
In fiscal 2025, our Talent Calibration conversations covered nearly 6,000 KBR employees in a rigorous assessment of performance and potential. As well as providing organization-wide talent trends and data, these conversations lead to individual career plans and added rigor to our succession plans. The Board Nominations & Corporate Governance Committee received regular updates on this process throughout the year, where detailed discussions on updated succession plans for the CEO and Executive Leadership Team take place.
Performance Management
Our agile approach to performance management continued successfully into fiscal 2025 where we focused on frequent Check-in Conversations about performance, career development, and priority alignment between managers and their team members. Our employees indicated in surveys that they prefer this approach and we view it as more inclusive, engaging, agile and supportive of a high-performing culture. In fiscal 2025, we continued to embed the Agile Performance & Development process across KBR and strengthen capabilities for holding quality, effective Check-ins.
Total Reward
Throughout fiscal 2025, we continued to benchmark pay and benefits in local markets and expand our offerings to help us attract and retain the best and brightest talent.
Talent Acquisition
Our Talent Acquisition strategy aligns recruitment efforts with broader business objectives. This unified approach ensures consistency across regions while empowering teams to tailor strategies to their local markets. Our cross-border collaboration and global teams help with consistency, adoption of best practices and scalability. These efforts strengthen internal mobility, build future-focused talent pipelines and enhance our ability to meet hiring demands effectively. Our Applicant Tracking System and Customer Relationship System platforms streamline workflows for candidates, hiring managers and recruiters, and improve training and standardization.
As a result, we hired over 5,900 employees in fiscal 2025, supporting our ability to deliver excellent solutions for our customers and meet our strategic growth targets.
Website Access
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our website at www.kbr.com as soon as reasonably practicable after we have electronically filed the material with, or furnished it to, the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers like us that file electronically with the SEC at www.sec.gov.
Item 1A. Risk Factors
Risks Related to Operations of Our Business
A significant portion of our revenues is generated by large, recurring business from certain significant customers, including the U.S. government. Any loss, cancellation or delay in one or more projects by our significant customers in the future could negatively affect our financial performance.
A considerable percentage of our revenues, particularly in our MTS business segment, is generated under contracts with certain significant customers. Revenues from the U.S. government represented 57% of our total consolidated revenues for fiscal 2025. Budget uncertainty, the potential for U.S. government shutdowns, the use of continuing resolutions and the federal debt ceiling can adversely affect our industry and the funding for our contracts. In addition, government acquisition reform and spending cut initiatives, including executive orders, may impact our business. For example, on January 20, 2025, an executive order was signed to create an advisory commission, DOGE, to reform federal government processes and reduce expenditures. Although DOGE was disbanded in November 2025, we cannot rule out the possibility of similar initiatives occurring in the future. Further, on April 15, 2025, Executive Order 14275, “Restoring Common Sense to Federal Procurement,” was signed, directing major revisions to the FAR to make the government’s procurement process more efficient, and on November 7, 2025, the U.S. DoW released a memorandum and strategy on defense acquisition reform titled “Transforming the Warfighting Acquisition System” that aims to overhaul the procurement landscape and prioritizes speed to capability delivery. If appropriations are delayed, a government shutdown were to occur and continue for an extended period of time, or changes in budgetary priorities or U.S. government spending levels were to occur, we could be at risk of contract cancellations, contract options not being exercised, funding shortages, nonpayment, increased uncertainty in the conversion of our book to bill to revenue and other disruptions and nonrepayment. When the U.S. government operates under a continuing resolution, new contract starts are restricted and funding for our programs may be unavailable, reduced or delayed. Shifting funding priorities or federal budget compromises also could result in reductions in overall defense spending on an absolute or inflation-adjusted basis, which could negatively affect our business, financial performance and condition. In addition, if we are unable to effectively respond to proposed acquisition reform in the U.S., our ability to secure and perform government contracts could be adversely affected, which may negatively impact our business, financial condition and results of operations. If we are deemed to be underperforming on our contracts, our business, financial condition and results of operations may likewise be adversely impacted.
We depend on U.S. and foreign government agencies as our primary customers in our MTS business segment and, if our reputation or relationships with these agencies were to be harmed, it could adversely impact our financial performance.
We derive a considerable portion of our revenues in our MTS business segment from contracts with agencies and departments of the U.S., the U.K. and Australia governments, either as a prime contractor or as a subcontractor to other companies performing prime contracts for these governments. We expect to continue to derive a significant portion of our revenues from work performed under or relating to U.S. and foreign government contracts. Our relationship with the U.S. and foreign governments is key to maintaining these contracts, winning new work, and growing our revenues. Negative press reports or publicity, regardless of accuracy, could harm our reputation and jeopardize our business with our customers, potentially adversely affecting our business, financial condition, results of operations and cash flows.
Our results of operations and cash flows depend on the award of new contracts and the timing of the performance of existing contracts.
Our revenues are directly and indirectly derived from contract awards. Reductions in the number and amounts of new awards, delays in the timing of anticipated awards or potential cancellations of such prospects as a result of economic conditions, funding priorities, material and equipment pricing and availability or other factors could adversely impact our long-term projected results. It is particularly difficult to predict whether or when we will receive large-scale projects as these contracts usually involve a lengthy and complex bidding and selection process. This process can be affected by a number of factors, including market conditions and governmental and environmental approvals, and in some cases, the customer's ability to secure the necessary financing for a project to proceed. As a portion of our revenues is generated from such projects, our results of operations and cash flows can fluctuate significantly from quarter to quarter depending on the timing of our contract awards and the commencement or progress of work under awarded contracts. The uncertainty of our contract award timing can also present difficulties in matching workforce size with contract needs. In some cases, we maintain and bear the cost of a ready workforce that is larger than necessary under existing contracts in expectation of future workforce needs for anticipated contract awards. If an anticipated contract award is delayed or not received, we may incur additional costs resulting from reductions in staff or redundancy of facilities that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Following contract award, we may also encounter significant expense, delay, contract modifications or even contract loss
or termination. For example, HomeSafe, a joint venture with Tier One Relocation, informed us on June 18, 2025, that U.S. Transportation Command unexpectedly terminated HomeSafe’s role in the Global Household Goods Contract. KBR owns a 72% interest in HomeSafe. As of January 2, 2026, all of HomeSafe's operations, including run-off operations, have ceased.
Additionally, certain contract awards (including the performance of such awards) have been and may in the future be contested and/or otherwise involved in ongoing bid protests, legal proceedings, inquiries or other similar developments outside of our control, which may result in significant delays in the project timeline or the wholesale cancellation or termination of a project. Any project delays, cancellations or contract modifications following the award of a contract could have a material adverse effect on our business, financial condition, results of operations, backlog, revenue recognition timing and cash flows.
Ongoing international conflicts, and other geopolitical conditions, may adversely affect our business and results of operations.
Political, economic and other conditions in foreign countries and regions, including geopolitical risks, such as the current conflict between Russia and Ukraine, political and economic instability in Venezuela and political and economic instability and ongoing conflict in the Middle East, may adversely affect our business and operations as a portion of our revenue is derived from foreign operations. Additionally, the full scope, duration and broader implications of international conflicts, which may include additional international sanctions, embargoes, regional instability and geopolitical shifts; increased tensions between the United States and countries in which we operate; and the extent of a conflict's effects on our business and results of operations as well as the global economy, cannot be predicted. Any alleged or actual failure to comply with any sanctions and trade control measures implemented in response to international conflicts may subject us to government scrutiny, civil and/or criminal proceedings, sanctions and other liabilities, which may have an adverse effect on our international operations, financial condition and results of operations.
To the extent current conflicts or other geopolitical conflicts adversely affect our business, they may also have the effect of heightening many of our other risks identified in this Annual Report on Form 10-K, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, the following:
• adverse effects on macroeconomic conditions, including inflation, demand for our products and potential recessionary economic conditions;
• increased cyber security threats;
• adverse changes in trade policies, taxes, government regulations and tariffs;
• our ability to obtain compensation for increased costs incurred related to rising costs of equipment, materials and labor on fixed-price contracts;
• our ability to implement and execute our business strategy;
• disruptions in global supply chains;
• our exposure to foreign currency fluctuations; and
• constraints, volatility or disruption in the capital markets.
Uncertainty over global tariffs, or the financial impact of tariffs, may negatively impact our business and results of operations.
Our business and results of operations could be adversely impacted by trade restrictions imposed by the U.S. and other governments globally, as well as by changes in these governments’ approaches to tariffs and other trade policies. New or increased tariffs or trade bans could have an adverse effect on both our U.S. and international operations due to increased costs of materials, disruptions or delays in deliveries, and greater difficulty in planning and operating our business. While our business in the U.S. primarily provides labor services to our customers, some of our U.S. work involves procuring goods, equipment or materials that may be subject to tariffs. Our non-U.S. work could also be impacted by greater costs for goods sourced from the U.S. due to increased tariffs imposed by other countries. Although we plan to continue to monitor trade policy developments closely and to mitigate the adverse impacts of any changes where possible, we may not be able to fully mitigate such impacts in all situations.
If there are any successful intellectual property infringement proceedings against us, our competitive position could be adversely impacted.
We utilize a variety of proprietary and third-party technologies in providing services to our customers. We view our portfolio of process and design technologies as one of our competitive strengths and we use it as part of our efforts to differentiate our service offerings. We may not be able to successfully preserve our proprietary intellectual property rights in the future, and these rights could be invalidated, circumvented, challenged or infringed upon. In addition, the laws of some foreign countries in which our services may be sold do not protect intellectual property rights to the same extent as the laws of the U.S. We also license technologies from third parties and there is a risk that our relationships with licensors may terminate, expire or be interrupted or harmed. If we are unable to protect and maintain our intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against us, our ability to differentiate our service offerings could diminish. In addition, if our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers. We will also need to continue to respond to and anticipate changes resulting from disruptive technologies, including in areas of artificial intelligence and machine learning. If we are not successful in protecting and preserving our intellectual property rights and licenses, or in staying ahead of developing artificial intelligence and machine learning technologies and strategically incorporating them into our business, our business and financial performance could be materially and adversely affected.
We may not properly leverage or appropriately invest in technology advancements, which could diminish any sustainable competitive advantage in our service offerings resulting in the potential loss of market share and profits.
We operate in global markets with customers who demand innovation, technical and domain expertise and digitally-enabled, technology-led solutions. Robust information technology systems, platforms and products are integral in our efforts to differentiate our service offerings and maintain our competitive advantages. Disruptive technologies, including in areas of artificial intelligence and machine learning, are rapidly changing the environment in which we, our customers, and our competitors operate and could affect the nature of how we generate revenue. We will need to continue to respond to and anticipate these changes by enhancing our product and service offerings to maintain our competitive position. If we are not successful in staying ahead of developing artificial intelligence and machine learning technologies and strategically incorporating them into our business, our business and financial performance could be materially and adversely affected.
It is strategically important that we lead the digital transformation occurring in our industry. However, we may not be successful in structuring our technology or developing, acquiring or implementing technology systems in ways that are competitive and responsive to the needs of our customers. We may lack sufficient resources to continue to make the significant technology investments to effectively compete with our competitors. Certain technology initiatives that management considers important to our long-term success will require capital investment, have significant risks associated with their execution and could take several years to implement. If we are unable to develop and implement these initiatives in a cost-effective, timely manner or at all, it could damage our relationships with our customers and negatively impact our financial condition and results of operations. There can be no assurance that others will not acquire similar or superior technologies sooner than we do or that we will acquire technologies on an exclusive basis or at a significant price advantage. If we do not accurately predict, prepare and respond to new technology innovations, market developments and changing customer needs, our revenues, profitability and long-term competitiveness could be materially adversely affected.
We may use artificial intelligence, machine learning, data science and similar technologies in our business, and challenges with properly managing such technologies could result in reputational harm, competitive harm and legal liability, and adversely affect our business, financial condition and results of operations.
Artificial intelligence, machine learning, data science and similar technologies (collectively, “AI”), including third-party AI tools, may be enabled by, or integrated into some of our business and solutions. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawed, biased or produce incorrect information. Datasets used to train or develop AI systems may be insufficient, of inferior quality, or contain biased information. Additionally, the laws and regulations concerning the use of AI continue to evolve. If the use or integration of AI systems, or the outputs generated by such systems, were determined to be non-compliant (e.g., in relation to intellectual property or data privacy rights), this may result in liability or adversely affect our business, reputation, brand, financial condition and results of operations. It is possible that emerging regulations may limit or block the use of AI in our business and solutions or otherwise impose other restrictions that may affect or impair the usability or efficiency of our business or services for an extended period of time or indefinitely. Our competitors or other third parties may incorporate AI into their product development, product offerings, technology and infrastructure products more quickly or more
successfully than us, which could impair our ability to compete effectively and adversely affect our business, financial condition and results of operations.
If we are unable to attract and retain senior management and key technical professionals with elite skills and appropriate government qualifications, our ability to pursue and compete for projects to grow our business may be adversely affected, our operating income may decrease and our reputation may be negatively impacted.
KBR's forward-looking strategy requires talent with dynamic and elite skills as KBR moves upmarket. Our rate of growth and the success of our business depend upon our ability to attract, develop, retain and replace key qualified technical and management professionals, either through direct hires, subcontracts or acquisition of other firms, who possess the elite skills to successfully deliver the solutions strategy. The market for these professionals is competitive in the sectors in which we compete, and we rely heavily upon the expertise and leadership of our professionals to perform, execute and complete projects as required by our clients.
We currently hold government-issued facility security clearances and a large number of our employees have qualified for and hold U.S., U.K. and Australian government-issued personal security clearances necessary to perform certain U.S., U.K. and Australian government contracts. Obtaining and maintaining security clearances for employees involves lengthy processes, and it is difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain or retain security clearances or if our employees who hold security clearances terminate employment with us and we are unable to find replacements with equivalent security clearances, we may be unable to perform our obligations to customers whose work requires cleared employees, or such customers could terminate their contracts or decide not to renew them upon their expiration. Our facility security clearances could be marked as "invalid" for several reasons including unapproved foreign ownership, control or influence, mishandling of classified materials or failure to properly report required activities. An inability to obtain or retain our facility security clearances or engage employees with the required security clearances for a particular contract could disqualify us from bidding for and winning new contracts with security requirements or result in negative consequences for current contracts, including termination for default if security concerns are not remedied.
If we are unable to attract and retain a sufficient number of elite skilled professionals with appropriate government qualifications, our ability to pursue and execute projects may be adversely affected, our operating income may decline, and our reputation may be damaged. Our future success depends on the continued services of our executive officers as well as our ability to effectively transition to their successors. If we are unable to attract, develop and retain qualified employees that can succeed our executive officers, or if our succession plans and/or succession planning processes do not yield the results we intend or expect, there could be a material adverse effect on our operating income and reputation.
The nature of our business exposes us to potential liability claims and contract disputes that may exceed or be excluded from existing insurance coverage.
We engage in activities where failures can result in substantial injury or damage to employees or other third parties or service delivery impacts, exposing us to legal proceedings, investigations and disputes. The nature of our business results in clients, subcontractors and vendors occasionally presenting claims against us for recovery of costs they incurred in excess of what they expected to incur or for which they believe they are not contractually liable. If it is determined that we have liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed our policy limits. Our professional liability coverage is on a “claims-made” basis covering only claims actually made during the policy period currently in effect. In addition, even where insurance is maintained for such exposures, the policies have deductibles, which result in our assumption of exposure for a layer of coverage with respect to any such claims. We also manage and maintain a portion of our retained risk through our wholly owned captive insurance company, which insures certain claims up to the applicable deductible amount of our third-party insurance programs. Additionally, our captive insurance company is a registered and licensed insurance company with the Texas Department of Insurance, and is therefore subject to various rules and regulations including meeting certain capital requirements, which can result in additional use of our resources such as securing the captive insurance company's retained risks with issuing letters of credit. Any liability not covered by our insurance, in excess of our insurance limits or if covered by insurance but subject to a high deductible, could result in a significant loss for us, which may reduce our profits and cash available for operations. Furthermore, there is risk of mass casualty or environmentally damaging events that may involve our and third-party personnel and property, which could lead to future claims and litigation, impact our reputation and investor confidence and ultimately result in reduced share price.
We occasionally bring claims against customers for additional costs exceeding the contract price or for amounts not included in the original contract price. These types of claims occur due to matters such as customer-caused delays, changes from the initial project scope or other economic changes not stipulated under the contract that may result in additional direct and indirect costs. Often these claims can be the subject of lengthy negotiations, arbitration or litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to recover on these types of claims fully or promptly could have a material adverse impact on our liquidity and financial results.
Dependence on third-party subcontractors, suppliers and equipment manufacturers could adversely affect our financial performance on contracts.
We rely on third-party subcontractors, suppliers and equipment manufacturers in order to complete many of our projects. Certain subcontractors and suppliers, such as those used on our U.S. government contracts, are subject to the same rigorous government requirements that we are and if they are unable to comply with these requirements, in many cases, there are limited alternative subcontractors and suppliers available in the market, particularly those with the requisite security clearances. Our subcontractors may be subject to various regulations to engage in motor carrier service, including regulations from the Department of Transportation, Federal Motor Carrier Safety Administration and various state agencies. The failure of our subcontractors to comply with these regulations could adversely affect our financial performance on certain contracts.
We sometimes have disputes with our contracting parties, including disputes regarding the cost, quality and timeliness of work performed or customer concerns about the other party’s performance. We also have been and in the future could be adversely affected by actions or issues experienced by our contracting parties that are outside of our control, such as misconduct and reputational issues involving our contracting parties, which has and could in the future subject us to liability and reputational harm or adversely affect our ability to compete for contract awards. In addition, if any subcontractor or a manufacturer is unable to deliver its services, equipment or materials according to the negotiated terms for any reason including, but not limited to, the deterioration of its financial condition, we may be required to purchase the services, equipment or materials from another source at a higher price. This may reduce the profit we expect to realize or result in a loss on a project for which the services, equipment or materials were needed. Furthermore, if the amount we are required to pay for these goods and services exceeds the amount we have estimated in bidding for fixed-price contracts, we could experience losses in the performance of these contracts.
Employee, agent or partner misconduct, or our overall failure to comply with laws or regulations, could weaken our ability to win contracts, which could result in reduced revenues and profits.
We are subject to the risk of misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by our employees, agents or partners, which could have a significant negative impact on our business and reputation. Such misconduct includes the failure to comply with government procurement regulations, regulations regarding the protection of classified information, regulations prohibiting bribery and other corrupt practices, regulations regarding the pricing of labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to the internal controls over financial reporting, regulations pertaining to export control, environmental laws, employee wages, pay and benefits, and any other applicable laws or regulations. For example, we routinely provide services that may be highly sensitive or that relate to critical national security matters and, if a security breach were to occur, our ability to receive future government contracts could be severely limited. The precautions we take to prevent and detect these activities may not be effective and we could face unknown risks or losses. Our failure to comply with applicable laws or regulations or acts of misconduct subject us to the risk of civil or criminal fines and penalties, cancellation of contracts, loss of security clearance and suspension or debarment from contracting, any of which could damage our reputation, weaken our ability to win contracts and result in reduced revenues and profits and could have a material adverse impact on our business, financial condition and results of operations.
We depend on our teaming arrangements and relationships with other contractors and subcontractors. If we are not able to maintain these relationships, or if these parties fail to satisfy their obligations to us or the customer, our business, financial condition and results of operations could be adversely affected.
We rely on teaming relationships with other prime contractors and subcontractors to bid on large procurements and other opportunities when we believe the combination of services, products and solutions we can offer with teammates will help us win and perform the contract. Our future revenues and growth could be adversely affected if our partners reduce or end their contract relationships with us, or if the U.S. government terminates or reduces programs of prime contractors to which we subcontract, does not award them new contracts, or refuses to pay under a contract. We may contract with subcontractors that
do not have experience on U.S. government contracts or with our customers, providing them with the experience, relationships, and past performance to compete with us on future contracts and potential result in contract losses. If subcontractors fail to timely meet their contractual obligations or have regulatory compliance or other problems, our ability to fulfill our obligations as a prime contractor or higher tier subcontractor may be jeopardized.
We use estimates in recognizing revenues, and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.
A significant portion of our revenues and profits are measured and recognized over time using the cost-to-cost method of revenue recognition. Our use of this accounting method results in recognition of revenues and profits over the life of a contract, based on the proportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions to estimated revenues and costs are recorded when the amounts are known or can be reasonably estimated. In addition, we record unapproved change orders and claims against clients as well as estimated recoveries of claims against suppliers and subcontractors that have been included in the estimated profit at completion for certain projects. Revisions to these estimates could occur in any period and their effects could be material. The uncertainties inherent in estimating the progress towards completion or the recoverability of claims of long-term contracts make it possible for actual revenues and costs to vary materially from our estimates, including reductions or reversals of previously recorded revenues and profits.
We conduct a portion of our operations through joint ventures and partnerships, exposing us to risks and uncertainties, many of which are outside of our control.
We conduct a portion of our operations through project-specific joint ventures where control may be shared with unaffiliated third parties or control may be held by the unaffiliated third parties. These projects include the facilitation of nonrecourse financing, the design and construction of facilities, the provision of operation and maintenance services and warranty obligations for an agreed-upon period after the facilities have been completed. If a project is unable to obtain financing, we could incur losses on our investments and any related contractual receivables. As with any joint venture arrangement, differences in views among the joint venture partners may result in delayed decisions or in failures to agree on major issues. We also cannot control the actions of our joint venture partners, including failure to comply with applicable laws or regulations, nonperformance and default or bankruptcy of our joint venture partners. Also, we often share liabilities on a joint and several basis with our joint venture partners under these arrangements. If our partners do not meet their contractual obligations, the joint venture may be unable to adequately perform and deliver its contracted services, requiring us to make additional investments or perform additional services to ensure the adequate performance and delivery of services to the customer, which could ultimately result in litigation. We could be liable for both our obligations and those of our partners, which may result in reduced profits, significant losses on the project and a negative impact to our cash flows. Additionally, these factors could have a material adverse effect on the business operations of the joint venture and, in turn, our business operations and reputation.
Operating through joint ventures in which we have a minority interest could result in us having limited control over many decisions made with respect to projects and internal controls relating to projects. These joint ventures may not be subject to the same requirements regarding internal controls that are applicable to us. As a result, internal control issues may arise, which could have a material adverse effect on our financial condition and results of operations.
The nature of our contracts, particularly those that are fixed-price, subjects us to risks associated with cost overruns, operating cost inflation and potential claims for liquidated damages.
We conduct our business under various types of contracts where costs must be estimated in advance of our performance. A portion of the value of our current backlog is attributable to fixed-price contracts where we bear a significant portion of the risk of cost overruns. These types of contracts are priced, in part, on cost and scheduling estimates that are based on assumptions including pricing and availability of experienced labor, equipment and materials as well as productivity, performance and future economic conditions. If these estimates prove inaccurate, if there are errors or ambiguities as to contract terms or specifications, or if circumstances change due to, among other things, increases in interest rates, continued inflation, supply-chain disruptions, tariffs, unanticipated technical problems, poor project execution, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, increased costs of equipment and materials from inflation or other factors or our suppliers’ or subcontractors’ inability to perform, then cost overruns may occur. Our approach to include annual price escalations in our bids for multi-year work may be insufficient to counter inflationary cost pressures, which may result in significant cost overruns on our contracts. This could result in reduced profits on a contract, losses on a contract and negative impacts to our cash flows, and our longer-term multi-year contracts could become less favorable to us over time.
We may not be able to obtain compensation for additional work performed or expenses incurred. Additionally, we have in the past and may in the future be required to pay liquidated damages upon our failure to meet schedule or performance requirements of our contracts. Our failure to accurately estimate the resources and time required for fixed-price contracts or our failure to complete our contractual obligations within a specified time frame or cost estimate could result in reduced profits or, in certain cases, a loss for that contract. If the contract is significant, or we encounter issues that impact multiple contracts, cost overruns or schedule delays could have a material adverse effect on our business, financial condition and results of operations.
Our backlog of unfilled orders is subject to unexpected adjustments and cancellations and, therefore, may not be a reliable indicator of our future revenues or earnings.
As of January 2, 2026, the future revenues we expect to realize as a result of backlog was approximately $16.9 billion. Of this amount, we currently estimate that 83% will be recognized in revenues on our consolidated statement of operations and 17% will be recorded by our unconsolidated joint ventures. We cannot guarantee that the revenues projected in our backlog will be realized or that the projects will be profitable. Many of our contracts are subject to cancellation, termination or suspension at the discretion of the customer. From time to time, changes in project scope may occur with respect to contracts reflected in our backlog and could reduce the dollar amount of our backlog or the timing of the revenues and profits that we ultimately earn. Projects may remain in our backlog for an extended period of time because of the nature of the project and the timing of the particular services or equipment required by the project. Delays, suspensions, cancellations, payment defaults, scope changes and poor project execution could materially reduce or eliminate profits that we actually realize from projects in backlog. We cannot predict the impact that future economic conditions may have on our backlog, which could include a diminished ability to replace backlog once projects are completed or could result in the termination, modification or suspension of projects currently in our backlog. Such developments could have a material adverse effect on our financial condition, results of operations and cash flows.
We have made and may continue to make business combinations as a part of our business strategy, which may present certain risks and uncertainties.
We may continue to seek business acquisitions as a means of broadening our offerings and capturing additional market opportunities by our business segments. However, there is no guarantee that we will be successful in identifying target companies that meet our criteria for acquisition. We may also face increased competition from other potential acquirers who have greater financial resources or who are in a position to offer more favorable terms to the target company. This competition may limit our ability to pursue acquisition opportunities which could negatively affect our growth strategies. Additionally, future acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms, if at all.
The success of our historical and future business combinations also depends on our ability to integrate the operations of the acquired businesses efficiently and effectively with our existing operations and realize the anticipated benefits from them. The potential risks associated with successful integration and realization of benefits include, but are not limited to the following:
• our due diligence may not identify or fully assess valuation issues, potential liabilities or other acquisition risks;
• acquired entities may not achieve anticipated revenue targets, cost savings or other synergies or benefits, or acquisitions may not result in improved operating performance, which could adversely affect our operating income or operating margins, and we may be unable to recover investments in any such acquisitions;
• we may have difficulty integrating acquired businesses, resulting in unforeseen difficulties, such as incompatible accounting, information management or other control systems, and greater expenses than expected;
• we may have difficulty entering into new markets in which we are not experienced, in an efficient and cost-effective manner while maintaining adequate standards, controls and procedures;
• key personnel within an acquired organization may resign from their related positions resulting in a significant loss to our strategic and operational efficiency associated with the acquired company;
• the effectiveness of our daily operations may be reduced by the redirection of employees and other resources to acquisition and integration activities;
• we may assume liabilities of an acquired business (including litigation, tax liabilities, contingent liabilities, environmental issues), including liabilities that were unknown at the time of the acquisition, that pose future risks to our working capital needs, cash flows and the profitability of related operations;
• we may assume unprofitable projects that pose future risks to our working capital needs, cash flows and the profitability of related operations; or
• business acquisitions may include substantial transactional costs to complete the acquisition that exceed the estimated financial and operational benefits.
International and political events may adversely affect our operations.
A portion of our revenues is derived from foreign operations, which exposes us to risks inherent in doing business in each of the countries where we transact business. The occurrence of any of the risks described below could have a material adverse effect on our business operations and financial performance. With respect to any particular country, these risks may include, but not be limited to:
• expropriation and nationalization of our assets in that country;
• changes in government regimes and other developments that may cause, directly or indirectly, political and economic instability;
• costs to maintain the safety of our personnel and clients in high-risk locations, including but not limited to, certain parts of Africa and the Middle East, where the country or surrounding area is suffering from political, social or economic issues, war or civil unrest;
• changes in trade policies affecting the markets for our services (including but not limited to retaliatory tariffs between the United States and other countries);
• civil unrest, acts of terrorism, war or other armed conflict (including but not limited to potential U.S. sanctions on other countries);
• currency fluctuations, devaluations and conversion restrictions;
• confiscatory taxation or other adverse tax policies;
• uncertainties related to any geopolitical, economic and regulatory effects or changes due to recent or upcoming domestic and international elections;
• governmental activities or judicial actions that limit or disrupt markets, restrict payments, limit the movement of funds, result in the deprivation of contract rights or result in the inability for us to obtain or retain licenses required for operation;
• increased polarization of political parties, in the U.S. and abroad, which may lead to more volatility in government spending or other developments such as trade wars or changes in military priorities; or
• failure or refusal of foreign governments or their agencies to acknowledge or honor rights, exemptions or obligations identified in applicable status of forces agreements or treaties.
Due to the unsettled political conditions in countries where we provide governmental logistical support, our financial performance is subject to the adverse consequences of war, the effects of terrorism, civil unrest, strikes, currency controls and governmental actions. In addition, despite safety precautions, military action or unrest could disrupt our operations in such locations and elsewhere and increase our costs related to security worldwide.
Internal or external cybersecurity or privacy breaches, or systems and information technology interruption or failure could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
As a government contractor and a provider of services operating in multiple regulated industries and geographies, we and our business partners (including our service providers, joint venture partners, suppliers and subcontractors) handle a variety of sensitive information including personally identifiable information, personnel information, protected health information, classified and controlled unclassified information, and financial information, concerning our business, employees and customers. We and our business partners are continuously exposed to cyber and other security threats, including cyberattacks such as malware/computer viruses, ransomware and phishing attacks, insider threats related to malicious and non-malicious activities from authorized and unauthorized employees or third parties, catastrophic events, power outages, natural disasters, computer system or network failures or physical break-ins. We also utilize third-party software in the performance of certain critical accounting, project management, and financial reporting systems. Technological developments in artificial intelligence and machine learning, particularly those that provide actors with the capability to use more sophisticated means to attack our systems, may exacerbate cybersecurity and data privacy risks. Any unauthorized electronic or physical intrusion or other security threat may jeopardize the protection of sensitive or other information stored or transmitted through our IT systems and networks and those of our business partners and third-party software providers. This could lead to disruptions in our business and result in decreased performance, significant remediation costs, reputational damage, transaction errors, loss of data (including personally identifiable information), data leakage of confidential information, processing inefficiencies, downtime, litigation and the loss of suppliers or customers. Under certain contracts with the U.S. government subject to the FAR and CAS, the adequacy of our business processes and related systems could be called into question. Any significant disruptions or failures could have a material adverse effect on our business operations, financial performance, financial condition and reputation.
Additionally, we work with the defense industrial base industry and the U.S., U.K. and Australian governments to gather and share threat intelligence and promote increased awareness and enhanced protections against cybersecurity threats.
However, because of the evolving nature of these security threats, there can be no assurance that our policies, procedures and other controls will detect or prevent them, and we cannot predict their full impact. We may experience similar security threats to the IT systems that we develop, install or maintain under customer contracts, including customer contracts under which we may have access to or management responsibility for customer databases or networks that contain sensitive information relating to our customers, their employees or related third parties. Although we work cooperatively with our customers to seek to minimize the impacts of cyber and other security threats, we must usually rely on the safeguards used or required by those customers. In the event of unauthorized access to sensitive information for which we are responsible under customer contracts, our customers, their employees, or third parties may seek to hold us liable for any costs or other damages associated with the unauthorized access. In addition, government agencies may bring legal actions against us for violation of or noncompliance with regulatory requirements relating to any unauthorized access to sensitive information. Any remediation costs, damages or other liabilities related to unauthorized access of sensitive information of ours or our customers caused by cyber or other security threats may not be fully insured or indemnified by other means or our insurers. Occurrence of any unauthorized access caused by these security threats could adversely affect our reputation, business operations and financial results.
While we have security measures and technology in place designed to protect our and our clients’ proprietary or classified information, there can be no assurance that our efforts will prevent all threats to our computer systems. Because the techniques used to obtain unauthorized access or sabotage systems change frequently, become more sophisticated and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As a result, we may be required to expend significant resources to protect against the threat of system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches. Any of these events could damage our reputation, cause us to incur significant liability and have a material adverse effect on our business, financial condition and results of operations.
We continuously evaluate the need to upgrade and/or replace our systems and network infrastructure to protect our digital environment, to stay current on vendor supported products and to improve the efficiency of our systems and for other business reasons. The implementation of new systems and information technology could adversely impact our operations by imposing substantial capital expenditures, demands on management time and risks of delays or difficulties in transitioning to new systems. In addition, our systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have a material adverse effect on our business.
In addition, laws and regulations governing data privacy and the unauthorized disclosure of personal data, including the European Union General Data Protection Regulation, the United Kingdom Data Protection Act, the California Consumer Privacy Act, the California Privacy Rights Act and other emerging U.S. state and global privacy laws pose increasingly complex compliance challenges and potentially elevate costs and may require changes to our business practices resulting from the variation of regulatory requirements and increased enforcement frequency. Failure to comply with these laws and regulations, including related regulatory enforcement and/or private litigation resulting from a potential privacy breach, could result in governmental investigations, significant fines and penalties, damages from private causes of action or reputational harm. Additionally, we are subject to laws, rules and regulations regarding cross-border transfers of personal data, including laws relating to transfer of personal data outside the European Economic Area. If we cannot rely on existing mechanisms for transferring personal data, we may be unable to transfer personal data of employees and clients in those regions, which could adversely affect our business, financial condition and operating results.
An impairment of all or part of our goodwill or our intangible assets could have a material adverse impact on our net earnings and net worth.
As of January 2, 2026, we had $2,677 million of goodwill and $727 million of intangible assets recorded on our consolidated balance sheets. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. We perform an annual analysis of our goodwill on the first day of the fourth fiscal quarter to determine if it has become impaired. In addition, we perform interim analyses to determine if our goodwill has become impaired if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions toward our facilities and various other factors. If the fair value of a reporting unit is less than its carrying value, we could be required to record an impairment charge. An impairment of all or a part of our goodwill or intangible assets could have a material adverse effect on our net earnings and net worth.
Our actual results could differ from the estimates and assumptions used to prepare our financial statements.
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated financial statements statements in Part II, Item 8 of this Annual Report on Form 10-K. These estimates are based on information available through the date of the issuance of the financial statements and actual results could differ from those estimates, which could have a material adverse impact on our financial condition, results of operations and cash flows.
Global pandemics, epidemics, outbreaks of infectious diseases or public health crises have disrupted our business and could have a material adverse effect on our future results of operations and financial performance.
Pandemics, epidemics, outbreaks of infectious diseases or public health crises across the globe have disrupted, and may in the future disrupt our business, which could materially and adversely affect our financial condition, results of operations, cash flows and/or future expectations. Our business, operations and financial performance have been, and may be affected by macroeconomic impacts resulting from pandemics, infectious disease outbreaks and public health crises. As a result, our financial performance and growth rates may differ from historical periods, and our future results may fall below expectations. Any health crisis may negatively affect worldwide economic and commercial activity, disrupt global supply chains and the labor market and create significant volatility and disruption of financial and commodity markets. The extent to which our business will continue to be affected and may in the future be affected by pandemics, infectious disease outbreaks and other public health crises depends on a number of factors outside of our control, including but not limited to the extent and duration of labor disruptions, business operations disruptions from quarantines, travel restrictions and other requirements imposed by regulators and health authorities, delays, modifications and terminations of contracts, supply chain disruptions, increased cybersecurity and data protection risks, increased costs of doing business and other macroeconomic disruptions.
We ship a significant amount of cargo using seagoing vessels, exposing us to certain maritime risks.
We execute different projects in remote locations around the world and procure equipment and materials on a global basis. Depending on the type of contract, location, nature of the work and the sourcing of equipment and materials, we may charter seagoing vessels under time and bareboat charter arrangements and assume certain risks typical of those agreements. Such risks may include damage to the ship, liability for cargo and liability that charterers and vessel operators have to third parties “at law.” In addition, we ship a significant amount of cargo and are subject to hazards of the shipping and transportation industry.
Risks Related to the Planned Spin-Off of Mission Technology Solutions
We are subject to risks related to our plan to spin off our Mission Technology Solutions business into a standalone, publicly traded company.
On September 24, 2025, we announced our intent to spin off our Mission Technology Solutions business to create a separate, U.S. publicly-traded company (the "Planned Spin-Off"). The Planned Spin-Off is intended to be tax-free to us and our shareholders for U.S. federal income tax purposes and targeting completion in the second half of fiscal 2026. The Planned Spin-Off will be subject to final approval by our Board of Directors and other customary conditions, including receipt of a favorable opinion of legal counsel and/or a private letter ruling from the U.S. Internal Revenue Service with respect to the tax treatment of the transaction for U.S. federal income tax purposes, the effectiveness of a registration statement on Form 10 filed with the SEC, satisfactory completion of financing, and other regulatory approvals. We cannot assure you that we will be able to satisfy the necessary conditions or that we will successfully complete the anticipated separation in our preferred structure, on the anticipated timeline or at all. Unanticipated developments, including possible delays in obtaining various tax rulings or regulatory approvals, uncertainty or declines in the financial markets or other adverse market conditions, changes in our cash requirements, challenges in establishing the new company’s organizational structure, infrastructure or processes, or adverse business performance could delay or prevent the proposed separation or cause the proposed separation to occur on terms or conditions that are less favorable and/or different than expected, including without limitation, the failure to qualify as tax-free to our shareholders (which could result in significant income tax liabilities to us and/or our shareholders), and the inability of the spun-off company to incur sufficient indebtedness to allow for a distribution to us of proceeds concurrently with the consummation of the Planned Spin-Off. Expenses incurred to accomplish the proposed separation may be significantly higher than what we currently anticipate. Executing the proposed separation also requires significant time and attention from management, which could distract them from other tasks in operating our business. Even if the transaction is completed, we may not realize some or all of the anticipated benefits from the separation and we cannot assure you that the separation will yield greater benefits to KBR and its shareholders than if such transaction had not occurred. Any of these factors could
negatively impact our business, financial condition, results of operations, cash flows, and the price of our common stock. Additionally, following the proposed separation, the combined value of the common stock of the two publicly-traded companies may not be equal to or greater than what the value of our common stock would have been had the separation not occurred.
Following the Planned Spin-Off, we and the spun-off Mission Technology Solutions business may face stranded costs, loss of economies of scale, and higher operating expenses than currently anticipated, which could materially adversely affect our profitability.
Following the Planned Spin-Off, we will be a smaller, less diversified company than we were prior to the Planned Spin-Off, which could make us more vulnerable to factors impacting our performance, such as changing market conditions and market volatility. As integrated parts of a larger organization, both businesses currently benefit from shared corporate functions, including finance, legal, human resources, information technology, procurement, and other administrative services. Following the Planned Spin-Off, each company will need to replicate these functions independently or secure them from third-party providers, likely at a higher combined cost than the current shared service model.
The two companies may also lose purchasing power and negotiating leverage with suppliers, service providers, and other vendors. Economies of scale in areas such as insurance coverage, employee benefits, technology licenses, real estate, and professional services fees may be diminished. In addition, we may be unable to find suitable alternatives for services that the spun-off entity temporarily provides to us pursuant to transition agreements, or such alternative services may be more expensive. There is also a risk that certain costs currently treated as variable may become fixed at the standalone entity level, reducing our operational flexibility. While management has developed estimates of the costs to operate as independent companies, actual costs may significantly exceed these projections due to factors that cannot be fully anticipated prior to spin-off.
Our operations may be significantly disrupted during and following the Planned Spin-Off process, and we will be dependent on the spun-off entity’s performance under various transition agreements, the failure of which could materially harm our business.
The process of spinning off integrated business operations is highly complex and involves the disentanglement of shared systems, processes, contracts, and infrastructure that have developed over many years. In connection with the Planned Spin-Off, we and the spun-off entity may enter into various agreements that provide for the performance of certain services or provision of goods by each company for the benefit of the other, for example, a transition services agreement, a tax matters agreement, an employee matters agreement, and other related agreements. Performance under these agreements or other related conditions outside of our control could materially affect our operations and future financial results.
During the transition period, we may be dependent on the spun-off entity to continue providing critical services such as IT infrastructure, supply chain functions, or other operational support. If the spun-off entity is unable to satisfy these obligations, including its indemnification obligations, we could incur operational difficulties or losses that could have an adverse effect on our business, financial condition, and results of operations. Service degradation, system failures, or disagreements regarding service levels or pricing under transition services agreements could disrupt our operations. Furthermore, we may face challenges in transitioning to alternative service providers or in-house capabilities before transition services agreements expire, potentially creating gaps in critical business functions.
The Planned Spin-Off process also requires the migration and spin-off of information technology systems, including enterprise resource planning systems, customer relationship management platforms, and other critical business applications. Data migration errors, system integration failures, or cybersecurity vulnerabilities created during the spin-off process could result in business disruption, data loss, or security breaches.
Risks Related to Our Industry
The U.S. government awards its contracts through a rigorous competitive process and our efforts to obtain future contracts from the U.S. government may be unsuccessful.
The U.S. government conducts a rigorous competitive process for awarding most contracts. In the services arena, the U.S. government uses multiple contracting approaches. Historically, omnibus contract vehicles have been used for work that is done on a contingency or as-needed basis. In more predictable “sustainment” environments, contracts may include fixed-price, cost-reimbursable and time-and-materials elements. The U.S. government also favors multiple award task order contracts in
which several contractors are selected as eligible bidders for future work. Such processes require successful contractors to continually anticipate customer requirements and develop rapid-response bid and proposal teams as well as maintain supplier relationships and delivery systems to react to emerging needs. In addition, U.S. government procurement practices sometimes emphasize price over qualitative factors, such as technical capability and past performance. As a result of these competitive pricing pressures, our profit margins on future U.S. government contracts may be reduced and may require us to make sustained efforts to reduce costs to remain competitive.
We face rigorous competition and pricing pressures for any additional contract awards from the U.S. government. Many of our existing contracts must be recompeted when their original period of performance ends, representing opportunities for competitors to take market share away from us or for our customers to obtain more favorable terms. We may be required to qualify or continue to qualify under the various multiple award task order contract criteria. Therefore, it may be more difficult for us to win future awards from the U.S. government and we may have other contractors sharing in U.S. government awards that we win. Once a contract is awarded, it may be subject to a lengthy protest process. Bid protests can result in significant expenses to us, contract modifications or even loss of the contract award and the resolution can extend the time until contract activity can begin and delay the recognition of sales and defer underlying cash flows and adversely affect our operating results. Our efforts to protest or challenge any bids for contracts that were not awarded to us also may be unsuccessful.
Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance and our ability to control costs.
Our profitability and cash flow may vary materially depending on the types of government contracts undertaken, the nature of services performed under those contracts, the costs incurred in performing the work, the achievement of other performance objectives and the stage of performance at which the right to receive fees is determined, particularly under award and incentive-fee contracts. Failure to perform to customer expectations and contract requirements may result in reduced fees or losses and may adversely affect our financial performance.
Our MTS business segment primarily performs work in the U.S. under cost-reimbursable contracts with the DoW and other U.S. governmental agencies. If the U.S. government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations, these costs are disallowed or, if already reimbursed, we may be required to refund the reimbursed amounts to the customer. Such conditions may also include interest and other financial penalties.
Contract types primarily include fixed-price and cost-reimbursable contracts. Cost-reimbursable contracts provide for the payment of allowable costs incurred during performance of the contract plus a fee up to a ceiling based on the amount that has been funded. Cost, schedule or technical performance issues with respect to cost-reimbursable contracts could result in reduced fees, lower profit rates, or program cancellation.
Under fixed price contracts, we receive a fixed price irrespective of the actual costs we incur and therefore we carry the burden of any cost overruns. Due to the fixed-price nature of the contracts, if our actual costs exceed our estimates, our margins and profits are reduced and we could incur a loss on the respective contract which could adversely affect our financial results.
Under both fixed-price and cost-reimbursable contracts, if we are unable to control costs, our operating results could be adversely affected. Costs to complete a contract may increase for many reasons, including technical and manufacturing challenges, schedule delays, workforce-related issues, the timeliness and availability of materials from suppliers, internal and subcontractor performance or product quality issues, inability to meet cost reduction initiatives or achieve efficiencies from digital transformation, changing laws or regulations, inflation and natural disasters. Certain contracts may impose other risks, such as forfeiting fees, paying penalties, or providing replacement systems in the event of performance failure. Many of our contracts include multiple option years exercisable at the customer’s discretion, which carries risk. The customer may decline to exercise an option, or the customer may exercise an option on a contract for which we expect to incur a loss or perform at a low margin, either of which could adversely affect our financial results.
The U.S. government may issue or revise existing rules, regulations and directives, adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.
We face rigorous competition and pricing pressures for any additional contract awards from the U.S. government. Our industry has experienced, and we expect it will continue to experience, significant changes to business practices as a result of an increased focus on affordability, efficiencies and recovery of costs, among other items. From time to time, new laws, executive orders and regulations are enacted, and government agencies adopt new interpretations and enforcement priorities relative to
laws and regulations already in effect, including recent U.S. government initiatives such as the FAR overhaul under E.O. 14275, DOGE and defense acquisition reform. U.S. government agencies have and may continue to face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors. Legislation, regulations and initiatives dealing with procurement reform as well as any resulting shifts in the buying practices of U.S. government agencies, such as increased usage of fixed-price contracts, multiple-award contracts and small business set-aside contracts, could have adverse effects on government contractors, including us. In addition, U.S. government procurement practices sometimes emphasize price over qualitative factors, such as technical capability and past performance. As a result of these competitive pricing pressures, our profit margins on future U.S. government contracts may be reduced and may require us to make sustained efforts to reduce costs to remain competitive.
Our programs for the U.S. government often operate for periods of time under Undefinitized Contract Actions (UCAs), which means that we begin performing our obligations before the terms, specifications or price are finally agreed to between the parties. The U.S. government has (and has exercised in the past) the ability to unilaterally definitize contracts, which, absent a successful appeal, obligates us to perform under terms and conditions imposed by the U.S. government. This can affect our ability to negotiate mutually agreeable contract terms and, if a contract is unilaterally imposed upon on us, it may negatively affect our expected profit and cash flows on a program or impose burdensome terms.
Federal legislation, regulations, executive orders, and other initiatives dealing with, among other things, procurement reform, the mitigation of potential OCIs, the deterrence of fraud, the elimination of diversity, equity, and inclusion, and changes in corporate environmental obligations, could affect our business. Additionally, we are subject to the laws and regulations of the states in which we operate, which, at times, may conflict with federal laws and regulations, introducing ambiguity.
The ongoing FAR overhaul and other reforms to the U.S. government acquisition process, including changes to procurement rules and regulations, could transform how contracts are awarded, negotiated, and managed, which could lead to delays in contract awards and/or modifications to the scope or terms of contracts we hold. We could face increased competition, greater scrutiny, a more complex regulatory environment, heightened compliance requirements, and additional administrative burdens, all of which have the potential to affect our profitability.
Heightened competition could impact our ability to obtain contracts which could reduce our market share and profits.
We serve markets that are global and highly competitive. We compete with larger companies that have greater name recognition, financial resources and a larger technical staff. We also compete with smaller, more specialized companies that are able to concentrate their resources on particular areas. Additionally, we compete with the U.S. government’s own capabilities.
The markets in which we operate are characterized by rapidly changing technology and the needs of our customers changing and evolving regularly. Therefore, our success depends on our ability to invest in and develop our people and technology to enable us to deliver services and products that address these changing needs. To remain competitive, we must consistently provide superior service, technology and performance on a cost-effective basis to our customers while understanding customer priorities and maintaining customer relationships. Our competitors may be able to provide our customers with differentiated or superior capabilities or technologies or more attractive contract terms than we can provide, including technical qualifications, past contract experience, geographic presence, price and the availability of qualified professional personnel. Some of our competitors have made or could make acquisitions of businesses, or establish teaming or other agreements among themselves or third parties, that allow them to offer more competitive and comprehensive solutions. As a result of such acquisitions or arrangements, our current or potential competitors may be able to accelerate the adoption of new technologies that better address customer needs, devote greater resources to bring these products and services to market, initiate or withstand substantial price competition or develop and expand their product and service offerings at a more accelerated rate. These competitive pressures in our market or our failure to compete effectively may result in fewer orders, reduced revenue and margins and loss of market share.
Our U.S. government contract work is regularly reviewed and audited by the U.S. government, U.S. government auditors and others, and these reviews can lead to withholding or delay of payments to us, non-receipt of award fees, legal actions, fines, penalties and liabilities and other remedies against us.
U.S. government contracts are subject to specific regulations such as the FAR, the Truthful Cost or Pricing Data Statute, CAS, the Service Contract Act and DoW security regulations. Failure to comply with any of these regulations, requirements or statutes may result in contract price adjustments, financial penalties or contract termination. Our U.S. government contracts are subject to audits, cost reviews and investigations by U.S. government contracting oversight agencies such as the DCAA. The DCAA reviews the adequacy of, and our compliance with, our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, compensation and management information systems. The DCAA has the
authority to conduct audits and reviews to determine if we are complying with the requirements under the FAR and CAS, pertaining to the allocation, period assignment and allowability of costs assigned to U.S. government contracts. The DCAA presents its report findings to the DCMA. Should the DCMA determine that we have not complied with the terms of our contract or applicable statutes and regulations, payments to us may be disallowed, which could result in adjustments to previously reported revenues and refunding of previously collected cash proceeds. Additionally, we previously have been, and may in the future be subject to additional qui tam litigation brought by private individuals on behalf of the U.S. government under the Federal False Claims Act, which could include claims for treble damages. These suits may remain under seal (and hence, be unknown to us) for some time while the U.S. government decides whether to intervene on behalf of the qui tam plaintiff.
Given the demands of working for the U.S. government, we may have disagreements or experience performance issues. When performance issues arise under any of our U.S. government contracts, the U.S. government retains the right to pursue remedies, which could include termination under any affected contract. If any contract were so terminated, our ability to secure future contracts could be adversely affected. Other remedies that could be sought by our U.S. government customers for any improper activities or performance issues include sanctions such as withholding of payments, liquidated damages and suspensions or debarment from doing business with the U.S. government. Further, the negative publicity that could arise from disagreements with our customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry, reduce our ability to compete for new contracts and may also have a material adverse effect on our business, financial condition, results of operations and cash flows.
Several of our contracts with the U.S. government are classified or subject to other security restrictions, which may limit investor insight into portions of our business.
A significant portion of our revenue is from contracts with the U.S. government that are classified or subject to security restrictions that preclude the disclosure of certain information. Additionally, a large number of our employees have security clearances which prohibit them from providing information to investors and other KBR employees without security clearances regarding certain clients and the related services we provide to them. As we are limited in our ability to provide information about these contracts and services, such as the scope of work, associated risks and any disputes or claims, our investors may have limited insight into a substantial portion of our business which may hinder their ability to fully evaluate the risks related to that portion of our business.
Demand for our services provided under government contracts is directly affected by spending by our customers.
We derive a significant portion of our revenues from contracts with agencies and departments of the U.S., the U.K. and Australia governments, which is directly affected by changes in government spending priorities and availability of adequate funding. Additionally, government regulations generally include the right for government agencies to modify, delay, curtail, renegotiate or terminate contracts at their convenience any time prior to their completion. As we are a significant government contractor, our financial performance is affected by the allocation and prioritization of government spending. Factors that could affect current and future government spending include:
• policy or spending changes, or changes in enforcement priorities or resource allocation, implemented by the current administrations, war/defense departments or other government agencies;
• advisory commissions created to review budgetary priorities, including efficiency initiatives such as DOGE;
• increased polarization of political parties;
• failure to pass budget appropriations, continuing funding resolutions or other budgetary decisions, including any failure of the U.S. federal government to manage its fiscal matters or to raise or further suspend the debt ceiling;
• changes, delays or cancellations of government programs or requirements;
• adoption of new laws, regulations or policies, or repeal of existing laws, regulations or policies, that affect companies providing services to the governments;
• reduced buying power as a result of inflation;
• curtailment of the governments’ outsourcing of services to private contractors; or
• the level of political instability due to war, conflict or natural disasters.
We face uncertainty with respect to our government contracts due to the political, fiscal, economic and budgetary challenges facing our customers. Potential contract delays, modifications or terminations may arise from resolution of these issues and could cause our revenues, profits and cash flows to be lower than our current projections. The loss of work we perform for governments or decreases in governmental spending and outsourcing could have a material adverse effect on our business, results of operations and cash flows .
Fluctuations in commodity prices and outlook may affect our customers’ investment decisions which may result in existing project cancellations or delays or changes in the timing and funding of new awards.
Demand for many of our services in our commodity-based markets depends on capital spending by oil and natural gas companies, including national and international oil companies, and by industrial companies, which is directly affected by trends in the prices of oil, natural gas and other commodities. Fluctuations in commodity prices can have a direct effect on the profitability and cash flow of such companies, which may impact their willingness to continue pursuing their current investments or make new capital investments. Additionally, commodity prices can also significantly affect the costs of projects. Rising commodity prices can negatively impact the potential returns on investments that are planned, as well as those in progress, and result in customers deferring new investments or canceling or delaying existing projects. To the extent commodity prices decline or fluctuate, or the perceived risk thereof, and our customers defer new investments or cancel or delay existing projects, the demand for our services may decrease, which could have a material adverse impact on our business, financial condition and results of operations.
Risks Related to Financial Conditions and Markets
Current or future economic conditions, including recession or inflation, in credit markets may negatively affect the ability to operate our business, finance working capital, implement our acquisition strategy and access our cash and short-term investments.
We finance our business using cash provided by operations, but also depend on the availability of and access to credit markets, including bank credit lines, letters of credit and surety bonds. Our ability to obtain capital or financing on satisfactory terms will depend in part on prevailing market conditions as well as our operating results. The lack of adequate credit or funding or the unavailability of funding on terms satisfactory to us, could have a material adverse effect on our business and financial performance. Rising or high inflation and/or interest rates could have an adverse effect on our business, financial condition and results of operations. Inflation and rising and/or high interest rates could have a negative impact on our business and we may not be able to fully offset such higher rates.
Disruptions of the capital markets could also adversely affect our clients’ ability to finance projects and could result in contract cancellations or suspensions, project delays and payment delays or defaults by our clients. In addition, clients may be unable to fund new projects, may choose to make fewer capital expenditures or otherwise slow their spending on our services or seek contract terms more favorable to them. Our government clients may face budget deficits that prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate our contracts with little or no prior notice. Furthermore, any financial difficulties suffered by our subcontractors or suppliers could increase our costs or adversely impact project schedules. These disruptions could materially impact our backlog and financial performance.
In addition, we are subject to the risk that the lending counterparties to our Revolver may be unable to meet their contractual obligations to us if they suffer catastrophic demands on their liquidity. We also routinely enter into contracts with counterparties, including vendors, suppliers and subcontractors that may be negatively affected by events in the capital markets. If those counterparties are unable to perform their obligations to us or our clients, we may be required to provide additional services or make alternate arrangements on less favorable terms with other parties to ensure adequate performance and delivery of service to our clients. These circumstances could also lead to disputes and litigation with our partners or clients, which could have a material adverse effect on our reputation, business, financial condition and results of operations.
Furthermore, our cash balances and short-term investments are maintained in accounts held at major banks and financial institutions located primarily in North America, the U.K. and Australia. Deposits are in amounts that exceed available insurance. Although none of the financial institutions in which we hold our cash and investments have gone into bankruptcy, been forced into receivership or have been seized by their governments, there is a risk that this may occur in the future. If this were to occur, we would be at risk of not being able to access our cash and investments, which may result in a temporary decrease in liquidity that could impede our ability to fund operations or execute acquisitions.
We may be unable to obtain new contract awards if we are unable to provide our customers with letters of credit, surety bonds or other credit enhancements.
Customers may require us to provide credit enhancements, including letters of credit, bank guarantees or surety bonds. We are often required to provide performance guarantees to customers to indemnify the customer should we fail to perform our obligations under the contract. Failure to provide the required credit enhancements on terms required by a customer may result
in an inability to bid, win or comply with the contract. Historically, we have had adequate letters of credit capacity but such capacity beyond our Senior Credit Facility is generally at the provider’s sole discretion. Due to events that affect the banking and insurance markets, letters of credit or surety bonds may be difficult to obtain or may only be available at significant cost. Moreover, many projects are very large and complex, which often necessitates the use of a joint venture, often with a market competitor, to bid on and perform the contract. Entering into joint ventures or partnerships exposes us to the credit and performance risk of third parties, many of whom may not be financially as strong or may encounter financial difficulties. If our joint ventures or partners fail to perform, we may be required to complete the project activities. In addition, future projects may require us to obtain letters of credit that extend beyond the term of our Senior Credit Facility. Any inability to bid for or win new contracts due to the failure of obtaining adequate letters of credit, surety bonds or other customary credit enhancements could have a material adverse effect on our business prospects and future revenues.
Our Senior Credit Facility imposes restrictions that limit our operating flexibility and may result in additional expenses, and such facility may not be available if financial covenants are violated or if an event of default occurs.
Our Senior Credit Facility includes a $1 billion revolving credit facility which matures in February 2029, a Term Loan A with debt tranches denominated in U.S. dollars and British pound sterling and a Term Loan B. The Senior Credit Facility contains a number of covenants restricting, among other things, our ability to incur liens and indebtedness, sell assets, repurchase our equity shares and make certain types of investments. We are also subject to certain financial covenants, including but not limited to maintenance of a maximum consolidated net leverage ratio and a consolidated interest coverage ratio as defined in the Senior Credit Facility agreement.
A breach of any covenant or our inability to comply with the required financial ratios could result in a default under our Senior Credit Facility, and we can provide no assurance that we will be able to obtain the necessary waivers or amendments from our lenders to remedy a default. In the event of any default not cured or waived, the lenders are not obligated to provide funding or issue letters of credit and could elect to require us to apply available cash to collateralize any outstanding letters of credit and declare any outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, thus requiring us to apply available cash to repay any borrowings then outstanding. If we are unable to cash collateralize our letters of credit or repay borrowings with respect to our Senior Credit Facility when due, our lenders could proceed against the guarantees of our major domestic subsidiaries. If any future indebtedness under our Senior Credit Facility is accelerated, we can provide no assurance that our assets would be sufficient to repay such indebtedness in full.
Our indebtedness and the associated covenants could materially adversely affect our ability to obtain additional financing, including for acquisitions and capital expenditures, limit our flexibility to manage our business, prevent us from fulfilling our financial obligations and restrict our use of capital.
We had approximately $2.6 billion of indebtedness outstanding as of January 2, 2026 which could have negative consequences to us, including, but not limited to:
• requiring us to dedicate cash flow from operations to the repayment of debt, interest and other related amounts, which reduces the funds we have available for other purposes, such as working capital, capital expenditures, acquisitions, payment of dividends and share repurchase programs;
• making it more difficult or expensive for us to obtain any necessary future financing for working capital, capital expenditures, debt service requirements, debt refinancing, acquisitions or other purposes;
• reducing our flexibility in planning for or reacting to changes in our industry and market conditions;
• causing us to be more vulnerable in the event of a downturn in our business;
• exposing us to increased interest rate risk given that a portion of our debt obligations are at variable interest rates; and
• increasing our risk of a covenant violation under our Senior Credit Facility.
We may be required to contribute additional cash to meet any unfunded benefit obligations associated with our defined benefit plans.
We have frozen defined benefit pension plans for employees primarily in the U.S., the U.K. and Germany. At January 2, 2026, our defined benefit pension plans had an aggregate funding surplus (calculated as the excess of the fair value of plan assets over the projected benefit obligations) of approximately $85 million. The largest potential source of deficit is related to our defined benefit pension plan in the U.K that is in a funding surplus position at January 2, 2026. In the future, our pension surpluses and deficits may increase or decrease depending on changes in the levels of interest rates, pension plan performance and other factors that may require us to make additional cash contributions to our pension plans and recognize further increases in our net pension cost to satisfy our funding requirements. If we are required or elect to make up all or a significant portion of the deficit for any underfunded benefit plans, our financial position could be materially and adversely affected.
Our U.K. pension plan has been frozen to new participants for a number of years but can still have an aggregate funding deficit due to assumptions and factors noted below. For our frozen defined benefit pension plan in the U.K., the annual minimum funding requirements are based on a binding agreement with the plan trustees that is negotiated on a triennial basis. This agreement also includes other assurances and commitments regarding the business and assets that support the U.K. pension plan. It is possible that, following future valuations of our U.K. pension plan assets and liabilities or following future discussions with the trustees, the annual funding obligation will change. The future valuations under our U.K. pension plan can be affected by a number of assumptions and factors, including legislative changes, assumptions regarding interest rates, inflation, mortality and retirement rates, the investment strategy and performance of the plan assets and (in certain circumstance) actions by the U.K. pensions regulator. Adverse changes in the equity markets, interest rates or actuarial assumptions and legislative or other regulatory actions could increase the risk that the funding requirements increase following the next triennial negotiation. A significant increase in our funding requirements for our U.K. pension plan could result in a material adverse effect on our cash flows and financial position.
We are subject to foreign currency exchange risks that could adversely affect our results of operations and our ability to reinvest earnings from operations. Our ability to mitigate our foreign exchange risk through hedging transactions may be limited.
We generally attempt to denominate our contracts in U.S. dollars or in the currencies of our costs. However, we enter into contracts that subject us to currency risk exposure, primarily when our contract revenues are denominated in a currency different from the contract costs. A portion of our consolidated revenues and consolidated operating expenses are in foreign currencies. As a result, we are subject to foreign currency risks, including risks resulting from changes in currency exchange rates and limitations on our ability to reinvest earnings from operations in one country to fund the financing requirements of our operations in other countries.
The governments of certain countries have or may in the future impose restrictive exchange controls on local currencies and it may not be possible for us to engage in effective hedging transactions to mitigate the risks associated with fluctuations of a particular currency. We are often required to pay all or a portion of our costs associated with a project in the local currency. As a result, we generally attempt to negotiate contract terms with our customer, who is often affiliated with the local government, or has a significant local presence, to provide that we are only paid in the local currency for amounts that match our local expenses. If we are unable to match our local currency costs with revenues in the local currency, we would be exposed to the risk of adverse changes in currency exchange rates.
Risks Related to Our Common Stock
If we need to sell or issue additional shares of common stock to refinance existing debt or to finance future acquisitions or operations, our existing shareholder ownership could be diluted.
Part of our business strategy is to expand into new markets and enhance our position in existing markets, both domestically and internationally, which may include the acquisition and merging of complementary businesses. To successfully fund and complete such potential acquisitions, or to refinance our existing debt, we may issue additional equity securities that may result in dilution of our existing shareholder ownership's earnings per share. For example, we have previously issued convertible notes and may again in the future issue additional convertible notes.
Provisions in our charter documents, Delaware law and our Senior Credit Facility may inhibit a takeover or impact operational control that could adversely affect the value of our common stock.
Our certificate of incorporation and bylaws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable. These provisions include, among others, prohibiting stockholder action by written consent, advance notice for making nominations at meetings of stockholders, providing for the state of Delaware as the exclusive forum for lawsuits concerning certain corporate matters and the issuance of preferred stock with rights that may be senior to those of our common stock without stockholder approval. These provisions would apply even if a takeover offer may be considered beneficial by some of our stockholders. If a change of control or change in management is delayed or prevented, the market price of our common stock could decline. Additionally, our Senior Credit Facility contains a default provision that is triggered upon a change in control of at least 25%, which would impede a takeover and/or make a takeover more costly.
We may change our dividend policy in the future.
We have maintained a regular cash dividend program since 2007. We anticipate continuing to pay quarterly dividends during fiscal 2026. However, any future payment of dividends, including the timing and amount of any such dividends, is at the discretion of our Board of Directors and may depend upon our earnings, liquidity, financial condition, alternate capital deployment opportunities or any other factors that our Board of Directors considers relevant. A change in our regular cash dividend program could have an adverse effect on the market price of our common stock. In addition, pursuant to a January 7, 2026 Executive Order, the Secretary of War could seek to limit our ability to pay cash dividends or make share repurchases if the Secretary of War determines that we have underperformed or lacked sufficient prioritization of, investment in or production speed in carrying out or performing under our U.S. government contracts.
Risks Related to Regulations, Compliance and Litigation
We could be adversely impacted if we fail to comply with international export and domestic laws, which are rigorously enforced by the U.S. government.
To the extent that we export products, technical data and services outside of the U.S., we are subject to laws and regulations governing trade, exports and sanctions including, but not limited to, the International Traffic in Arms Regulations, the Export Administration Regulations and trade sanctions against embargoed countries, entities and individuals, including sanctions and export restrictions related to Russia's invasion of Ukraine, which are administered by the Office of Foreign Asset Control within the Department of the Treasury. In addition, the U.S. Government has recently announced significant trade policy changes and tariffs. A failure to comply with these laws and regulations could result in civil or criminal penalties or sanctions, including the imposition of fines as well as the denial of export privileges and debarment from participation in U.S. government contracts. U.S. government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit or suspension of payment, any of which could result in losing our status as an eligible U.S. government contractor and cause us to suffer serious reputational harm, which could have a material adverse effect on our business, financial condition or results of operations.
We are subject to anti-bribery laws in the U.S. and other jurisdictions, violations of which could result in suspension or debarment of our ability to contract with the U.S. state or local governments, U.S. government agencies or the U.K. MoD, third-party claims, loss of customers, adverse financial impact, damage to reputation and adverse consequences on financing for current or future projects.
The FCPA, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions ("Anti-bribery Laws") generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these Anti-bribery Laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with Anti-bribery Laws may conflict with local customs and practices. We train our staff concerning Anti-bribery Laws and we also inform our partners, subcontractors, agents and other third parties who work for us or on our behalf that they must comply with the requirements of these Anti-bribery Laws. We also have procedures and controls in place to monitor internal and external compliance. We cannot provide complete assurance that our internal controls and procedures will always protect us from the reckless or criminal acts committed by our employees or third parties working on our behalf. If we are found to be liable for violations of these laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.
Certain of our work sites are inherently dangerous and we are subject to various environmental and worker health and safety laws and regulations. If we fail to maintain safe work sites or to comply with these laws and regulations, we may suffer damage to our reputation and incur significant costs and penalties that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Certain work sites often expose our employees and others to chemical and manufacturing processes, highly-regulated materials, large pieces of mechanized equipment and moving vehicles. Additionally, our employees and others at certain project sites may be exposed to severe weather events, austere or remote environments or high security risks. Failure to implement effective safety procedures may result in injury, disability or loss of life to these parties. In addition, the projects may be delayed and we may be exposed to litigation or investigations.
Our operations are subject to a variety of environmental, worker health and safety laws and regulations governing the generation, management and use of regulated materials, the discharge of materials into the environment, the remediation of environmental contamination associated with the release of hazardous substances and human health and safety. Violations of
these laws and regulations can cause significant delays and additional costs to a project. When we perform our services, our personnel and equipment may be exposed to radioactive and hazardous materials and conditions. We may be subject to claims alleging personal injury, property damage or natural resource damages by employees, customers and third parties as a result of alleged exposure to or contamination by hazardous substances. In addition, we may be subject to fines, penalties or other liabilities arising under environmental and employee safety laws. A claim, if not covered by insurance at all or only partially, could have a material adverse impact on our financial condition, results of operations and cash flows. In addition, more stringent regulation of our customers' operations with respect to the protection of the environment could also adversely affect their operations and reduce demand for our services.
Various U.S. federal, state and local as well as foreign environmental laws and regulations may impose liability for property damage and costs of investigation and cleanup of hazardous or toxic substances on property currently or previously owned by us or arising out of our waste management or environmental remediation activities. These laws may impose responsibility and liability without regard to knowledge or causation of the presence of contaminants. The liability under these laws may be joint and several. The ongoing costs of complying with existing environmental laws and regulations could be substantial and have a material adverse impact on our financial condition, results of operations and cash flows. Changes in the environmental laws and regulations, remediation obligations, enforcement actions, stricter interpretations of existing requirements, future discovery of contamination or claims for damages to persons, property, natural resources or the environment could result in material costs and liabilities that we currently do not anticipate.
Our effective tax rate and tax positions may vary.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining certain components of our worldwide provision for income taxes and a change in tax laws, treaties or regulations, or their interpretation, in any country in which we operate could result in higher taxes on our earnings, which could have a material impact on our earnings and cash flows from operations. In the ordinary course of our business, there are certain transactions and calculations where the ultimate tax determination is uncertain. We are audited by various U.S. and foreign tax authorities in the ordinary course of business, and our tax estimates and tax positions could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. In particular, international operations could adversely be affected by the OECD’s proposed international taxation reform and introduction of a global minimum tax. A significant increase in tax rates could have a material adverse effect on our profitability and liquidity.
Our business and operations expose us to numerous legal and regulatory requirements, and any violation of these requirements could harm our business.
We are subject to numerous state, federal and international laws and directives and regulations in the U.S. and abroad that involve matters central to our business, including but not limited to, data privacy and security, employment and labor relations, immigration, taxation, anti-corruption, anti-bribery, import-export controls, trade restrictions, internal and disclosure control obligations, securities regulation and anti-competition restrictions. Compliance with legal requirements is costly, time-consuming and requires significant resources. Violations of one or more of these legal requirements in the conduct of our business could result in significant fines and other damages, criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result in liability for significant monetary damages, fines and criminal prosecution, unfavorable publicity, and other reputational damage, restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.
Our failure to comply with the laws and regulations governing OCIs could lead to penalties, including termination of one or more of our U.S. government contracts.
Many of our U.S. government contracts contain OCI clauses that may limit our ability to compete for or perform certain other contracts or other types of services for particular customers. OCI arises when we engage in activities that may make us unable to render impartial assistance or advice to the U.S. government, impair our objectivity in performing contract work, or provide us with an unfair competitive advantage. Existing OCI, and any OCI that may develop, could, if not mitigated to the satisfaction of the customer, preclude our competition for or performance on a significant project or contract, which could limit our opportunities. Further, we occasionally hire former government employees who may be subject to certain representation or non-disclosure obligations. These representation restrictions may, if not honored, result in disqualification from competition or loss of contract, and the violation of such obligations could result in criminal liability for the former government employee. These former government employees may also have had access to competitively sensitive or commercially usable information
that, if not properly firewalled, could result in allegations of unfair competition and, if such findings are made, loss of contract award.
Investigations, audits, claims, disputes, enforcement actions, litigation, arbitration, or other legal proceedings could require us to pay potentially large damage awards or penalties and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.
We are subject to and may become a party to various other litigation, claims, investigations, audits, enforcement actions, arbitrations, or other legal proceedings that arise from time to time in the ordinary course of our business. Adverse judgments or settlements in some or all of these legal disputes may result in significant monetary damages, penalties, or injunctive relief against us. Any claims or litigation could be costly to defend, and even if we are successful or fully indemnified or insured, they could damage our reputation and make it more difficult to compete effectively or obtain adequate insurance in the future, and responding to any action may result in a significant diversion of management’s attention and resources. Litigation and other claims are subject to inherent uncertainties and management’s view of these matters may change in the future. For more information, see Note 13. “Commitments and Contingencies” to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Risks Related to Climate
There are rapidly evolving views from stakeholders, such as investors, customers and current and future employees, with respect to global climate risks and the related emphasis on sustainability practices, which could affect our business.
Continued attention to issues concerning climate risks or other environmental matters may result in the imposition of additional environmental regulations, rules, standards and policies that seek to restrict, or otherwise impose limitations or costs upon our operations and the emission of greenhouse gases. International agreements, national, regional and state legislation and regulatory measures, including LNG exports, or other policies and restrictions on emissions of greenhouse gases could affect our clients, including those who are involved in the exploration, production or refining of fossil fuels and those who emit greenhouse gases through the combustion of fossil fuels, or through mining, manufacturing or the utilization or production of materials or goods. Such legislation or restrictions could increase the costs of projects for us and our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the need for our services that could in turn have a material adverse effect on our operations and financial condition. However, policy changes and climate legislation could also increase the overall demand for our services as our clients and partners work to comply with such policies, such as by decarbonizing their industries, transitioning from fossil fuels to renewable energy sources and developing integrated and sustainable solutions, which could have a positive impact on our business. We cannot predict when or whether any of these various legislative and regulatory proposals may become law or what their effect will be on us and our customers.
Furthermore, investor and societal expectations with respect to corporate responsibility matters have been rapidly evolving and increasing. We risk damage to our reputation if we do not act responsibly in the following key areas: anti-discrimination, environmental stewardship, support for local communities and corporate governance and transparency. A failure to adequately meet stakeholders' expectations may result in loss of business, diluted market valuation, an inability to attract and retain customers and talented personnel, increased negative investor sentiment toward us and/or our customers and the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital. In some cases, certain of our key stakeholders may have oppositional or conflicting views and expectations with respect to various matters (e.g., some may be pro-environmental stewardship and others may be anti-sustainability initiatives). In such cases, it may be difficult or impossible for us to meet all stakeholders’ expectations, and the decisions we make may not yield the results that we expect or intend.
In addition, standards for tracking and reporting corporate responsibility matters continue to evolve. New laws, regulations, policies and international accords relating to such matters, including sustainability, climate-related risks, human capital and anti-discrimination, are being developed and formalized in Europe, the United States, Asia and elsewhere, which may entail specific, target-driven frameworks and/or disclosure requirements. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others, and may not be in line with any new and forthcoming related disclosure rules in the United States and abroad. In addition, methodologies for reporting data in these areas (e.g., sustainability and climate-related impacts, or human capital data) may be updated and previously reported data may be adjusted to reflect improvement in availability and quality of internal and third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting such matters across our operations and supply chain are evolving along with multiple disparate standards for identifying, measuring and reporting metrics, including related disclosures that may be required by the SEC, European and other regulators, and such standards may change over time, which could result in significant
revisions to our current goals, reported progress in achieving such goals or ability to achieve such goals in the future. Any failure, or perceived failure, by us to comply fully with developing interpretations of such laws and regulations could harm our business, reputation, financial condition and operating results and require significant time and resources to make the necessary adjustments. If our corporate responsibility practices do not meet evolving investor or other stakeholder expectations and standards, then our reputation or our attractiveness as an investment, business partner, acquirer, service provider or employer could be negatively impacted.
Climate risks and related environmental issues could have a material adverse impact on our business, financial condition and results of operations.
Climate-related events, such as increased frequency and severity of storms, floods, wildfires, droughts, hurricanes, freezing conditions and other natural disasters, may have a long-term impact on our business, financial condition and results of operations. Although we are proactively seeking measures to mitigate our business risks associated with climate-related events, we recognize that there are innate climate-related risks regardless of where and how we conduct our businesses. As such, a potential disruption to our and our customer's businesses from a natural disaster may cause us to experience work stoppages, project delays, financial losses and additional costs to resume operations such as increased insurance costs or loss of coverage, legal liability and reputational damage.
We may be unable to achieve our sustainability commitments and targets which could result in the loss of investors and customers and damage to our reputation.
We are continuously committed to advancing our sustainability strategy as evidenced by the establishment and continued focus on delivering on our net-zero carbon ambitions after we achieved carbon neutrality in 2019. However, achievement of our sustainability commitments and targets is subject to risks and uncertainties, many of which are outside of our control. These risks and uncertainties include, but are not limited to: our ability to execute our operational strategies and achieve our goals within the currently projected costs and the expected timeframes; the availability and cost of alternative fuels, global electrical charging infrastructure, off-site renewable energy and other materials and components; unforeseen design, operational and technological difficulties; the outcome of research efforts and future technology developments, including the ability to scale projects and technologies on a commercially competitive basis such as carbon sequestration and/or other related processes; compliance with, and changes or additions to, global and regional regulations, taxes, charges, mandates or requirements relating to greenhouse gas emissions, carbon costs or climate-related goals; labor-related regulations and requirements that restrict or prohibit our ability to impose requirements on third party contractors; adapting products to customer preferences and customer acceptance of sustainable supply chain solutions; the actions of competitors and competitive pressures; and an acquisition of or merger with another company that has not adopted similar carbon negative goals or whose progress towards reaching its carbon negative goals is not as advanced as ours.
Although we believe that our sustainability commitments and targets are achievable, there is no assurance that we will be able to successfully implement our strategies and achieve our net-zero targets. Investors have recently increased their focus on sustainability matters, including practices related to greenhouse gas emissions and the environment. Additionally, an increasing percentage of the investment community considers sustainability factors in making investment decisions, and an increasing number of entities are considering sustainability factors in awarding business. The implementation of these goals and initiatives may require considerable investments, and our goals, with all of their contingencies, dependencies and in certain cases, reliance on third-party verification and/or performance, are complex and ambitious and may change, and we cannot guarantee that we will achieve them. If we are unable to meet our commitments and targets and appropriately address sustainability enhancement, we may lose investors, customers or partners, our stock price may be negatively impacted, our reputation may be negatively affected and it may be more difficult for us to compete effectively, all of which could have an adverse effect on our business, results of operations and financial condition, as well as on the price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
Cybersecurity risk is managed within the Company’s Enterprise Risk Management program. Our Enterprise Risk Management team works closely with our global Information Assurance team to continuously evaluate and address cybersecurity risks within the Enterprise Risk Management framework in alignment with our business objectives and operational needs. The Company has established a comprehensive global cybersecurity and information security framework to help safeguard the confidentiality, integrity and access of its information assets and to ensure regulatory, contractual and operational compliance. We understand the importance of preserving trust and protecting personal and other confidential and sensitive information. Our cybersecurity program includes controls designed to identify, protect against, detect, respond to and recover from cybersecurity and information security incidents.
The Company's cybersecurity and information security framework is built upon the National Institute of Standards and Technology (NIST) Cyber Security Framework and incorporates International Organization for Standardizations (ISO) 27001 standards for general information technology security controls and Sarbanes-Oxley (SOX) for assessment of internal controls. KBR's global cybersecurity risk program also integrates the following cybersecurity frameworks across our regional operations: US Defense Federal Acquisition Regulation Supplement (DFARS) which includes Cybersecurity Maturity Model Certification (CMMC) and NIST 800-171, UK Cyber Essentials and Australia's Essential Eight.
The Company utilizes policies and procedures, software, training programs and hardware solutions to protect and monitor its environment. Our Chief Information Security Officer (CISO) oversees the Company’s approach to managing cybersecurity and digital risk. Our CISO reports to the General Counsel, is supported by and collaborates with the Company's executive leadership team and regularly engages with cross-functional teams at the Company, including Digital Technology, Legal, Audit, Human Resources, Facilities and Corporate Risk. Our Chief Compliance Officer (CCO), Chief Information Officer (CIO) and CISO oversee our dedicated technology risk management, which work in partnership with our internal audit department and data privacy team to review information technology-related internal controls.
The Company provides mandatory annual security awareness education and training for all employees, new hires and contractors, conducts regular internal “phishing” testing and requires additional training for “clickers,” and publishes periodic tips to inform our user population of cyber best practices, any emerging external or internal threats and data privacy requirements applicable in the jurisdictions in which we operate.
We maintain a robust Cybersecurity Incident Response Plan, which provides a framework for handling cybersecurity incidents based on the severity of the incident and facilitates cross-functional coordination across the Company, and have established a global Security Operations Center to support enterprise visibility to cyber incidents in real time. We update our Cybersecurity Incident Response Plan on a regular basis, and regularly measure our security posture and resilience through risk assessments, penetration testing, vulnerability scanning and attack simulation. The Company also conducts additional cybersecurity tabletop exercises using independent moderators with respect to breach and other problematic information security scenarios for executive management and employees, as well as our board of directors, when appropriate.
We also engage with a range of external experts to assess and report on the effectiveness of our cybersecurity and data privacy controls, compliance with international and regional cybersecurity standards and our internal incident response preparedness, as well as to help identify areas for continued focus and improvement. The Company also has a third-party risk management program that assesses the cyber-related risks from our vendors and suppliers. We also benchmark our activities and results against select peers.
Risks from Cybersecurity Threats
In the last three fiscal years, we have not experienced any material information security breach incidences and the expenses we have incurred from information security breach incidences were immaterial. We have not incurred any material penalties and settlements related to any cybersecurity breach. Other risks from cybersecurity threats have also not materially impacted our business strategy, results of operations or financial condition, and as of the date of this report, we do not reasonably believe that such risks will have a material impact on our business strategy, results of operations or financial condition.
Governance
Our CISO oversees the Company’s approach to managing cybersecurity and digital risk and leads our global Information Assurance team. Our CISO brings over 15 years of experience, which includes implementing and verifying effectiveness of cybersecurity controls in high-security environments. Our CISO maintains the following internationally recognized certifications: ISC2 - Certified Information System Security Professional (CISSP) and Project Management Institute - Project Management Professional (PMP).
Our CIO oversees the Company’s information technology infrastructure and implements policies and procedures issued by the CISO within the Company. Our CIO brings over 30 years of experience, garnered across a diverse range of industries and countries, which includes implementing new systems and modifying existing systems for changes in policies and procedures.
Management's Role Managing Risk
Our CISO is responsible for the creation of the Company’s enterprise-wide cybersecurity and information security framework, including the design effectiveness of the Company’s cybersecurity controls. Our CIO is responsible for the implementation of the Company’s cybersecurity and information security framework and the day-to-day execution of our cybersecurity processes and controls. The CISO reports to the General Counsel and, in fiscal 2025, the CIO reported to the Chief Financial Officer. Effective January 3, 2026, the CIO reports to the Chief Digital & Development Officer. All cyber incidents under our existing cyber policy are reported to both the CISO and CIO, which are then communicated through their reporting structure to the General Counsel and Chief Financial Officer. The CISO and CIO routinely provide operational updates to the General Counsel and Chief Financial Officer as needed, and updates are regularly provided by the CISO and CIO to both the Sustainability, Technology & Cybersecurity Committee and Audit Committee of our Board of Directors as discussed more fully below.
Board of Directors Oversight
Our Board of Directors is committed to mitigating data privacy and cybersecurity risks. While the Board of Directors maintains ultimate responsibility for the oversight of our data privacy and cybersecurity program and risks, it has delegated certain responsibilities to our Sustainability, Technology & Cybersecurity Committee and Audit Committee. The Sustainability, Technology & Cybersecurity Committee and Audit Committee stay apprised of our data privacy and information security programs, strategy, policies, standards, architecture, processes and material risks and overseeing responses to security and data incidents. The Board of Directors receives information security and privacy awareness training, which covers, among other matters, the Board's oversight obligations and the privacy and security programs in place at the company. Our Sustainability, Technology & Cybersecurity Committee and Audit Committee regularly receive updates from our CISO and CIO on data privacy risks, security risks and any material incidents . Additionally, outside counsel advises the Board about best practices for cybersecurity oversight by the Board. Members of the Board stay apprised of the rapidly evolving cyber threat landscape through our ongoing director education programming and provide guidance to management as appropriate in order to address the effectiveness of our overall data privacy and cybersecurity program. Ten members of our Board of Directors, five of whom serve as the entire membership of the Sustainability, Technology & Cybersecurity Committee, have cybersecurity experience, and two are subject matter experts.
Item 2. Properties
Our operations are conducted at both owned and leased properties in domestic and foreign locations. Our corporate headquarters are located at 601 Jefferson Street, Houston, Texas 77002. While we have operations worldwide, the following table describes the locations of our more significant existing office facilities:
Location
Owned/Leased
Business Segment
North America:
Houston, Texas
Leased
All
Fulton, Maryland
Leased
Mission Technology Solutions
Columbia, Maryland
Leased
Mission Technology Solutions
Lexington Park, Maryland
Leased
Mission Technology Solutions
Chantilly, Virginia
Leased
Mission Technology Solutions
Vienna, Virginia
Leased
Mission Technology Solutions
Fairfax, Virginia
Leased
Mission Technology Solutions
Herndon, Virginia
Leased
Mission Technology Solutions
Huntsville, Alabama
Leased
Mission Technology Solutions
Phoenix, Arizona
Leased
Mission Technology Solutions
El Segundo, California
Leased
Mission Technology Solutions
Colorado Springs, Colorado
Leased
Mission Technology Solutions
North Charleston, South Carolina
Leased
Mission Technology Solutions
Dayton/Beavercreek, Ohio
Leased
Mission Technology Solutions
Europe, Middle East and Africa:
Leatherhead, United Kingdom
Owned
All
Glasgow, United Kingdom
Leased
Mission Technology Solutions
Wiltshire, United Kingdom
Leased
Mission Technology Solutions
Al Khobar, Saudi Arabia
Leased
Sustainable Technology Solutions
Asia-Pacific:
Chennai, India
Leased
All
Majura Park, Australia
Leased
Mission Technology Solutions
Delhi (Gurgaon), India
Leased
Sustainable Technology Solutions
Brisbane, Australia
Leased
Sustainable Technology Solutions
Sydney, Australia
Leased
Sustainable Technology Solutions
Melbourne, Australia
Leased
Sustainable Technology Solutions
Adelaide, Australia
Leased
Sustainable Technology Solutions
Canberra, Australia
Leased
Sustainable Technology Solutions
We also own or lease numerous small facilities that include sales and administrative offices as well as warehouses and equipment yards located throughout the world. We believe all properties that we currently occupy are suitable for their intended use. For more information regarding our lease commitments, refer to Note 15. "Leases" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Item 3. Legal Proceedings
Information relating to various commitments and contingencies is described in “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K and in Notes 6, 13 and 14 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part I, Item 3.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the NYSE and trades under the symbol “KBR.” We have declared a dividend in each quarter during the years ended January 2, 2026 and January 3, 2025, and we currently expect that comparable quarterly cash dividends will continue to be paid for the foreseeable future. The declaration, payment and amount of future cash dividends will be at the discretion of our Board of Directors. On February 19, 2026, the Board of Directors declared a dividend of $0.165 per share, which will be paid on April 15, 2026.
At January 31, 2026, there were 52 shareholders of record. In calculating the number of shareholders, we consider clearing agencies and security position listings as one shareholder for each agency or listing.
Share Repurchases
On February 25, 2014, the Board of Directors authorized a plan to repurchase our outstanding shares of common stock, which replaced and terminated the August 26, 2011 share repurchase program. On February 20, 2025, the Board of Directors authorized $454 million of share repurchases to be added to the prior authorizations, which increased the total amount authorized and available for repurchase under the share repurchase program to $750 million. As of January 2, 2026, $427 million remained available for repurchase under this authorization. The authorization does not obligate us to acquire any particular number of shares of common stock and may be commenced, suspended or discontinued without prior notice. The share repurchases are intended to be funded through our current and future cash flows and the authorization does not have an expiration date.
The following is a summary of share repurchases of our common stock settled during the three months ended January 2, 2026, and the amount available to be repurchased under the authorized share repurchase program as of January 2, 2026:
Purchase Period
Total Shares
Repurchased (1)
Average
Price Paid
per Share
Shares Repurchased
as Part of Publicly
Announced Plan
Dollar Value of Maximum Number of Shares that May Yet Be
Purchased Under the Plan
October 4, 2025 - October 31, 2025
November 1, 2025 - November 28, 2025
November 29, 2025 - January 2, 2026
Total
(1) Included within the shares repurchased herein are 1,224 shares acquired from employees in connection with the settlement of income tax and related benefit withholding obligations arising from issuance of share-based equity awards under the KBR Stock and Incentive Plan at an average price of $43.55 per share.
Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
The following performance graph compares the cumulative total shareholder return on shares of our common stock for the five-year period ended January 2, 2026, with the cumulative total return on the S&P 1500 IT Consulting & Other Services Index, the Russell 1000 Index, the S&P MidCap 400 Index and the Dow Jones Heavy Construction Industry Index for the same period. The comparisons assume the investment of $100 on December 31, 2020 and reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.
KBR
S&P 1500 IT Consulting & Other Services
Russell 1000
S&P MidCap 400
Dow Jones Heavy Construction
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The purpose of the MD&A is to provide our stockholders and other interested parties with information necessary to gain an understanding of our financial condition and disclose changes in our financial condition since the most recent fiscal year-end and results of operations during the current fiscal period as compared to the corresponding period of the preceding fiscal year. The MD&A should be read in conjunction with Part I of this Annual Report on Form 10-K as well as the consolidated financial statements and related notes included in Part II, Item 8 of this Annual Report on Form 10-K.
HomeSafe, a joint venture with Tier One Relocation, informed us on June 18, 2025, that U.S. Transportation Command unexpectedly terminated HomeSafe's role in the Global Household Goods Contract. KBR owns a 72% interest in HomeSafe. As of January 2, 2026 all of HomeSafe operations, including run-off operations, have ceased. The financial results and financial position of HomeSafe are presented as discontinued operations in the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows for all periods presented. See Note 21. "Discontinued Operations" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information. Unless otherwise indicated, any reference to statements of operations items in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" refers to results from continuing operations.
Company Overview
KBR Inc., a Delaware corporation ("KBR"), delivers science, technology, engineering and logistics support solutions to governments and companies around the world . Drawing from its culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full-life cycle capabilities to help clients meet their most pressing challenges.
Our Business Segments
KBR's business is organized into two core business segments and one non-core business segment as follows:
Core business segments
• Mission Technology Solutions
• Sustainable Technology Solutions
Non-core business segment
• Corporate
See additional information on our business segments in Note 2. "Business Segment Information" to our consolidated financial statements and under "Item 1. Business" in this Annual Report on Form 10-K.
Business Environment and Trends
Mission Technology Outlook
From October 1, 2025 through November 11, 2025 the U.S. government was shut down because Congress was unable to pass legislation providing appropriations authority for the government to continue to operate. Subsequent to the U.S. government shutdown starting on October 1, 2025, we experienced delays in project execution, collection of payments and contract awards. On November 12, 2025, a continuing resolution funding measure was enacted to finance all U.S. government activities through January 30, 2026. On February 3, 2026, the Consolidated Appropriations Act of 2026 was passed, which finalized defense appropriations for fiscal year 2026. This legislation provides for $839 billion in discretionary defense spending. In December 2025, the National Defense Authorization Act ("NDAA") was signed into law. The NDAA authorizes programs, projects and policies to be carried out with funds appropriated by Congress as part of the annual budgetary process. The NDAA supports up to approximately $901 billion in fiscal year 2026 funding for national defense. Additionally, the approved fiscal year 2026 budget for NASA is $24 billion.
On November 10, 2025, the DoW announced the Acquisition Transformation Strategy which aims to accelerate the delivery of operational capabilities by implementing organizational changes that enable acquisition speed, including greater flexibility and authority for trade-off decisions among speed, performance and cost and commercial-first preference to streamline solicitation approaches. The strategy validates the critical market need we seek to address for trusted vendors who can act as capability integrators independent of original equipment manufacturers (OEMs). It also reinforces our value to the DoW's priority for rapid delivery of warfighting capability.
Despite the Administration indicating its desire for a significant increase in defense spending for fiscal year 2027 to $1.5 trillion, we anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, the Administration and Congress, efficiency initiatives, the global security environment, inflationary pressures including tariffs and macroeconomic conditions. Thus far, the Administration's directives and actions of the DOGE have resulted in federal government staff reductions and hiring freezes and may result in delays in contract awards.
Internationally, our government work is performed primarily for the U.K. MoD and the Australian Department of Defence. In June 2025, leaders of the North Atlantic Treaty Organization agreed to invest 5% of their countries' gross domestic product ("GDP") on defense and security-related spending by 2035. Additionally, in June 2025, the Strategic Defence Review was completed in the U.K. with plans to increase defense spending to 2.50% of GDP by 2027 and additional increases in following years to reach defense spending of 3.00% of GDP. Recognizing the importance of strong defense and the role the U.K. plays across the globe, the U.K. has prioritized investment in military research and investment in key areas to advance and develop capabilities around artificial intelligence, cyber security and space superiority. The Australian government continues to invest in defense spending, with particular focus on enhancing regional security, modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability. In March 2025, the Australian Minister for Defence announced that the Australian defense budget is expected to increase over the next four years.
A shift in funding priorities in the U.S. government or internationally could have material impacts on defense spending broadly and our programs. With defense and civil budgets driven in part by political instability, military conflicts, aging platforms and infrastructure and the need for technology advances, we expect continued opportunities to provide solutions and technologies to mission critical work aligned with our customers’ and our nation’s critical priorities.
Sustainable Technology Outlook
Long-range commercial market fundamentals are supported by global population growth, expanding global development and an acceleration of demand for energy transition, renewable energy sources and climate-related solutions. The globe is in search of the solution to the energy trilemma, the balance between energy affordability, ensuring energy security and achieving environmental sustainability. While we have not had any material impact to our cost structure or ability to operate, we are monitoring the evolving macroeconomic environment due to ongoing tariffs including how those tariffs and any inflationary pressure may impact investment decisions from our core client base. Clients are prioritizing their efforts to solve the energy trilemma by investing in digital solutions to optimize operations, increase end-product flexibility and energy efficiency, reduce unplanned downtime and minimize environmental footprint. As the global focus on energy security intensifies and companies continue to commit to near-term carbon neutrality and longer-range net-zero carbon emissions, we expect spending to continue in areas such as decarbonization; carbon capture, utilization and sequestration; biofuels; and circular economy. Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia, which complements KBR's proprietary process technologies, solutions and capabilities. We expect climate protection, energy security and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a cleaner, more secure future.
Results of Operations
The following tables set forth our results of operations for the periods presented, including by segment. A discussion regarding our financial condition and results of operations for the years ended January 3, 2025 ("fiscal 2024") and December 29, 2023 ("fiscal 2023") is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended January 3, 2025, as filed with the SEC on February 25, 2025.
Year ended
Change
January 2,
January 3,
December 29,
Dollars in millions
Revenues
Cost of revenues
Gross profit
Equity in earnings of unconsolidated affiliates
Selling, general and administrative expenses
Legal settlement of legacy matter
Other
Operating income
Interest expense
Charges associated with Convertible Notes
Other non-operating expense
Income (loss) from continuing operations before income taxes
Provision for income taxes
Net income (loss) from continuing operations
Net income (loss) from discontinued operations, net of tax
Net income (loss)
Less: Net income attributable to noncontrolling interests included in continuing operations
Less: Net income (loss) attributable to noncontrolling interests included in discontinued operations
Net income (loss) attributable to KBR
n/m - not meaningful
Revenues. Revenues increased by $76 million, or 1%, to $7,786 million in fiscal 2025, compared to $7,710 million in fiscal 2024. The increase is due to increases in defense and intel programs associated with the acquisition of LinQuest (in August 2024) in our MTS segment and increased revenues from engineering and professional services in our STS segment, offset by reduced activity within the European command and science and space programs in our MTS segment. Additionally, revenues increased by $26 million in fiscal 2025 due to the final resolution of an outstanding legacy claim associated with a U.S. government project in fiscal 2024 that did not recur in fiscal 2025.
Gross profit. The increase in overall gross profit of $51 million, or 5%, was primarily driven by items increasing revenues discussed above.
Equity in earnings of unconsolidated affiliates . Equity in earnings of unconsolidated affiliates increased by $103 million, or 96%, to $210 million in earnings in fiscal 2025 compared to $107 million in earnings in fiscal 2024. The increase is primarily attributed to equity in earnings from services on an LNG project within our STS segment.
Selling, general and administrative expenses. Selling, general and administrative expenses were $35 million higher, or 6%, in fiscal 2025 compared to fiscal 2024, which was primarily driven by additional expenses incurred to support the growth in both our MTS and STS business segments, expenses incurred related to the implementation of a new enterprise resource planning system and expenses incurred related to the Planned Spin-Off of MTS.
Interest Expense. The increase in interest expense was primarily driven by increased outstanding average debt principal from fiscal 2024 to fiscal 2025.
Provision for income taxes. The provision for income taxes reflects a 25% tax rate for fiscal 2025 and 2024. The effective tax rate of 25%, as compared to the U.S. statutory rate of 21%, for fiscal 2025 was affected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S., partially offset by the resolution reached with tax authorities. The effective tax rate of 25%, as compared to the U.S. statutory rate of 21%, for fiscal 2024 was affected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S. See Note 12. "Income Taxes" to our consolidated financial statements for further discussion on income taxes, including our reconciliation of the U.S. statutory tax rate to our effective tax rate.
Net income (loss) from discontinued operations, net of tax. Net income (loss) from discontinued operations, net of tax, was $(55) million and $2 million during fiscal 2025 and fiscal 2024, respectively, due to the disposal of HomeSafe.
Net income (loss) attributable to noncontrolling interests included in discontinued operations. Net income (loss) attributable to noncontrolling interests included in discontinued operations was $(19) million and $1 million during fiscal 2025 and fiscal 2024, respectively, due to the disposal of HomeSafe.
Results of Operations by Business Segment
We analyze the financial results of our two core business segments and one non-core business segment. The business segments presented are consistent with our reportable segments discussed in Note 2. "Business Segment Information" to our consolidated financial statements.
Year ended
Change
January 2,
January 3,
December 29,
Dollars in millions
Revenues:
Mission Technology Solutions
Sustainable Technology Solutions
Total revenues
Operating income (loss):
Mission Technology Solutions
Sustainable Technology Solutions
Corporate
Total operating income
Mission Technology Solutions
MTS revenues increased by $26 million to $5,581 million in fiscal 2025 compared to $5,555 million in fiscal 2024. In fiscal 2025, we had revenue increases in defense and intel programs associated with the acquisition of LinQuest (in August 2024), offset by revenue decreases due to reduced activity within the European command and science and space programs. Additionally, revenues increased by $26 million in fiscal 2025 due to the final resolution of an outstanding legacy claim associated with a U.S. government project in fiscal 2024 that did not recur in fiscal 2025.
MTS operating income increased by $48 million, or 12%, to $463 million in fiscal 2025 compared to $415 million in fiscal 2024. The increase in operating income was primarily driven by the growth associated with LinQuest. Additionally, operating income increased by $26 million in fiscal 2025 due to the final resolution of an outstanding legacy claim associated with a U.S. government project in fiscal 2024 that did not recur in fiscal 2025. The increase in operating income was offset by a $6 million gain related to the sale of our investment interest in a joint venture during fiscal 2024 that did not recur in fiscal 2025.
Sustainable Technology Solutions
STS revenues increased by $50 million, or 2%, to $2,205 million in fiscal 2025 compared to $2,155 million in fiscal 2024. This increase was primarily driven by increased revenues from engineering and professional services.
STS operating income increased by $72 million, or 18%, to $477 million in fiscal 2025 compared to $405 million in fiscal 2024. The increase from fiscal 2024 to fiscal 2025 is primarily due to increased equity in earnings from services on an LNG project and the item discussed above, offset by increased selling, general and administrative expenses related to growth in the business and expenses incurred related to the implementation of a new enterprise resource planning system.
Backlog of Unfilled Orders
Backlog represents the estimated dollar amount of revenues we expect to realize in the future as a result of performing work on contracts and our pro-rata share of work to be performed by our unconsolidated joint ventures. We include total estimated revenues in backlog when a contract is awarded under a legally binding agreement. In many instances, arrangements included in backlog are complex, nonrepetitive and may fluctuate over the contract period due to the release of contracted work in phases by the customer. Additionally, nearly all contracts allow customers to terminate the agreement at any time for convenience, and from time to time customers may dispute or try to renegotiate existing contracts. These and other factors may result in delays or changes in our recognition of revenue from our backlog versus amounts we book as backlog. Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements, only the amounts authorized and probable are included in backlog. For projects where we act solely in a project management capacity, we only include the expected value of our services in backlog.
We define backlog, as it relates to U.S. government contracts, as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period (including customer approved option periods) for which work scope and price have been agreed with the customer. We define funded backlog as the portion of backlog for which funding currently is appropriated, less the amount of revenue we have previously recognized. We define unfunded backlog as the total backlog less the funded backlog. Our MTS backlog does not include any estimate of future potential delivery orders that might be awarded under our government-wide acquisition contracts, agency-specific indefinite delivery/indefinite quantity contracts or other multiple-award contract vehicles, nor does it include option periods that have not been exercised by the customer.
Within our MTS business segment, we calculate estimated backlog for long-term contracts associated with the U.K. government's PFIs based on the aggregate amount that our client would contractually be obligated to pay us over the life of the project. We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary.
Refer to "Item 1A. Risk Factors" contained in Part I of this Annual Report on Form 10-K for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.
We have included in the table below our proportionate share of unconsolidated joint ventures' estimated backlog. As these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our results of operations. Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled $2.8 billion at January 2, 2026 and January 3, 2025.
The following table summarizes our backlog by business segment as of January 2, 2026 and January 3, 2025, respectively. The disposal of HomeSafe met the requirements to be reported as discontinued operations. Backlog as of January 2, 2026 and January 3, 2025 does not include any amounts related to HomeSafe.
Dollars in millions
January 2, 2026
January 3, 2025
Mission Technology Solutions
Sustainable Technology Solutions
Total backlog
Award options
Total backlog and options
We estimate that as of January 2, 2026, 36% of our backlog will be executed within one year. Of this amount, we estimate that 83% will be recognized in revenues on our consolidated statement of operations and 17% will be recorded by our unconsolidated joint ventures. As of January 2, 2026, $112 million of our backlog relates to active contracts that are in a loss position.
As of January 2, 2026, 17% of our backlog was attributable to fixed-price contracts, 39% was attributable to PFIs, 24% was attributable to cost-reimbursable contracts and 20% was attributable to time-and-materials contracts. PFI arrangements are predominantly fixed‑price in nature, and therefore the PFI portion of backlog primarily reflects fixed‑price contractual structures. For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or time-and materials according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of
January 2, 2026, $9.0 billion of our MTS backlog was currently funded by our customers. Excluding PFIs, 40% of our MTS backlog is currently funded by our customers. As of January 2, 2026, we had approximately $6.3 billion of priced option periods not yet exercised by the customer for U.S. government contracts that are not included in the backlog amounts presented above.
The difference between backlog of $16.9 billion and the remaining performance obligations as defined by ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") of $13.3 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. See Note 3. "Revenue" to our consolidated financial statements for discussion of the remaining performance obligations.
Liquidity and Capital Resources
Liquidity is provided by available cash and cash equivalents, cash generated from operations, our Senior Credit Facility (as defined below), sale or divestiture of assets and access to capital markets. Our operating cash flow can vary significantly from year to year and is affected by the mix, terms, timing and stag e of completion of our projects. We often receive cash in advance on certain of our sustainable technology projects. On time-and-material and cost reimbursable contracts, we may utilize cash on hand or availability under our Senior Credit Facility to satisfy any periodic operating cash requirements for working capital, as we incur costs and subsequently invoice our customers.
Certain STS services projects may require us to provide credit support for our performance obligations to our customers in the form of letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our letter of credit and surety bonding capacity, which may be further dependent on the timely release of existing letters of credit and surety bonds. As the need for credit support arises, letters of credit may be issued under the Revolver (as defined below) or with lending counterparties on a bilateral, syndicated or other basis.
We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months. As of January 2, 2026, we are in compliance with all financial covenants related to our debt agreements.
Cash and cash equivalents totaled $500 million at January 2, 2026 and $342 million at January 3, 2025 and consisted of the following:
January 2,
January 3,
Dollars in millions
Domestic U.S. cash
International cash
Joint venture and Aspire Defence project cash
Total
Our cash balances are held in numerous accounts throughout the world to fund our global activities, including acquisitions, joint ventures and other business partnerships. Domestic cash relates to cash balances held by U.S. entities and is largely used to support project activities of those businesses as well as general corporate needs such as the payment of dividends to shareholders, repayment of debt and potential repurchases of our outstanding common stock. Additionally, domestic cash and cash equivalents includes $15 million and $12 million held by our wholly owned captive insurance company as of January 2, 2026 and January 3, 2025, respectively, which is generally not available to KBR to support its other operations.
Our international cash balances may be available for general corporate purposes but are subject to local restrictions, such as capital adequacy requirements and maintaining sufficient cash balances to support our U.K. pension plan and other obligations incurred in the normal course of business by those foreign entities. Repatriations of our undistributed foreign earnings are generally free of U.S. tax but may incur withholding and/or state taxes. We consider our future non-U.S. cash needs as 1) our anticipated foreign working capital requirements, including funding of our U.K. pension plan, 2) the expected growth opportunities across all geographical markets and 3) our plans to invest in strategic growth opportunities, which may include acquisitions, joint ventures and other business partnerships around the world, including whether foreign earnings are permanently reinvested. If management were to completely remove the indefinite investment assertion on all foreign subsidiaries, the exposure to local withholding taxes would be less than $10 million.
Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes. These amounts are limited to those entities' activities and are not readily available for general corporate purposes; however, portions of such amounts may become available to us in the future should there be a
distribution of dividends to the joint venture partners. We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture purposes or for paying dividends. In fiscal 2025 a contractual repayment was made by the Aspire Defence subcontracting entities.
As of January 2, 2026, substantially all of our excess cash was held in interest bearing operating accounts or short-term investment accounts with the primary objectives of preserving capital and maintaining liquidity.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year ended
Dollars in millions
January 2, 2026
January 3, 2025
December 29, 2023
Cash flows provided by operating activities - continuing operations
Cash flows provided by (used in) investing activities - continuing operations
Cash flows provided by (used in) financing activities - continuing operations
Total cash flows from discontinued operations
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Operating Activities - continuing operations . Cash provided by operations totaled $557 million and $450 million in fiscal 2025 and fiscal 2024, respectively, as compared to net income from continuing operations of $458 million and $379 million in fiscal 2025 and fiscal 2024, respectively. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by our volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world.
The increase in operating cash flows in fiscal 2025 compared to fiscal 2024 is primarily due to the resolution of an outstanding unapproved change order within our Mission Technology Solutions segment. This increase was offset primarily by changes in the primary components of our working capital. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. In fiscal 2025, the accounts payable cash outflow included a contractual repayment made by the Aspire Defence subcontracting entities. The working capital components are also impacted by the size and changes in the mix of our cost-reimbursable and time-and-materials projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business. Additionally, in fiscal 2025 there were decreases in pension funding that resulted in additional operating cash flows.
Investing Activities - continuing operations . Cash provided by investing activities totaled $16 million in fiscal 2025 and was primarily related to a return of equity method investment from BRIS of $82 million. This was offset by $42 million of capital expenditures, $14 million related to the acquisition of Infrastar Limited and funding in other investment of $10 million. See Note 9. "Equity Method Investments and Variable Interest Entities" to our consolidated financial statements for further discussion on the return of equity method investment from BRIS.
Cash used in investing activities totaled $751 million in fiscal 2024 and was primarily related to the acquisition of LinQuest, net of cash acquired of $738 million, capital expenditures of $52 million and funding in other investment of $5 million. This was offset by a return of equity method investment from JKC in fiscal 2024 of approximately $36 million related to our proportionate share of a tax refund. Additionally, we received $7 million primarily from the sale of our investment interest in a joint venture within our MTS segment.
Financing Activities - continuing operations . Cash used in financing activities totaled $403 million for fiscal 2025. The primary uses of cash in financing activities were $505 million in payments on the Revolver, $26 million in payments on our Term Loan A, $10 million in payments on our Term Loan B, $323 million for the repurchase of common stock under our share repurchase program, $6 million for the repurchase of common stock under our "withhold to cover" program and $84 million of dividend payments to common shareholders. These decreases were offset by $555 million in borrowings on our Revolver.
Cash provided by financing activities totaled $374 million in fiscal 2024 and was primarily related to $393 million in borrowings on our Revolver and $574 million in borrowings associated with Amendment No. 11 and No. 13 to our Credit
Agreement. These increases were offset by $124 million of principal payments related to our Senior Credit Facility, $98 million in payments on the Revolver, $204 million for the repurchase of common stock under our share repurchase program and $14 million for the repurchase of common stock under our "withhold to cover" program. Cash used in financing activities also included a $33 million payment for the settlement of warrants, $79 million of dividend payments to common shareholders, $18 million in debt issuance costs associated with Amendment No. 11, No. 12 and No. 13 to our Credit Agreement for our Senior Credit Facility and $10 million for the acquisition of a noncontrolling interest.
Cash flows from discontinued operations. Cash flows from discontinued operations are associated with the disposal of HomeSafe. Cash used in operations totaled $33 million for fiscal 2025 and cash provided by operations totaled $12 million for fiscal 2024. Changes in HomeSafe's working capital accounts were the primary components of operating cash flows for fiscal 2025 and fiscal 2024. Cash used in investing activities totaled $12 million and $25 million for fiscal 2025 and fiscal 2024, respectively, which is related to capital expenditures. Cash provided by financing activities totaled $12 million for fiscal 2025 due to investments from the noncontrolling interest partner. See Note 21. "Discontinued Operations" to our consolidated financial statements for additional information.
Future sources of cash. We believe that future sources of cash include cash flows from operations (including accounts receivable monetization arrangements), cash derived from working capital management and cash borrowings under the Senior Credit Facility.
Future uses of cash. We believe that future uses of cash include working capital requirements, joint venture capital calls, capital expenditures, dividends, pension funding obligations, repayments of borrowings, share repurchases, legal settlements of any currently outstanding legal matter or any future legal proceeding and strategic investments including acquisitions, joint ventures and other business partnerships. Our capital expenditures will be focused primarily on facilities and equipment to support our businesses. In addition, we will use cash to make payments under leases and various other obligations, including potential litigation payments, as they arise.
We anticipate that, in connection with and prior to the completion of the Planned Spin-Off, the Mission Technology Solutions business will make a cash distribution to KBR using proceeds received from its anticipated financing transactions to be undertaken as part of its transition to an independent, publicly traded company. We intend to use the cash distributed to KBR by the Mission Technology Solutions business to reduce our level of indebtedness.
Other factors potentially affecting liquidity
Ichthys LNG Project. As part of the settlement agreement between JKC and Ichthys LNG, Pty, Ltd (collectively, “the Parties”) in October 2021, KBR’s letters of credit were reduced to $82 million from $164 million. Additionally, as part of this settlement agreement, the Parties agreed to consult in good faith and to cooperate to seek maximum recovery from the insurance policies and paint manufacturer for the deterioration of paint and insulation on certain exterior areas of the plant. The Parties agreed to collectively pursue claims against the paint manufacturer, and JKC has assigned claims under the insurance policy regarding the paint and insulation matters to the client. The parties have agreed that if, at the date of final resolution of the above proceedings and claims with respect to the paint and insulation matters, the recovered amount from the paint manufacturer and insurance claim is less than the stipulated ceiling amount in the settlement agreement, JKC will pay the client the difference between the stipulated ceiling amount and the recovered amount. JKC has provided for and continues to maintain a provision for this contingent liability.
U.K. pension obligation. We have recognized on our consolidated balance sheets a funding surplus of approximately $84 million (calculated as the difference between the fair value of plan assets and the projected benefit obligations) as of January 2, 2026 for our frozen U.K. defined benefit pension plan. The funding requirements for our U.K. pension plan are determined based on the U.K. Pensions Act 1995. Annual minimum funding requirements are based on a binding agreement with the Trustee of the U.K. pension plan that is negotiated on a triennial basis. This schedule of contributions will be reviewed by the Trustee and KBR no later than 15 months after the effective date of each actuarial valuation, due every three years. In 2024, the Trustee of the U.K. defined benefit pension plan commenced the triennial actuarial valuation of the plan which was finalized in fiscal 2025. At this time, we do not anticipate contributing additional funding to this plan at least until the next triennial valuation occurs. In the future, pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan asset return performance and other factors. A significant increase in our funding requirements for the U.K. pension plan could result in a material adverse impact on our financial position.
Sales of Receivables. From time to time, we sell certain receivables to unrelated third-party financial institutions under various accounts receivable monetization programs. One such program is with MUFG Bank, Ltd. ("MUFG") under a Master Accounts Receivable Purchase Agreement, which provides the sale to MUFG of certain of our designated eligible receivables, with a significant portion of such receivables being owed by the U.S. government. We plan to continue to utilize these programs to ensure we have flexibility to meet our capital needs. Refer to Note 20. "Fair Value of Financial Instruments and Risk Management" to our consolidated financial statements for further discussion on our sales of receivables.
Credit Agreement and Senior Credit Facility
Information relating to our Senior Credit Facility is described in Note 11. "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Senior Notes
Information relating to our Senior Notes is described in Note 11. "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Off-Balance Sheet Arrangements
Letters of credit, surety bonds and guarantees. In the ordinary course of business, we may enter into various arrangements providing financial or performance assurance to customers on behalf of certain consolidated and unconsolidated subsidiaries, joint ventures and other jointly executed contracts. Such off-balance sheet arrangements include letters of credit, surety bonds and corporate guarantees to support the creditworthiness or project execution commitments of these entities and typically have various expiration dates ranging from mechanical completion of the project being constructed to a period beyond completion in certain circumstances such as for warranties. We may also guarantee that a project, once completed, will achieve specified performance standards. If the project subsequently fails to meet guaranteed performance standards, we may incur additional costs, pay liquidated damages or be held responsible for the costs incurred by the client to achieve the required performance standards. The potential amount of future payments that we could be required to make under an outstanding performance arrangement is typically the remaining estimated cost of work to be performed by or on behalf of third parties. For cost-reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For fixed-price contracts, the performance guarantee amount is the cost to complete the contracted work, less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete the project. If costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, subcontractors or vendors for claims.
In our joint venture arrangements, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically, each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects and the terms of the related contracts. See “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K for information regarding our fixed-price contracts and operations through joint ventures and partnerships.
In certain limited circumstances, we enter into financial guarantees in the ordinary course of business, with financial institutions and other credit grantors, which generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation. We account for both financial and performance guarantees at fair value at issuance in accordance with ASC Subtopic 460-10, Guarantees , as of January 2, 2026, we had no material guarantees of the work or obligations of third parties recorded.
In connection with certain projects, we are required to provide letters of credit, surety bonds or guarantees to our customers in the ordinary course of business as credit support for contractual performance guarantees, advanced payments received from customers and future funding commitments. As of January 2, 2026, we had a $1 billion committed line of credit on the Revolver under our Senior Credit Facility and $488 million of bilateral and uncommitted lines of credit. As of January 2, 2026, with respect to our Revolver, we had $395 million of outstanding borrowings. We also have $14 million of outstanding letters of credit on our Senior Credit Facility. With respect to our $488 million of bilateral and uncommitted lines of credit, we
utilized $296 million for letters of credit as of January 2, 2026. The total remaining capacity of these committed and uncommitted lines of credit was approximately $783 million as of January 2, 2026, all of which can be used toward issuing letters of credit. Information relating to our letters of credit is described in Note 11. "Debt and Other Credit Facilities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7. Other than as discussed in this report, we have not engaged in any material off-balance sheet financing arrangements through special purpose entities.
Contractual Obligations and Commitments
Significant contractual obligations and commercial commitments as of January 2, 2026 are as follows:
Payments Due
Dollars in millions
Fiscal 2026
Fiscal 2027
Fiscal 2028
Fiscal 2029
Fiscal 2030
Thereafter
Total
Debt obligations
Interest (a)
Operating leases
Finance leases
Purchase obligations (b)
Total (c)
(a) Determined based on long-term debt borrowings outstanding at January 2, 2026 using the interest rates in effect for the individual borrowings as of January 2, 2026, including the effects of interest rate swaps. The payments due for interest reflect the cash interest that will be paid, which includes interest on outstanding borrowings and commitment fees. These amounts exclude the amortization of discounts or debt issuance costs.
(b) In the ordinary course of business, we enter into commitments to purchase software and related maintenance, materials, supplies and similar items. The purchase obligations disclosed above do not include purchase obligations that we enter into with vendors in the normal course of business that support direct project costs on existing contracting arrangements with our customers. We expect to recover such obligations from our customers.
(c) We have excluded uncertain tax positions totaling $76 million as of January 2, 2026. The ultimate timing of settlement of these obligations cannot be determined with reasonable assurance. See Note 12. "Income Taxes" to our consolidated financial statements for further discussion on income taxes.
Transactions with Joint Ventures
We form incorporated and unincorporated joint ventures to execute certain projects. In addition to participating as a joint venture partner, we often provide engineering, procurement, construction management, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our subcontractor revenues or expenses, however, we recognize profit on our subcontractor scope of work up to but not in excess of the joint venture's percent complete on its scope of work. We recognize revenue over time on our services provided to joint ventures that we consolidate and our services provided to joint ventures that we record under the equity method of accounting. See Note 9. "Equity Method Investments and Variable Interest Entities" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information. The information discussed therein is incorporated by reference into this Part II, Item 7.
Recent Accounting Pronouncements
Information relating to recent accounting pronouncements is described in Note 1. "Significant Accounting Policies" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
U.S. Government Matters
Information relating to U.S. government matters commitments and contingencies is described in Note 14. "U.S. Government Matters" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Legal Proceedings
Information relating to various commitments and contingencies is described in “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K and in Notes 6, 13 and 14 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K and the information discussed therein is incorporated by reference into this Part II, Item 7.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in conformity with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the determination of financial positions, results of operations, cash flows and related disclosures. Our significant accounting policies are described in Note 1. "Significant Accounting Policies" to our consolidated financial statements. The following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements and to provide a better understanding of our significant accounting estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements. Significant accounting estimates are important to the representation of our financial position and results of operations and involve our most difficult, subjective or complex judgments. We base our estimates on historical experience and various other assumptions we believe to be reasonable according to the current facts and circumstances through the date of the issuance of our financial statements.
Contract Revenue and Contract Estimates . Our policy on revenue recognition is provided in Note 1. "Significant Accounting Policies" to our consolidated financial statements and is also applied to the revenues of our equity method investments included in equity in earnings of unconsolidated affiliates. We recognize revenue on substantially all of our contracts over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Our contracts are generally accounted for as a single performance obligation and are not segmented between types of services provided. We recognize revenue on those contracts over time using the cost-to-cost method, based primarily on contract costs incurred to date compared to total estimated contract costs at completion. Contract costs include all direct materials, labor and subcontractors costs and indirect costs related to contract performance. We believe this method is the most accurate measure of contract performance because it directly measures the value of the goods and services transferred to the customer. For all other contracts we recognize revenue when services are performed which generally coincides with our ability to bill.
The cost-to-cost method of revenue recognition requires us to prepare estimates of cost to complete for contracts in progress. Due to the nature of the work performed on many of our performance obligations, the estimates of total revenue and cost at completion is complex, subject to many variables and require significant judgment. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule and the cost of materials, labor and productivity, the impact of change orders, liability claims, contract disputes and achievement of contractual performance standards. As a significant change in one or more of these estimates could affect the profitability of our contracts, we routinely review and update our significant contract estimates through a disciplined project review process in which management reviews the progress and execution of our performance obligations and estimates at completion. We have a long history of working with multiple types of projects and in preparing cost estimates. However, there are many factors that impact future cost as outlined in “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K. These factors can affect the accuracy of our estimates and materially impact our future reported earnings. Changes in total estimated contract costs and losses, if any, are recognized on a cumulative catch-up basis in the period in which the changes are identified at the contract level. Such changes in contract estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in a prior period. Changes in contract estimates may also result in the reversal of previously recognized revenue. If the current estimate differs from the previous estimate, revenue is recognized through a cumulative catch up adjustment in the current period.
It is common for our contracts to contain variable consideration in the form of incentive fees, performance bonuses, award fees, liquidated damages or penalties that may increase or decrease the transaction price. Variable consideration may be tied to our performance, cost targets, or achievement of milestones. Other contract provisions also give rise to variable consideration such as unapproved change orders and claims, and on certain contracts, index-based price adjustments. We estimate the amount of variable consideration at the most likely amount we expect to be entitled and include in the transaction
price when it is probable that a significant reversal of cumulative revenue recognized will not occur. Variable consideration associated with claims and unapproved change orders is included in the transaction price only to the extent of costs incurred. We recognize claims against suppliers and subcontractors as a reduction in recognized costs when enforceability is established by the contract and the amounts are reasonably estimable and probable of recovery. Reductions in costs are recognized to the extent of the lesser of the amounts management expects to recover or actual costs incurred.
Under cost-reimbursable contracts, the price is generally variable based upon our actual allowable costs incurred for materials, equipment, reimbursable labor hours, overhead and G&A expenses. The FAR provides guidance on types of costs that are allowable in establishing prices for goods and services provided to the U.S. government and its agencies. Pricing, including the types of costs that are allowable, for non-U.S. government agencies and commercial customers is based on specific negotiations with each customer. We recognize revenue on cost-reimbursable contracts to the extent it is not probable a significant reversal will occur.
Our estimates of variable consideration and determination of whether to include such amounts in the transaction price are based largely on our assessment of legal enforceability, anticipated performance and any other information (historical, current or forecasted) that is reasonably available to us.
Purchase Price Allocation. We allocate the purchase price of an acquired business to the identifiable assets and liabilities of the acquiree based on estimated fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset and are developed using widely accepted valuation techniques such as discounted cash flows. When determining the fair value of the assets and liabilities of an acquired business, we make judgments and estimates using all available information to us including, but not limited to, quoted market prices, carrying values, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty and position and discount rates. We engage third-party appraisal firms when appropriate to assist in the fair value determination of intangible assets. The purchase price allocation recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. Our purchase price allocation is discussed in Note 4. "Acquisitions" in the accompanying consolidated financial statements.
Goodwill and Intangible Assets . Goodwill and intangible assets is tested annually for possible impairment as of the first day of the fourth fiscal quarter within our fiscal year, and on an interim basis when indicators of possible impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on our current reporting structure. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the applicable reporting units include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, discount rates, competitive environments and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.
While we have the option to proceed directly to the quantitative test, for fiscal 2025, management performed a qualitative impairment assessment of our reporting units, of which there were no indications that it was more likely than not that the fair value of our reporting units were less than their respective carrying values. As such, a quantitative goodwill test was not required, and no goodwill impairment was recognized in fiscal 2025. Our goodwill and intangible assets are discussed in Note 8. "Goodwill and Intangible Assets" in the accompanying consolidated financial statements.
Deferred Taxes, Valuation Allowances and Tax Contingencies. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. We record a valuation allowance to reduce certain deferred tax assets to amounts that are more likely than not to be realized. We evaluate the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of the timing and character of future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences, income available from carryback years and available tax planning strategies that could be implemented to realize the net deferred tax assets. To arrive at our forecast of the timing and character of future taxable income, we use estimates of economic and market assumptions, including growth rates in revenues, costs and estimates of future operating margins. These estimates can entail varying degrees of judgment based upon the amount of deferred tax assets assessed and length of the carryforward period. Deferred tax assets and liabilities are discussed in Note 12. "Income Taxes" to our consolidated financial statements.
We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred tax assets in accordance with ASC Topic 740, Income Taxes . Available evidence includes historical financial information supplemented by currently available information about future years. Generally, historical financial information is more objectively verifiable than projections of future income and is therefore given more weight in our assessment. We consider cumulative losses in the most recent twelve quarters to be significant negative evidence that is difficult to overcome in considering whether a valuation allowance is required. Conversely, we consider a cumulative income position over the most recent twelve quarters to be significant positive evidence that a valuation allowance may not be required. Changes in the amount, timing and character of our forecasted taxable income could have a significant impact of our ability to utilize deferred tax assets and related valuation allowance.
Our ability to utilize the unreserved foreign tax credit carryforwards is based on our ability to generate future taxable income of at least $286 million prior to their expiration whereas our ability to utilize other net deferred tax assets exclusive of those associated with indefinite-lived intangible assets is based on our ability to generate future taxable income of at least $914 million. Changes in our forecasted taxable income in the applicable taxing jurisdictions within the carryforward periods could affect the ultimate realization of deferred tax assets and our valuation allowance.
We recognize the effect of income tax positions only if it is more likely than not that those positions will be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records potential interest and penalties related to unrecognized tax benefits in income tax expense.
Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined by tax authorities in the normal course of business. These examinations may result in assessments of additional taxes, which we work to resolve with the tax authorities and through the judicial process. Predicting the outcome of disputed assessments involves some uncertainty. Factors such as the availability of settlement procedures, willingness of tax authorities to negotiate and the operation and impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence the ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates to determine the most likely outcome and provide taxes, interest and penalties as needed based on this outcome.
Legal, Investigation and Other Contingent Matters. We record liabilities for loss contingencies when it is probable that a liability has been incurred and the amount is reasonably estimable. We disclose matters when we believe a material loss is at least reasonably possible but not probable or if the loss is not reasonably estimable but probable and is expected to be material to our financial statements. Generally, our estimates related to these matters are developed in consultation with internal and external legal counsel. Our estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. The precision of these estimates and the likelihood of future changes depend on a number of underlying assumptions and a range of possible outcomes. When possible, we attempt to resolve these matters through settlements, mediation and arbitration proceedings. If the actual settlement costs, final judgments or fines differ from our estimates, our future financial results may be materially and adversely affected. We record adjustments to our initial estimates of these types of contingencies in the periods when the change in estimate is identified. All legal expenses associated with these matters are expensed as incurred. See Notes 6, 13 and 14 to our consolidated financial statements for further discussion of our significant legal, investigation and other contingent matters.
Pensions. Our pension benefit obligations and expenses are calculated using actuarial models and methods. The most critical assumption and estimate used in the actuarial calculations is the discount rate for determining the current value of benefit obligations. Other assumptions and estimates used in determining benefit obligations and plan expenses include expected rate of return on plan assets, inflation rates and demographic factors such as retirement age, mortality and turnover. These assumptions and estimates are evaluated periodically and are updated accordingly to reflect our actual experience and expectations.
The discount rate used to determine the benefit obligations was computed using a yield curve approach that matches plan specific cash flows to a spot rate yield curve based on high quality corporate bonds. The expected long-term rate of return on assets was determined by a stochastic projection that takes into account asset allocation strategies, historical long-term performance of individual asset classes, an analysis of additional return (net of fees) generated by active management, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. Plan assets are comprised primarily of equity funds and securities, fixed income funds and securities, real estate and other funds. As we have both domestic and international plans, these assumptions differ based on varying factors specific to each particular country or economic environment.
The discount rate used to calculate the projected benefit obligation at the measurement date for our U.S. pension plan decreased to 4.97% at January 2, 2026 from 5.32% at January 3, 2025. The discount rate used to determine the projected benefit obligation at the measurement date for our U.K. pension plan, which constitutes 94% of all pension plans, increased to 5.60% at January 2, 2026 from 5.54% at January 3, 2025. Our expected long-term rates of return on plan assets utilized at the measurement date of January 2, 2026 and January 3, 2025 was 6.24% and 6.64% for our U.S. pension plans, respectively, and 7.97% and 6.80% for our U.K. pension plans, respectively.
The following table illustrates the sensitivity to changes in certain assumptions, holding all other assumptions constant, for our pension plans:
Effect on
Pretax Pension Cost in Fiscal 2026
Pension Benefit Obligation at January 2, 2026
Dollars in millions
25-basis-point decrease in discount rate
25-basis-point increase in discount rate
25-basis-point decrease in expected long-term rate of return
25-basis-point increase in expected long-term rate of return
Unrecognized actuarial gains and losses are recognized using the corridor method over a period of approximately 20 years, which represents a reasonable systematic method for amortizing gains and losses for the employee group. Our unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes in the obligations and the difference between expected returns and actual returns on plan assets. The difference between actual and expected returns is deferred as an unrecognized actuarial gain or loss on our consolidated statement of comprehensive income (loss) and is recognized as a decrease or an increase in future pension expense. Our pretax unrecognized net actuarial loss in accumulated other comprehensive loss at January 2, 2026 was $932 million.
The actuarial assumptions used in determining our pension benefits may differ materially from actual results due to changing market and economic conditions, changes in the legislative or regulatory environment, higher or lower withdrawal rates and longer or shorter life spans of participants. While we believe that the assumptions used are appropriate, differences in actual experience, expectations or changes in assumptions may materially affect our financial position or results of operations. Our actuarial estimates of pension expense and expected return on plan assets are discussed in Note 10. "Retirement Benefits" in the accompanying consolidated financial statements.
