KBR Annual Report 2014 | Quarterlytics

FY2014 Annual Report · KBR

Loading PDF…

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2014

 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission File Number: 1-33146

KBR, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation or organization)
601 Jefferson Street, Suite 3400, Houston, Texas
(Address of principal executive offices)

20-4536774
(I.R.S. Employer Identification No.)
77002
(Zip Code)

(713) 753-3011
(Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock par value $0.001 per share

Name of each exchange on which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.

Large accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 


 (Do not check if a smaller reporting company)

Accelerated filer
Smaller reporting company




The aggregate market value of the voting stock held by non-affiliates on June 30, 2014 was approximately $3.5 billion, determined using the
closing price of shares of the registrant's common stock on the New York Stock Exchange on that date of $23.85.

As of January 31, 2015, there were 144,821,140 shares of KBR, Inc. Common Stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this
report.

TABLE OF CONTENTS

Page

PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
FINANCIAL STATEMENTS
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES

4
11
20
21
21
21

26
43
44
45

46
47
48
49
50
52
105
105
108

108
108

108

108
108

108
114

Forward-Looking and Cautionary Statements

This report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. 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 are forward-looking statements. All statements other than
statements of historical fact are, or may be deemed to be, forward-looking statements. The words “believe,” “may,”
“estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect” and similar expressions are intended to identify forward-
looking statements. Forward-looking statements include information concerning our possible or assumed future financial
performance and results of operations.

We have based these statements on our assumptions and analyses in light of our experience and perception of historical
trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances.
Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected
results, and actual future results could differ materially from those described in such statements. While it is not possible to
identify all factors, factors that could cause actual future results to differ materially include the risks and uncertainties
described under “Risk Factors” contained in Part I of this Annual Report on Form 10-K.

Many of these factors are beyond our ability to control or predict. Any of these factors, 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.

PART I

Item 1. Business

General

KBR, Inc. and its subsidiaries (collectively, "KBR") is an engineering, construction and services company supporting the
global hydrocarbons and international government services market segments. We offer an extensive portfolio of proprietary
technology and consulting services; engineering, construction, procurement and asset maintenance services; and base
operational, logistics, life support and asset management services, through our Technology & Consulting, Engineering &
Construction and Government Services business segments. Information regarding business segment disclosures is incorporated
by reference in Note 2 to our consolidated financial statements and "Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations."

KBR, Inc. was incorporated in Delaware on March 21, 2006 prior to an exchange offer transaction that separated us from
our former parent, Halliburton Company, which was completed on April 5, 2007. We trace our history and culture to two
businesses, The M.W. Kellogg Company ("Kellogg") and Brown & Root, Inc. ("Brown & Root"). Kellogg dates back to a pipe
fabrication business that was founded in New York in 1901 and evolved into a technology and service provider for petroleum
refining and petrochemicals processing. Brown & Root was founded in Houston, Texas in 1919 and built the world’s first
offshore platform in 1947. Brown & Root was acquired by Halliburton in 1962 and Kellogg was acquired by Halliburton in
1998 through its merger with Dresser Industries.

Our Business Segments

Business Reorganization

On December 11, 2014, we announced our reorganization into the following three business segments:

• Technology & Consulting
• Engineering & Construction
• Government Services

Our corporate expenses and other operations that do not individually meet the criteria for group presentation continue to be
reported in our Other business segment. In addition, we combined certain operations in the markets we have decided to exit into
a new, Non-strategic Business segment. We have revised our business segment reporting to reflect our current management
approach and recast prior periods to conform to the current business segment presentation.

Our business segments are described below.

Technology & Consulting ("T&C"). Our T&C business segment combines proprietary KBR technologies, knowledge-
based services and our three specialty consulting brands, Granherne, Energo and GVA, under a single customer-facing global
business. This segment provides licensed technologies and consulting services to the oil and gas value chain, from wellhead to
crude refining and through to specialty chemicals production. In addition to sharing many of the same customers, these brands
share the approach of early and continuous customer involvement to deliver an optimal solution to meet the customer’s
objectives through early planning and scope definition, advanced technologies and project lifecycle support.

Engineering & Construction ("E&C"). Our E&C business segment leverages our operational and technical excellence
as a global provider of engineering, procurement, construction ("EPC"), commissioning and maintenance services for oil and
gas, refining, petrochemicals and chemicals customers. E&C is managed on a geographic basis in order to facilitate close
proximity to our customers and our people, while utilizing a consistent global execution strategy.

Government Services ("GS"). Our GS business segment focuses on long-term service contracts with annuity streams

particularly for the United Kingdom ("U.K."), Australian and United States ("U.S.") governments.

Non-strategic Business. On December 11, 2014, we also announced that we would exit businesses that are no longer a
part of our future strategic focus. Our Non-strategic Business segment represents these operations or activities which we intend
to either sell to third parties or exit upon completion of existing contracts and runoff activities.

Other. Our Other business segment includes our corporate expenses and general and administrative expenses not
allocated to the business segments above and any future activities that do not individually meet the criteria for segment
presentation.

Our Business Strategy

Our business strategy is to provide our customers with differentiated and superior capital project delivery and services
offerings across the entire engineering, construction and operations project lifecycle. We aim to create enhanced customer
satisfaction leading to repeat business through a best-in-class delivery platform. Our projects are generally long-term in nature
and an essential feature of our global strategy is to establish local operations in locations where services demand growth is
expected. Our core skills are conceptual design, front-end engineering design ("FEED"), engineering, project management,
procurement, construction, construction management, logistics, commissioning, operations and maintenance. When necessary,
we complement organic growth by pursuing targeted acquisitions that focus on expanding our capabilities and market coverage
or accelerating business growth strategies.

In addition, we provide superior technology offerings in focused markets through our broad portfolio of proprietary
technology and niche consulting skills. These proven and innovative options provide customers with tailored solutions to their
market challenges.

As a part of the strategic announcement on December 11, 2014, we performed a critical evaluation of our business
portfolio and identified the businesses where we believe we have a competitive edge. We are moving into a project delivery and
accountability focused structure that aligns with the needs of our customers, recognizes diverse business models and employs a
more targeted approach that will enable us to realize revenue and cost synergies. Our strategic priorities will focus on
differentiated offerings in two core markets: global hydrocarbons and international government services. Key features of our
business segment strategies are discussed below.

The Technology & Consulting business segment offers a broad spectrum of services and solutions, including licensing,
basic engineering and design ("BED"), proprietary equipment ("PEQ"), plant automation, catalysts and related consulting
services to hydrocarbons, chemicals and fertilizer markets. Services provided by the oil and gas consulting portion of this
business include field development and planning, technology selection and optimization of capital spending, offshore integrity
management and structural analysis for production platforms in various locations. Services provided by the downstream
consulting portion of this business include feasibility and revamp studies as well as planning activities related to the development
and construction of refining, petrochemical, chemical and fertilizer complexes.

Our upstream technology solutions include the provision of technology related to semi-submersible hull design and
monohull vessels capable of working in the ultra-deep and harsh environments, as well as Drillship and Floating Production,
Storage and Offshore ("FPSO") vessels. Downstream technology offerings include technologies for conversion of heavy
hydrocarbon streams to fuels in the refining markets as well as technologies for the conversion and production of high value
olefins from a variety of feedstocks. Additionally, the technology portfolio includes market leading ammonia process technology
solutions for the ammonia and fertilizer markets as well as clean coal gasification technology, a promising alternative to meet
global energy demand.

The Engineering & Construction business segment, our project delivery business, offers a scope of services covering the
entire spectrum of project development activities from the earliest conceptual engineering, through FEED and execution
planning phases to full EPC delivery and asset services. E&C provides engineering and EPC services for the development,
construction and commissioning of projects in the offshore, onshore and liquefied natural gas ("LNG") and gas-to-liquids
("GTL") markets. Offshore offerings focus on fixed and floating platforms and facilities, hulls, moorings, risers ("HMR") and
subsea umbilicals, risers and flowlines ("SURF"). Our services in the onshore markets include projects in oil & gas, refining,
petrochemicals, chemicals, ammonia, fertilizers, syngas and gasification units. Our service offerings in the LNG and GTL
markets include liquefaction, regasification, floating LNG ("FLNG") and floating storage and regasification units ("FSRU").
Our asset services include maintenance, modification, asset integrity and small capital expenditure ("CAPEX") projects. With
these service offerings, we continue to leverage our proud history of delivering some of the most complex projects throughout
the world and in some of the most remote and challenging locations.

The Government Services business segment focuses on providing a wide range of base and remote life support services,
logistics, program management and capability risk management, resilience planning and execution services and training to
government agencies from the U.K., Australia, the U.S. and other parts of the world. Our service offerings range from
construction, refurbishment, operations and maintenance of housing and other facilities for military personnel to home base and
overseas operations support, embassy and other life support programs, heavy equipment transportation and police facilities
management integration around the world. Our objective is to capitalize on new opportunities resulting from the industry’s
demands for increased efficiencies in response to tight government budgets and governments' requirements to deal with new
threats.

The Non-strategic business segment focuses on the completion of three power projects and other run-off activities in the

markets we are exiting, and the eventual sale of a product line.

Competition and Scope of Global Operations

We operate in highly competitive markets throughout the world and believe the following are the areas where we have a

competitive advantage:

customer relationships;
successful prior execution of large projects in difficult locations;
technical excellence and differentiation;

• market-leading health, safety and environmental standards and sustainable practices;
•
•
•
• high value in delivered projects and services measured by performance, quality, operability and cost;
•

service delivery, including the ability to deliver personnel, processes, systems and technology on an "as needed,
where needed and when needed" basis with the required local content and presence;
consistent superior service quality;
financial strength through liquidity, capital capacity and the ability to support warranties;

•
•
• breadth of proprietary technology, know-how and technical solutions; and
•

robust risk awareness and management processes.

We conduct business in over 70 countries. Based on the location of projects executed, our operations in countries other
than the U.S. accounted for 63% of our consolidated revenues during 2014, 66% of our consolidated revenues during 2013 and
73% of our consolidated revenues during 2012. See Note 2 to our consolidated financial statements for selected geographic
information.

We have summarized our revenues by geographic location as a percentage of total revenues below:

Revenues:

United States

Australia

Canada

Middle East

Europe

Africa

Other countries

Total

Years ended December 31,

2014

2013

2012

37 %

22 %

12 %

11 %

10 %

4 %

34 %

25 %

10 %

13 %

8 %

2 %

27 %

23 %

6 %

13 %

7 %

21 %

3 %

100 %

We market substantially all of our project and service offerings through our business segments. The markets we serve are
highly competitive and for the most part require substantial resources and highly skilled and experienced technical personnel. A
large number of companies are competing in the markets served by our business, including U.S.-based companies such as
Bechtel Corporation, Fluor Corporation, Jacobs Engineering, AECOM, and international-based companies such as AMEC Foster
Wheeler, Chicago Bridge and Iron, Chiyoda Corporation ("Chiyoda"), JGC Corporation ("JGC"), McDermott International,
Petrofac, Saipem, Technip, Wood Group/PSN and Worley Parsons. Since the markets for our services are vast and extend across
multiple geographic regions, we cannot make a definitive estimate of the total number of our competitors.

Our operations in some countries may be adversely affected by unsettled political conditions, acts of terrorism, civil
unrest, force majeure, war or other armed conflict, expropriation or other governmental actions, inflation and foreign currency
exchange controls and fluctuations. We strive to manage or mitigate these risks through a variety of means including contract
provisions, contingency planning, insurance schemes, hedging and other risk management activities. See "Item 1A. Risk
Factors," "Item 7A. Quantitative and Qualitative Discussion about Market Risk" and Note 20 to our consolidated financial
statements for information regarding our exposures to foreign currency fluctuations, risk concentration and financial instruments
used to manage our risks.

Acquisitions and Other Transactions

In November 2013, we closed on the sale of a portion of a subsidiary, Allstates Technical Services, for $10 million in cash.
The sale resulted in a $3 million pre-tax gain and is recorded in "gain on disposition of assets" in our consolidated statements of
operations.

In November 2012, a joint venture in which we hold a 50% interest sold the office building in which we lease office space
for our corporate headquarters and business segment offices in Houston, Texas for $175 million. Since we continue to lease the
office building from the new owner under essentially the same lease terms, the $44 million pre-tax gain on the sale was deferred
and is being amortized using the straight-line method over the remaining term of the lease, which expires in 2030.

In November 2012, we closed on the sale of our former headquarters campus located at 4100 Clinton Drive in Houston,
Texas for $42 million in cash. The sale resulted in a $27 million pre-tax gain on disposal of assets in "gain on disposition of
assets" in our consolidated statements of operations.

Joint Ventures and Alliances

We enter into joint ventures and alliances with other industry participants in order to reduce exposure and diversify risk,
increase the number of opportunities that can be pursued, capitalize on the strengths of each party and provide greater flexibility
in delivering our services based on cost and geographical efficiency. Clients of our E&C business segment frequently require
EPC contractors to work in teams given the size and complexity of global projects that may cost billions of dollars to complete.
Our significant joint ventures and alliances are described below. All joint venture ownership percentages presented are stated as
of December 31, 2014.

We are working with JGC and Chiyoda for the purpose of design, procurement, fabrication, construction, commissioning
and testing of the Ichthys Onshore LNG export facility in Darwin, Australia. The project is being executed using two joint
ventures and we own a 30% equity interest in each joint venture. The investments are accounted for using the equity method of
accounting and reported in our E&C business segment.

KJVG is a joint venture consisting of JGC, Hatch Associates, Clough Projects Australia and KBR for the purpose of
design, procurement, fabrication, construction, commissioning and testing of the Gorgon onshore LNG project located on
Barrow Island off the northwest coast of Western Australia. We hold a 30% interest in the joint venture which is consolidated for
financial accounting purposes and reported in our E&C business segment.

Aspire Defence Holdings Limited ("Aspire Defence") is a joint venture currently owned by KBR and two financial
investors to upgrade and provide a range of services to the British Army’s garrisons at Aldershot and around the Salisbury Plain
in the U.K. We own a 45% interest in Aspire Defence and we own a 50% interest in each of the two joint ventures that provide
the construction and related support services to Aspire Defence. The investments are accounted for using the equity method of
accounting and reported in our GS business segment.

Mantenimiento Marino de Mexico (“MMM”) is a joint venture formed under a Partners Agreement with Grupo R
affiliated entities. The principal Grupo R entity is Corporative Grupo R, S.A. de C.V. and Discoverer ASA, Ltd., a Cayman
Islands company. The Partners Agreement covers five joint venture entities executing Mexican contracts with Petróleos
Mexicanos ("PEMEX"). MMM was set up under Mexican maritime law in order to hold navigation permits to operate in
Mexican waters. The scope of the business is to render maintenance, repair and restoration services of offshore oil and gas
platforms and provisions of quartering in the territorial waters of Mexico. We own a 50% interest in MMM and in each of the
four other joint ventures. We account for our investment in these entities using the equity method of accounting and report them
in our E&C business segment.

Backlog of Unfulfilled Orders

Backlog is our estimate of the dollar amount of revenues we expect to realize in the future as a result of executing
awarded contracts. For our projects related to 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. Our backlog was $10.9
billion and $14.1 billion at December 31, 2014 and 2013, respectively. We estimate that, as of December 31, 2014, 51% of our
backlog will be recognized as revenues within one year. All backlog is attributable to firm orders at December 31, 2014 and
2013. For additional information regarding backlog see our discussion within “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”

Contracts

Our contracts are broadly categorized as cost-reimbursable, fixed price or “hybrid” contracts containing both cost-
reimbursable and fixed-price scopes. Our fixed price contracts often include cost escalation and other features that allow for
increases in price should certain events occur or conditions change. Change orders on fixed-priced contracts are routinely
approved as work scope changes resulting in adjustments to our fixed price.

Fixed-price contracts, which include our unit-rate contracts (essentially a fixed-price contract with the only variable being
units of work performed) where we are paid fixed amounts based on the final number of units of work performed, are for a fixed
sum to cover all costs and any profit element for a defined scope of work. Fixed-price contracts entail more risk to us because
they require us to predetermine the work to be performed, the project execution schedule and the costs associated with the work.
Although fixed-price contracts involve greater risk than cost-reimbursable contracts, they also are potentially more profitable
since the owner/customer pays a premium to transfer project risks to us.

Cost-reimbursable contracts include contracts where the price is variable based upon our actual costs incurred for time and
materials and for reimbursable labor hour contracts. Profit on cost-reimbursable contracts may be a fixed amount, a mark-up
applied to costs incurred or a combination of the two. Cost-reimbursable contracts are generally less risky than fixed-price
contracts because the owner/customer retains many of the project risks.

Our GS business segment performs work under cost-reimbursable contracts with the U.K. Ministry of Defence ("MoD"),
the U.S. Department of Defense (“DoD”) and other governmental agencies that are generally subject to applicable statutes and
regulations. If the 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 costs
to the customer. Such conditions may also include interest and other financial penalties. If performance issues arise under any
of our government contracts, the government retains the right to pursue remedies, which could include termination under any
affected contract. Furthermore, the government has the contractual right to terminate or reduce the amount of work under our
contracts at any time. See “Item 1A. Risk Factors” for more information.

Significant Customers

We provide services to a diverse customer base, including:

international oil companies ("IOC"s) and national oil companies ("NOC"s);
independent refiners;

•
•
• petrochemical, fertilizer and chemical producers;
• manufacturers;
• domestic and foreign governments; and
•

regulated electric utilities.

A considerable percentage of revenues is generated from transactions with the Chevron Corporation ("Chevron")
primarily within our E&C segment. No other customers represented 10% or more of consolidated revenues in any of the periods
presented. The information in the following table has summarized data related to our revenues from Chevron.

Revenue and percent of consolidated revenues attributable to major customers by year:

Dollars in millions, except percentage amounts

Chevron revenue

$
1,069

17 %

$
1,859

26 %

$
2,302

30 %

Years ended December 31,

2014

2013

2012

Raw Materials and Suppliers

Equipment and materials essential to our business are obtained from a variety of sources throughout the world. 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 department seeks to leverage our size and buying power to ensure that we have access to key equipment
and materials at the best possible prices and delivery schedules. While we do not currently foresee any significant lack of
availability of equipment and materials in the near term, the availability of these items may vary significantly from year to year
and any prolonged unavailability or significant price increases for equipment and materials necessary to our projects and services
could have a material adverse effect on our business. See “Item 1A. Risk Factors” for more information.

Intellectual Property

We have developed or otherwise have the right to license leading technologies, including technologies held under license
from third parties, used for the production of a variety of petrochemicals and chemicals and in the areas of olefins, refining,
fertilizers, coal gasification and semi-submersible technology. We also license a variety of technologies for the transformation of
raw materials into commodity chemicals such as phenol and aniline used in the production of consumer-end products. In
addition, we are a licensor of ammonia process technologies used in the conversion of synthetic gas to ammonia. We believe our
technology portfolio and experience in the commercial application of these technologies and related know-how differentiates us,
enhances our margins and encourages customers to utilize our broad range of EPC and construction services.

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. 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. However, the majority
of our license fees tend to result in a one-time payment per agreement rather than ongoing royalty-type payments. For
technologies we own, we protect our rights, know-how and trade secrets through patents and confidentiality agreements. Our
expenditures for research and development activities were immaterial in each of the past three fiscal years.

Seasonality

Our operations are not generally affected by seasonality. Weather and natural phenomena can temporarily affect the

performance of our services.

Employees

As of December 31, 2014, we had approximately 25,000 employees, of which approximately 10% were subject to
collective bargaining agreements. Based upon the geographic diversification of our employees, we believe any risk of loss from
employee strikes or other collective actions would not be material to the conduct of our operations taken as a whole.

Health and Safety

We are subject to numerous health and safety laws and regulations. In the United States, these laws and regulations
include the Federal Occupational Safety and Health Act and comparable state legislation, the Mine Safety and Health
Administration laws, and safety requirements of the Departments of State, Defense, Energy and Transportation of the U.S.
government. We are also subject to similar requirements in other countries in which we have extensive operations, including the
U.K. where we are subject to the various regulations enacted by the Health and Safety Act of 1974.

These laws and regulations are frequently changing and it is impossible to predict the effect of such laws and regulations
on us in the future. We actively seek to maintain a safe, healthy and environmentally friendly work place for all of our
employees and those who work with us. However, we provide some of our services in high-risk locations and, as a result; we
may incur substantial costs to maintain the safety and security of our personnel.

During the fourth quarter of 2014, we embarked on a global Zero Harm initiative in order to reinforce health, safety,
security and environment as key components of the KBR culture and lifestyle. This initiative incorporates three dynamic
components, Zero Harm, 24/7 and courage to care which empowers individuals to take responsibility for their health and safety,
as well as that of their colleagues.

Environmental Regulation

We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. In the
U.S., these laws and regulations include, among others: the Comprehensive Environmental Response, Compensation and
Liability Act; the Resources Conservation and Recovery Act; the Clean Air Act; the Clean Water Act; and the Toxic Substances
Control Act. In addition to federal and state laws and regulations, other countries where we do business often have numerous
environmental regulatory requirements by which we must abide in the normal course of our operations. These requirements
apply to our business segments where we perform construction and industrial maintenance services or operate and maintain
facilities.

We continue to monitor conditions at sites owned or previously owned, and until further information is available, we are
only able to estimate a possible range of remediation costs. These locations were primarily utilized for manufacturing or
fabrication work and are no longer in operation. The use of these facilities created various environmental issues including
deposits of metals, volatile and semi-volatile compounds and hydrocarbons impacting surface and subsurface soils and
groundwater. The range of remediation costs could change depending on our ongoing site analysis and the timing and techniques
used to implement remediation activities. We do not expect that costs related to environmental matters will have a material
adverse effect on our consolidated financial position or results of operations. Based on the information presently available to us,
as of December 31, 2014, we have accrued approximately $1 million for the assessment and remediation costs associated with all
environmental matters and we do not anticipate incurring additional costs. See Note 15 to our consolidated financial statements
for more information on environmental matters.

We have been named as a potentially responsible party in various clean-up actions taken by federal and state agencies in
the U.S. At this time, we are unable to determine whether we will ultimately be deemed responsible for any costs associated
with these actions.

Existing or pending climate change legislation, regulations, international treaties or accords are not expected to have a
short-term material direct effect on our business, the markets that we serve or on our results of operations or financial position.
However, climate change legislation could have a direct effect on our customers or suppliers, which could impact our business.
For example, our commodity-based markets depend on the level of activity of mineral and oil and gas companies and existing or
future laws, regulations, treaties or international agreements related to climate change, including incentives to conserve energy or
use alternative energy sources, which could impact our business if such laws, regulations, treaties or international agreements
reduce the worldwide demand for minerals, oil and natural gas. We will continue to monitor developments in this area.

Compliance

Conducting our business with ethics and integrity is a key priority for KBR. We are subject to numerous compliance-
related laws and regulations, including the U.S. Foreign Corrupt Practices Act (the "FCPA"), the U.K. Bribery Act, other
applicable anti-bribery legislation and laws and regulations regarding trade and exports. We are also governed by our own Code
of Business Conduct and other compliance-related corporate policies and procedures that mandate compliance with these laws.
Our Code of Business Conduct is a guide for every employee in applying legal and ethical practices to our everyday work. The
Code of Business Conduct describes not only our standards of integrity but also some of the specific principles and areas of the
law that are most likely to affect our business. We regularly train our employees regarding anti-bribery issues and our Code of
Business Conduct.

Website Access

Our annual report 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 Securities Exchange Act of 1934 are made available free of
charge on our Internet website at www.kbr.com as soon as reasonably practicable after we have electronically filed the material
with, or furnished it to, the U.S. Securities and Exchange Commission ("SEC"). The public may read and copy any materials we
have filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet website that contains our reports, proxy and information statements and our other SEC filings. The address of that
website is www.sec.gov. We have posted on our website our Code of Business Conduct, which applies to all of our employees
and Directors and serves as a code of ethics for our principal executive officer, principal financial officer, principal accounting
officer and other persons performing similar functions. Any amendments to our Code of Business Conduct or any waivers from
provisions of our Code of Business Conduct granted to the specified officers above are disclosed on our website within four
business days after the date of any amendment or waiver pertaining to these officers. No such waivers were granted during 2014.

Item 1A. Risk Factors

Risks Related to Operations of our Business

Our results of operations depend on the award of new contracts and the timing of the performance of these contracts.

A substantial portion of our revenues is directly or indirectly derived from new contract awards. Delays in the timing of
the awards or potential cancellations of such prospects as a result of economic conditions, material and equipment pricing and
availability or other factors could impact our long-term projected results. It is particularly difficult to predict whether or when
we will receive large-scale international and domestic projects as these contracts frequently involve a lengthy and complex
bidding and selection process, which is affected by a number of factors, such as market conditions, governmental and
environmental approvals. Since a significant 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. In addition, many of these contracts are subject to financing
contingencies and as a result, we are subject to the risk that the customer will not be able to secure the necessary financing for
the project.

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
anticipation of future workforce needs for expected contract awards. If an expected contract award is delayed or not received,
we may incur additional costs resulting from reductions in staff or redundancy of facilities which could have a material adverse
effect on our business, financial condition and results of operations.

The nature of our contracts, particularly those that are fixed-price, subjects us to risks associated with cost over-runs,
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.
Approximately 40% of the value of our backlog is attributable to fixed-price contracts, which include our unit-rate contracts
where we bear a significant portion of the risk of cost over-runs. These types of contracts are priced based in part on cost and
scheduling estimates that are based on assumptions including prices and availability of labor, equipment and materials as well as
productivity, performance and future economic conditions. If these estimates prove inaccurate, there are errors or ambiguities as
to contract specifications or if circumstances change due to, among other things, unanticipated technical problems, difficulties in
obtaining permits or approvals, changes in local laws or labor conditions, weather delays, changes in the costs of equipment and
materials or our suppliers’ or subcontractors’ inability to perform, then cost overruns may occur. We may not be able to obtain
compensation for additional work performed or expenses incurred. Additionally, we may be required to pay liquidated damages
upon our failure to meet schedule or performance requirements of our contracts. Our failure to accurately estimate the resources
and time required for fixed-price contracts or our failure to complete our contractual obligations within the time frame and costs
committed could result in reduced profits or, in certain cases, a loss for that contract. If the contract is significant, or we
encounter issues that impact multiple contracts, cost overruns could have a material adverse effect on our business, financial
condition and results of operations.

If we are unable to attract and retain a sufficient number of affordable trained engineers, craft labor, and other skilled
workers, our ability to pursue projects may be adversely affected and our costs may increase.

Our rate of growth and the success of our business depend upon our ability to attract, develop and retain a sufficient
number of affordable trained engineers, craft labor and other skilled workers either through direct hire or acquisition of other
firms employing such professionals. The market for these professionals is competitive. If we are unable to attract and retain a
sufficient number of skilled personnel, our ability to pursue projects may be adversely affected, the costs of executing our
existing and future projects may increase and our financial performance may decline.

We conduct a portion of our engineering and construction 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 EPC operations through large project-specific joint ventures where control may be shared
with unaffiliated third parties. As with any joint venture arrangement, differences in views among the joint venture participants
may result in delayed decisions or in failures to agree on major issues. We also cannot control the actions of our joint venture
partners, including any nonperformance, default or bankruptcy of our joint venture partners, and we typically 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 our
customer. We could be liable for both our obligations and those of our partners, which may result in reduced profits or, in some

cases, significant losses on the project. 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 and internal control reporting that we follow. As a result, internal control issues
may arise, which could have a material adverse effect on our financial condition and results of operations. Additionally, in order
to establish or preserve relationships with our joint venture partners, we may agree to risks and contributions of resources that are
proportionately greater than the returns we could receive, which could reduce our income and returns on these investments
compared to what we may have received if the risks and resources we contributed were always proportionate to our returns.

The nature of our engineering and construction business exposes us to potential liability claims and contract disputes which
may exceed or be excluded from existing insurance coverage.

We engage in engineering and construction activities for large facilities where design, construction or systems failures can
result in substantial injury or damage to employees or other third parties or delays in completion or commencement of
commercial operations, exposing us to legal proceedings, investigations and disputes. The nature of our business results in
clients, subcontractors and vendors occasionally presenting claims against us for recovery of costs they incurred in excess of
what they expected to incur or for which they believe they are not contractually liable. When it is determined that we have
liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed our policy limits.
Our professional liability coverage is on a “claims-made” basis covering only claims actually made during the policy period
currently in effect. In addition, even where insurance is maintained for such exposures, the policies have deductibles, which
result in our assumption of exposure for a layer of coverage with respect to any such claims. Any liability not covered by our
insurance, in excess of our insurance limits or if covered by insurance but subject to a high deductible could result in a
significant loss for us, which may reduce our profits and cash available for operations.

We occasionally bring claims against project owners for additional costs exceeding the contract price or for amounts not
included in the original contract price. These types of claims occur due to matters such as owner-caused delays or changes from
the initial project scope which may result in additional direct and indirect costs. Often these claims can be the subject of lengthy
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 promptly recover on these types of claims could have a
material adverse impact on our liquidity and financial results.

International and political events may adversely affect our operations.

A significant 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;

civil unrest, acts of terrorism, force majeure, war or other armed conflict;
currency fluctuations, devaluations and conversion restrictions;
confiscatory taxation or other adverse tax policies; or

•
• political and economic instability;
•
•
•
• 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.

Due to the unsettled political conditions in many oil-producing countries and other 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. Our operations are conducted in areas that have significant
political risk. In addition, military action or unrest in such locations as the Middle East could restrict the supply of oil and gas,
disrupt our operations in the region and elsewhere and increase our costs related to security worldwide.

We may have additional tax liabilities associated with our domestic and international operations.

We are subject to income taxes in the United States and numerous foreign jurisdictions, many of which are developing
countries. Significant judgment is required in determining our worldwide provision for income taxes due to lack of clear and
concise tax laws and regulations in certain jurisdictions. It is not unlikely that laws may be changed or clarified and such
changes may require material changes to our tax provisions. We are audited by various U.S. and foreign tax authorities and in
the ordinary course of our business there are many transactions and calculations where the ultimate tax determination may be
uncertain. Although we believe that our tax estimates are reasonable, the final outcome of tax audits and related litigation could
be materially different from that which is reflected in our financial statements. In addition, because of the changing nature of our
projects, geographic locations, etc. our effective tax rates in future years may differ materially from previous years.

We work in international locations where there are high security risks, which could result in harm to our employees and
contractors or substantial costs.

Some of our services are performed in high-risk locations, such as Iraq, Afghanistan, 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. In
those locations where we have employees or operations, we have and may continue to incur substantial costs to maintain the
safety of our personnel. Despite these precautions, we have suffered the loss of employees and contractors that has resulted in
claims and litigation. In the future, the safety of our personnel in these and other locations may continue to be at risk, exposing
us to the potential loss of additional employees and contractors that could lead to future claims and litigation.

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. Depending on the type of contract, location and the
nature of the work, 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 which charterers and
vessel operators have to third parties “at law.” In addition, we ship a significant amount of cargo and are subject to hazards of
the shipping and transportation industry.

Demand for our services depends on demand and capital spending by customers in their target markets, many of which are
cyclical in nature.

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 oil, natural gas and commodities prices. Capital expenditures for refining and distribution facilities by large oil and gas
companies have a significant impact on the activity levels of our businesses. Demand for LNG facilities for which we provide
services could decrease in the event of a sustained reduction in the price and demand for crude oil or natural gas. Perceptions of
longer-term lower oil and natural gas prices by oil and gas companies or longer-term higher material and contractor prices
impacting facility costs can similarly reduce or defer major expenditures given the long-term nature of many large-scale projects.
Prices of oil, natural gas and commodities are subject to large fluctuations in response to relatively minor changes in supply and
demand, market uncertainty and a variety of other factors that are beyond our control. Factors affecting the prices of oil, natural
gas and other commodities include, but are not limited to:

• worldwide or regional political, social or civil unrest, military action and economic conditions;
•
• governmental regulations or policies, including the policies of governments regarding the use of energy and the

the level of demand for oil, natural gas, industrial services and power generation;

exploration for and production and development of their oil and natural gas reserves;
a reduction in energy demand as a result of energy taxation or a change in consumer spending patterns;

•
• global economic growth or decline;
•

the level of oil production by non-OPEC countries and the available excess production capacity from OPEC
countries;

• global weather conditions and natural disasters;
• oil refining capacity;
•
• potential acceleration of the development and expanded use of alternative fuels;
•

shifts in end-customer preferences toward fuel efficiency and the use of natural gas;

environmental regulation, including limitations on fossil fuel consumption based on concerns about its relationship
to climate change; and
reduction in demand for the commodity-based markets in which we operate.

•

Historically, the markets for oil and natural gas have been volatile and are likely to continue to be volatile in the future.

Crude oil and natural gas prices are extremely volatile. A substantial or extended decline in the price of oil and natural gas
could adversely affect our results of operations.

Our business segment revenues are highly dependent on capital expenditures for LNG, refining and distribution facilities
and other investments by large oil and gas companies. The demand for these facilities and the ability of our customers to borrow
and obtain additional capital on attractive terms is also substantially dependent upon crude oil and natural gas prices. As seen in
the recent decline in crude prices, prices of oil and natural gas are subject to large fluctuations in response to relatively minor
changes in supply and demand, market uncertainty and a variety of other factors that are beyond our control. Demand for the
services we provide could decrease in the event of a sustained reduction in demand for crude oil or natural gas, while perceptions
of long-term decline in crude oil and natural gas prices by oil and gas companies (our customers) can similarly reduce or defer
major expenditures given the long-term nature of many large-scale projects.

Our backlog is subject to unexpected adjustments and cancellations and, therefore, may not be a reliable indicator of our
future revenues or earnings.

As of December 31, 2014, our backlog was approximately $10.9 billion. We cannot guarantee that the revenues projected
in our backlog will be realized or that the projects will be profitable. Many of our contracts are subject to cancellation,
termination or suspension at the discretion of the customer. From time to time, changes in project scope may occur with respect
to contracts reflected in our backlog and could reduce the dollar amount of our backlog and the timing of the revenues and profits
that we actually 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.

Intense competition in the engineering and construction industry could reduce our market share and profits.

We serve markets that are highly competitive and in which a large number of multinational companies compete. These
highly competitive markets require substantial resources and capital investment in equipment, technology and skilled personnel.
Our projects are frequently awarded through a competitive bidding process, which is standard in our industry. We are constantly
competing for project awards based on pricing and the breadth and technical sophistication of our services. Any increase in
competition or reduction in our competitive capabilities could have a material adverse effect on the margins we generate from
our projects as well as our ability to maintain or increase market share.

A portion of our revenues is generated by large, recurring business from certain significant customers. A loss, cancellation or
delay in projects by our significant customers in the future could negatively affect our revenues.

We provide services to a diverse customer base, including IOCs, NOCs, independent refiners, petrochemical producers,
fertilizer producers, chemical producers, manufacturers, domestic and foreign governments and regulated electric utilities. A
considerable percentage of revenues is generated from transactions with Chevron primarily from our E&C business segment.
Revenues from Chevron in 2014 represented 17% of our total consolidated revenues.

Dependence on craft labor, subcontractors and equipment manufacturers could adversely affect our profits.

We rely on local craft labor, third party subcontractors as well as third party equipment manufacturers to complete our
projects. To the extent that we cannot engage craft labor, subcontractors or acquire equipment or materials, our ability to
complete a project in a timely fashion or at a profit may be impaired. 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. In addition, if a subcontractor or a manufacturer is unable to deliver its services, equipment or
materials according to the negotiated terms for any reason, including 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.

If we are unable to enforce our intellectual property rights, or if our intellectual property rights become obsolete, our
competitive position could be adversely impacted.

We utilize a variety of intellectual property rights in the provisioning of services to our customers. We view our portfolio
of process and design technologies as one of our competitive strengths and we use it as part of our efforts to differentiate our
service offerings. We may not be able to successfully preserve these intellectual property rights in the future, and these rights
could be invalidated, circumvented, challenged or infringed upon. In addition, the laws of some foreign countries in which our
services may be sold do not protect intellectual property rights to the same extent as the laws of the United States. Since we
license technologies from third parties, there is a risk that our relationships with licensors may terminate, expire or be interrupted
or harmed. In some, but not all cases, we may be able to obtain the necessary intellectual property rights from alternative
sources. If we are unable to protect and maintain our intellectual property rights, or if there are any successful intellectual
property challenges or infringement proceedings against us, our ability to differentiate our service offerings could diminish. In
addition, if our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service
offerings and some of our competitors may be able to offer more attractive services to our customers. As a result, our business
and financial performance could be materially and adversely affected.

Our current business strategy includes the possibility of acquisitions, which may present certain risks and uncertainties.

We may seek business acquisitions as a means of broadening our offerings and capturing additional market opportunities
by our business segments and we may be exposed to certain additional risks resulting from these activities. These risks include,
but are not limited to the following:

• Valuation methodologies may not accurately capture the value proposition;
• Future completed acquisitions may not be integrated within our operations with the efficiency and effectiveness
initially expected, resulting in a potentially significant detriment to the associated product/service line financial
results and posing additional risks to our operations as a whole;

• We may have difficulty managing our growth from acquisition activities;
• Key personnel within an acquired organization may resign from their related positions resulting in a significant loss

to our strategic and operational efficiency associated with the acquired company;

• The effectiveness of our daily operations may be reduced by the redirection of employees and other resources to

acquisition activities;

• We may assume liabilities of an acquired business (e.g. litigation, tax liabilities, contingent liabilities,
environmental issues), including liabilities that were unknown at the time 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;

• Business acquisitions may include substantial transactional costs to complete the acquisition that exceed the

estimated financial and operational benefits; or

• Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on
attractive terms, if at all. Moreover, to the extent an acquisition transaction results in additional goodwill, it will
reduce our tangible net worth, which might have an adverse effect on our credit capacity.

We rely on information technology ("IT") systems to conduct our business, and disruption, failure or security breaches of these
systems could adversely affect our business and results of operations.

We rely heavily on IT systems in order to achieve our business objectives. We also rely upon industry accepted security
measures and technology to securely maintain confidential and proprietary information maintained on our IT systems. However,
our portfolio of hardware and software products, solutions and services and our enterprise IT systems may be vulnerable to
damage or disruption caused by circumstances beyond our control such as catastrophic events, power outages, natural disasters,
computer system or network failures, computer viruses, cyber-attacks or other malicious software programs. The failure of our
IT systems to perform as anticipated for any reason could disrupt our business and result in decreased performance, significant
remediation costs, transaction errors, loss of data, processing inefficiencies, downtime, litigation and the loss of suppliers or
customers. We have experienced security threats, none of which we considered to be significant to our business or results of
operations, but significant disruption or failure could have a material adverse effect on our business operations, financial
performance and financial condition.

An impairment of all or part of our goodwill and/or our intangible assets could have a material adverse impact on our net
earnings and net worth.

As of December 31, 2014, we had $324 million of goodwill and $41 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. If our market capitalization drops significantly below the amount of net equity recorded on our balance sheets, it
might indicate a decline in our fair value and would require us to further evaluate whether our goodwill has been impaired. We
perform an annual and an interim analysis, if appropriate, of our goodwill to determine if it has become impaired. The analysis
requires us to make assumptions in estimates of fair value of our reporting units. If actual results are significantly different from
the estimates, we might be required to write down the impaired portion of goodwill. An impairment of all or a part of our
goodwill and/or intangible assets could have a material adverse effect on our net earnings and net worth.

Our use of the percentage-of-completion method of revenue recognition could result in a reduction or reversal of previously
recorded revenues and profits.

A substantial portion of our revenues and profits are measured and recognized using the percentage-of-completion method
of revenue recognition. Our use of this accounting method results in recognition of revenues and profits over the life of a
contract, based generally on the proportion of costs incurred to date to total costs expected to be incurred for the entire project,
the ratio of hours performed to date to our estimate of total expected hours at completion, or the physical progress methodology.
The effects of revisions to estimated revenues and estimated costs are recorded when the amounts are known or can be
reasonably estimated. Such revisions could occur in any period and their effects could be material. Although we have
historically made reasonably reliable estimates of the progress towards completion of long-term engineering, program
management, construction management or construction contracts, the uncertainties inherent in the estimating process make it
possible for actual costs to vary materially from estimates, including reductions or reversals of previously recorded revenues and
profits.

Risks Related to Government Operations of our Business

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 both fixed-price
and cost-reimbursable elements. The U.S. government has also favored multiple award task order contracts in which several
contractors are selected as eligible bidders for future work. Such processes require successful contractors to continually
anticipate customer requirements and develop rapid-response bid and proposal teams as well as have supplier relationships and
delivery systems in place to react to emerging needs. We will face rigorous competition and pricing pressures for any additional
contract awards from the U.S. government, and we may be required to qualify or continue to qualify under the various multiple
award task order contract criteria. It may be more difficult for us to win future awards from the U.S. government and we may
have other contractors sharing in any U.S. government awards that we win. In addition, negative publicity regarding findings
stemming from audits by the Defense Contract Audit Agency (the "DCAA"), congressional investigations and litigation may
adversely affect our ability to obtain future awards. See "Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Analysis - U.S. Government Matters."

Demand for our services provided under government contracts are directly affected by spending by our customers.

We derive a portion of our revenues from contracts with agencies and departments of the U.K., Australia and U.S.
governments, which is directly affected by changes in government spending and availability of adequate funding. Additionally,
U.S. 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 a defense contractor, our financial performance is
affected by the allocation and prioritization of defense spending. Factors that could affect current and future government
spending include:

• policy and/or spending changes implemented by the current administration, DoD or other government agencies;
•
•
•
•

changes, delays or cancellations of government programs or requirements;
adoption of new laws or regulations that affect companies providing services to the governments;
curtailment of the governments’ outsourcing of services to private contractors; or
level of political instability due to war, conflict or natural disasters.

We face uncertainty with respect to our government contracts due to the fiscal and economic challenges facing our
customers, including sequestration and issues surrounding the U.S. national debt ceiling. Potential contract cancellations,
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 the governments or decreases in governmental spending
and outsourcing could have a material adverse effect on our business, results of operations and cash flows.

Our U.S. government contract work is regularly reviewed and audited by our customer, U.S. government auditors and others,
and these reviews can lead to withholding or delay of payments to us, non-receipt of award fees, legal actions, fines, penalties
and liabilities and other remedies against us.

U.S. government contracts are subject to specific regulations such as the Federal Acquisition Regulation ("FAR"), the
Truth in Negotiations Act, the Cost Accounting Standards ("CAS"), the Service Contract Act and DoD security regulations.
Failure to comply with any of these regulations, requirements or statutes may result in contract price adjustments, financial
penalties or contract termination. Our U.S. government contracts are subject to audits, cost reviews and investigations by U.S.
government contracting oversight agencies such as the DCAA. The DCAA reviews the adequacy of, and our compliance with,
our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, compensation
and management information systems. The DCAA has the authority to conduct audits and reviews to determine if KBR is
complying with the requirements under 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 Defense Contract Management Agency
("DCMA"). Should the DCMA determine that we have not complied with the terms of our contract and applicable statutes and
regulations, payments to us may be disallowed, which could result in adjustments to previously reported revenues and refunding
of previously collected cash proceeds. Additionally, we may be subject to qui tam litigation brought by private individuals on
behalf of the U.S. government under the Federal False Claims Act, which could include claims for treble damages.

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, although we would receive payment for amounts owed for our allowable costs under
cost-reimbursable contracts. Other remedies that could be sought by our government customers for any improper activities or
performance issues include sanctions such as forfeiture of profits, suspension of payments, fines and suspensions or debarment
from doing business with the government. Further, the negative publicity that could arise from disagreements with our
customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry, reduce our ability to
compete for new contracts and may also have a material adverse effect on our business, financial condition, results of operations
and cash flows.

Some of our U.S. government work requires KBR and certain of its employees to qualify for and retain a government-issued
security clearance.

A KBR subsidiary currently holds a U.S. government-issued facility security clearance and certain of its employees have
qualified for and hold U.S. government-issued personal security clearances. These clearances are necessary in order to qualify
for and ultimately perform certain of our U.S. government contracts. Should we no longer qualify for such clearances, our
ability to pursue and perform U.S. government contracts would be negatively impacted.

Risks Related to Governmental Regulations and Law

We could be adversely impacted if we fail to comply with domestic and international export laws, which are the subject of
rigorous enforcement by the U.S. government.

To the extent that we export products, technical data and services outside of the United States, we are subject to laws and
regulations governing trade and exports, including, but not limited to, the International Traffic in Arms Regulations, the Export
Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign
Asset Control within the Department of the Treasury. A failure to comply with these laws and regulations could result in civil
and/or criminal sanctions, including the imposition of fines upon us 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 and/or suspension of payment, any of which could make
us lose our status as an eligible U.S. government contractor and cause us to suffer serious harm to our reputation. Any
suspension or termination of our U.S. government contractor status 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 include 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 generally prohibit companies and their
intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our
policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced
governmental corruption to some degree and, in certain circumstances; strict compliance with anti-bribery laws may conflict
with local customs and practices. We train our staff concerning FCPA issues, and we also inform our partners, subcontractors,
agents and other third parties who work for us or on our behalf that they must comply with the requirements of the FCPA and
other anti-corruption laws. We also have procedures and controls in place to monitor internal and external compliance. We
cannot 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.

We are subject to various environmental, health and safety laws and regulations. If we fail to comply with these laws and
regulations, we may incur significant costs and penalties that could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

Our operations are subject to a variety of environmental, 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 add significant cost to a project.

Various U.S. federal, state, local, and 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 is joint and
several. The ongoing costs of complying with existing environmental laws and regulations could be substantial and have a
material adverse impact on our financial condition, results of operations and cash flows.

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 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.

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.

Risks Related to Financial Conditions and Markets

Current or future economic conditions in the credit markets may negatively affect the ability to operate our or our customers’
businesses, finance working capital, implement our acquisition strategy and access our cash and short-term investments.

We finance our business using cash provided by operations, but also depend on the availability of credit for growth. Our
ability to obtain capital or financing on satisfactory terms will depend in part upon prevailing market conditions as well as our
operating results. If adequate credit or funding is not available, or is not available on terms satisfactory to us, there could be a
material adverse effect on our business and financial performance.

Disruptions of the credit markets could also adversely affect our clients’ borrowing capacity, which supports the
continuation and expansion of projects worldwide, and could result in contract cancellations or suspensions, project delays and
payment delays or defaults by our clients. In addition, clients may choose to make fewer capital expenditures or otherwise slow
their spending on our services or to seek contract terms more favorable to them. Our government clients may face budget
deficits that prohibit them from funding proposed and existing projects or that cause them to exercise their right to terminate our
contracts with little or no prior notice. Furthermore, any financial difficulties suffered by our subcontractors or suppliers could
increase our cost or adversely impact project schedules. These disruptions could materially impact our backlog and financial
performance.

In addition, we are subject to the risk that the counterparties to our Credit Agreement 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 credit 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 United Kingdom 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 liquidity crisis that could impede our ability to fund operations.

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 Credit Agreement is generally at the provider’s sole discretion. Due to events that affect the banking and
insurance markets generally, letters of credit and/or surety bonds may be difficult to obtain or may only be available at significant
cost. Moreover, many projects are often very large and complex, which often necessitates the use of a joint venture, often with a
market competitor, to bid on and perform the contract. However, entering into joint ventures or partnerships exposes us to the
credit and performance risk of third parties, many of whom may not be financially strong. If our joint ventures or partners fail to
perform, we could suffer negative results. In addition, future projects may require us to obtain letters of credit that extend
beyond the term of our current Credit Agreement. Any inability to bid for or win new contracts due to the failure of obtaining
adequate letters of credit, surety bonding and/or other customary credit enhancements could have a material adverse effect on our
business prospects and future revenues.

Our Credit Agreement imposes restrictions that limit our operating flexibility and may result in additional expenses, and this
credit agreement may not be available if financial covenants are violated or if an event of default occurs.

Our Credit Agreement provides a credit line of $1 billion and expires in December 2016. It 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 maintenance of a maximum ratio
of consolidated debt to consolidated EBITDA and a minimum consolidated net worth.

A breach of any covenant or our inability to comply with the required financial ratios could result in a default under our
Credit Agreement, 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 Credit Agreement when due, our lenders could proceed against the guarantees
of our major domestic subsidiaries. If any future indebtedness under our Credit Agreement is accelerated, we can provide no
assurance that our assets would be sufficient to repay such indebtedness in full.

Provisions in our charter documents, Delaware law and our Credit Agreement may inhibit a takeover or impact operational
control which 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 Credit
Agreement contains a default provision that is triggered upon a change in control of at least 25%.

We are subject to significant foreign exchange and currency risks that could adversely affect our 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 do 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 significant portion of our consolidated revenues and consolidated operating expenses are in
foreign currencies. As a result, we are subject to significant 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.

If we need to sell or issue additional common shares to finance future acquisitions, 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 acquiring and merging of complementary businesses. To successfully
fund and complete such potential acquisitions, we may issue additional equity securities that may result in dilution of our
existing shareholder ownership's earnings per share.

We make equity investments in privately financed projects in which we could sustain significant losses.

We participate in privately financed projects that enable governments and other customers to finance large-scale projects,
such as the acquisition and maintenance of major military equipment, capital projects and service purchases. These projects
typically include the facilitation of nonrecourse financing, the design and construction of facilities and the provision of operation
and maintenance services for an agreed-upon period after the facilities have been completed. We may incur contractually
reimbursable costs and typically make investments prior to an entity achieving operational status or receiving project financing.
If a project is unable to obtain financing, we could incur losses on our investments and any related contractual receivables. After
completion of these projects, the return on our investments can be dependent on the operational success of the project and market
factors which may not be under our control. As a result, we could sustain a loss on our equity investment in these projects.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own or lease properties in domestic and foreign locations. The following locations represent our major facilities.

Location

Owned/Leased

Greenford, United Kingdom

Owned

Description
Office facilities

Business Segment

Engineering & Construction

Leatherhead, United Kingdom

Owned

Office facilities

Birmingham, Alabama

Owned

Office facilities

Engineering & Construction and
Government Services
Non-strategic Business

North America:

Arlington, Virginia

Leased

Office facilities

Government Services

Edmonton, Alberta, Canada

Leased

Office and Project
facilities

Engineering & Construction and
Other

Houston, Texas

Leased

Office facilities

All and Other

Monterrey, Nuevo Leon, Mexico

Leased

Office facilities

Engineering & Construction

Newark, Delaware

Leased

Office facilities

Engineering & Construction

Europe, Middle East and Africa:

Al Khobar, Saudi Arabia

Leased

Office facilities

Engineering & Construction

Gothenburg, Sweden

Leased

Office facilities

Technology & Consulting

Asia-Pacific:

Singapore

Sydney, Australia

Perth, Australia

Melbourne, Australia

Leased

Office facilities

Technology & Consulting and
Engineering & Construction

Office facilities

Engineering & Construction

Office and project
facilities

Engineering & Construction

Office facilities

Engineering & Construction

We also own or lease numerous small facilities that include sales offices and project offices throughout the world and
lease office space in other buildings owned by unrelated parties. All of our owned properties are unencumbered and we believe
all properties that we currently occupy are suitable for their intended use.

Item 3. Legal Proceedings

Information relating to various commitments and contingencies is described in “Item 1A. Risk Factors” and in Notes 14
and 15 to our consolidated financial statements, and the information discussed therein is incorporated by reference into this
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 traded on the New York Stock Exchange under the symbol “KBR.” The following table sets forth,
on a per share basis for the periods indicated, the high and low sales prices per share for our common stock as reported by the
New York Stock Exchange and dividends declared. In the fourth quarter of 2014, we declared a dividend of $0.08 per share on
October 2, 2014.

Fiscal Year 2014

First quarter ended March 31, 2014
Second quarter ended June 30, 2014
Third quarter ended September 30, 2014
Fourth quarter ended December 31, 2014

Fiscal Year 2013

First quarter ended March 31, 2013
Second quarter ended June 30, 2013
Third quarter ended September 30, 2013
Fourth quarter ended December 31, 2013

Common Stock Price Range

High

Low

Dividends
Declared
Per Share

$
$
$
$

34.77 $
28.29 $
24.44 $
20.48 $

32.65 $
36.69 $
34.01 $
36.70 $

26.34 $
22.48 $
18.77 $
14.65 $

28.24 $
27.60 $
29.42 $
29.32 $

0.08
0.08
0.08
0.08

—
0.08
0.08
0.08

At January 31, 2015, there were 110 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, our Board of Directors authorized a new $350 million share repurchase program, which replaces
and terminates the August 26, 2011 share repurchase program. The authorization does not specify an expiration date for the
share repurchase program.

We also have a share maintenance program to repurchase shares based on vesting and other activity under our equity
compensation plans. In a given fiscal year, we allocate repurchased shares first to our maintenance program and next to our
Board-authorized repurchase program. In the months in which we have not repurchased but have had to cover vesting on our
equity compensation plans we reduce previous repurchases under the Board-authorized repurchase program.

Under our Credit Agreement, we are permitted to repurchase our common stock provided that no such repurchases shall
be made from the proceeds borrowed under the Credit Agreement and that the aggregate purchase price and dividends paid
after December 2, 2013 does not exceed the Distribution Cap. At December 31, 2014, the remaining availability under the
Distribution Cap was approximately $468 million. The declaration, payment or increase of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things, future earnings, general financial condition and
liquidity, success in business activities, capital requirements and general business conditions. Since January 2007, we have
repurchased $731 million of our outstanding common stock.

The following is a summary of share repurchases of our common stock settled during the three months ended

December 31, 2014.

Purchase Period
October 1 – 31, 2014
November 3 – 28, 2014

December 1 – 31, 2014
Total

Total Number
of Shares
Purchased (1)

Average
Price Paid
per Share (3)

Total Number of
Shares Purchased
as Part of Publicly
Announced Plan (2)

— $
— $
230,400 $
230,400 $

—
20.78
15.59
15.52

Dollar Value of Maximum
Number of Shares that
May Yet Be
Purchased Under the Plan
265,330,176
265,390,024
261,832,261
261,832,261

— $
(2,880 ) $
228,208 $
225,328 $

(1) Does not include shares withheld for tax purpose or forfeitures under our equity plans. Shares are acquired from
employees in connection with the settlement of income tax and related benefit-withholding obligations arising from the
vesting of restricted stock units. For the three month period ended December 31, 2014, 507 shares were acquired to
cover employee transactions at an average price of $18.23.

(2) Represents the number of shares applied to the share repurchase program authorized and announced on February 25,
2014 less shares allocated to our maintenance program. Repurchases applied to cover our share maintenance plan for
the three month period ended December 31, 2014, were 5,072 shares at an average price of $18.54 per share.

(3) We did not repurchase shares in October and November of 2014. The average price paid per share of $20.78 reflects

the average price paid on the previous repurchases in August 2014.

Performance Graph

The chart below compares the cumulative total shareholder return on shares of our common stock for the five-year
period ended December 31, 2014, with the cumulative total return on the Dow Jones Heavy Construction Industry Index and
the Russell 1000 Index for the same period. The comparison assumes the investment of $100 on December 31, 2009 and
reinvestment of all dividends. The shareholder return is not necessarily indicative of future performance.

KBR
Dow Jones Heavy Construction
Russell 1000

12/31/2009 12/31/2010 12/31/2011
$ 100.00 $ 161.70 $ 148.90 $ 160.95 $ 171.54 $
105.04
113.29

12/31/2012 12/31/2013 12/31/2014
91.18
122.89
186.99

126.90
129.07

127.89
113.87

165.86
168.36

100.00
100.00

Item 6. Selected Financial Data

The following table presents selected financial data for the last five years. You should read the following information in
conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the
consolidated financial statements and the related notes to the consolidated financial statements.

2014

2013

2012

2011

2010

Years Ended December 31,

Dollars in millions, except per share amounts
Statement of Operations Data:
Revenues

Gross profit (loss)

Equity in earnings of unconsolidated affiliates

Impairment of goodwill, asset impairments and
restructuring charges (a)
Operating income (loss)

Income (loss) from continuing operations, net of
tax (b)
Net income attributable to noncontrolling interests
Net income (loss) attributable to KBR

Basic net income (loss) attributable to KBR per
share
Diluted net income (loss) attributable to KBR per
share
Cash dividends declared per share (c)

Balance Sheet Data (as of the end of period):
Total assets

Long-term nonrecourse project-finance debt

Total shareholders’ equity

6,366 $
(65 )
163

7,214 $
417
137

7,770 $
518
151

9,103 $
640
158

9,962
689
137

(660 )

(794 )

(1,198 )

(64 )

(1,262 )

—
308

171

(96 )
75

(180 )
299

202

(58 )
144

—
587

540

(60 )
480

(5 )
609

395

(68 )
327

(8.66 ) $

0.50

0.97

3.18

2.08

(8.66 ) $
0.32 $

0.50
$
0.24 $

0.97
$
0.28 $

3.16
$
0.20 $

2.07
0.15

4,199 $
63
935 $

5,438 $
78
2,439 $

5,767 $
84
2,511 $

5,666 $
88
2,442 $

5,417
92
2,204

Other Financial Data (as of the end of period):
Backlog of unfulfilled orders

10,859 $

14,118 $

14,931 $

10,931 $

12,041

(a) Included in 2014 is a goodwill impairment charge of $446 million related to three of our previous reporting units.
Included in 2012 is a goodwill impairment charge of $178 million related to one of our previous reporting units.
Included in 2014, 2012 and 2010 are impairment of long-lived asset charges of $171 million, $2 million and $5 million,
respectively, primarily related to equipment, land and buildings. Also included in 2014 are restructuring charges of $43
million.

(b) Included in 2014 is a $421 million of tax expense primarily related to valuation allowance on U.S. federal, foreign and
state net operating loss carryforwards, foreign tax credit carryforwards, other deferred tax assets and foreign tax
expense.

(c) In 2012, we declared five dividends totaling $0.28 per share. In each quarter during 2012, we declared a dividend of
$0.05 per share. In the fourth quarter of 2012, we declared an additional dividend of $0.08 per share on December 18,
2012. Consequently, in 2013 we declared only three dividends totaling 0.24 per share.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Management’s discussion and analysis (“MD&A”) should be read in conjunction with Part I of this Form 10-K as well

as the consolidated financial statements and related notes included in Item 8 of this Form 10-K.

Executive Overview

Business Reorganization

Following the June 2014 appointment of Mr. Stuart Bradie as CEO, we announced plans to undertake a global strategic
review of our business. The outcome of this review was a reorganization of our business into three new segments, T&C, E&C
and GS to focus on core strengths in global hydrocarbons and international government services. Our corporate expenses and
other operations that do not individually meet the criteria for group presentation continue to be reported in our Other business
segment, while operations we intend to sell or exit upon completion of our existing contracts are presented separately in the
Non-strategic Business segment. Each business segment excluding “Other” reflects a reportable segment led by a separate
business segment president who reports directly to our chief operating decision maker ("CODM"). See "Item 1. Business" for a
description of the new business segments. We have revised our business segment reporting to reflect our current management
approach and recast prior periods to conform to the current business segment presentation.

Business Environment

Demand for our services depends primarily on the level of capital expenditure in our market sectors, which is driven
generally by global and regional economic growth (primarily GDP growth) and more specifically by the demand for energy and
derivative products and government services. While the recent decline in oil prices may have a near term adverse impact on
our business, we see long-term growth in energy projects such as low cost production, shallow water, onshore production,
subsea tiebacks and brownfields revamping. Low energy prices reflected in the current oil price provide opportunities in
brownfield LNG and new petrochemicals, chemicals and fertilizer markets. We believe KBR has a balanced portfolio of
upstream, midstream and downstream and recurring revenues in outsourced government services, which provides us with less
exposure to the oil price declines than some of our peers.

We expect LNG demand to grow annually mainly in Asia and demand in Europe to rebound. We expect global capacity
coming online in the next 15 years to translate to the letting of two LNG plants per year, which is consistent with the last five
years. Growth regions include U.S. Gulf Coast and the Asia-Pacific region; Canada, due to new tax rules; and East Africa, due
to successful appraisals.

Overview of Financial Results

2014 was a transitional year for KBR with the arrival of a new CEO and the launch of a major strategic business review.
This review was completed in December 2014 and we intend to focus future efforts on the global hydrocarbons and
international government services markets. As a result of this decision, we decided to divest or exit the following businesses
upon completion of existing projects:

• Fixed priced EPC power projects
• Fixed priced U.S. infrastructure and mining business
• Building Group
• Fixed price construction-only projects

The 2014 financial results include significant restructuring charges, impairments of goodwill and other assets, and tax
valuation allowances from the strategic review that total approximately $1.1 billion. Our results for the year ended
December 31, 2014 were also impacted by the following:

• Reduced revenues and gross profit due to lower activity or the completion of several mega LNG and GTL projects
• Reduced gross profit due to increases in estimates of costs to complete certain projects, including recognition of

additional losses on our Canadian pipe fabrication and module assembly projects.

Our financial results continue to be driven by our E&C business segment, which is where we execute large EPC projects.
This segment generated revenues of $4.6 billion and gross profit of $141 million during 2014. While we continue to
successfully execute close-out activities on some of our major LNG/GTL projects, our E&C business segment remains focused
on actively pursuing new prospects in the LNG/GTL markets and in the petrochemical markets. We do not expect the next
major LNG EPC award until early 2016 and beyond. During 2014, our E&C business segment also experienced an increase in
EPC activity on refining, petrochemical and chemicals projects driven in large part by the abundant supply and low natural gas
prices in North America. Although we incurred losses during the first two quarters of 2014 on our Canadian pipe fabrication
and module assembly projects, the losses were less than 2013 and five of the seven projects are now complete. During the
fourth quarter we generated modest profit from claims recovery on several of these completed projects. One of the Canadian
pipe fabrication and module assembly contracts that is in a loss position is a master services-type agreement that provides our
client with the right, but not the obligation, to place new pipe fabrication and module assembly orders until 2017. During 2014,
we did not execute any new orders under this agreement.

Our GS business continues to be impacted by declines in our government logistics and support business, the slow-down
in government investments and by ongoing close-out costs associated with litigation and commercial disputes on legacy U.S.
government contracts that supported the U.S. military in Iraq (LogCAP III and RIO projects).

Our results were also impacted by a decline in building projects and increased costs to complete our power projects,

which resulted in the recognition of loss on two projects, all of which are reported within our Non-strategic Business segment.

Our backlog of unfilled orders declined in 2014 as we completed two mega EPC (i.e. LNG and GTL) projects and

continue to execute two additional mega LNG projects.

Revenues

Dollars in millions
Revenues

2014 vs. 2013

2013 vs. 2012

2014

2013

$ 6,366 $ 7,214 $

$
(848 )

2012

%
(12 )% $ 7,770 $

$
(556 )

(7 )%

Consolidated revenues decreased in 2014 compared to 2013. This decrease was primarily driven by reduced volumes
within our E&C business segment resulting from the completion or near completion of EPC projects in our LNG/GTL markets,
partially offset by new awards of refining, petrochemicals and chemicals projects. Lower overall volumes associated with our
GS business segment's support and logistics activities in Iraq and Afghanistan for the U.S. and U.K. governments, respectively,
also contributed to the decline. Additionally, the reduction in revenues was due to completion of several building projects
within our Non-strategic Business segment.

Consolidated revenues decreased in 2013 compared to 2012. This decline was primarily driven by the reduced volume
as we entered the early completion phases of the EPC projects previously noted, partially offset by activities on large new
awards within our E&C business segment. The decrease was also attributable to reduced volumes driven by base closures and
headcount reductions under the contract supporting the U.S. Military and the U.S. Department of State in Iraq. There was also
a reduction of commercial support and other services for the U.K. MoD in Afghanistan and other locations. These declines
were partially offset by activities on new projects within our Non-strategic Business segment.

Gross Profit (Loss)

Dollars in millions

Gross profit (loss)

2014 vs. 2013

2013 vs. 2012

2014

2013

(65 ) $

417 $

$
(482 )

%
(116 )% $

2012

518 $

$
(101 )

%
(19 )%

Consolidated gross profit decreased in 2014 compared to 2013. This decrease was primarily attributable to an increase
in estimated costs to complete projects within our Non-strategic Business segment and reduced volumes resulting from
completion of our GS contracts discussed above. Within our E&C business segment, reduced volume as we reached peak
activity in 2013 on certain EPC projects, higher estimated costs to complete certain projects and the positive impact of a fee
negotiation in 2013, which did not recur in 2014, contributed to the reduction in gross profit. The impact of these decreases
was partially offset by the reduction in losses on our Canadian pipe fabrication and module assembly projects in 2014
compared to 2013.

Consolidated gross profit decreased in 2013 compared to 2012. This decline was driven by reduced activity on the EPC
projects, cost savings realized in 2012, which did not recur in 2013, the impact of a foreign currency adjustment on an EPC
project as well as increased estimated costs to complete certain Canadian pipe fabrication and module assembly projects all
within our E&C business segment. This decrease was partially offset by activity on new awards within our Non-strategic
Business segment.

Equity in Earnings of Unconsolidated Affiliates

Dollars in millions

2014

2013

2012

Equity in earnings of unconsolidated affiliates $

163 $

137 $

19 % $

151 $

(14 )

(9 )%

2014 vs. 2013

2013 vs. 2012

Equity in earnings of unconsolidated affiliates increased in 2014 compared to 2013. This change was primarily due to
increased activity and progress on an LNG project joint venture within our E&C business segment and by an insurance
recovery and reduced costs on a joint venture project in our GS business segment, offset by a reduction in volume as we near
completion of construction activities on this project.

Equity in earnings of unconsolidated affiliates decreased in 2013 compared to 2012. This change was primarily due to
extended dry docking and lower utilization of marine vessels in our MMM joint venture, interruptions in natural gas feedstock
in our ammonia plant joint venture in Egypt, partially offset by increased activity and progress on an LNG project joint venture
within our E&C business segment. The decline was also due to reduced construction activity on the GS joint venture
discussed above.

General and Administrative Expenses

Dollars in millions

2014

2013

2012

General and administrative expenses

(239 ) $

(248 ) $

(9 )

(4 )% $

(222 ) $

12 %

2014 vs. 2013

2013 vs. 2012

General and administrative expenses decreased in 2014 compared to 2013. The decrease was primarily due to lower
information technology support costs and reduced overhead costs resulting from headcount reductions and cost savings
initiatives implemented at the end of 2013 and during 2014. Our general and administrative expenses for 2014 and 2013
included $35 million each related to our ERP project. Amortization on the completed phase of the project was $15 million and
$7 million for 2014 and 2013, respectively. General and administrative expenses in 2014 included $174 million related to
corporate and $66 million related to the business segments.

General and administrative expenses increased in 2013 compared to 2012. The increase was primarily due to higher
ERP project expenses, consulting and legal expenses related to tax items, including arbitration with our former parent and
changes in our risk and benefit programs. These increases were partially offset by lower incentive compensation costs in 2013.
Our general and administrative expenses for 2013 and 2012 included $35 million and $20 million, respectively, related to our
ERP project. Amortization on the completed phase of the project was $7 million and less than $1 million for 2013 and 2012,
respectively. General and administrative expenses in 2013 included $179 million related to corporate and $72 million related to
the business segments.

Impairment and Restructuring Charges

Dollars in millions

2014

2013

Impairment of goodwill
Asset impairment and restructuring charges

(446 ) $ — $
(214 ) $ — $

2014 vs. 2013

2013 vs. 2012

$
446
214

%
100 % $

100 % $

2012

(178 ) $

$
(178 )

(100 )%

(2 ) $

(2 )

(100 )%

As a result of our December 11, 2014 strategic reorganization announcement, including our decisions to exit certain
businesses, and continued business decline in certain markets, we recognized an impairment charge of $446 million related to
the remaining goodwill on our Roberts and Schaefer (R&S) acquisition and the goodwill on our BE&K acquisition. We also
recognized a $31 million impairment of R&S intangible assets.

On December 11, 2014, we also announced that we were discontinuing the implementation of our ERP project. This
resulted in a $135 million impairment charge for the portion of the ERP project we do not expect will provide us any future
benefits.

As part of our reorganization of our business and associated restructuring, we have started the process of reducing
headcount and and recognized a severance charge of $29 million. Additionally, we terminated leases in several locations,
resulting in lease termination charges of $14 million. We also recognized a $5 million impairment charge related to leasehold
improvements on the terminated leases and other property.

See Note 8 and 9 to our consolidated financial statements for further discussion on our goodwill and asset impairment

and restructuring charges.

In the third quarter of 2012 in connection with our interim impairment review, we recognized a noncash goodwill
impairment charge of $178 million related to one of our previous reporting units (see Note 8 to our consolidated financial
statements for further discussion).

Non-operating Income (Expenses)

Dollars in millions

2014

2013

Non-operating income (expenses)

17 $

(8 ) $

%
313 % $

2012

(11 ) $

(3 )

%
(27 )%

2014 vs. 2013

2013 vs. 2012

We had non-operating income in 2014 compared to non-operating expense in 2013. The change was primarily

attributable to a $24 million gain related to a negotiated dispute settlement with our former parent.

Non-operating expenses decreased in 2013 compared to 2012. This decrease was primarily attributable to a reduction in

interest expense due to higher interest income on our treasury-managed time deposits.

Provision for Income Taxes

Dollars in millions

2014

2013

2012

2014 vs. 2013

2013 vs. 2012

Income (loss) before provision for income
taxes
Provision for income taxes

n/m - not meaningful

(777 ) $

300

$ (1,077 )
292

(129 ) $

n/m

288

(86 ) $

12
43

4 %

50 %

(421 ) $

Provision for income taxes increased in 2014 compared to 2013. We recognized income tax expense of $421 million in
2014 on our loss before provision for income taxes instead of recognizing a tax benefit primarily as a result of the
nondeductible goodwill impairment loss, an increase in our valuation allowance for deferred tax assets and recognition of taxes
on undistributed earnings.

Provision for income taxes increased in 2013 compared to 2012 . Income tax expense in 2013 increased primarily as a
result of an increase of $47 million in valuation allowance for the year ended December 31, 2013 as a result of losses
recognized in our Canada pipe fabrication and module assembly business and certain state net operating losses.

A reconciliation of our effective tax rates for 2014, 2013 and 2012 to the U.S. statutory federal rate is presented in Note

13 to our consolidated financial statements.

Net Income Attributable to Noncontrolling Interests

Dollars in millions

2014

2013

2012

Net income attributable to noncontrolling
interests

(64 ) $

(96 ) $

(32 )

(33 )% $

(58 ) $

66 %

2014 vs. 2013

2013 vs. 2012

Net income attributable to noncontrolling interests decreased in 2014 compared to 2013. This decrease is primarily due
to earnings from the renegotiation of fees and cost recoveries on a joint venture project which were recognized in our E&C
business segment in 2013 but did not recur in 2014.

Net income attributable to noncontrolling interests increased in 2013 compared to 2012. This increase is primarily due

to the renegotiation of fees and cost recoveries on a joint venture project that were recognized in our E&C business segment.

Results of Operations by Business Segment

We analyze the financial results for each of our five business segments. The business segments presented are consistent

with our reportable segments discussed in Note 2 to our consolidated financial statements.

11 %
(12 )%
(16 )%
— %
(11 )%
32 %
(7 )%

(14 )%
(42 )%
8 %
— %
(31 )%
95 %
(19 )%

— %
(4 )%
(9 )%
— %
(6 )%
(100 )%
(9 )%

Dollars in millions
Revenues

Technology & Consulting
Engineering & Construction
Government Services

Other

Non-strategic Business

Gross profit

Technology & Consulting
Engineering & Construction
Government Services
Other

Non-strategic Business

Years Ended December 31,

2014 vs. 2013

2013 vs. 2012

2014

2013

2012

353 $

330 $

4,584
638
—

4,956
931
—

23
(372 )
(293 )

7 % $
(8 )%
(31 )%
— — %

296 $

5,616
1,105
—

Subtotal $ 5,575 $ 6,217 $
791
Total $ 6,366 $ 7,214 $

997

(642 )
(206 )
(848 )

(10 )% $ 7,017 $
(21 )%
(12 )% $ 7,770 $

753

Subtotal $

53 $
141
(32 )
—
162 $
(227 )

Total $

(65 ) $

69 $
263
90
—
422 $
(5 )
417 $

(16 )
(122 )
(122 )

(23 )% $
(46 )%
(136 )%
— — %

(260 )
(222 )
(482 )

(62 )% $
n/m
(116 )% $

80 $
450
83
—
613 $
(95 )
518 $

34
(660 )
(174 )
—
(800 )
244
(556 )

(11 )
(187 )
7
—
(191 )
90
(101 )

Equity in earnings of unconsolidated affiliates

Technology & Consulting
Engineering & Construction
Government Services
Other

Non-strategic Business

$ — $ — $ — — % $ — $ —
(3 )
(6 )
—
(9 )
(5 )
(14 )

14
18 %
12
20 %
— — %
26
— — %
26

90
73
—
163 $
—
163 $

79
67
—
146 $
5
151 $

76
61
—
137 $
—
137 $

19 % $

Subtotal $

Total $

Total general and administrative expense

(239 ) $

(248 ) $

(9 )

(4 )% $

(222 ) $

12 %

Impairment of goodwill

(446 ) $ — $

446 — % $

(178 ) $

(178 )

(100 )%

Asset impairment and restructuring charges $

(214 ) $ — $

214 — % $

(2 ) $

(2 )

(100 )%

Gain on disposition of assets

7 $

2 $

250 % $

32 $

(30 )

n/m

Total operating income

(794 ) $

308 $ (1,102 )

(358 )% $

299 $

3 %

n/m - not meaningful

Technology & Consulting

T&C revenues increased by $23 million, or 7%, to $353 million in 2014 compared to $330 million in 2013 driven
largely by an increase in proprietary equipment supply on several ammonia plants and an increase in the number of consulting
projects. This improvement was partially offset by a reduction in volume attributable to delays in project awards and a decline
in BED activities on several projects.

T&C gross profit decreased by $16 million, or 23%, to $53 million in 2014 compared to $69 million in 2013 due
primarily to the project delays and decline in BED activities discussed above, offset by the impact to gross profit of the
increased revenues from proprietary equipment supply and consulting projects.

T&C revenues increased by $34 million, or 11%, to $330 million in 2013 compared to $296 million in 2012 primarily
due to an increase in the delivery of PEQ and license and basic engineering design ("LBED") on several ammonia projects
offset by slight decreases in consulting activities resulting from low volume of new awards in our Australia market.

T&C gross profit decreased by $11 million, or 14%, to $69 million in 2013 compared to $80 million in 2012 due to a

decline in licensing activities and increased proposal costs in 2013.

Engineering & Construction

E&C revenue decreased by $372 million, or 8%, to $4.6 billion in 2014 compared to $5.0 billion in 2013. This decrease
was primarily due to lower activity on EPC projects in our LNG/GTL markets, as they neared completion in 2014, and reduced
construction projects in the U.S. market. These decreases were partially offset by increased activity on EPC contracts for
downstream projects in North America, increased activity on several Canadian pipe fabrication and module assembly and
construction projects, increased activity on an upstream project in Azerbaijan and an increase in KBR services on an LNG
project joint venture in Australia.

E&C gross profit decreased by $122 million, or 46%, to $141 million in 2014 compared to $263 million in 2013 due to
higher activity and incentive fees on an LNG project in Australia in 2013 that did not recur in 2014 and a reduction in gross
profit resulting from an increase in estimated costs to complete certain projects. These decreases were partially offset by
reduced losses of $60 million on our Canadian pipe fabrication and module assembly projects, start-up work on an ammonia
plant in North America and $45 million in charges taken on LNG projects in 2013 that did not recur in 2014.

E&C equity in earnings in unconsolidated affiliates increased by $14 million, or 18%, to $90 million in 2014 compared
to $76 million in 2013 due primarily to increased progress on an LNG project in Australia. This increase was partially offset by
reduced earnings on the MMM joint venture in Mexico, because the vessels were out of contract for a significant portion of
2014.

E&C revenue decreased by $660 million, or 12%, to $5.0 billion in 2013 compared to $5.6 billion in 2012 as a result of
reduced volume on a GTL project in Nigeria and an LNG project in Algeria as these projects were completed or neared
completion. This decrease was partially offset by revenue recorded in the third quarter of 2013 resulting from a change order
on an LNG project in Australia, increased activity on EPC contracts for chemicals projects in North America and scope growth
on a base oil project in North America.

E&C gross profit decreased by $187 million, or 42%, to $263 million in 2013 compared to $450 million in 2012 as a
result of reduced activity on an LNG project in Algeria as it neared completion in 2013, $97 million in losses on Canadian pipe
fabrication and module assembly projects and increased overheads. These decreases were partially offset by increased activity
on an LNG project in Australia and losses on several U.S. construction projects in 2012 that did not reoccur in 2013.

E&C equity in earnings in unconsolidated affiliates decreased by $3 million, or 4%, to $76 million in 2013 compared to
$79 million in 2012 due to extended dry dock and out of contract periods for vessels in our MMM joint venture. This decline is
also due to reduced earnings on our ammonia plant joint venture in Egypt, arising from lower ammonia production brought
about by curtailments in the supply of natural gas feedstock and is partially offset by earnings from increased activities and
overall project growth on an LNG project joint venture in Australia.

Government Services

GS revenues decreased by $293 million, or 31% to $638 million in 2014 compared to $931 million in 2013. This
decline was driven primarily by a $246 million reduction in revenues following the March 31, 2014 completion of activities
supporting the U.S. military and U.S. Department of State for the war in Iraq and a $45 million decrease from reduction in
troop numbers on U.K. MoD and NATO contracts in Afghanistan. Settlement of outstanding items on LogCAP III and
adjustments to reserves for questioned costs on the RIO contract (GS Legacy Contracts), resulted in a $94 million reduction in
revenues. These decreases were partially offset by new awards of U.S. government construction and base support contracts in
Europe and Africa as well as the award of a long term contract with the U.K. Metropolitan Police.

GS gross profit decreased by $122 million, or 136% to a loss of $32 million in 2014 compared to gross profit of $90
million in 2013. This decline was primarily driven by the completion of the U.S. military and U.S. Department of State support
contract as well as the U.K. MoD support activities discussed above. The settlement and reserves for questioned costs on the
GS Legacy Contracts discussed above also reduced gross profit by $66 million. Additionally, the reduction in gross profit was
attributable to an increase in our estimate of costs to complete the roads project in Qatar and a construction management
contract with the U.S. government in Europe.

GS equity in earnings in unconsolidated affiliates increased by $12 million, or 20% to $73 million in 2014 compared to
$61 million in 2013. This increase was primarily due to an insurance recovery and reduced costs on a joint venture for a U.K.
MoD project, offset by a reduction in volume as we near completion of construction activities on this joint venture project.

GS revenue decreased by $174 million, or 16% to $931 million in 2013 compared to $1.1 billion in 2012. The decrease
was driven by base closures and headcount reductions under the contract supporting the U.S. Military and the U.S. Department
of State in Iraq as well as reduced activity on contracts for the U.K. MoD including completion of a portion of a support
services contract in Afghanistan. As the U.S. government continued its withdrawal from Iraq, the volume of support services
also continued to decline. There was also reduced activity related to commercial support services in Africa, reduced activity on
a major contract for the U.K. MoD, and completion of a portion of U.K. MoD contracts in Afghanistan. Our offerings in the
Asia-Pacific region were affected by the continuing slow market conditions and also from reduced government and private
sector investments.

GS gross profit increased by $7 million, or 8% to $90 million in 2013 compared to $83 million in 2012. This increase
was due to project charges of $28 million related to the unfavorable U.S. government ruling associated with dining facility
services in Iraq in 2012 that did not recur. Gross profit in 2013 includes the reversal of $25 million of reserves due to the
progress of audits, offset by declines due to reduced activity in the Middle East under the contract supporting the U.S. Military
and the U.S. Department of State in Iraq.

GS equity in earnings in unconsolidated affiliates decreased by $6 million, or 9% to $61 million in 2013 compared to

$67 million in 2012. This decrease was due to the existing U.K. MoD construction project slowly nearing completion.

Non-strategic Business

Non-strategic Business revenue decreased by $206 million, or 21%, to $791 million in 2014 compared to $1 billion in
2013. This was largely due to the completion or near completion of several building construction projects. The decline was
partially offset by higher revenues from increased activity on two power projects.

Non-strategic Business gross loss increased by $222 million to $227 million in 2014 compared to $5 million in 2013.
This increase in gross loss was primarily due to a $173 million impact from an increase in the estimate of costs to complete
three power projects, resulting in losses or reduced margins on these projects, a settlement on a minerals project and increased
legal reserves on an infrastructure project.

Non-strategic Business revenue increased by $244 million, or 32%, to $1 billion in 2013 compared to $753 million in
2012. This was primarily due to increased activity on several building and power projects. These increases were partially
offset by minerals projects completed in 2013.

Non-strategic Business gross loss decreased by $90 million, or 95%, $5 million in 2013 compared to $95 million in
2012. This decrease was primarily due to losses incurred on minerals projects in 2012 that did not recur in 2013. In addition,
several new projects were added in the building, minerals and power sectors during 2013.

Changes in Estimates

Information relating to our changes in estimates is discussed in Note 2 to our consolidated financial statements and the

information discussed therein is incorporated by reference into this Item 7.

Acquisitions and Other Transactions

Information relating to various acquisitions and other transactions is described in "Item 1. Business" and the information

discussed therein is incorporated by reference into this Item 7.

Backlog of Unfilled Orders

Backlog generally represents the dollar amount of revenues we expect to realize in the future as a result of performing
work on contracts and our pro-rata share of work to be performed by unconsolidated joint ventures. We generally include total
expected revenues in backlog when a contract is awarded under a legally binding commitment. In many instances,
arrangements included in backlog are complex, nonrepetitive in nature and may fluctuate depending on estimated revenues and
contract duration. Where contract duration is indefinite, projects included in backlog are limited to the estimated amount of
expected revenues within the following twelve months. Certain contracts provide maximum dollar limits, with actual
authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements,
only the amounts authorized are included in backlog. For projects where we act solely in a project management capacity, we
only include the value of our services of each project in backlog. For certain long-term service contracts with a defined
contract term, such as those associated with privately financed projects, the amount included in backlog is limited to five years.

We have included in the table below our proportionate share of unconsolidated joint ventures' estimated revenues.
However, because these projects are accounted for under the equity method, only our share of future earnings from these
projects will be recorded in our results of operations. Our backlog for projects related to unconsolidated joint ventures totaled
$4.3 billion at December 31, 2014 and $5.5 billion at December 31, 2013. We consolidate joint ventures which are majority-
owned and controlled or are variable interest entities in which we are the primary beneficiary. Our backlog included in the
table below for projects related to consolidated joint ventures with noncontrolling interests includes 100% of the backlog
associated with those joint ventures and totaled $928 million at December 31, 2014 and $1.5 billion at December 31, 2013. All
backlog is attributable to firm orders as of December 31, 2014 and 2013. Backlog attributable to unfunded government orders
was $36 million at December 31, 2014 and $166 million at December 31, 2013. The following table summarizes our backlog
by business segment.

Dollars in millions

Technology & Consulting
Engineering & Construction
Government Services

Subtotal

Non-strategic Business

Total backlog

December 31,

2013

New Awards

Changes in scope
on existing
contracts (a)

December 31,

Net Workoff (b)

2014

458 $

10,712
2,175
13,345
773
14,118 $

182 $

1,571
216
1,969
803
2,772 $

130 $
239
83
452
46
498 $

(370 ) $

(4,734 )
(711 )
(5,815 )
(714 )
(6,529 ) $

400
7,788
1,763
9,951
908
10,859

(a)

In addition to changes in scope, these amounts reflect the elimination of our proportionate share of non-partner costs
related to our unconsolidated joint ventures.

(b) These amounts include the net workoff of our projects as well as our proportionate share of the net workoff of our

unconsolidated joint ventures projects.

We estimate that as of December 31, 2014, 51% of our backlog will be executed within one year. As of December 31,
2014, 40% of our backlog was attributable to fixed-price contracts and 60% of our backlog was attributable to cost-
reimbursable contracts. For contracts that contain both fixed-price and cost-reimbursable components, we classify the
components as either fixed-price or cost-reimbursable according to the composition of the contract; however, except for smaller
contracts, we characterize the entire contract based on the predominant component.

Liquidity and Capital Resources

Cash and equivalents totaled $970 million at December 31, 2014 and $1.1 billion December 31, 2013 and consisted of

the following:

Dollars in millions

Domestic U.S. cash

International cash

Joint venture cash

Total

December 31,

2014

2013

200 $
690
80
970 $

355
675
76
1,106

Domestic cash relates to cash balances held by U.S. entities and is largely used to support obligations of those businesses
as well as general corporate needs such as the payment of dividends to shareholders and potential repurchases of our
outstanding common stock.

The international cash balances may be available for general corporate purposes but are subject to local restrictions such
as capital adequacy requirements and local obligations such as maintaining sufficient cash balances to support our underfunded
U.K. pension plan and other obligations incurred in the normal course of business by those foreign entities. Repatriated foreign
cash may become subject to U.S. income taxes.

Joint venture cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting
purposes. Such amounts are limited to joint venture activities and are not readily available for general corporate purposes but
portions of such amounts may become available to us in the future should there be 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
projects.

Cash generated from operations is our primary source of operating liquidity. Our cash balances are held in numerous
locations throughout the world. We believe that existing cash balances and internally generated cash flows are sufficient to
support our day-to-day domestic and foreign business operations for at least the next 12 months.

In December 2014, we implemented a foreign cash repatriation strategy for which we have provided cumulative income
taxes of $98 million on certain foreign earnings which provide us, if necessary, the ability to repatriate approximately an
additional $370 million of international cash without recognizing additional tax expense. In determining our foreign cash
repatriation strategy and in determining whether earnings would continue to be considered permanently invested, we
considered our future U.S. and non-U.S. cash needs such as 1) our anticipated foreign working capital requirements, including
funding of our U.K. pension plan; 2) the expected growth opportunities across all geographical markets; and 3) our plans to
invest in strategic growth opportunities that may include acquisitions around the world. The remaining international cash
balances associated with past foreign earnings which we currently intend to permanently reinvest in our foreign entities are not
available for domestic use. The company has not recognized an estimated deferred tax liability of approximately $320 million
for undistributed earnings it continues to consider to be permanently reinvested in the foreseeable future. These undistributed
earnings could be subject to additional tax if remitted, or deemed remitted, as a dividend.

Our operating cash flow can vary significantly from year to year and is affected by the mix, terms and percentage of
completion of our engineering and construction projects. We sometimes receive cash through billings to our customers on our
larger engineering and construction projects and those of our consolidated joint ventures in advance of incurring the related
costs. In other projects our net investment in the project costs may be greater than available project cash and we may utilize
other cash on hand or availability under our Credit Agreement to satisfy any periodic operating cash requirements.

Engineering and construction projects generally require us to provide credit support to our customers in the form of
letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our
ability to maintain or increase our letter of credit and surety bonding capacity, which may be further dependent on the timely
release of existing letters of credit and surety bonds. As the need for credit support arises, letters of credit will be issued under
our Credit Agreement or arranged with our banks on a bilateral, syndicated or other basis. We believe we have adequate letter
of credit capacity under our existing Credit Agreement and bilateral lines, as well as adequate surety bond capacity under our
existing lines to support our operations and current backlog for the next twelve months.

As of December 31, 2014, substantially all of our excess cash was held in commercial bank time deposits with the

primary objectives of preserving capital and maintaining liquidity.

Cash flows activities summary

Dollars in millions

Cash flows provided by operating activities

Cash flows provided by (used in) investing activities

Cash flows used in financing activities

Effect of exchange rate changes on cash

Increase (decrease) in cash and equivalents

December 31,

2014

2013

2012

170 $
(44 )

(210 )

(52 )

(136 ) $

297 $
(62 )

(148 )

(34 )
53 $

142
52
(116 )
9
87

Operating activities. Cash provided by operations totaled $170 million in 2014 and was primarily attributable to
distributions of earnings received from unconsolidated affiliates of $249 million and fluctuations in our working capital
accounts. This increase was partially offset by contributions of approximately $48 million to our pension funds.

Cash provided by operations totaled $297 million in 2013 and resulted from our earnings, working capital and
distributions of earnings received from unconsolidated affiliates of $180 million, partially offset by our payment of $108
million in outstanding performance bonds to PEMEX Exploration and Production ("PEP"), other uses driven by taxes and
contributions of approximately $54 million to our pension funds. See Note 15 to our consolidated financial statements for
further discussion of the performance bonds.

Cash provided by operations totaled $142 million in 2012 and resulted from our earnings, adjusted for items to reconcile
to net income, of $317 million, distributions of earnings received from unconsolidated affiliates, including repayment of
advances to unconsolidated affiliates, of $102 million and subcontractor advances of $131 million. These increases were
partially offset by working capital uses related to the E&C business segment and our business with the U.S. government in our
Government Services business segment.

Investing activities. Cash used in investing activities totaled $44 million in 2014, which was primarily due to purchases

of property, plant and equipment associated with information technology projects which have now largely been stopped.

Cash used in investing activities totaled $62 million in 2013 which was primarily due to purchases of property, plant and

equipment associated with information technology projects.

Cash provided by investing activities totaled $52 million in 2012 which was primarily due to proceeds of $127 million
from the sale of our interest in the 601 Jefferson building and the Clinton Drive campus facility. These proceeds were offset by
capital expenditures of $75 million associated with information technology projects and leasehold and facility improvements.

Financing activities. Cash used in financing activities totaled $210 million in 2014 and included $106 million for the
purchase of treasury stock, $47 million for dividend payments to common shareholders, $61 million for distributions to
noncontrolling interests and $11 million for principal payments on short- and long-term borrowings consisting primarily of
nonrecourse debt of our Fasttrax variable interest entity ("VIE"). The uses of cash were partially offset by $10 million of
investments from noncontrolling interests and $4 million of proceeds from the exercise of stock options.

Cash used in financing activities totaled $148 million in 2013 and included $7 million for the purchase of treasury stock,
$36 million for dividend payments to common shareholders, $109 million for distributions to noncontrolling interests and $14
million for principal payments on short- and long-term borrowings consisting primarily of nonrecourse debt of our Fasttrax
VIE and computer software purchases financed in 2010. The uses of cash were partially offset by $9 million of investments
from noncontrolling interests and $6 million of proceeds from the exercise of stock options.

Cash used in financing activities totaled $116 million in 2012 and included $40 million for the purchase of treasury
stock, $37 million for dividend payments to common shareholders, $36 million for distributions to noncontrolling interests and
$14 million for principal payments on short- and long-term borrowings consisting primarily of nonrecourse debt of our Fasttrax
VIE and computer software purchases financed in 2010. The uses of cash were partially offset by $11 million of tax benefits
associated with stock exercises and proceeds from the exercise of stock options.

Future sources of cash. Future sources of cash include cash flows from operations, including cash advances from our
clients, cash derived from working capital management and cash borrowings under our Credit Agreement as well as potential
litigation proceeds.

Future uses of cash. Future uses of cash will primarily relate to working capital requirements, including payments to our
former parent as a result of a settlement, capital expenditures, dividends, share repurchases and strategic investments. In
addition, we will use cash to fund pension obligations, payments under operating leases and various other obligations,
including potential litigation payments, as they arise. Our capital expenditures will be focused primarily on information
technology, real estate, facilities and equipment. See “Off-Balance Sheet Arrangements” below for a schedule of contractual
obligations and other long-term liabilities that will require the use of cash.

Other factors potentially affecting liquidity

Canada project losses. Our reserve for estimated losses on uncompleted contracts included in "other current liabilities"
on our consolidated balance sheets consists of $53 million related to our Canadian pipe fabrication and module assembly
projects at December 31, 2014. These accrued losses will result in future cash expenditures in excess of customer receipts.
Based on current contracts and work authorizations, we anticipate completion of these projects in 2015.

Power project losses. Our reserve for estimated losses on uncompleted contracts included in "other current liabilities"
on our consolidated balance sheets consists of $80 million related to two power projects at December 31, 2014. These accrued
losses will result in future cash expenditures in excess of customer receipts. Based on current contracts and work
authorizations, we anticipate completion of these projects in 2017.

Credit Agreement

On December 2, 2011, we entered into a $1 billion, five-year unsecured revolving credit agreement (the “Credit
Agreement”) with a syndicate of international banks. The Credit Agreement is available for cash borrowings and the issuance
of letters of credit related to general corporate needs. The Credit Agreement expires in December 2016; however, given that
projects generally require letters of credit that extend beyond one year in length, we will likely need to enter into a new or
amended credit agreement no later than 2015. Amounts drawn under the Credit Agreement bear interest at variable rates, per
annum, based either on (1) the London interbank offered rate (“LIBOR”) plus an applicable margin of 1.50% to 1.75%, or (2) a
base rate plus an applicable margin of 0.50% to 0.75%, with the base rate equal to the highest of (a) reference bank’s publicly
announced base rate, (b) the Federal Funds Rate plus 0.5%, or (c) LIBOR plus 1%. The amount of the applicable margin to be
applied will be determined by our ratio of consolidated debt to consolidated EBITDA for the prior four fiscal quarters, as
defined in the Credit Agreement. The Credit Agreement provides for fees on letters of credit issued under the Credit
Agreement at a rate equal to the applicable margin for LIBOR-based loans, except for performance letters of credit, which are
priced at 50% of such applicable margin. We pay an issuance fee of 0.15% of the face amount of a letter of credit. We also pay
a commitment fee of 0.25% per annum on any unused portion of the commitment under the Credit Agreement. As of
December 31, 2014, there were $174 million in letters of credit and no cash borrowings outstanding.

The Credit Agreement contains customary covenants which include financial covenants requiring maintenance of a ratio
of consolidated debt to consolidated EBITDA not greater than 3.5 to 1 and a minimum consolidated net worth, as defined in the
Credit Agreement as amended. In anticipation of our reorganization and the expected impairment and restructuring charges, in
December 2014 we obtained an amendment to the Credit Agreement which reset the minimum consolidated net worth to $1.5
billion plus 50% of consolidated net income for each quarter beginning December 31, 2014 and 100% of any increase in
shareholders’ equity attributable to the sale of equity interests. At December 31, 2014, we were in compliance with our
financial covenants. However, due to actual recorded impairments, tax valuation allowances and restructuring charges, our
consolidated net worth and consolidated EBITDA have been reduced. At December 31, 2014, the consolidated net worth and
consolidated debt to consolidated EBITDA covenants were both in compliance by approximately $10 million to $25 million.

The Credit Agreement contains a number of other covenants restricting, among other things, our ability to incur
additional liens and indebtedness, enter into asset sales, repurchase our equity shares and make certain types of investments.
Our subsidiaries are restricted from incurring indebtedness, except if such indebtedness relates to purchase money obligations,
capitalized leases, refinancing or renewals secured by liens upon or in property acquired, constructed or improved in an
aggregate principal amount not to exceed $200 million at any time outstanding. Additionally, our subsidiaries may incur
unsecured indebtedness not to exceed $200 million in aggregate outstanding principal amount at any time. We are also
permitted to repurchase our equity shares, provided that no such repurchases shall be made from proceeds borrowed under the
Credit Agreement, and that the aggregate purchase price and dividends paid after December 2, 2011, does not exceed the

Distribution Cap (equal to the sum of $750 million plus the lesser of (1) $400 million and (2) the amount received by us in
connection with the arbitration and subsequent litigation of the PEP contracts as discussed in Note 15 to our consolidated
financial statements). At December 31, 2014, the remaining availability under the Distribution Cap was approximately $468
million.

Nonrecourse Project Finance Debt

Information relating to our nonrecourse project debt is described in Note 12 to our consolidated financial statements and

the information discussed therein is incorporated by reference into this Item 7.

Off-Balance Sheet Arrangements

Letters of credit, surety bonds and guarantees. In connection with certain projects, we are required to provide letters of
credit, surety bonds or guarantees to our customers. Letters of credit are provided to certain customers and counterparties in
the ordinary course of business as credit support for contractual performance guarantees, advanced payments received from
customers and future funding commitments. We have approximately $2.1 billion in committed and uncommitted lines of credit
to support the issuance of letters of credit and as of December 31, 2014, we have utilized $628 million of our present capacity
under lines of credit. Surety bonds are also posted under the terms of certain contracts to guarantee our performance. The
letters of credit outstanding included $174 million issued under our Credit Agreement and $454 million issued under
uncommitted bank lines as of December 31, 2014. Of the letters of credit outstanding under our Credit Agreement,
approximately $3 million letters of credit have expiry dates beyond the maturity date of the Credit Agreement. Of the total
letters of credit outstanding, $246 million relate to our joint venture operations where the letters of credit are posted using our
capacity to support our pro-rata share of obligations under various contracts executed by joint ventures of which we are a
member. As the need arises, future projects will be supported by letters of credit issued under our Credit Agreement or other
lines of credit arranged on a bilateral, syndicated or other basis. We believe we have adequate letter of credit capacity under
our Credit Agreement and bilateral lines of credit to support our operations for the next twelve months.

Commitments and other contractual obligations. The following table summarizes our significant contractual obligations

and other long-term liabilities as of December 31, 2014:

Dollars in millions
Operating leases (a)
Purchase obligations (b)

Pension funding obligation (c)

Nonrecourse project finance debt

Total (d)

2015

2016

2017

2018

2019

Thereafter

Total

99 $
8
48
10
165 $

85 $
4
44
10
143 $

71 $
1
44
11
127 $

62 $
1
44
12
119 $

53 $
1
44
12
110 $

383 $
2
173
18
576 $

753
17
397
73
1,240

Payments Due

(a)
(b)

(c)

(d)

Amounts presented are net of subleases.
In the ordinary course of business, we enter into commitments for the purchase or lease of software, materials,
supplies and similar items. The purchase obligations can span several years depending on the duration of the projects.
In general, the costs associated with those purchase obligations are expensed to correspond with the revenues earned
on the related projects. The purchase obligations disclosed above do not include purchase obligations that we enter
into with vendors in the normal course of business that support existing contracting arrangements with our customers.
Included in our pension obligations are payments related to our agreement with the trustees of our international plan.
The agreement calls for minimum contributions of £28 million in 2014 through 2023. The foreign funding obligations
were converted to U.S. dollars using the conversion rate as of December 31, 2014. KBR, Inc. has provided a
guarantee for up to £125 million in support of Kellogg Brown & Root (U.K.) Limited's obligation to make payments
to the plan in respect of its liability under the U.K. Pensions Act 1995.
Not included in the total are uncertain tax positions recorded pursuant to ASC 740 - Income Taxes, which totaled $228
million as of December 31, 2014. The ultimate timing of when these obligations will be settled cannot be determined
with reasonable assurance and have been excluded from the table above. See Note 13 to our consolidated financial
statements for further discussion on income taxes.

Transactions with Joint Ventures

We perform many of our projects through incorporated and unincorporated joint ventures. In addition to participating as
a joint venture partner, we often provide engineering, procurement, construction, operations or maintenance services to the joint
venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial
reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for
our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our revenues or
expenses. We recognize the profit on our services provided to joint ventures that we consolidate and joint ventures that we
record under the equity method of accounting primarily using the percentage-of-completion method.

Recent Accounting Pronouncements

Information relating to recent accounting pronouncements is described in Note 21 to our consolidated financial

statements and the information discussed therein is incorporated by reference into this Item 7.

U.S. Government Matters

Information relating to U.S. government matters commitments and contingencies is described in Note 14 to our

consolidated financial statements and the information discussed therein is incorporated by reference into this Item 7.

Legal Proceedings

Information relating to various commitments and contingencies is described in Note 15 to our consolidated financial

statements and the information discussed therein is incorporated by reference into this Item 7.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and judgments that affect the determination of financial positions, cash flows and
results of operations. Our critical accounting policies are described below to provide a better understanding of our estimates
and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.
Significant accounting estimates are important to the representation of our financial position and results of operations and
require our most difficult, subjective or complex judgments. We base our estimates on historical experience and on various
other assumptions we believe to be reasonable according to the current facts and circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We believe the following are the critical accounting policies used in the preparation of our consolidated financial
statements in accordance with accounting principles generally accepted in the United States, as well as the significant estimates
and assumptions affecting the application of these policies. Our accounting policies are more fully described in Note 1 to our
consolidated financial statements.

Engineering and Construction Contracts. Revenues from the performance of contracts for which specifications are
provided by the customer for the construction of facilities, the production of goods or the provision of related services is
accounted for using the percentage-of-completion method. These contracts include services essential to the construction or
production of tangible property, such as design, EPC and EPC management.

At the outset of each contract, we prepare a detailed analysis of our estimated cost to complete the project. Risks
relating to service delivery, usage, productivity and other factors are considered in the estimation process. Our project
personnel regularly evaluate the estimated costs, revenues and progress and adjust the estimates accordingly.

We measure the progress towards completion of the project to determine the amount of revenues and profit to be
recognized in each reporting period. Profits are recorded based upon the product of estimated contract profit at completion
times the current percentage-complete for the contract. Our progress estimates are based upon estimates of the total cost to
complete the project, which considers, among other things, the current project schedule and anticipated completion date, as
well as estimates of the extent of progress toward completion. While progress is generally based upon costs incurred in relation
to total estimated costs at completion, we also use alternative methods including physical progress, labor hours incurred to total
estimated labor hours at completion or others depending on the type of project.

Our estimate of total revenues includes estimates of probable liquidated damages and certain probable claims and
unapproved change orders. When estimating the amount of total gross profit or loss on a contract, we include certain
unapproved change orders or claims to our clients as adjustments to revenues and claims to vendors, subcontractors and others
as adjustments to total estimated costs. Claims against others are recorded up to the extent of the lesser of the amounts
management expects to recover or to costs incurred and include no profit until such time as they are finalized and approved.
See Note 5 to our consolidated financial statements for our discussion on unapproved change orders and claims.

At least quarterly, significant projects are reviewed by management. 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 costs, including but not
limited to weather, inflation, labor and community disruptions, timely availability of materials, productivity and other factors as
outlined in “Item 1A. Risk Factors”. These factors can affect the accuracy of our estimates and materially impact our future
reported earnings.

For contracts containing multiple deliverables we analyze each activity within the contract to ensure that we adhere to

the separation guidelines of ASC 605 - Revenue Recognition and ASC 605-25 - Multiple-Element Arrangements.

Estimated Losses on Uncompleted Contracts and Changes in Contract Estimates. We record provisions for total
estimated losses on uncompleted contracts in the period in which such losses are identified. The cumulative effects of revisions
to contract revenues and estimated completion costs are recorded in the accounting period in which the amounts become
evident and can be reasonably estimated. These revisions can include such items as the effects of change orders and claims,
warranty claims, liquidated damages or other contractual penalties, adjustments for audit findings on U.S. government contracts
and contract closeout settlements. Information relating to our changes in estimates is discussed in Note 2 to our consolidated
financial statements and the information discussed therein is incorporated by reference into this Item 7.

Accounting for Government Contracts. Some of the services provided to the U.S. government are performed on cost-
reimbursable contracts. Generally, these contracts may contain base fees (a fixed profit percentage applied to our actual costs
to complete the work).

Revenues are recognized at the time services are performed, and such revenues include base fees, actual direct project
costs incurred and an allocation of indirect costs. Indirect costs are applied using rates approved by our government customers.
The general, administrative and overhead cost reimbursement rates are estimated periodically in accordance with government
contract accounting regulations and may change based on actual costs incurred or based upon the volume of work performed.
Revenues are reduced for our estimate of costs that either are in dispute with our customer or have been identified as potentially
unallowable pursuant to the terms of the contract or the federal acquisition regulations.

Similar to many cost-reimbursable contracts, these government contracts are typically subject to audit and adjustment by
our customer. Each contract is unique; therefore, the level of confidence in our estimates for audit adjustments varies
depending on how much historical data we have with a particular contract. KBR excludes from billings to the U.S. government
costs that are expressly unallowable, or mutually agreed to be unallowable, or not allocable to government contracts based on
the applicable regulations. Revenues recorded for government contract work are reduced for our estimate of potentially
unallowable costs related to issues that may be categorized as disputed or unallowable as a result of cost overruns or the audit
process. Our estimates of potentially unallowable costs are based upon, among other things, our internal analysis of the facts
and circumstances, terms of the contracts and the applicable provisions of the FAR, quality of supporting documentation for
costs incurred and subcontract terms, as applicable. From time to time, we engage outside counsel to advise us in determining
whether certain costs are allowable. We also review our analysis and findings with the administrative contracting officer
(“ACO”) as appropriate. In some cases, we may not reach agreement with the DCAA or the ACO regarding potentially
unallowable costs which may result in our filing of claims in various courts such as the Armed Services Board of Contract
Appeals (“ASBCA”) or the COFC. We only include amounts in revenues related to disputed and potentially unallowable costs
when we determine it is probable that such costs will result in revenue. We generally do not recognize additional revenues for
disputed or potentially unallowable costs for which revenues have been previously reduced until we reach agreement with the
DCAA and/or the ACO that such costs are allowable.

Goodwill Impairment Testing. Our October 1, 2014, annual impairment test for goodwill was a quantitative analysis
using a two-step process that involves comparing the estimated fair value of each reporting unit to its carrying value, including
goodwill. The fair values of reporting units were determined using a combination of two methods, one utilizing market
earnings multiples (the market approach) and the other derived from discounted cash flow models with estimated cash flows
based on internal forecasts of revenues and expenses over a specified period plus a terminal value (the income approach).

Under the market approach, we estimate fair value by applying earnings and revenue market multiples to a reporting
unit’s operating performance for the trailing twelve-month period. The earnings multiples for the market approach ranged from

4.3 to 12.54 times the earnings for each of our reporting units. The income approach estimates fair value by discounting each
reporting unit’s estimated future cash flows using a weighted-average cost of capital that reflects current market conditions and
the risk profile of the reporting unit. To arrive at our future cash flows, we use estimates of economic and market assumptions,
including growth rates in revenues, costs, estimates of future expected changes in operating margins, tax rates and cash
expenditures. Future revenues are also adjusted to match changes in our business strategy. The risk-adjusted discount rates
applied to our future cash flows under the income approach ranged from 11.4% to 15.4%. We believe these two approaches are
appropriate valuation techniques and we generally weight the two resulting values equally as an estimate of a reporting unit's
fair value for the purposes of our impairment testing. However, we may weigh one value more heavily than the other when
conditions merit doing so. Other significant estimates and assumptions include terminal value growth rates, future estimates of
capital expenditures and changes in future working capital requirements. The fair value derived from the weighting of these
two methods provides appropriate valuations that, in the aggregate, reasonably reconcile to our market capitalization, taking
into account observable control premiums.

In addition to the earnings multiples and the discount rates disclosed above, certain other judgments and estimates are
used in our goodwill impairment test. Given this, if market conditions change compared to those used in our market approach,
or if actual future results of operations fall below the projections used in the income approach, our goodwill could become
impaired in the future.

At the annual testing date of October 1, 2014, our market capitalization exceeded the carrying value of our consolidated
net assets by $1.5 billion and, except for three of our previous reporting units; the fair value of all our reporting units
substantially exceeded their respective carrying amounts as of that date.

In connection with preparing for our reorganization on December 11, 2014, we decided we would no longer bid on
certain types of work and we would also exit certain non-strategic businesses. As a result, our forecasts of future cash flows for
three of our previous reporting units were significantly reduced. The carrying value of three of our previous reporting units
exceeded their fair value by approximately 54%, 106% and 811%, respectively, thus failing Step 1. We then performed Step 2
of the goodwill impairment test which compares the implied fair value of goodwill to the carrying value of that goodwill. The
carrying value of each of the reporting units' goodwill exceeded the implied fair value of that goodwill, respectively. As a
result, we recorded a noncash goodwill impairment charge of $446 million.

On December 31, 2014, we reorganized our reporting units in conjunction with our business segment reorganization. As
a result, we performed an additional impairment test immediately before and after this change in reporting units, utilizing the
same methodology as our October 1st test and no indication of impairment was identified. At the testing date of December 31,
2014, our market capitalization exceeded the carrying value of our consolidated net assets by $1.6 billion and the fair value of
all our reporting units substantially exceeded their respective carrying amounts as of that date. The fair value for one reporting
unit in our E&C business segment with goodwill of $75 million exceeded its carrying value by 20% based on projected growth
rates and other market inputs that are more sensitive to the risk of future variances due to competitive market conditions and
reporting unit project execution. If future variances for these assumptions are negative and significant, the fair value of this
reporting unit may not substantially exceed its carrying value in future periods.

In the third quarter of 2012, we recognized a noncash goodwill impairment charge of $178 million related to one of our
previous reporting units, now included in the Non-strategic Business segment, in connection with our interim impairment
review. The charge was primarily the result of the determination that both the actual and expected income and cash flows were
substantially lower than previous forecasts due to losses from ongoing projects acquired as part of the acquisition of Roberts &
Schaefer Company. We also identified a deterioration in economic conditions in the minerals markets and less than expected
actual and projected income and cash flows for the previous reporting unit, which reduced forecasts of the sales, operating
income and cash flows expected in 2013 and beyond.

Deferred taxes and tax contingencies. See Note 1 to our consolidated financial statements for discussion on income

taxes.

Legal and Investigation Matters. As discussed in Notes 14 and 15 to our consolidated financial statements, as of
December 31, 2014 and 2013, we have accrued an estimate of the probable and estimable costs for the resolution of some of
our legal and investigation matters. For other matters for which the liability is not probable and reasonably estimable, we have
not accrued any amounts. Attorneys in our legal department monitor and manage all claims filed against us and review all
pending investigations. Generally, the estimate of probable costs related to these matters is developed in consultation with
internal and external legal counsel representing us. Our estimates are based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies. The precision of these estimates and the likelihood of future changes
depend on a number of underlying variables and a range of possible outcomes. We attempt to resolve these matters through

settlements, mediation and arbitration proceedings when possible. If the actual settlement costs, final judgments or fines, differ
from our estimates after appeals, our future financial results may be materially and adversely affected. We record adjustments
to our initial estimates of these types of contingencies in the periods when the change in estimate is identified.

Pensions. Our pension benefit obligations and expenses are calculated using actuarial models and methods. Two of the
more critical assumptions and estimates used in the actuarial calculations are the discount rate for determining the current value
of benefit obligations and the expected rate of return on plan assets. Other assumptions and estimates used in determining
benefit obligations and plan expenses include inflation rates and demographic factors such as retirement age, mortality and
turnover. These assumptions and estimates are evaluated periodically and are updated accordingly to reflect our actual
experience and expectations.

The discount rate used to determine the benefit obligations was computed using a yield curve approach that matches plan
specific cash flows to a spot rate yield curve based on high quality corporate bonds. The expected long-term rate of return on
assets was determined by a stochastic projection that takes into account asset allocation strategies, historical long-term
performance of individual asset classes, an analysis of additional return (net of fees) generated by active management, risks
using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. Plan assets are
comprised primarily of equity securities, fixed income funds and securities, hedge funds, real estate and other funds. As we
have both domestic and international plans, these assumptions differ based on varying factors specific to each particular
country or economic environment.

The discount rate utilized to calculate the projected benefit obligation at the measurement date for our U.S. pension plan
decreased to 2.89% at December 31, 2014 from 3.38% at December 31, 2013. The discount rate utilized to determine the
projected benefit obligation at the measurement date for our U.K. pension plan, which constitutes all of our international plans
and 96% of all plans, decreased to 3.65% at December 31, 2014 from 4.45% at December 31, 2013. Our expected long-term
rates of return on plan assets utilized at the measurement date decreased to 5.28% from 7.00% for our U.S. pension plans and
increased to 6.45% from 6.15% for our U.K. pension plans.

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 2015

Pension Benefit Obligation at
December 31, 2014

U.S.

U.K.

U.S.

U.K.

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

—
—
1
—

5
(5 )
4
(4 )

2
(2 )

N/A

111
(103 )

N/A

Unrecognized actuarial gains and losses are generally recognized using the corridor method over a period of
approximately 15 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 actuarial loss
in accumulated other comprehensive loss at December 31, 2014 was $901 million, of which $50 million is expected to be
recognized as a component of our expected 2015 pension expense compared to in 2014. During 2014, we made contributions
to fund our defined benefit plans of $48 million, and we currently expect to make contributions in 2015 of approximately $48
million.

The actuarial assumptions used in determining our pension benefits may differ materially from actual results due to
changing market and economic conditions, 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 benefit
expense and expected pension returns of plan assets are discussed in Note 11 in the accompanying financial statements.

Item 7A. Quantitative and Qualitative Discussion about Market Risk

We invest excess cash and equivalents in short-term securities, primarily time deposits, which carry a fixed rate of return

for a given duration of time. Additionally, a substantial portion of our cash balances are maintained in foreign countries.

We are exposed to market risk associated with changes in foreign currency exchange rates, which may adversely affect

our results of operations and financial condition.

We are exposed to and use derivative instruments, such as foreign exchange forward contracts and options to hedge
foreign currency risk related to non-functional currency assets and liabilities on our balance sheet. Each period, these balance
sheet hedges are marked to market through earnings and the change in their fair value is largely offset by remeasurement of the
underlying assets and liabilities. The fair value of these derivatives was not material to our consolidated balance sheet for the
periods presented. See Note 20 to our consolidated financial statements for more information.

Where possible, we limit exposure to foreign currency fluctuations on forecasted transactions through provisions in our
contracts that require client payments in currencies corresponding to the currency in which costs are incurred. In addition to
this natural hedge, we use foreign exchange forward contracts and options to hedge forecasted foreign currency sales and
purchase transactions. These derivatives are generally designated as cash flow hedges and are carried at fair value. The
effective portion of the gain or loss is initially reported as a component of accumulated other comprehensive income (loss), and
upon occurrence of the forecasted transaction, is subsequently reclassified into the income or expense line item to which the
hedged transaction relates. Changes in the fair value of (1) credit risk and forward points, (2) instruments deemed ineffective
during the period, and (3) instruments that we do not designate as cash flow hedges, are recognized within our consolidated
statement of operations. We do not hold or issue derivatives for trading purposes or make speculative investments in foreign
currencies. The impact of our hedging activities associated with our operating exposures was not material to our consolidated
financial statements for and during the years ended December 31, 2014, December 31, 2013, and December 31, 2012.

We are exposed to the effects of fluctuations in foreign exchange rates (primarily Australian Dollar, British Pound,
Canadian Dollar, and Euro denominated) on the translation of the financial statements of our foreign operations into our
reporting currency. The impact of this translation to U.S. dollars is recognized as a cumulative translation adjustment in
accumulated other comprehensive income (loss). We do not hedge our exposure to potential foreign currency translation
adjustments.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for years ended December 31, 2014, 2013, and 2012

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2014, 2013, and 2012

Consolidated Balance Sheets at December 31, 2014 and 2013
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2014, 2013,
and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012

Notes to Consolidated Financial Statements

The related financial statement schedules are included under Part IV, Item 15 of this annual report.

Page No.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
KBR, Inc.:

We have audited the accompanying consolidated balance sheets of KBR, Inc. and subsidiaries as of December 31, 2014 and
2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows
for each of the years in the three-year period ended December 31, 2014. In connection with our audit of the consolidated
financial statements, we also have audited the consolidated financial statement schedule for each of the years in the three-year
period ended December 31, 2014. These consolidated financial statements and consolidated financial statement schedule are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of KBR, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 2014, when considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
KBR, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated February 27, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.

/s/ KPMG LLP

Houston, Texas
February 27, 2015

KBR, Inc.
Consolidated Statements of Operations
(In millions, except for per share data)

Revenues
Cost of revenues

Gross profit (loss)
Equity in earnings of unconsolidated affiliates
General and administrative expenses
Impairment of goodwill
Asset impairment and restructuring charges
Gain on disposition of assets

Operating income (loss)
Other non-operating income (expenses)

Income (loss) before income taxes and noncontrolling interests
Provision for income taxes

Net income (loss)
Net income attributable to noncontrolling interests

Net income (loss) attributable to KBR
Net income (loss) attributable to KBR per share:
Basic

Diluted
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
Cash dividends declared per share

Years ended December 31,

2014

2013

2012

$
$

6,366 $
(6,431 )
(65 )
163
(239 )
(446 )
(214 )
7
(794 )
17
(777 )
(421 )
(1,198 )
(64 )
(1,262 ) $

(8.66 ) $
(8.66 ) $
146
146
0.32 $

7,214 $
(6,797 )
417
137
(248 )
—
—
2
308
(8 )
300
(129 )
171
(96 )
75 $

0.50 $
0.50 $
148
149
0.24 $

7,770
(7,252 )
518
151
(222 )
(178 )
(2 )
32
299
(11 )
288
(86 )
202
(58 )
144

0.97
0.97
148
149
0.28

See accompanying notes to consolidated financial statements.

KBR, Inc.

Consolidated Statements of Comprehensive Income (Loss)
(In millions)

Years ended December 31,

2014

2013

2012

(1,198 ) $

171 $

202

Net income (loss)

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:

Foreign currency translation adjustments, net of tax

Reclassification adjustment included in net income

Foreign currency translation adjustments, net of tax of $(4), $(27) and

Pension and post-retirement benefits, net of tax:

Actuarial losses, net of tax

Reclassification adjustment included in net income

Pension and post-retirement benefits, net of taxes of $(10), $(18) and

$(14)

Changes in fair value of derivatives:

Changes in fair value of derivatives, net of tax

Reclassification adjustment included in net income

Changes in fair value of derivatives, net of taxes of $0, $0 and $(1)

Other comprehensive loss, net of tax
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to KBR

(71 )
1

(70 )

(104 )
42

(62 )

(2 )
—

(2 )
(134 )
(1,332 )

(66 )
(1,398 ) $

(35 )
1

(34 )

(122 )
35

(87 )

1
(1 )

—
(121 )
50
(105 )
(55 ) $

(11 )

(7 )

(18 )

(77 )
27

(50 )

2
4

(62 )
140
(58 )
82

See accompanying notes to consolidated financial statements.

KBR, Inc.
Consolidated Balance Sheets
(In millions, except share data)

Assets

Current assets:
Cash and equivalents
Accounts receivable, net of allowance for doubtful accounts of $19 and $18
Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE")
Deferred income taxes
Other current assets
Total current assets
Property, plant, and equipment, net of accumulated depreciation of $385 and $397 (including net
PPE of $57 and $67 owned by a variable interest entity)
Goodwill
Intangible assets, net of accumulated amortization of $96 and $112
Equity in and advances to unconsolidated affiliates
Deferred income taxes
Claims and accounts receivable
Other assets
Total assets

Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable
Payable to former parent
Billings in excess of costs and estimated earnings on uncompleted contracts ("BIE")
Accrued salaries, wages and benefits
Nonrecourse project debt
Other current liabilities
Total current liabilities
Pension obligations
Employee compensation and benefits
Income tax payable
Deferred income taxes
Nonrecourse project debt
Deferred income from unconsolidated affiliates
Other liabilities
Total liabilities
KBR shareholders’ equity:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding

Common stock, $0.001 par value, 300,000,000 shares authorized, 174,448,399 and 173,924,509
shares issued, and 144,837,281 and 148,195,208 shares outstanding
Paid-in capital in excess of par ("PIC")
Accumulated other comprehensive loss ("AOCL")
Retained earnings
Treasury stock, 29,611,118 shares and 25,729,301 shares, at cost
Total KBR shareholders’ equity
Noncontrolling interests ("NCI")
Total shareholders’ equity
Total liabilities and shareholders’ equity

See accompanying notes to consolidated financial statements.

December 31,

2014

2013

970 $
847
490
90
147
2,544

247
324
41
151
174
570
148
4,199 $

742 $
56
531
197
10
488
2,024
502
112
69
170
63
95
229
3,264

—

—
2,091
(876 )
439
(712 )
942
(7 )
935
4,199 $

1,106
1,056
399
168
196
2,925

415
772
85
156
344
628
113
5,438

747
105
401
235
10
409
1,907
477
114
70
86
78
—
267
2,999

—

—
2,065
(740 )
1,748
(610 )
2,463
(24 )
2,439
5,438

KBR, Inc.
Consolidated Statements of Shareholders’ Equity
(In millions)

Balance at January 1,
Deferred tax and foreign currency adjustments to PIC

Share-based compensation

Common stock issued upon exercise of stock options

Tax benefit increase related to share-based plans

Dividends declared to shareholders

Adjustments pursuant to tax sharing agreement

Repurchases of common stock

Issuance of employee stock purchase plan ("ESPP") shares

Investments from noncontrolling interests

Distributions to noncontrolling interests

Change in NCI due to consolidation of previously unconsolidated JV

Other NCI activity

Comprehensive income (loss)

Balance at December 31,

December 31,

2014

2013

2012

2,439 $
—
22
4
—
(47 )
—
(106 )
4
10
(61 )
—
2
(1,332 )

935 $

2,511 $
—
16
6
—
(36 )

(7 )

(7 )
4
9
(109 )
2
—
50
2,439 $

2,442
17
16
7
4
(42 )
—
(40 )
3
—
(36 )
—
—
140
2,511

See accompanying notes to consolidated financial statements.

KBR, Inc.
Consolidated Statements of Cash Flows
(In millions)

Years ended December 31,

2014

2013

2012

Cash flows from operating activities:
Net income (loss)
$
Adjustments to reconcile net income to net cash provided by operating activities:

(1,198 ) $

171 $

202

Depreciation and amortization

Equity in earnings of unconsolidated affiliates

Deferred income tax (benefit) expense

Gain on disposition of assets

Gain on negotiated settlement with former parent

Impairment of goodwill

Asset impairment

Other

Changes in operating assets and liabilities:

Accounts receivable, net of allowance for doubtful accounts

Costs and estimated earnings in excess of billings on uncompleted contracts

Accounts payable

Billings in excess of costs and estimated earnings on uncompleted contracts

Accrued salaries, wages and benefits

Reserve for loss on uncompleted contracts

Receipts of advances from unconsolidated affiliates, net

Distributions of earnings from unconsolidated affiliates

Payment on performance bonds for EPC 1 project in Mexico

Income taxes payable

Pension funding

Retainage payable

Subcontractor advances

Other assets and liabilities

Total cash flows provided by operating activities
Cash flows from investing activities:
Acquisition or disposition of businesses

Purchases of property, plant and equipment

Proceeds from sale of assets and investments

Return of capital from equity method joint ventures

Total cash flows provided by (used in) investing activities

Cash flows from financing activities:
Payments to reacquire common stock

Investments from noncontrolling interests

Distributions to noncontrolling interests

Payments of dividends to shareholders

Net proceeds from issuance of common stock

Excess tax benefits from share-based compensation

72
(163 )
353
(7 )

(24 )
446
171
11

170
(107 )

(10 )
144
(29 )
57
13
249
—
14
(48 )

(16 )

(3 )
75
170

—
(53 )
9
—
(44 ) $

(106 )
10
(61 )

(47 )
4
—

68
(137 )
18
(2 )
—
—
—
21

—
140
49
(20 )

(14 )
53
14
180
(108 )

(51 )

(54 )

(35 )
20
(16 )
297

10
(78 )
6
—
(62 ) $

(7 )
9
(109 )

(36 )
6
—

65
(151 )
18
(32 )
—
178
2
35

(9 )

(239 )

(14 )

(93 )

(8 )
34
(6 )
108
—
(62 )

(30 )

(70 )
131
83
142

(3 )

(75 )
127
3
52

(40 )
—
(36 )

(37 )
7
4

Payments on short-term and long-term borrowings

Other

Total cash flows used in financing activities
Effect of exchange rate changes on cash

Increase (decrease) in cash and equivalents
Cash and equivalents at beginning of period

Cash and equivalents at end of period

Supplemental disclosure of cash flows information:

Cash paid for interest

Cash paid for income taxes (net of refunds)

Noncash operating activities

Other assets change for payments made on our behalf by former parent

Other liabilities change for payments made on our behalf by former parent

Noncash financing activities
Dividends declared

(11 )
1
(210 )
(52 )

(136 )
1,106

970 $

11 $
37 $

— $
— $

(14 )
3
(148 )
(34 )
53
1,053
1,106 $

12 $
127 $

(219 ) $
219 $

(14 )
—
(116 )
9
87
966
1,053

15
81

22
(22 )

12 $

See accompanying notes to consolidated financial statements.

KBR, Inc.
Notes to Consolidated Financial Statements

Note 1. Description of Company and Significant Accounting Policies

KBR, Inc., a Delaware corporation, was formed on March 21, 2006 and is headquartered in Houston, Texas. KBR, Inc.
and its wholly owned and majority-owned subsidiaries (collectively referred to herein as "KBR", "the Company", "we", "us" or
"our") is an engineering, procurement, construction and services company supporting the global hydrocarbons and international
government services market segments. Our capabilities include engineering, procurement, construction, construction
management, technology licensing, operations, maintenance and other support services to a diverse customer base, including
international and national oil and gas companies, independent refiners, petrochemical producers, fertilizer producers,
manufacturers and domestic and foreign governments.

Principles of consolidation

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States ("U.S. GAAP") and include the accounts of KBR and our wholly owned and majority-owned, controlled
subsidiaries and variable interest entities of which we are the primary beneficiary. We account for investments over which we
have significant influence but not a controlling financial interest using the equity method of accounting. See Note 10 to our
consolidated financial statements for further discussion on our equity investments and variable interest entities. The cost
method is used when we do not have the ability to exert significant influence. All material intercompany balances and
transactions are eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to the current year presentation on the consolidated

statement of operations, consolidated balance sheets and the consolidated statements of cash flows.

We have evaluated all events and transactions occurring after the balance sheet date but before the financial statements

were issued and have included the appropriate disclosures.

Use of estimates

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 assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Areas requiring significant estimates and assumptions by our
management include the following:

• project revenues, costs and profits on engineering and construction contracts and government services contracts,

including recognition of estimated losses on uncompleted contracts

• provisions for uncollectible receivables and client claims and recoveries of costs from subcontractors, vendors and

others

recoverability of goodwill
recoverability of other intangibles and long-lived assets and related estimated lives
recoverability of equity method and cost method investments

• provisions for income taxes and related valuation allowances and tax uncertainties
•
•
•
• valuation of pension obligations and pension assets
•
•
• valuation of stock-based compensation

accruals for estimated liabilities, including litigation accruals
consolidation of variable interest entities

In accordance with normal practice in the construction industry, we include in current assets and current liabilities
amounts related to construction contracts realizable and payable over a period in excess of one year. If the underlying estimates
and assumptions upon which the financial statements are based change in the future, actual amounts may differ from those
included in the accompanying consolidated financial statements.

Revenue Recognition - Engineering and construction contracts

Contracts. Revenues from contracts to provide construction, engineering, design or similar services is reported on the
percentage-of-completion method of accounting in accordance with Financial Accounting Standards Board ("FASB")
Accounting Standards Codification (“ASC”) 605 - Revenue Recognition. Depending on the type of job, progress is generally
measured based upon man-hours expended to total man-hours estimated at completion, costs incurred to total estimated costs at
completion or physical progress. All known or anticipated losses on contracts are provided for in the period they become
evident. Certain claims and change orders that are in the process of negotiation with customers for additional work or changes
in the scope of work are included in contract value when collection is deemed probable and the value can be reliably estimated.

Our work is performed under three general types of contracts: fixed-price contracts, cost-reimbursable plus a fee or
mark-up contracts and "hybrid" contracts containing both cost-reimbursable and fixed-price scopes. All contract types may be
modified by cost escalation provisions or other risk sharing mechanisms and incentive and penalty provisions. During the term
of a project, the contract or components of the contract may be renegotiated to include characteristics of a different contract
type. When we negotiate any type of contract, we frequently are required to accomplish the scope of work and meet certain
performance criteria within a specified time frame; otherwise, we could be assessed damages, which in some cases are agreed-
upon liquidated damages. We include an estimate of liquidated damages in our estimates of total contract value when it is
deemed probable that they will be assessed. Profits are recorded based upon the product of estimated contract profit at
completion times the current percentage-complete for the contract.

Fixed-price contracts, which include our unit-rate contracts (essentially a fixed-price contract with the only variable
being units of work performed) where we are paid fixed amounts based on the final number of units of work performed, are for
a fixed sum to cover all costs and any profit element for a defined scope of work. Fixed-price contracts entail more risk to us
because they require us to predetermine the work to be performed, the project execution schedule and the costs associated with
the work. As a result, we may benefit or be penalized for cost variations from our original estimates. However, these contract
prices may be adjusted for changes in scope of work, new or changing laws and regulations and other negotiated events.

Cost-reimbursable contracts include contracts where the price is variable based upon our actual costs incurred for time
and materials and for reimbursable labor hour contracts. Profit on cost-reimbursable contracts may be a fixed amount, a mark-
up applied to costs incurred or a combination of the two. Cost-reimbursable contracts are generally less risky than fixed-price
contracts because the owner/customer retains many of the project risks. Our cost-reimbursable contracts include the following:

• Cost-plus and Time and Material contracts - These are contracts under which we are reimbursed for allowable or
otherwise defined costs incurred plus a fee or mark-up. The contracts may also include incentives for various
performance criteria, including quality, timeliness, ingenuity, safety and cost-effectiveness. In addition, our costs
are generally subject to review by our clients and regulatory audit agencies, and such reviews could result in costs
being disputed as non-reimbursable under the terms of the contract.

• Target-price contracts - These are contracts under which we are reimbursed for costs plus a fee consisting of two
parts: (1) a fixed amount, which does not vary with performance, but may be at risk when a target price is
exceeded; and (2) an award amount based on the performance and cost-effectiveness of the project. As a result,
we are generally able to recover cost overruns on these contracts from actual damages for late delivery or the
failure to meet certain performance criteria. Target-price contracts also generally provide for sharing of costs in
excess of or savings for costs less than the target. In some contracts, we may agree to share cost overruns in
excess of our fee, which could result in a loss on the project.

Unapproved Change Orders and Claims. Revenues and gross profit on contracts can be significantly affected by change
orders and claims that may not be approved by the customer until the later stages of a contract or subsequent to the date a
project is completed. If it is not probable that the costs will be recovered through a change in contract price, the costs
attributable to change orders are treated as contract costs without incremental revenue. For certain contracts where it is
probable that the costs will be recovered through a change order, total estimated contract revenue is increased by the lesser of
the amounts management expects to recover or the costs expected to be incurred.

When estimating the amount of total gross profit or loss on a contract, we include unapproved change orders or claims
to our clients as adjustments to revenues. We include claims to vendors, subcontractors and others as adjustments to total
estimated costs. Claims against others are recorded up to the extent of the lesser of the amounts management expects to
recover or to costs incurred and include no profit until such time as they are finalized and approved. See Note 5 to our
consolidated financial statements for our discussion on unapproved change orders and claims.

Revenue Recognition - Government contracts

Some of the services provided to the United States ("U.S.") government are performed on cost-reimbursable contracts.

Generally, these contracts may contain base fees (a fixed profit percentage applied to our actual costs to complete the work).

Accounting for multiple deliverables contracts

For contracts containing multiple deliverables, we analyze each activity within the contract to ensure that we adhere to

the separation guidelines for revenue arrangements with multiple deliverables in accordance with FASB ASC 605.

Gross Profit

Gross profit represents business segment revenues less the cost of revenues, which includes business segment overhead

costs directly attributable to the business segment.

Cost estimates

Contract costs include all direct material and labor costs and those indirect costs related to contract performance.
Indirect costs, included in cost of revenues, include charges for such items as facilities, engineering, project management,
quality control, bid and proposals and procurement.

General and administrative expenses

Our general and administrative expenses represent corporate overhead expenses that are not associated with the
execution of the contracts. General and administrative expenses include charges for such items as executive management,
corporate business development, information technology, finance and corporate accounting, human resources and various other
corporate functions.

Cash and Equivalents

We consider highly liquid investments with an original maturity of three months or less to be cash equivalents. See Note

3 to our consolidated financial statements for our discussion on cash and equivalents.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount based on contracted prices. Amounts collected on accounts

receivable are included in net cash provided by operating activities in the consolidated statements of cash flows.

We establish an allowance for doubtful accounts based on the assessment of the clients’ willingness and ability to pay.
In addition to such allowances, there are often items in dispute or being negotiated that may require us to make an estimate as
to the ultimate outcome. Past due receivable balances are written off when our internal collection efforts have been
unsuccessful in collecting the amounts due. See Note 4 to our consolidated financial statements for our discussion on accounts
receivable.

Retainage, included in accounts receivable, represents amounts withheld from billings by our clients pursuant to
provisions in the contracts and may not be paid to us until the completion of specific tasks or the completion of the project and,
in some instances, for even longer periods. Retainage may also be subject to restrictive conditions such as performance
guarantees. Our retainage receivable excludes amounts withheld by the U.S. government on certain contracts. See Note 14 to
our consolidated financial statements for our discussion on U.S. government receivables.

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts, Including Claims, and Advanced Billings

and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts

Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of
milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-
completion method of accounting. Costs and estimated earnings in excess of billings on uncompleted contracts represent the
excess of contract costs and profits recognized to date using the percentage-of-completion method over billings to date on
certain contracts. Billings in excess of costs and estimated earnings on uncompleted contracts represents the excess of billings
to date over the amount of contract costs and profits recognized to date using the percentage-of-completion method on certain
contracts. With the exception of claims and change orders that we are in the process of negotiating with customers, unbilled
receivables are usually billed during normal billing processes following achievement of the contractual requirements. See Note
5 to our consolidated financial statements for our discussion on CIE and BIE.

Property, Plant and Equipment

Property, plant and equipment are reported at cost less accumulated depreciation except for those assets that have been
written down to their fair values due to impairment. Expenditures for major additions and improvements are capitalized and
minor replacements, maintenance and repairs are charged to expense as incurred. The cost of property, plant and equipment
sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in operating income for the respective period. Depreciation is generally provided on the straight-line method
over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over
the shorter of the useful life of the improvement or the lease term. See Note 7 to our consolidated financial statements for our
discussion on property, plant and equipment.

Goodwill

Goodwill is an asset representing the excess cost over the fair market value of net assets acquired in business
combinations. In accordance with ASC 350 - Intangibles - Goodwill and Other, we are required to test goodwill for impairment
on an annual basis and more frequently when negative conditions or other triggering events arise. We test goodwill for
impairment annually as of October 1. In accordance with ASC 350 - Intangibles - Goodwill and Other, we conduct our
goodwill impairment testing at the reporting unit level. See Note 8 for our discussion on our annual impairment test.

Our October 1, 2014 annual impairment test for goodwill was a quantitative analysis using a two-step process that
involves comparing the estimated fair value of each reporting unit to its carrying value, including goodwill. If the fair value of
a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not considered impaired; therefore, the second
step of the impairment test is unnecessary. If the carrying value of a reporting unit exceeds its fair value, we perform the
second step of the goodwill impairment test to measure the amount of goodwill impairment loss to be recorded, as necessary.
The second step compares the implied fair value of the reporting unit's goodwill to the carrying value, if any, of that goodwill.
We determine the implied fair value of the goodwill in the same manner as determining the amount of goodwill to be
recognized in a business combination.

The fair values of reporting units were determined using a combination of two methods, one utilizing market earnings
multiples (the market approach) and the other derived from discounted cash flow models with estimated cash flows based on
internal forecasts of revenues and expenses over a specified period plus a terminal value (the income approach).

Intangible assets

Our intangible assets are related to various licenses, trade names, patents, technology and related processes. Except for
an $11 million indefinite lived trade name, which we do not amortize, the costs of our intangible assets are generally amortized
over their estimated useful lives up to 25 years. The method of amortization reflects the expected realization pattern of the
economic benefits relevant to the intangible assets, or if we are unable to determine the expected realization pattern reliably,
they are amortized using the straight-line method. We also have intangible assets related to trade names, client relationships
and non-compete agreements which are associated with acquisitions we have completed and are generally amortized over a
three-to ten-year period on a straight-line basis. We assess the recoverability of the unamortized balance of our intangible
assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows
and their contribution to our overall operations. Should the review indicate that the carrying value is not fully recoverable, the
excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss. See Note 8
to our consolidated financial statements for our discussion on intangible assets.

Investments

We account for non-marketable investments using the equity method of accounting if the investment gives us the ability
to exercise significant influence over, but not control of, an investee. Significant influence generally exists if we have an
ownership interest representing between 20% and 50% of the voting stock of the investee. Under the equity method of
accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and our proportionate
share of earnings or losses and distributions.

Equity in earnings of unconsolidated affiliates, in the consolidated statements of operations, reflects our proportionate
share of the investee's net income, including any associated affiliate taxes. Our proportionate share of the investee’s other
comprehensive income (loss), net of income taxes, is recorded in the consolidated statements of shareholders’ equity and
consolidated statements of comprehensive income (loss). In general, the equity investment in our unconsolidated affiliates is
equal to our current equity investment plus those entities' undistributed earnings.

We evaluate our equity method investments for impairment at least annually and whenever events or changes in
circumstances indicate, in management’s judgment, that the carrying value of an investment may have experienced an other-
than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value
of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated
fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess
of the carrying value over the estimated fair value is recognized in the financial statements as an impairment. See Note 10 to
our consolidated financial statements for our discussion on equity method investments.

Where we are unable to exercise significant influence over the investee, or when our investment balance is reduced to
zero from our proportionate share of losses, the investments are accounted for under the cost method. Under the cost method,
investments are carried at cost and adjusted only for other-than-temporary declines in fair value, distributions of earnings, or
additional investments.

Pensions

We account for our defined benefit pension plans in accordance with ASC 715 - Compensation - Retirement Benefits,

which requires an employer to:

•

recognize on its balance sheet the funded status (measured as the difference between the fair value of plan assets
and the benefit obligation) of the pension plan;
recognize, through comprehensive income, certain changes in the funded status of a defined benefit plan in the
year in which the changes occur;

• measure plan assets and benefit obligations as of the end of the employer’s fiscal year; and
• disclose additional information.

Our pension benefit obligations and expenses are calculated using actuarial models and methods. Two of the more
critical assumptions and estimates used in the actuarial calculations are the discount rate for determining the current value of
benefit obligations and the expected rate of return on plan assets. Other assumptions and estimates used in determining benefit
obligations and plan expenses include 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.

Income taxes

We recognize the amount of taxes payable or refundable for the year and deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the financial statements or tax returns. We provide a
valuation allowance for deferred tax assets if it is more likely than not that these items will not be realized. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
See Note 13 to our consolidated financial statements for our discussion on income taxes.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit carryforwards. A current tax asset or liability is
recognized for the estimated taxes refundable or payable on tax returns. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is
provided for deferred tax assets if it is more likely than not that these items will not be realized. We consider the scheduled
reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies in making this
assessment. Additionally, we use forecasts of certain tax elements such as taxable income and foreign tax credit utilization in
making this assessment of realization. Given the inherent uncertainty involved with the use of such estimates and assumptions,
there can be significant variation between estimated and actual results.

We have operations in numerous countries other than the United States. Consequently, we are subject to the jurisdiction
of a significant number of taxing authorities. The income earned in these various jurisdictions is taxed on differing bases,
including income actually earned, income deemed earned and revenue-based tax withholding. The final determination of our
tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each jurisdiction. Changes in the
operating environment, including changes in tax law and currency/repatriation controls, could impact the determination of our
tax liabilities for a tax year.

We recognize the effect of income tax positions only if it is more-likely-than-not that those positions will be sustained.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes
in recognition or measurement are reflected in the period in which the change in judgment occurs. The company records
potential interest and penalties related to unrecognized tax benefits in income tax expense.

Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined by tax authorities in
the normal course of business. These examinations may result in assessments of additional taxes, which we work to resolve
with the tax authorities and through the judicial process. Predicting the outcome of disputed assessments involves some
uncertainty. Factors such as the availability of settlement procedures, willingness of tax authorities to negotiate and the
operation and impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence the
ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates to determine the most
likely outcome and provide taxes, interest and penalties as needed based on this outcome. See Note 12 for our discussion on
income taxes.

Derivative instruments

We enter into derivative financial transactions to hedge existing or forecasted exposures to changing foreign currency
exchange rates. We do not enter into derivative transactions for speculative or trading purposes. We recognize all derivatives
at fair value on the balance sheet. Derivatives that are not accounted for as hedges under ASC 815 - Derivatives and Hedging,
are adjusted to fair value and such changes are reflected in the results of operations. If the derivative is designated as a hedge
under ASC 815, changes in the fair value of derivatives are recognized in other comprehensive income (loss) until the hedged
item is recognized in earnings. The ineffective portion of a designated hedge's change in fair value is recognized in earnings.
See Note 20 to our consolidated financial statements for our discussion on derivative instruments.

Recognized gains or losses on derivatives entered into to manage project related foreign exchange risk are included in
gross profit. Foreign currency gains and losses for hedges of non-project related foreign exchange risk are reported within
"Other non-operating income (expense)" on our consolidated statements of operations.

Concentration of credit risk

Financial instruments which potentially subject our company to concentrations of credit risk consist principally of cash
and cash equivalents, and trade receivables. Our cash is primarily held with major banks and financial institutions throughout
the world. We believe the risk of any potential loss on deposits held in these institutions is minimal.

Contracts with clients usually contain standard provisions allowing the client to curtail or terminate contracts for
convenience. Upon such a termination, we are generally entitled to recover costs incurred, settlement expenses and profit on
work completed prior to termination and demobilization cost.

We have revenues and receivables from transactions with an external customer that amounts to 10% or more of our
revenues (which are generally not collateralized). A significant percentage of revenues is generated from transactions with
Chevron Corporation ("Chevron") which is derived primarily from our E&C business segment. No other customers represented
10% or more of consolidated revenues in any of the periods presented.

The following tables present summarized data related to our transactions with Chevron.

Revenues from major customers:

Dollars in millions
Chevron revenues

Percentages of revenues and accounts receivable from major customers:

Chevron revenues percentage
Chevron receivables percentage

Noncontrolling interest

Years ended December 31,

2014

2013

2012

1,069 $

1,859 $

2,302

Years ended December 31,

2014

2013

2012

17 %
9 %

26 %
13 %

30 %
17 %

Noncontrolling interests represent the equity investments of the minority owners in our joint ventures and other

subsidiary entities that we consolidate in our financial statements.

Foreign currency

Our reporting currency is the U.S. dollar. The functional currency of our non-U.S subsidiaries is typically the currency
of the primary environment in which they operate. Where the functional currency for a non-U.S subsidiary is not the U.S.
dollar, translation of all of the assets and liabilities (including long term assets, such as goodwill) to U.S. dollars is based on
exchange rates in effect at the balance sheet date. Translation of revenues and expenses to U.S. dollars is based on the average
rate during the period and shareholders’ equity accounts are translated at historical rates. Translation gains or losses, net of
income tax effects, are reported in "accumulated other comprehensive loss" on our consolidated balance sheets.

Transaction gains and losses that arise from foreign currency exchange rate fluctuations on transactions denominated in
a currency other than the functional currency are recognized in income each reporting period when these transactions are either
settled or remeasured. Transaction gains and losses on intra-entity foreign currency transactions and balances including
advances and demand notes payable, on which settlement is not planned or anticipated in the foreseeable future, are recorded in
“accumulated other comprehensive loss” on our consolidated balance sheets.

Variable Interest Entities

The majority of our joint ventures are variable interest entities ("VIEs"). We account for VIEs in accordance with ASC
810 - Consolidation which requires the consolidation of VIEs in which a company has both the power to direct the activities of
the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to
receive the benefits from the VIE that could potentially be significant to the VIE. If a reporting enterprise meets these
conditions then it has a controlling financial interest and is the primary beneficiary of the VIE. Our unconsolidated VIEs are
accounted for under the equity method of accounting.

We assess all newly created entities and those with which we become involved to determine whether such entities are
VIEs and, if so, whether or not we are their primary beneficiary. Most of the entities we assess are incorporated or
unincorporated joint ventures formed by us and our partner(s) for the purpose of executing a project or program for a customer
and are generally dissolved upon completion of the project or program. Many of our long-term energy-related construction
projects in our E&C business segment are executed through such joint ventures. Typically, these joint ventures are funded by
advances from the project owner, and accordingly, require little or no equity investment by the joint venture partners but may
require subordinated financial support from the joint venture partners such as letters of credit, performance and financial
guarantees or obligations to fund losses incurred by the joint venture. Other joint ventures, such as privately financed
initiatives in our GS business segment, generally require the partners to invest equity and take an ownership position in an
entity that manages and operates an asset after construction is complete.

As required by ASC 810 - Consolidation, we perform a qualitative assessment to determine whether we are the primary
beneficiary once an entity is identified as a VIE. Thereafter, we continue to re-evaluate whether we are the primary beneficiary
of the VIE in accordance with ASC 810 - Consolidation. A qualitative assessment begins with an understanding of the nature
of the risks in the entity as well as the nature of the entity’s activities. These include the terms of the contracts entered into by
the entity, ownership interests issued by the entity and how they were marketed and the parties involved in the design of the
entity. We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity
investments, subordinated debt financing, letters of credit, financial and performance guarantees and contracted service
providers. Once we identify the variable interests, we determine those activities which are most significant to the economic
performance of the entity and which variable interest holder has the power to direct those activities. Though infrequent, some
of our assessments reveal no primary beneficiary because the power to direct the most significant activities that impact the
economic performance is held equally by two or more variable interest holders who are required to provide their consent prior
to the execution of their decisions. Most of the VIEs with which we are involved have relatively few variable interests and are
primarily related to our equity investment, significant service contracts and other subordinated financial support.

Share-based compensation

We account for share-based payments, including grants of employee stock options, restricted stock-based awards and
performance cash units, in accordance with ASC 718 - Compensation-Stock Compensation, which requires that all share-based
payments (to the extent that they are compensatory) be recognized as an expense in our consolidated statements of operations
based on their fair values on the award date and the estimated number of shares we ultimately expect to vest. We recognize
share-based compensation expense on a straight-line basis over the service period of the award, which is no greater than 5
years. See Note 18 to our consolidated financial statements for our discussion on share-based compensation and incentive
plans.

Commitments and Contingencies

We record liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other
sources when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Legal costs incurred in connection with loss contingencies are expensed as incurred.

Additional Balance Sheet Information

The components of “other current assets” on our consolidated balance sheets as of December 31, 2014 and 2013 are

presented below:

Dollars in millions
Inventory
Restricted cash
Prepaid expenses
Value-added tax receivable
Assets held-for-sale
Other miscellaneous assets

Total other current assets

December 31,

2014

2013

8 $
17
58
27
10
27
147 $

13
1
72
24
—
86
196

The components of “other current liabilities” on our consolidated balance sheets as of December 31, 2014 and 2013 are

presented below:

Dollars in millions
Reserve for estimated losses on uncompleted contracts (a)
Retainage payable
Income taxes payable
Deferred tax liabilities
Value-added tax payable
Insurance payable
Dividend payable
Other miscellaneous liabilities

Total other current liabilities

December 31,

2014

2013

159 $
88
61
46
31
19
12
72
488 $

109
102
60
31
29
26
12
40
409

(a) See Note 2 for further discussion on our reserve for estimated losses on uncompleted contracts.

Note 2. Business Segment Information

We provide a wide range of services and the management of our business is heavily focused on major projects within
each of our reportable segments. At any given time, a relatively few number of projects and joint ventures represent a
substantial part of our operations. Our reportable segments follow the same accounting policies as those described in Note 1 to
our consolidated financial statements.

Business Reorganization

On December 11, 2014, KBR announced our reorganization into three new business segments to focus on core strengths
in technology and consulting, engineering and construction, and government services. We also announced our intent to exit
businesses that are no longer a part of our future strategic focus and have organized those businesses into our Non-strategic
Business segment. Each new business segment reflects a reportable segment led by a separate business segment President who
reports directly to our chief operating decision maker ("CODM"). Our new business segments are described below.

Technology & Consulting ("T&C"). Our T&C business segment combines proprietary KBR technologies,
knowledge-based services and our three specialist consulting brands, Granherne, Energo and GVA under a single customer-
facing global business. This segment provides licensed technologies and consulting services to the oil and gas value chain,
from wellhead to crude refining and through to specialty chemicals production. In addition to sharing many of the same
customers, these brands share the approach of early and continuous customer involvement to deliver an optimal solution to
meet the customer’s objectives through early planning and scope definition, advanced technologies, and project lifecycle
support.

for oil and gas, refining, petrochemicals, and chemicals customers. E&C is managed on a geographic basis in order to
facilitate close proximity to our customers and our people, while utilizing a consistent global execution strategy.

Government Services ("GS"). Our GS business segment focuses on long-term service contracts with annuity streams

particularly for the United Kingdom, Australian and United States governments.

Other. Our Other business segment includes our corporate expenses and general and administrative expenses not
allocated to the business segments above, and any future activities that do not individually meet the criteria for segment
presentation.

Reportable segment performance is evaluated by our CODM using reportable segment gross profit (loss) which is
defined as business segment revenues less the cost of revenues, and includes business segment overhead directly attributable to
the segment. We have revised our business segment reporting to reflect our current management approach and recast prior
periods to conform to the current business segment presentation.

The following table presents revenues, gross profit, equity in earnings of unconsolidated affiliates, capital expenditures,
and depreciation and amortization by reporting segment. See Note 8 to our consolidated financial statements for more
information on goodwill and intangible assets.

Operations by Reportable Segment

Dollars in millions
Revenues:

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Gross profit (loss):

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Equity in earnings of unconsolidated affiliates:

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Impairment of goodwill (Note 8):

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Asset impairment and restructuring charges (Note 9):

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Segment operating income (loss):

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Years ended December 31,

2014

2013

2012

353 $

4,584
638
—
5,575
791
6,366 $

330 $

4,956
931
—
6,217
997
7,214 $

296
5,616
1,105
—
7,017
753
7,770

53 $
141
(32 )
—
162
(227 )

(65 ) $

— $
90
73
—
163
—
163 $

— $

(293 )
—
—
(293 )
(153 )
(446 ) $

(2 ) $

(24 )
(5 )
(149 )
(180 )
(34 )
(214 ) $

49 $

(114 )
25
(312 )
(352 )
(442 )
(794 ) $

69 $
263
90
—
422
(5 )
417 $

— $
76
61
—
137
—
137 $

— $
—
—
—
—
—
— $

70 $
278
145
(181 )
312
(4 )
308 $

80
450
83
—
613
(95 )
518

—
79
67
—
146
5
151

—
—
—
—
—
(178 )
(178 )

—
—
—
(2 )
(2 )
—
(2 )

80
499
146
(155 )
570
(271 )
299

Dollars in millions
Capital expenditures:

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Depreciation and amortization:

Technology & Consulting
Engineering & Construction
Government Services
Other

Subtotal

Non-strategic Business

Total

Changes in Estimates

Years ended December 31,

2014

2013

2012

— $
19
—
34
53
—
53 $

2 $
23
8
33
66
6
72 $

— $
10
1
67
78
—
78 $

2 $
23
9
27
61
7
68 $

1
8
1
65
75
—
75

2
23
9
22
56
9
65

There are many factors, including, but not limited to, the availability and costs of resources, including labor, materials
and equipment; productivity and weather, that can affect the accuracy of our cost estimates and ultimately our future
profitability. In the past, we have realized both lower and higher than expected margins and have incurred losses as a result of
unforeseen changes in our project costs. We recognize revisions of revenues and costs in the period in which the revisions are
known. This may result in the recognition of costs before the recognition of related revenue recovery, if any. However,
historically, our estimates have been reasonably dependable regarding the recognition of revenues and profit on percentage of
completion contracts.

Significant changes in estimates periodically result in the recognition of losses on a particular contract. We generally
believe that the recognition of a contract as a loss contract is a significant change in estimate. Activity in our reserve for
estimated losses on uncompleted contracts was as follows:

Dollars in millions
Balance at January 1,

Changes in estimates on loss projects

Change due to progress on loss projects

Balance at December 31,

Years ended December 31,

2014

2013

2012

109 $
177
(127 )
159 $

56 $
106
(53 )
109 $

22
53
(19 )
56

During 2014 and 2013, our seven Canadian pipe fabrication and module assembly projects, included in our E&C
business segment, recognized revisions in our estimate of costs and an impact to gross loss or profit of $72 million and $132
million, respectively. All seven of these projects were in loss positions as of December 31, 2014 and 2013. Included in the
reserve for estimated losses on uncompleted contracts is $53 million and $97 million at December 31, 2014 and 2013,
respectively, related to these projects. We are in the process of negotiating closure on four of these projects and the remaining
three projects should be completed during 2015. Our estimates of revenues and costs at completion on these projects have been,
and may continue to be, impacted by our performance, the performance of our subcontractors, the Canadian labor market, the
nature, complexity and ultimate quantities of modules and types of individual components in the modules, our contractual
arrangements and our ability to accumulate information and negotiate final contract settlements with our customers. Our
estimated losses as of December 31, 2014 on these projects represent our best estimate based on current information. Actual
results could differ from the estimates we have used to account for these projects as of December 31, 2014.

During 2014, we recognized revisions in our estimate of costs to complete three projects in our power business included
in our Non-strategic Business segment. Such revisions resulted in a decrease in gross profit of $173 million for the year ended
December 31, 2014 and resulted in two of these projects becoming loss projects. The reserve for estimated losses on
uncompleted contracts at December 31, 2014 includes $80 million related to these two power projects. Our estimate of
revenues and costs at completion for these power projects have been, and may continue to be, impacted by our performance,
the performance of our subcontractors, and the U.S. labor market. Our estimated profit and losses as of December 31, 2014 on
these power projects represent our best estimate based on current information. Actual results could differ from the estimates we
have used to account for these power projects as of December 31, 2014.

Balance Sheet Information by Reportable Segment

Within KBR, not all assets are associated with specific business segments. Those assets specific to business segments
include receivables, inventories, certain identified property, plant and equipment, equity in and advances to related companies
and goodwill. The remaining assets, such as cash and the remaining property, plant and equipment, are considered to be shared
among the business segments and are therefore reported in "Other."

December 31,

2014

2013

173 $

2,020
532
1,304
4,029
170
4,199 $

31 $
233
60
—
324
—
324 $

— $
119
31
—
150
1
151 $

224
2,308
693
1,838
5,063
375
5,438

31
528
60
—
619
153
772

—
99
53
—
152
4
156

Dollars in millions
Total assets:

Technology & Consulting

Engineering & Construction

Government Services

Other

Subtotal

Non-strategic Business

Total

Goodwill (Note 8):

Technology & Consulting

Engineering & Construction

Government Services

Other

Subtotal

Non-strategic Business

Total

Equity in and advances to related companies (Note 10):

Technology & Consulting

Engineering & Construction

Government Services

Other

Subtotal

Non-strategic Business

Total

Selected Geographic Information

Revenues by country are determined based on the location of services provided. Long-lived assets by country are

determined based on the location of tangible assets.

Dollars in millions
Revenues:

United States

Australia

Africa

Middle East

Europe

Canada

Other countries

Total

Dollars in millions
Property, plant & equipment, net:
United States

United Kingdom

Other countries

Total

Note 3. Cash and Equivalents

Years ended December 31,

2014

2013

2012

2,324 $
1,380
251
707
624
752
328
6,366 $

2,470 $
1,768
593
913
575
687
208
7,214 $

2,118
1,767
1,610
1,013
582
431
249
7,770

December 31,

2014

2013

115 $
68
64
247 $

272
83
60
415

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash
and equivalents include cash balances held by our wholly-owned subsidiaries as well as cash held by joint ventures that we
consolidate. Joint venture cash balances are limited to joint venture activities and are not available for other projects, general
cash needs or distribution to us without approval of the board of directors of the respective joint ventures. We expect to use
joint venture cash for project costs and distributions of earnings related to joint venture operations. However, some of the
earnings distributions may be paid to other KBR entities where the cash can be used for general corporate needs.

The components of our cash and equivalents balance are as follows:

Dollars in millions
Operating cash and equivalents
Time deposits
Cash and equivalents held in joint ventures

Total

Dollars in millions
Operating cash and equivalents
Time deposits
Cash and equivalents held in joint ventures

Total

December 31, 2014

International (a)

Domestic (b)

Total

209 $
481
71
761 $

121 $
79
9
209 $

330
560
80
970

December 31, 2013

International (a)

Domestic (b)

Total

197 $
478
67
742 $

215 $
140
9
364 $

412
618
76
1,106

(a) Includes deposits held in non-U.S. operating accounts
(b) Includes U.S. dollar and foreign currency deposits held in operating accounts that constitute onshore cash for tax

purposes but may reside either in the U.S. or in a foreign country

Our international cash balances are primarily held in the United Kingdom ("U.K.") and Australia. In December 2014,
we implemented a foreign cash repatriation strategy for which we have provided cumulative income taxes on certain foreign
earnings which provides us, if necessary, the ability to repatriate approximately an additional $370 million of international cash
without recognizing additional tax expense. The remaining international cash balances associated with past foreign earnings
which we currently intend to permanently reinvest in our foreign entities are not available for domestic use. See Note 13 for
further discussion on our income taxes.

Note 4. Accounts Receivable

The components of our accounts receivable, net of allowance for doubtful accounts balance are as follows:

Dollars in millions
Technology & Consulting

Engineering & Construction

Government Services

Other

Subtotal

Non-strategic Business

Total

Dollars in millions
Technology & Consulting

Engineering & Construction

Government Services

Other

Subtotal

Non-strategic Business

Total

Retainage

December 31, 2014
Trade & Other

Total

— $
45
5
—
50
48
98 $

51 $
538 $
84 $
3 $
676 $
73 $
749 $

51
583
89
3
726
121
847

Retainage

December 31, 2013
Trade & Other

Total

— $
52
3
—
55
45
100 $

63 $
725 $
85 $
1 $
874 $
82 $
956 $

63
777
88
1
929
127
1,056

In addition, noncurrent retainage receivable included in "other assets" on our consolidated balance sheets was $14

million as of December 31, 2014 and 2013, primarily in our Non-strategic Business segment.

Note 5. Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs
and Estimated Earnings on Uncompleted Contracts

Our CIE balances by business segment are as follows:

Dollars in millions
Technology & Consulting

Engineering & Construction

Government Services

Subtotal

Non-strategic Business

Total

Our BIE balances by business segment are as follows:

Dollars in millions
Technology & Consulting

Engineering & Construction

Government Services

Subtotal

Non-strategic Business

Total

December 31,

2014

2013

38 $
357
73
468
22
490 $

December 31,

2014

2013

56 $
212
93
361
170
531 $

37
230
123
390
9
399

53
139
88
280
121
401

Unapproved change orders and claims

The amounts of unapproved change orders and claims included in determining the profit or loss on contracts are as

follows:

Dollars in millions
Amounts included in project estimates-at-completion at January 1,

Changes in estimates-at-completion

Approved

Amounts included in project estimates-at-completion at December 31,

Amounts recorded in revenues on a percentage-of-completion basis at December 31,

December 31,

2014

2013

115 $
87
(171 )

31 $

167
109
(161 )
115

24 $

In 2014, approved change orders reflect approvals on an air quality project in the U.S. and an EPC contract for a gas
fired electric power generation project in the U.S. and a construction project in our E&C business segment for which the client
routinely issues scope changes which are subsequently followed with a change order.

Included in our 2013 estimated project revenues are increases related to the construction project in our E&C business

segment mentioned above.

The table above excludes unapproved change orders and claims related to our unconsolidated affiliates. Our
proportionate share of unapproved change orders and claims on a percentage-of-complete basis was $78 million as of
December 31, 2014 and $58 million as of December 31, 2013 on a project in our E&C business segment.

Liquidated damages

Some of our engineering and construction contracts have schedule dates and performance obligations that if not met
could subject us to penalties for liquidated damages. These generally relate to specified activities that must be completed by a
set contractual date or by achievement of a specified level of output or throughput. Each contract defines the conditions under
which a customer may make a claim for liquidated damages. However, in some instances, liquidated damages are not asserted
by the customer, but the potential to do so is used in negotiating or settling claims and closing out the contract.

It is possible that liquidated damages related to several projects totaling $12 million at December 31, 2014 and $10
million at December 31, 2013 could be incurred if the projects are completed as currently forecasted. However, based upon our
evaluation of our performance we have concluded these liquidated damages are not probable, therefore they have not been
recognized.

Advances

We may receive customer advances in the normal course of business, most of which are applied to invoices usually
within one to three months. In addition, we may hold advances from customers to assist us in financing project activities,
including subcontractor costs. Included in BIE on our consolidated balance sheets as of December 31, 2014 and 2013, were $0
and $50 million, respectively, of finance-related advances, related to our E&C business segment.

Note 6. Claims and Accounts Receivable

The components of our claims and accounts receivable account balance are as follows:

Dollars in millions
Engineering & Construction

Government Services

Total

December 31,

2014

2013

425 $
145
570 $

401
227
628

Our E&C business segment's claims and accounts receivable includes $401 million related to our EPC 1 arbitration. We
expect the signed final judgment of $465 million from the original confirmation of the 2009 arbitration award to be recovered
from Petróleos Mexicanos ("PEMEX") Exploration and Production ("PEP") which includes approximately $106 million as
recovery for our payment in 2013 of performance bonds and interest. The judgment also requires that each party pay value
added tax on the amounts each has been ordered to pay. See Note 15 to our consolidated financial statements under PEMEX
and PEP Arbitration for further discussion. The remaining balance is related to a construction project for which we are actively
pursuing the recovery of these receivables.

Our GS business segment's claims and accounts receivable reflects claims for costs incurred under various U.S.
government contracts. The decrease from 2013 to 2014 is primarily due to the unexpected conclusion of matters related to
dining facilities and questioned costs on the Restore Iraqi Oil ("RIO") contract. See "Other Matters" in Note 14 to our
consolidated financial statements for further discussion on our U.S. government claims.

Note 7. Property, Plant and Equipment

The components of our property, plant and equipment balance are as follows:

Dollars in millions
Land
Buildings and property improvements
Equipment and other

Total
Less accumulated depreciation

Net property, plant and equipment

Estimated
Useful
Lives in Years

December 31,

2014

2013

N/A $
5-44
3-25

13 $
198
421
632
(385 )
247 $

19
213
580
812
(397 )
415

See Note 9 to our consolidated financial statements for discussion on asset impairment.

Depreciation expense was $61 million, $54 million, and $50 million for the years ended December 31, 2014, 2013 and

2012, respectively.

In November 2012, the joint venture in which we held a 50% interest sold the office building in which we lease office
space for our corporate headquarters and offices in Houston, Texas, for $175 million. Since we continue to lease the office
building from the new owner under essentially the same lease terms, the $44 million pre-tax gain on the sale was deferred and
is being amortized using the straight-line method over the remaining term of the lease, which expires in 2030. We recognized
$3 million of amortization of deferred gain on our consolidated statements of operations at December 31, 2014 and December
31, 2013, respectively, and less than $1 million at December 31, 2012. The current portion of the deferred gain of $3 million at
December 31, 2014 and 2013, respectively, is recorded in "other current liabilities" on our consolidated balance sheets and the
noncurrent deferred gain of $37 million and $39 million at December 31, 2014 and 2013, respectively, is recorded in "other
liabilities" on our consolidated balance sheets.

In November 2012, we closed on the sale of our former campus for approximately $42 million in cash. The sale resulted
in a $27 million pre-tax gain on disposal of assets in "gain on disposition of assets" in our consolidated statements of
operations.

Note 8. Goodwill and Intangible Assets

Goodwill

The table below summarizes changes in the carrying amount of goodwill by business segment.

Technology &
Consulting

Engineering
&
Construction

Government
Services

Other

Subtotal

Non-
strategic
Business Total

Dollars in millions
Balance as of January 1, 2013:

Gross goodwill

Accumulated impairment losses

Net goodwill as of January 1, 2013

Goodwill written off related to sale of
reporting unit
Net foreign exchange difference

Balances as of December 31, 2013:

Gross goodwill

Accumulated impairment losses

Net goodwill as of December 31, 2013 $
$

Impairment loss

Net foreign exchange difference

Balance as of December 31, 2014:

Gross goodwill
Accumulated impairment losses

Net goodwill as of December 31, 2014

Goodwill Impairment

31 $
—
31 $

$
—
— $

31 $
—
31 $
— $
— $

31 $
—
31 $

534 $
—
534 $

(3 ) $

528 $
—
528 $
(293 ) $

(2 ) $

526 $
(293 )
233 $

61 $ — $
—
61 $ — $

—

626 $
—
626 $

331 $
(178 )
153 $

957
(178 )
779

$
$ —
—
(1 ) $ — $

$
(3 ) $ —
(4 ) $ — $

(3 )

(4 )

—

60 $ — $
—
60 $ — $
— $ — $
— $ — $

619 $
—
619 $
(293 ) $

331 $
(178 )
153 $
(153 ) $
(2 ) $ — $

950
(178 )
772
(446 )

(2 )

60 $ — $
—
60 $ — $

—

331 $
(331 )

617 $
(293 )
324 $ — $

948
(624 )
324

In connection with preparing for our reorganization on December 11, 2014, we decided we would no longer bid on
certain types of work and we would also exit certain non-strategic businesses resulting in a significant reduction of our forecasts
of future cash flows for three of our previous reporting units. As a result, we recorded a noncash goodwill impairment charge
of $446 million in "impairment of goodwill" on our consolidated statements of operations.

We perform our annual goodwill impairment test as of October 1 of each year. The first step in performing a goodwill
impairment test is to identify potential impairment by comparing the estimated fair value of the reporting unit to its carrying

value. At the annual testing date of October 1, 2014 (prior to our reorganization), the result of the first step of our goodwill
impairment test indicated the carrying values of three of our previous reporting units exceeded their fair values. As a result, we
performed the second step of the goodwill impairment test in order to measure the amount of the potential impairment loss, if
any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill to the
carrying value of that goodwill. Step two requires significant unobservable inputs (Level 3 fair value measurements) in the
calculation. We determine the implied fair value of goodwill in the same manner as we use in determining the amount of
goodwill to be recognized in a business combination. Applying this methodology, we assigned the fair value of the respective
reporting unit estimated in step one to all the assets and liabilities of the respective reporting unit. The implied fair value of the
reporting unit's goodwill is the excess of the fair value of the reporting unit over the amounts assigned to its assets and
liabilities. The result of our step two test indicated that the carrying value of each of the three reporting unit's goodwill
exceeded the implied fair value of their goodwill.

In step two, the fair values of the reporting units were determined using a combination of two methods, one utilizing
market earnings multiples (the market approach) and the other derived from discounted cash flow models with estimated cash
flows based on internal forecasts of revenues and expenses over a specified period plus a terminal value (the income approach).
Under the market approach, we estimate fair value by applying earnings and revenue market multiples to a reporting unit’s
operating performance for the trailing twelve-month period. The income approach estimates fair value by discounting each
reporting unit’s estimated future cash flows using a weighted-average cost of capital that reflects current market conditions and
the risk profile of the reporting unit. To arrive at our future cash flows, we use estimates of economic and market assumptions,
including growth rates in revenues, costs, estimates of future expected changes in operating margins, tax rates and cash
expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital
expenditures and changes in future working capital requirements.

In 2012 in connection with our goodwill impairment review, we recognized a noncash goodwill impairment charge of
$178 million related to one of our previous reporting units. The charge was primarily the result of our determination that both
the actual and expected income and cash flows for the reporting unit were substantially lower than previous forecasts due to
losses from ongoing projects acquired as part of the acquisition of Roberts & Schaefer Company which is now included in our
Non-strategic Business segment.

Intangible Assets

Intangible assets are comprised of customer relationships, trade names, licensing agreements and other. The cost and

accumulated amortization of our intangible assets were as follows:

Dollars in millions
Intangibles not subject to amortization
Intangibles subject to amortization

Total intangibles
Accumulated amortization of intangibles

Net intangibles

December 31,

2014

2013

11 $

126
137
(96 )
41 $

11
186
197
(112 )
85

Intangibles that are not subject to amortization are reviewed annually for impairment or more often if events or
circumstances change that would create a triggering event. Intangibles subject to amortization are amortized over their
estimated useful lives of up to 25 years. Intangibles subject to amortization are impaired if the carrying value of the intangible
is not recoverable and exceeds its fair value. In conjunction with our annual goodwill impairment analysis, we performed an
undiscounted cash flow test which indicated impairment of our trade names and customer relationship intangibles related to the
acquisition of the Roberts & Schaefer Company discussed above. See Note 9 to our consolidated financial statements for
discussion on impairment of intangible assets.

Our intangibles amortization expense is presented below:

Dollars in millions
Intangibles amortization expense

Years ended December 31,

2014

2013

2012

11 $

14 $

Our expected intangibles amortization expense for the next five years is presented below:

Dollars in millions
2015
2016
2017
2018
2019
Beyond 2019

Expected future
intangibles
amortization expense

$
$
$
$
$
$

4
3
3
3
3
14

Note 9. Asset Impairment and Restructuring

Information related to asset impairment and restructuring charges resulting from our December 11, 2014 strategic

reorganization is presented below:

Technology &
Consulting

Engineering
&
Construction

Government
Services

Other

Subtotal

Non-strategic
Business

Total

Dollars in millions

Asset impairment

Enterprise resource planning

Intangible assets

Property, plant & equipment

Subtotal

Restructuring charges

Severance

Lease termination

Subtotal

Total

— $
—
—
— $

2 $
—
2
2 $

— $
—
1
1 $

14 $
9
23
24 $

— $
—
—
— $

3 $
2
5
5 $

135 $
—
4
139 $

10 $
—
10
149 $

135 $
—
5
140 $

29 $
11
40
180 $

— $
31
—
31 $

— $
3
3
34 $

135
31
5
171

29
14
43
214

In December 2014, we abandoned further implementation of our new enterprise resource planning ("ERP") project. As a
result within our Other segment, we recognized an expense of $135 million associated with previously capitalized costs of $165
million.

We recorded a noncash intangible asset impairment charge of $31 million within our Non-strategic Business segment in
"asset impairment and restructuring charges" on our consolidated statements of operations at December 31, 2014. See Note 8
for additional information on intangibles.

As a result of the restructuring previously discussed, we terminated certain operating leases and recognized an early
termination charge of $14 million within each business segment. We also recognized a $5 million impairment charge related to
leasehold improvements on the terminated leases and other property. We evaluated our remaining long-lived assets, which
consisted mainly of property, plant and equipment and did not identify any additional impairment.

On December 11, 2014 we announced that in connection with our long-term strategic reorganization, we would
terminate 1,000 employees. These employees are eligible for separation benefits upon their termination and the dates have
occurred or are expected to occur through June 2015. As of the year ended December 31, 2014, we recorded $29 million of
one-time charges associated with these employee terminations based on the fair value of the termination benefits. The charge
was included in "asset impairment and restructuring charges" in our consolidated statement of operations. During the fourth
quarter of 2014, we paid $8 million of benefits associated with the employee terminations. There were no other changes to the
liability. At December 31, 2014, "other current liabilities" on our consolidated balance sheets includes the $21 million unpaid
portion of the separation benefits.

Note 10. Equity Method Investments and Variable Interest Entities

We conduct some of our operations through joint ventures which operate through partnership, corporations, undivided
interest and other business forms and are principally accounted for using the equity method of accounting. Additionally, the
majority of our joint ventures are also variable interest entities ("VIEs").

The following table presents a rollforward of our equity in and advances to unconsolidated affiliates:

Dollars in millions
Balance at January 1,
Equity in earnings of unconsolidated affiliates

Dividends received (a)

Advances

Foreign currency translation adjustments

Other

Balance at December 31, before reclassification
Reclassification of excess distributions (a)

Balance at December 31,

2014

2013

156 $
163
(249 )

(13 )

(1 )
—
56
95
151 $

217
137
(180 )

(14 )

(5 )
1
156
—
156

(a) During the third quarter of 2014, we received cash dividends of $102 million in excess of the carrying value of one of
our investments. We have no obligation to return any portion of the cash dividends received. We recorded the excess
dividend amount as “deferred income from unconsolidated affiliates” on our consolidated balance sheets which will be
reduced as we recognize future equity in earnings on this investment. During 2014, we recognized $7 million of the
excess dividends.

Related Party Transactions

We often provide engineering, construction management and other services as a subcontractor to the joint ventures in
which we participate. The amounts included in our revenues represent revenues from services we provide directly to the joint
ventures. As of the years ended December 31, 2014, 2013, and 2012, our revenues included $351 million, $253 million and
$145 million, respectively, related to services we provided to our joint ventures, primarily those in our E&C business segment.

Amounts included in our consolidated balance sheets related to services we provided to our unconsolidated joint

ventures for the years ended December 31, 2014 and 2013 are as follows:

Dollars in millions
Accounts receivable, net of allowance for doubtful accounts

Costs and estimated earnings in excess of billings on uncompleted contracts

Billings in excess of costs and estimated earnings on uncompleted contracts

Our related party accounts payable for both periods were immaterial.

Equity Method Investments

December 31,

2014

2013

7 $
2 $
21 $

6
2
24

Mantenimiento Marino de Mexico, S. de R.L. de C.V. ("MMM"). MMM is a joint venture formed under a Partners
Agreement related to the contract with PEMEX. We determined that MMM was not a variable interest entity. The MMM joint
venture was set up under Mexican maritime law in order to hold navigation permits to operate in Mexican waters. The scope of
the business is to render services for maintenance, repair and restoration of offshore oil and gas platforms and provisions of
quartering in the territorial waters of Mexico. KBR holds a 50% interest in the MMM joint venture. Results from MMM are
included in our E&C business segment.

Summarized financial information

Summarized financial information for all jointly owned operations including VIEs that are accounted for using the

equity method of accounting is as follows:

Balance Sheets

Dollars in millions
Current assets
Noncurrent assets

Total assets

Current liabilities

Noncurrent liabilities

Total liabilities

Statements of Operations

Dollars in millions
Revenues
Operating income

Net income

December 31,

2014

2013

3,098 $
4,069
7,167 $

2,969 $
4,090
7,059 $

4,114
4,222
8,336

3,679
4,400
8,079

Years ended December 31,

2014

2013

2012

6,439 $
659 $
419 $

4,800 $
660 $
355 $

3,442
777
363

Unconsolidated Variable Interest Entities

The following summarizes the total assets and total liabilities as reflected in our consolidated balances sheets as well as
our maximum exposure to losses related to our unconsolidated VIEs in which we have a significant variable interest but are not
the primary beneficiary. Generally, our maximum exposure to loss is limited to our equity investment in the joint venture and
any amounts payable to us for services we provided to the joint venture, reduced for any unearned revenues on the projects.

Dollars in millions
Aspire Defence project
Ichthys LNG project

U.K. Road projects

EBIC Ammonia project

Dollars in millions
Aspire Defence project
Ichthys LNG project

U.K. Road projects

EBIC Ammonia project

December 31, 2014

Total assets

Total liabilities

Maximum
exposure to
loss

17 $
49 $
34 $
42 $

118 $
35 $
11 $
2 $

17
49
34
26

December 31, 2013

Total assets

Total liabilities
2
18
8
2

20 $
1 $
34 $
47 $

Aspire Defence project. In April 2006, Aspire Defence, a joint venture between KBR and two financial investors, was
awarded a privately financed project contract by the U.K. Ministry of Defence ("MoD") to upgrade and provide a range of
services to the British Army’s garrisons at Aldershot and around Salisbury Plain in the U.K. In addition to a package of
ongoing services to be delivered over 35 years, the project includes a nine-year construction program to improve soldiers’
single living, technical and administrative accommodations, along with leisure and recreational facilities. Aspire Defence

manages the existing properties and is responsible for design, refurbishment, construction and integration of new and
modernized facilities. We indirectly own a 45% interest in Aspire Defence, the project company that is the holder of the 35-
year concession contract. In addition, we own a 50% interest in each of two joint ventures that provide the construction and the
related support services to Aspire Defence. Our financial and performance guarantees are joint and several, subject to certain
limitations, with our joint venture partners. The project is funded through equity and subordinated debt provided by the project
sponsors and the issuance of publicly held senior bonds which are nonrecourse to us. The entities we hold an interest in are
VIEs; however, we are not the primary beneficiary of these entities. We account for our interests in each of the entities using
the equity method of accounting. As of December 31, 2014, included in our GS segment, our assets and liabilities associated
with our investment in this project, within our consolidated balance sheets, were $17 million and $118 million, respectively.
Our maximum exposure to loss of $17 million indicated in the table above is limited to our equity interest and amounts payable
to us for services provided to the entity as of December 31, 2014. Our maximum exposure to construction and operating joint
venture losses is limited to our proportionate share of any amounts required to fund future losses incurred by those entities
under their respective contracts with the project company.

Ichthys LNG project. In January 2012, we became involved in an agreement to provide EPC services to construct the
Ichthys Onshore LNG Export Facility in Darwin, Australia (“Ichthys LNG project”). The project is being executed using two
joint ventures, which are VIEs, in which we own a 30% equity interest. We account for our investments using the equity
method of accounting. At December 31, 2014, included in our E&C segment, our assets and liabilities associated with our
investment in this project recorded in our consolidated balance sheets were $49 million and $35 million, respectively. Our
maximum exposure to loss of $49 million indicated in the table above is limited to our equity interest and amounts payable to
us for services provided to the entity as of December 31, 2014. In addition, the joint venture executes a project that has a lump
sum component, and we have an exposure to losses if the project exceeds the lump sum component to the extent of our
ownership percentage in the joint venture.

U.K. Road projects. We are involved in four privately financed projects, executed through joint ventures, to design,
build, operate and maintain roadways for certain government agencies in the U.K. We have a 25% ownership interest in each
of these joint ventures and account for them using the equity method of accounting. The joint ventures have obtained financing
through third parties that is nonrecourse to the joint venture partners. These joint ventures are VIEs; however, we are not the
primary beneficiary. At December 31, 2014, included in our GS business segment, our assets and liabilities associated with our
investment in this project recorded in our consolidated balance sheets were $34 million and $11 million, respectively. Our
maximum exposure to loss represents our equity investments in these ventures.

EBIC Ammonia project. We have an investment in a development corporation that has an indirect interest in the Egypt
Basic Industries Corporation (“EBIC”) ammonia plant project located in Egypt. We performed the EPC work for the project
and completed our operations and maintenance services for the facility in the first half of 2012. We own 65% of this
development corporation and consolidate it for financial reporting purposes. The development corporation owns a 25%
ownership interest in a company that consolidates the ammonia plant which is considered a VIE. The development corporation
accounts for its investment in the company using the equity method of accounting. The VIE is funded through debt and equity.
Indebtedness of EBIC under its debt agreement is nonrecourse to us. We are not the primary beneficiary of the VIE. As of
December 31, 2014, included in our GS business segment, our assets and liabilities associated with our investment in this
project, within our consolidated balance sheets, were $42 million and $2 million, respectively. Our maximum exposure to loss
of $26 million indicated in the table above is limited to our proportionate share of the equity investment and amounts payable
to us for services provided to the entity as of December 31, 2014.

Consolidated Variable Interest Entities

We consolidate VIEs if we determine we are the primary beneficiary of the project entity because we control the
activities that most significantly impact the economic performance of the entity. The following is a summary of the significant
VIEs where we are the primary beneficiary:

Dollars in millions
Gorgon LNG project
Escravos Gas-to-Liquids project

Fasttrax Limited project

Dollars in millions
Gorgon LNG project
Escravos Gas-to-Liquids project

Fasttrax Limited project

December 31, 2014

Total assets

Total liabilities

282 $
23 $
83 $

309
36
81

December 31, 2013

Total assets

Total liabilities

446 $
43 $
96 $

476
72
98

Gorgon LNG project. We have a 30% ownership in an Australian joint venture which was awarded a contract in 2005
for FEED and in 2009 for EPC management ("EPCm") services to construct an LNG plant. The joint venture is considered a
VIE, and, because we are the primary beneficiary, we consolidate this joint venture for financial reporting purposes. We
determined that we are the primary beneficiary of this project entity because we control the activities that most significantly
impact economic performance of the entity.

Escravos Gas-to-Liquids (“GTL”) project. During 2005, we formed a joint venture to engineer and construct a gas
monetization facility in Escravos, Nigeria, which was completed in 2014. We own a 50% equity interest in the joint venture
and determined that we are the primary beneficiary; accordingly, we have consolidated the joint venture for financial reporting
purposes. There are no consolidated assets that collateralize the joint venture’s obligations. However, at December 31, 2014
and 2013, the joint venture had approximately $8 million of cash, which mainly relate to advanced billings in connection with
the joint venture’s obligations under the EPC contract that is expected to be fully closed out in 2015.

Fasttrax Limited project. In December 2001, the Fasttrax Joint Venture (the “JV”) was created to provide to the U.K.
MoD a fleet of 91 new heavy equipment transporters (“HETs”) capable of carrying a 72-ton Challenger II tank. The JV owns,
operates and maintains the HET fleet and provides heavy equipment transportation services to the British Army. The purchase
of the assets was completed in 2004, and the operating and service contracts related to the assets extend through 2023. The
JV’s entity structure includes a parent entity and its 100% owned subsidiary, Fasttrax Ltd (the “SPV”). KBR and its partner
each own a 50% interest in the parent entity, which is considered a VIE. We determined that we are the primary beneficiary of
this project entity because we control the activities that most significantly impact economic performance of the entity.
Therefore, we consolidate this VIE.

The purchase of the HETs by the joint venture was financed through two series of bonds secured by the assets of
Fasttrax Limited and a bridge loan totaling approximately £84.9 million (approximately $120 million at the exchange rate on
the date of the transaction). The secured bonds are an obligation of Fasttrax Limited and are not a debt obligation of KBR as
they are nonrecourse to the joint venture partners. Accordingly, in the event of a default on the notes, the lenders may only look
to the assets of Fasttrax Limited for repayment. The bridge loan of approximately £12.2 million (approximately $17 million at
the exchange rate on the date of the transaction) was replaced when the joint venture partners funded their equity and
subordinated debt contributions in 2005. Assets collateralizing the JV’s senior bonds include cash and equivalents of $23
million and net property, plant and equipment of approximately $57 million as of December 31, 2014. See Note 12 to our
consolidated financial statements for further details regarding our nonrecourse project-finance debt of this VIE consolidated by
KBR, including the total amount of debt outstanding at December 31, 2014.

Note 11. Pension Plans

We have elective defined contribution plans for our employees in the U.S. and retirement savings plans for our
employees in the U.K., Canada and other locations. Our defined contribution plans provide retirement benefits in return for
services rendered. These plans provide an individual account for each participant and have terms that specify how

contributions to the participant’s account are to be determined rather than the amount of retirement benefits the participant is to
receive. Contributions to these plans are based on pretax income and/or discretionary amounts determined on an annual basis.
Our expense for the defined contribution plans totaled $72 million in 2014, $78 million in 2013 and $81 million in 2012.

In addition, we have two frozen defined benefit plans in the U.S. and one frozen plan in the U.K. and participate in
multi-employer plans in Canada. Our defined benefit plans are funded pension plans, which define an amount of pension
benefit to be provided, usually as a function of age, years of service or compensation.

Benefit obligations and plan assets

We used a December 31 measurement date for all plans in 2014 and 2013. Plan assets, expenses and obligations for

retirement plans are presented in the following tables.

United States

Int’l

United States

Int’l

Dollars in millions
Change in projected benefit obligations:
Projected benefit obligations at beginning of period
Service cost
Interest cost
Foreign currency exchange rate changes
Actuarial (gain) loss
Other
Benefits paid

Projected benefit obligations at end of period
Change in plan assets:
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Foreign currency exchange rate changes
Benefits paid
Other

Fair value of plan assets at end of period
Funded status

2014

79 $
—
3
—
11
—
(6 )
87 $

70 $
—
2
—
(6 )
—
66 $
(21 ) $

2,048 $
2
90
(123 )
191
(4 )
(66 )
2,138 $

1,580 $
194
46
(98 )
(66 )
(4 )
1,652 $
(486 ) $

2013

91 $
—
3
—
(5 )
—
(10 )
79 $

71 $
8
1
—
(10 )
—
70 $
(9 ) $

1,862
2
79
37
129
(2 )
(59 )
2,048

1,491
65
53
33
(59 )
(3 )
1,580
(468 )

$
$

Dollars in millions

Amounts recognized on the consolidated balance sheets
Other current liabilities (a)

Pension obligations

Total

United States

Int’l

United States

Int’l

2014

(5 ) $

(16 )

(21 ) $

— $

(486 )

(486 ) $

2013

— $
(9 )

(9 ) $

—
(468 )

(468 )

(a) In 2014, we reclassified the pension liability related to one of our terminated U.S. pension plans to "other current
liabilities" on our consolidated balance sheets as we expect to settle the pension obligation within the next 12 months.

Net periodic cost

Dollars in millions
Components of net periodic benefit cost
Service cost

Interest cost

Expected return on plan assets

Settlements/curtailments

Recognized actuarial loss

Net periodic benefit cost

United States

Int’l

United States

Int’l

United States

Int’l

2014

— $
3
(4 )
1
3
3 $

2 $
90
(102 )
—
39
29 $

2013

— $
3
(5 )
2
2
2 $

2 $
79
(86 )
—
33
28 $

2012

— $
3
(4 )
—
2
1 $

2
81
(93 )
—
25
15

The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic

benefit cost at December 31, 2014, net of tax were as follows:

Dollars in millions
Unrecognized actuarial loss, net of tax of $9 and $222, and
$10 and $211, respectively
Total in accumulated other comprehensive loss

2014

$
31
31 $

$
639
639 $

2013

$
18
18 $

590
590

United States

Int’l

United States

Int’l

Estimated amounts that will be amortized from accumulated other comprehensive income, net of tax, into net periodic

benefit cost in 2015 are as follows:

Dollars in millions
Actuarial loss

Total

Weighted-average assumptions used to determine
net periodic benefit cost

United States

International

$
$

3 $
3 $

35
35

Discount rate
Expected return on plan assets

United States

Int'l

United States

Int'l

United States

Int'l

2014

3.38 %

5.28 %

4.45 %

6.45 %

2013

3.09 %

7.00 %

4.50 %

6.15 %

2012

3.74 %

7.00 %

4.90 %

6.60 %

Weighted-average assumptions used to determine benefit obligations at
measurement date

Discount rate

United States

Int'l

United States

Int'l

2014

2013

2.89 %

3.65 %

3.38 %

4.45 %

Assumed long-term rates of return on plan assets and discount rates for estimating benefit obligations vary for the
different plans according to the local economic conditions. 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. 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. Because all plans have been frozen, there is no rate of compensation increase.

Plan fiduciaries of our retirement plans set investment policies and strategies and oversee the investment direction,
which includes selecting investment managers, commissioning asset-liability studies and setting long-term strategic
targets. Long-term strategic investment objectives include preserving the funded status of the plan and balancing risk and

return and have a wide diversification of asset types, fund strategies and fund managers. Targeted asset allocation ranges are
guidelines, not limitations and occasionally plan fiduciaries will approve allocations above or below a target range.

The target asset allocation for our U.S. and International plans for 2015 is as follows:

Asset Allocation

Cash and cash equivalents
Equity funds and securities
Fixed income funds and securities
Hedge funds
Real estate funds
Other
Total

2015 Targeted

United States

Int'l

22 %
47 %
31 %
— %
— %
— %
100 %

— %
19 %
56 %
8 %
5 %
12 %
100 %

The range of targeted asset allocations for our International plans for 2015 and 2014, by asset class, are as follows:

International Plans

Equity funds and securities
Fixed income funds and securities
Hedge funds
Real estate funds
Other

2015 Targeted

Percentage Range

2014 Targeted

Percentage Range

Minimum

Maximum

Minimum

Maximum

— %
— %
— %
— %
— %

51 %
100 %
20 %
10 %
35 %

— %
— %
— %
— %
— %

51 %
100 %
20 %
10 %
35 %

The range of targeted asset allocations for our U.S. plans for 2015 and 2014, by asset class, are as follows:

Domestic Plans

Cash and cash equivalents
Equity funds, securities and other
Fixed income funds and securities

2015 Targeted

Percentage Range

2014 Targeted

Percentage Range

Minimum

Maximum

Minimum

Maximum

22 %
47 %
31 %

25 %
39 %
24 %

25 %
51 %
36 %

ASC 820 - Fair Value Measurement addresses fair value measurements and disclosures, defines fair value, establishes a
framework for using fair value to measure assets and liabilities and expands disclosures about fair value measurements. This
standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. ASC 820
establishes a three-tier value hierarchy, categorizing the inputs used to measure fair value. The inputs and methodology used
for valuing securities are not an indication of the risk associated with investing in those securities. The following is a
description of the primary valuation methodologies and classification used for assets measured at fair value.

Fair values of our Level 1 assets are based on observable inputs such as unadjusted quoted prices for identical assets or
liabilities in active markets. These consist of securities valued at the closing price reported on the active market on which the
individual securities are traded and funds which have readily determinable or published net asset values and may be liquidated
in the near term without restrictions.

Fair values of our Level 2 assets are based on inputs other than the quoted prices in active markets that are observable
either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices that are in inactive markets;
inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data by correlation or other means. Our Level 2 assets include securities that are observable
directly or indirectly as described above or funds which are valued using net asset values provided by the investment managers
and may be liquidated at net asset value within 90 days without restrictions.

Fair values of our Level 3 assets are based on unobservable inputs in which there is little or no market data and require
us to develop our own assumptions. Such assets are generally valued using net asset values provided by the investment
managers, have inherent liquidity restrictions that may affect our ability to sell the investment at its net asset value within 90
days or reflect funds with lagged valuation data.

A summary of total investments for KBR’s pension plan assets measured at fair value is presented below.

Dollars in millions
Asset Category at December 31, 2014
United States plan assets

Equity funds
Equity securities
Fixed income funds
Government bonds
Corporate bonds
Cash and cash equivalents

Total United States plan assets
International plan assets
Equity funds
Equity securities
Fixed income funds
Hedge funds
Real estate funds
Other funds
Cash and cash equivalents
Other

Total international plan assets
Total plan assets at December 31, 2014

Dollars in millions
Asset Category at December 31, 2013
United States plan assets

Equity funds
Equity securities
Fixed income funds
Government bonds
Corporate bonds
Cash and cash equivalents

Total United States plan assets
International plan assets
Equity funds
Equity securities
Fixed income funds
Hedge funds
Real estate funds
Other funds
Cash and cash equivalents
Other

Total international plan assets
Total plan assets at December 31, 2013

Fair Value Measurements at Reporting Date

Total

Level 1

Level 2

Level 3

28 $
—
23
—
—
15
66 $

406 $
56
706
167
83
173
60
1
1,652 $
1,718 $

— $
—

—
—
—
— $

143 $
53
287
—
—
—
60
—
543 $
543 $

28 $
—
23
—
—
15
66 $

218 $
3
354
57
41
105
—
—
778 $
844 $

—
—
—
—
—
—
—

45
—
65
110
42
68
—
1
331
331

Fair Value Measurements at Reporting Date

Total

Level 1

Level 2

Level 3

15 $
17
8
4
8
18
70 $

378 $
51
768
130
69
120
50
14
1,580 $
1,650 $

10 $
16
8
—
—
—
34 $

116 $
50
400
—
—
—
50
7
623 $
657 $

5 $
1
—
4
8
18
36 $

261 $
1
335
25
36
69
—
—
727 $
763 $

—
—
—
—
—
—
—

1
—
33
105
33
51
—
7
230
230

$
$

The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed each year due to the

following:

Level 3 fair value measurement rollforward

Dollars in millions
International plan assets
Balance as of December 31, 2012

Return on assets held at end of year

Return on assets sold during the year

Purchases, sales and settlements

Foreign exchange impact

Balance as of December 31, 2013
Return on assets held at end of year

Return on assets sold during the year

Purchases, sales and settlements, net

Transfers to Level 2 (a)

Foreign exchange impact

Balance as of December 31, 2014

Total

Equity
Funds

Fixed
Income
Funds

Hedge
Funds

Real Estate
Funds

Other
Funds

Other

219 $
20
3
(15 )
3
230 $
33
3
115
(30 )

(20 )
331 $

— $
—
—
1
—
1 $
4
—
42
—
(2 )
45 $

44 $
(1 )
3
(12 )

(1 )
33 $
4
—
32
—
(4 )
65 $

88 $
15
—
—
2
105 $
10
—
33
(30 )

(8 )
110 $

27 $
3
—
2
1
33 $
8
3
—
—
(2 )
42 $

53 $
3
—
(6 )
1
51 $
7
—
14
—
(4 )
68 $

7
—
—
—
—
7
—
—
(6 )
—
—
1

(a) During 2014, liquidity restrictions on some of our investments in hedge funds lapsed. As a result, these investments

were transferred to Level 2 as they may be redeemed at their net asset value within 90 days.

Expected cash flows

Contributions. Funding requirements for each plan are determined based on the local laws of the country where such
plans reside. In certain countries the funding requirements are mandatory while in other countries they are discretionary. We
expect to contribute $43 million to our international pension plan in 2015.

Benefit payments. The following table presents the expected benefit payments over the next 10 years.

Dollars in millions
2015
2016
2017
2018
2019
Years 2020 – 2024

Pension Benefits

United States
$
$
$
$
$
$

23 $
4 $
4 $
4 $
4 $
21 $

Int’l

63
65
66
68
70
375

Multiemployer Pension Plans

We participate in multiemployer plans in Canada. Generally, the plans provide defined benefits to substantially all
employees covered by collective bargain agreements. Under the terms of these agreements, our obligations are discharged upon
plan contributions and are not subject to any assessments for unfunded liabilities upon our termination or withdrawal.

Our aggregate contributions to these plans were $29 million in 2014, $22 million in 2013 and $10 million in 2012. At
December 31, 2014, none of the plans in which we participate is individually significant to our consolidated financial
statements.

Deferred Compensation Plans

Our Elective Deferral Plan is a nonqualified deferred compensation program that provides benefits payable to officers,
certain key employees or their designated beneficiaries and non-employee directors at specified future dates, upon retirement,

or death. Except for $9 million of mutual funds included in "other assets" on our consolidated balance sheets designated for a
portion of our employee deferral plan, the plan is unfunded. The mutual funds are carried at fair value which includes readily
determinable or published net asset values and may be liquidated in the near term without restrictions.

The following table presents our obligations under our employee deferred compensation plan included in "employee

compensation and benefits" in our consolidated balance sheets.

Dollars in millions
Deferred compensation plans obligations

Note 12. Debt and Other Credit Facilities

Credit Agreement

December 31,

2014

2013

71 $

On December 2, 2011, we entered into a $1 billion, five-year unsecured revolving credit agreement (the “Credit
Agreement”) with a syndicate of international banks. The Credit Agreement is available for cash borrowings and the issuance
of letters of credit related to general corporate needs. The Credit Agreement expires in December 2016; however, given that
projects generally require letters of credit that extend beyond one year in length, we will likely need to enter into a new or
amended credit agreement no later than 2015. Amounts drawn under the Credit Agreement will bear interest at variable rates,
per annum, based either on (1) the London interbank offered rate (“LIBOR”) plus an applicable margin of 1.50% to 1.75%, or
(2) a base rate plus an applicable margin of 0.50% to 0.75%, with the base rate equal to the highest of (a) reference bank’s
publicly announced base rate, (b) the Federal Funds Rate plus 0.5%, or (c) LIBOR plus 1%. The amount of the applicable
margin to be applied will be determined by the Company’s ratio of consolidated debt to consolidated EBITDA for the prior four
fiscal quarters, as defined in the Credit Agreement. The Credit Agreement provides for fees on letters of credit issued under the
Credit Agreement at a rate equal to the applicable margin for LIBOR-based loans, except for performance letters of credit,
which are priced at 50% of such applicable margin. KBR pays an issuance fee of 0.15% of the face amount of a letter of credit.
KBR also pays a commitment fee of 0.25%, per annum, on any unused portion of the commitment under the Credit Agreement.
As of December 31, 2014, there were $174 million in letters of credit and no cash borrowings outstanding.

Letters of credit, surety bonds and guarantees

In connection with certain projects, we are required to provide letters of credit, surety bonds or guarantees to our
customers. Letters of credit are provided to certain customers and counterparties in the ordinary course of business as credit
support for contractual performance guarantees, advanced payments received from customers and future funding commitments.
We have approximately $2.1 billion in committed and uncommitted lines of credit to support the issuance of letters of credit
and as of December 31, 2014, we have utilized $628 million of our present capacity under lines of credit. Surety bonds are also
posted under the terms of certain contracts to guarantee our performance. The letters of credit outstanding included $174
million issued under our Credit Agreement and $454 million issued under uncommitted bank lines as of December 31, 2014.
Of the letters of credit outstanding under our Credit Agreement, approximately $3 million letters of credit have expiry dates
beyond the maturity date of the Credit Agreement. Of the total letters of credit outstanding, $246 million relate to our joint
venture operations where the letters of credit are posted using our capacity to support our pro-rata share of obligations under
various contracts executed by joint ventures of which we are a member. As the need arises, future projects will be supported by
letters of credit issued under our Credit Agreement or other lines of credit arranged on a bilateral, syndicated or other basis. We
believe we have adequate letter of credit capacity under our Credit Agreement and bilateral lines of credit to support our
operations for the next twelve months.

Nonrecourse Project Debt

Fasttrax Limited, a joint venture in which we indirectly own a 50% equity interest with an unrelated partner, was
awarded a concession contract in 2001 with the U.K. MoD to provide a Heavy Equipment Transporter Service to the British
Army. See Note 10 to our consolidated financial statements for further discussion on the joint venture. Under the terms of the
arrangement, Fasttrax Limited operates and maintains 91 heavy equipment transporters (“HETs”) for a term of 22 years. The
purchase of the HETs by the joint venture was financed through two series of bonds secured by the assets of Fasttrax Limited
and a bridge loan totaling approximately £84.9 million (approximately $120 million at the exchange rate on the date of the
transaction). The secured bonds are an obligation of Fasttrax Limited and are not a debt obligation of KBR as they are
nonrecourse to the joint venture partners. Accordingly, in the event of a default on the notes, the lenders may only look to the
assets of Fasttrax Limited for repayment. The bridge loan of approximately £12.2 million (approximately $17 million at the
exchange rate on the date of the transaction) was replaced when the joint venture partners funded their equity and subordinated
debt contributions in 2005.

The secured bonds were issued in two classes consisting of Class A 3.5% Index Linked Bonds in the amount of £56
million (approximately $79 million at the exchange rate on the date of the transaction) and Class B 5.9% Fixed Rate Bonds in
the amount of £16.7 million (approximately $24 million at the exchange rate on the date of the transaction). Semi-annual
payments on both classes of bonds commenced in March 2005 and will continue through maturity in 2021. The subordinated
notes payable to each of the partners initially bear interest at 11.25% increasing to 16% over the term of the notes until maturity
in 2025. Semi-annual payments on the subordinated notes commenced in March 2006. For financial reporting purposes, only
our partner's portion of the subordinated notes appears in the condensed consolidated financial statements.

The following table summarizes the combined principal installments for both classes of bonds and subordinated notes,

including inflation adjusted bond indexation over the next five years and beyond as of December 31, 2014:

Dollars in millions
2015
2016
2017
2018
2019
Beyond 2019

Payments Due

10
10
11
12
12
18

$
$
$
$
$
$

Note 13. Income Taxes

The United States and foreign components of income (loss) before income taxes and noncontrolling interests were as

The total income taxes included in the statement of operations and in shareholders' equity were as follows:

follows:

Dollars in millions
United States
Foreign:

United Kingdom

Australia

Canada

Other

Subtotal

Total

Dollars in millions
Provision for income taxes
Shareholders' equity, foreign currency translation adjustment

Shareholders' equity, pension and post-retirement benefits

Shareholders' equity, compensation expense and other

Total income taxes

The components of the provision for income taxes were as follows:

Dollars in millions
Balance as of December 31, 2014
Federal

Foreign

State and other

Provision for income taxes

Balance as of December 31, 2013

Federal

Foreign

State and other

Provision for income taxes

Balance as of December 31, 2012

Federal

Foreign

State and other

Provision for income taxes

203
267
29
155
654
288

(86 )

(8 )
14
5
(75 )

Years ended December 31,

2014

2013

2012

(1,051 ) $

(141 ) $

(366 )

130
180
(101 )
65
274
(777 ) $

162
280
(117 )
116
441
300 $

Years ended December 31,

2014

2013

2012

(421 ) $
4
10
—
(407 ) $

(129 ) $
27
18
—
(84 ) $

Current

Deferred

Total

41 $

(110 )
1
(68 ) $

(6 ) $

(109 )
4
(111 ) $

61 $

(130 )
1
(68 ) $

(333 ) $

(11 )

(9 )

(353 ) $

17 $
(31 )

(4 )

(18 ) $

12 $
(42 )
12
(18 ) $

(292 )

(121 )

(8 )

(421 )

11
(140 )
—
(129 )

73
(172 )
13
(86 )

The components of our total foreign income tax provision were as follows:

Dollars in millions
United Kingdom
Australia

Canada

Other

Years ended December 31,

2014

2013

2012

(22 ) $

(34 ) $

(24 )
6
(81 )

(41 )

(3 )

(62 )

(53 )

(40 )

(7 )

(72 )

Foreign (provision) benefit for income taxes

(121 ) $

(140 ) $

(172 )

The components of our deferred income tax provision were as follows:

Dollars in millions
Deferred benefit
Tax reserves and allowances on current year activity

Tax reserves and allowances on beginning of year deferred balances

Unremitted foreign earnings

U.K. statutory rate change

Total deferred provision for income taxes

Years ended December 31,

2014

2013

2012

254 $
(210 )

(320 )

(77 )
—
(353 ) $

48 $
(39 )

(9 )

(5 )

(13 )

(18 ) $

15
(10 )
1
(14 )

(10 )

(18 )

Our effective tax rates on income from operations differed from the statutory U.S. federal income tax rate of 35% as a

result of the following:

U.S. statutory federal rate, expected (benefit) provision
Increase (reduction) in tax rate from:

Rate differentials on foreign earnings

Noncontrolling interests

State and local income taxes, net of federal benefit

Other permanent differences, net

Contingent liability accrual

U.S. taxes on foreign unremitted earnings

Non-deductible goodwill impairment

Increase in valuation allowance

Effective tax rate on income from operations

Years ended December 31,

2014

2013

2012

(35 )%

35 %

(5 )

(4 )

(2 )
2
9
11
20
58
54 %

(12 )

(5 )

(1 )
2
7
2
—
15
43 %

(5 )

(3 )
—
(16 )

(10 )
4
22
3
30 %

The primary components of our deferred tax assets and liabilities were as follows:

Dollars in millions
Deferred tax assets:

Employee compensation and benefits

Foreign tax credit carryforwards

Accrued foreign tax credit carryforwards

Loss carryforwards

Insurance accruals

Allowance for bad debt

Accrued liabilities

Total gross deferred tax assets

Valuation allowances

Net deferred tax asset

Deferred tax liabilities:

Construction contract accounting

Intangibles

Depreciation and amortization

Unremitted foreign earnings

Other

Total gross deferred tax liabilities

Deferred income tax asset, net

Years ended December 31,

2014

2013

175 $
233
89
133
22
10
51
713
(538 )
175

(15 ) $

(35 )

(2 )

(98 )
23
(127 )

48 $

176
179
81
118
25
8
50
637
(83 )
554

(40 )

(49 )

(44 )

(19 )

(6 )

(158 )
396

The valuation allowance for deferred tax assets was $538 million and $83 million at December 31, 2014 and 2013,
respectively. The net change in the total valuation allowance was an increase of $455 million in 2014 and $47 million in 2013.
The valuation allowance at December 31, 2014 was primarily related to U.S. federal, foreign and state net operating loss
carryforwards, foreign tax credit carryforwards and other deferred tax assets that, in the judgment of management, are not
more-likely-than-not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available
carryback and carryforward periods), projected future taxable income and tax-planning strategies in making this assessment.
Based upon the significant level of historical taxable U.S. losses, management believes that it was not more-likely-than-not that
the Company would be able to realize the benefits of the deductible differences and accordingly recognized additional
valuation allowance for the year ended December 31, 2014.

The net deferred tax balance by major jurisdiction after valuation allowance as of December 31, 2014 was as follows:

Dollars in millions
United States
United Kingdom

Australia

Canada

Mexico

Other

Total

Net Gross
Deferred Asset
(Liability)

Valuation
Allowance

487 $
126
1
24
(88 )
36
586 $

Deferred Asset
(Liability), net
3
126
—
(1 )

(88 )
8
48

(484 ) $
—
(1 )

(25 )
—
(28 )

(538 ) $

At December 31, 2014, the amount of gross tax attributes available prior to the offset with related uncertain tax

positions were as follows:

Dollars in millions
Foreign tax credit carryforwards
Federal net operating loss carryforwards

Foreign net operating loss carryforwards

State net operating loss carryforwards

December 31, 2014
295
$
306
301
73
632

Expiration

2021-2023

2033-2034

2015-2034

Indefinite

Various

In December 2014, we implemented a foreign cash repatriation strategy for which we have provided cumulative income
taxes of $98 million on certain foreign earnings which provide us, if necessary, the ability to repatriate approximately an
additional $370 million of international cash without recognizing additional tax expense. In determining our foreign cash
repatriation strategy and in determining whether earnings would continue to be considered permanently invested, we
considered our future U.S. and non-U.S. cash needs such as 1) our anticipated foreign working capital requirements, including
funding of our U.K. pension plan; 2) the expected growth opportunities across all geographical markets and; 3) our plans to
invest in strategic growth opportunities that may include acquisitions around the world. The remaining international cash
balances associated with past foreign earnings which we currently intend to permanently reinvest in our foreign entities are not
available for domestic use. The company has not recognized an estimated deferred tax liability of approximately $320 million
for undistributed earnings it continues to consider to be permanently reinvested in the foreseeable future. These undistributed
earnings could be subject to additional tax if remitted, or deemed remitted, as a dividend.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:

Dollars in millions
Balance at January 1
Increases related to current year tax positions

Increases related to prior year tax positions

Decreases related to prior year tax positions

Settlements

Lapse of statute of limitations

Other, primarily due to exchange rate fluctuations affecting non-U.S. tax positions

Balance at December 31

2014

2013

2012

68 $
13
168
(13 )

(1 )

(5 )

(2 )
228 $

95 $
3
15
(36 )
—
(2 )

(7 )
68 $

120
6
13
(25 )

(11 )

(9 )
1
95

The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately
$212 million as of December 31, 2014. The difference between this amount and the amounts reflected in the tabular
reconciliation above relates primarily to deferred income tax benefits on uncertain tax positions related to income taxes. In the
next twelve months, it is reasonably possible that our uncertain tax positions could change by approximately $19 million due to
the expirations of the statute of limitations.

We recognize accrued interest and penalties related to uncertain tax positions in income tax expense in our consolidated
statements of operations. Our accrual for interest and penalties was $13 million and $11 million for the years ended
December 31, 2014 and 2013, respectively. During the years ended December 31, 2014, 2013 and 2012, we recognized net
interest and penalties charges (benefits) of $1 million, $(1) million and $(6) million, respectively related to uncertain tax
positions.

KBR is the parent of a group of domestic companies that are members of a U.S. consolidated federal income tax return.
We also file income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to
examination by tax authorities for U.S. federal or state and local income tax for years before 2007 or for non-U.S. income tax
for years before 2002.

KBR is subject to a tax sharing agreement primarily covering periods prior to the April 2007 separation from
Halliburton. The tax sharing agreement provides, in part, that KBR will be responsible for any audit settlements directly
attributable to its business activity for periods prior to its separation from our former parent. As of December 31, 2014 and
2013, we have recorded a $56 million and $105 million in "payable to our former parent" on our consolidated balance sheets,

respectively, for tax related items under the tax sharing agreement. Of the $56 million, approximately $19 million is not due
until receipt by KBR of a future foreign tax credit or refund from the IRS.

Note 14. U.S. Government Matters

We provide services to various U.S. governmental agencies, which include the U.S. Department of Defense (“DoD”) and
the Department of State. We may have disagreements or experience performance issues on our U.S. government contracts.
When performance issues arise under any of these contracts, the government retains the right to pursue various remedies,
including challenges to expenditures, suspension of payments, fines and suspensions or debarment from future business with the
government.

Between 2002 and 2011 we provided significant support to the U.S. Army and other U.S. government agencies in support
of the war in Iraq under the LogCAP III contract. We continue to support the U.S. government around the world under the
LogCAP IV contract as well as under other contracts. We have been in the process of closeout of the LogCAP III contract since
2011, and we expect the closeout process to continue through at least 2018. As a result of our work under LogCAP III, there are
multiple claims and disputes pending between us and the government, all of which need to be resolved to close the contracts.
The closeout process includes resolving objections raised by the government through a billing dispute process referred to as
Form 1s and Memorandums for Record ("MFRs") and resolving results from government audits. We continue to work with the
government to resolve these issues and are engaged in efforts to reach mutually acceptable resolution of these outstanding
matters. However, for certain of these matters, we have filed claims with the Armed Services Board of Contract Appeals
("ASBCA") or the U.S. Court of Federal Claims ("COFC"). We also have matters related to ongoing litigation or investigations
involving U.S. government contracts. We anticipate billing additional labor, vendor resolution and litigation costs as we resolve
the open matters. At this time, we cannot determine the timing or net amounts to be collected or paid to close out these contracts.

Form 1s

The government has issued Form 1s questioning or objecting to costs we billed to them. We believe the amounts we have
invoiced the customer are in compliance with our contract terms; however, we continue to evaluate our ability to recover these
amounts from our customer as new information becomes known. A summary of our Form 1s received and amounts associated
with our Form 1s is as follows:

Dollars in millions
Form 1s issued by the government and outstanding (a)

Amounts withheld by government (included in the Form 1s amount above) (b)

Amounts withheld from subcontractors by us

Claims loss accruals (c)

December 31, December 31,

2014

2013

188 $
96
32
29

274
137
50
74

(a) Included in the amounts shown is $56 million related to our Private Security matter discussed below in which KBR was

granted full recovery of the amounts claimed. See discussion below.

(b) Recorded in "claims and accounts receivable" on our consolidated balance sheets. We believe these amounts are

probable of collection.

(c) Recorded as a reduction to "claims and accounts receivable" and in "other liabilities" on our consolidated balance sheets.
At this time, we believe the likelihood we would incur a loss related to this matter in excess of the loss accruals we have
recorded is remote.

The year over year reduction of amounts on the table above is attributable to the resolution and conclusion on three Form
1s and associated matters we reached with the U.S. government in 2014. Summarized below are some of the details associated
with individual Form 1s as part of the total explained above.

Private Security. Starting in February 2007, we received a series of Form 1s from the Defense Contract Audit Agency
("DCAA") informing us of the government's intent to deny reimbursement to us under the LogCAP III contract for amounts
related to the use of private security contractors ("PSCs") by KBR and a subcontractor in connection with its work for KBR
providing dining facility services in Iraq between 2003 and 2006. The government challenged $56 million in billings. The
government had previously paid $11 million and has withheld payments of $45 million, which as of December 31, 2014 we have
recorded as due from the government related to this matter in "claims and accounts receivable" on our consolidated balance
sheets.

On June 16, 2014, we received a decision from the ASBCA which agreed with KBR's position that the LogCAP III
contract did not prohibit the use of PSCs to provide force protection to KBR or subcontractor personnel, that there was a need for
force protection and that the costs were reasonable. The ASBCA also found that the Army breached its obligation to provide
force protection. Accordingly, we believe that we are entitled to reimbursement by the Army for the amounts charged by our
subcontractors, even if they incurred costs for PSCs. The Army has appealed. We believe the likelihood that we will incur a loss
related to this matter is remote, and therefore we have not accrued any loss provisions related to this matter.

Containers. In June 2005, the DCAA questioned billings on costs associated with providing containerized housing for
soldiers and supporting civilian personnel in Iraq. The Defense Contract Management Agency ("DCMA") recommended that
payment for the billings be withheld pending receipt of additional explanation or documentation to support the subcontract costs.
The Form 1 was issued for $51 million in billings. Of this amount, the government had previously paid $25 million and has
withheld payments of $26 million, which as of December 31, 2014, we have recorded in "claims and accounts receivable" on our
consolidated balance sheets.

Included in "other liabilities" on our consolidated balance sheets is $30 million of payments withheld from subcontractors
related to pay-when-paid contractual terms. At this time, we believe that the likelihood we would incur a loss related to this
matter in excess of the amounts we have withheld from subcontractors and the loss accruals we have recorded is remote.

There are three related actions stemming from the DCMA's action to disallow and withhold funds. First, in April 2008,
we filed a counterclaim in arbitration against our LogCAP III subcontractor, First Kuwaiti Trading Company, to recover the
amounts we paid to the subcontractor for containerized housing if we should lose the contract dispute with the government over
the allowability of the container claims. Those claims are still pending. Second, during the first quarter of 2011, we filed a
complaint before the ASBCA to contest the Form 1s and to recover the amounts withheld from us by the government. At the
request of the government, that complaint was dismissed without prejudice in January 2013 so that the government could pursue
its False Claims Act ("FCA") suit described below. We are free to re-file the complaint in the future. Third, this matter is also
the subject of a separate claim filed by the Department of Justice ("DOJ") for alleged violation of the FCA as discussed further
below under the heading “Investigations, Qui Tams and Litigation.”

CONCAP III. From February 2009 through September 2010, we received Form 1s from the DCAA disapproving billed
costs related to work performed under our CONCAP III contract with the U.S. Navy to provide emergency construction services
primarily to government facilities damaged by Hurricanes Katrina and Wilma. The Form 1 was issued for $25 million in
billings. The government had previously paid $15 million and has withheld payments of $10 million, which as of December 31,
2014 we have recorded as due from the government related to this matter in "claims and accounts receivable" on our
consolidated balance sheets.

In February 2012, the Contracting Officer rendered a Contracting Officer Final Determination (“COFD”) disallowing $15
million of direct costs. We filed an appeal with the ASBCA in June 2012. Trial was held before the ASBCA in September 2014,
and post hearing briefs were filed in November 2014. We expect it will take several months before a ruling is issued on this
matter. We believe we undertook adequate and reasonable steps to ensure that proper bidding procedures were followed and the
amounts billed to the government were reasonable and not in violation of the Federal Acquisition Regulations ("FAR") and that
the ASBCA will rule in our favor. As of December 31, 2014, we have accrued our estimate of probable loss related to an
unfavorable settlement of this matter recorded in "other liabilities" on our consolidated balance sheets. At this time, we believe
that the likelihood we would incur a loss related to this matter in excess of the amounts we have accrued is remote.

Other. The government has issued Form 1s for other matters questioning $56 million of billed costs. For these matters,
the government previously paid $41 million and has withheld payment of $15 million, which we have recorded in "claims and
accounts receivable" on our consolidated balance sheets. We have accrued our estimate of probable loss in "other liabilities" on
our consolidated balance sheets. At this time, we believe that the likelihood we would incur a loss related to this matter in excess
of the amounts we have accrued is remote.

We have other matters (not related to Form 1s) in dispute with the government either in the COFC or before the ASBCA.
These claims represent $11 million in claimed costs primarily associated with the pass-through of subcontractor claims
associated with a termination for convenience in Iraq. We have accrued $4 million as our estimate of probable loss in "other
liabilities" on our consolidated balance sheets. At this time, we believe that the likelihood we would incur a loss related to these
matters in excess of the amounts we have accrued is remote.

Audits

In addition to reviews being performed by the U.S. government through the Form 1 process, the negotiation,
administration and settlement of our contracts, consisting primarily of DoD contracts, are subject to audit by the DCAA, which
serves in an advisory role to the DCMA. The DCMA is responsible for the administration of our contracts. The scope of these
audits include, among other things, the allowability, allocability and reasonableness of incurred costs, provisional approval of
annual billing rates, approval of annual overhead rates, compliance with the FAR and Cost Accounting Standards (“CAS”),
compliance with certain unique contract clauses and audits of certain aspects of our internal control systems. We attempt to
resolve all issues identified in audit reports by working directly with the DCAA and the Administrative Contracting Officers
("ACOs").

As a result of these audits, there are risks that what we have claimed costs as recoverable may be assessed by the
government to be unallowable. We believe our claims are in compliance with our contract terms. In some cases, we may not
reach agreement with the DCAA or the ACOs regarding potentially unallowable costs which may result in our filing of claims in
various courts such as the ASBCA or the COFC. We have accrued our estimate of potentially unallowable costs using a
combination of specific estimates and our settlement rate experience with the government. At December 31, 2014, we have
accrued $39 million as our estimate of probable loss as a reduction to "claims and accounts receivable" and in "other liabilities"
on our consolidated balance sheets. These accrued amounts are associated with years for which we have or do not have audit
reports. We have received audit reports for 2004 through 2007, 2009 and 2010. We have not yet received completed audit
reports for 2008, 2011 or 2012. Additionally, we have reached an agreement with the government on definitive incurred cost
rates for the years 2003 through 2007 and 2009.

For those years where we have received audit reports and negotiated final settlement for both direct and indirect claimed
costs, we have experienced an aggregate disallowance rate of approximately 0.1% of claimed costs. For the period 2003 through
2011 we incurred claimed costs of $46 billion; of this amount, we have reached negotiated settlement on $35 billion and have
conceded $40 million.

We only include amounts in revenues related to disputed and potentially unallowable costs when we determine it is
probable that such costs will result in the collection of revenues. We generally do not recognize additional revenues for disputed
or potentially unallowable costs for which revenues have been previously reduced until we reach agreement with the DCAA
and/or the ACOs that such costs are allowable.

In addition to audits of our incurred costs, the government also reviews our compliance with the CAS and the adequacy
and compliance of our CAS disclosure statements. We are working with the government to resolve several outstanding alleged
CAS non-compliance issues.

Investigations, Qui Tams and Litigation

The following matters relate to ongoing litigation or federal investigations involving U.S. government contracts.

First Kuwaiti Trading Company arbitration. In April 2008, First Kuwaiti Trading Company ("FKTC"), one of our
LogCAP III subcontractors providing housing containers, filed for arbitration with the American Arbitration Association of all its
claims under various LogCAP III subcontracts. FKTC sought damages in the amount of $134 million. After complete hearings
on all of FKTC's claims, an arbitration panel awarded $17 million and interest to FKTC for claims involving damages on lost or
unreturned vehicles. In addition, we have determined that we owe FKTC $30 million in connection with other subcontracts. We
had an agreement with FKTC that no damages will be paid until our counterclaim is decided, but FKTC filed a motion with the
arbitration panel to compel KBR to pay all amounts outstanding. We paid FKTC $15 million in the third quarter of 2014, $4
million in the fourth quarter of 2014 and will pay $3 million on pay-when-paid terms.

We believe any damages ultimately awarded to FKTC will be billable under the LogCAP III contract. Accordingly, we
have accrued amounts in "accounts payable" and "other current liabilities" on our condensed consolidated balance sheets. At this
time, we believe that the likelihood we would incur a loss related to this matter in excess of the amounts we have accrued is
remote. See the additional legal action with the ASBCA in the container litigation discussed above.

Electrocution litigation. During 2008, a lawsuit was filed against KBR in Pittsburgh, PA, in the Allegheny County
Common Pleas Court alleging that the Company was responsible for an electrical incident which resulted in the death of a
soldier. This incident occurred at the Radwaniyah Palace Complex near Baghdad, Iraq. It is alleged in the suit that the
electrocution incident was caused by improper electrical maintenance or other electrical work. KBR denies that its conduct was
the cause of the event and denies legal responsibility. Plaintiffs are claiming unspecified damages for personal injury, death and
loss of consortium by the parents. On July 13, 2012, the Court granted our motions to dismiss, concluding that the case is barred
by the Political Question Doctrine and preempted by the Combatant Activities Exception to the Federal Tort Claims Act. The
plaintiffs appealed to the Third Circuit Court of Appeals. In August 2013, the Third Circuit Court of Appeals issued an opinion

reversing the trial court's dismissal and remanding for further discovery and legal rulings. KBR filed a petition for certiorari with
the U.S. Supreme Court and on January 20, 2015, the Supreme Court denied certiorari. KBR will continue to pursue all
available jurisdictional and other dismissal options. At this time, we believe the likelihood we would incur a loss related to this
matter is remote. As of December 31, 2014, no amounts have been accrued.

Burn Pit litigation. From November 2008 through March 2013, KBR was served with over 50 lawsuits in various states
alleging exposure to toxic materials resulting from the operation of burn pits in Iraq or Afghanistan in connection with services
provided by KBR under the LogCAP III contract. Each lawsuit has multiple named plaintiffs and seeks class certification. The
lawsuits primarily allege negligence, willful and wanton conduct, battery, intentional infliction of emotional harm, personal
injury and failure to warn of dangerous and toxic exposures which has resulted in alleged illnesses for contractors and soldiers
living and working in the bases where the pits were operated. The plaintiffs are claiming unspecified damages. All of the
pending cases were removed to Federal Court and have been consolidated for multi-district litigation treatment before the U.S.
Federal District Court in Baltimore, Maryland. In February 2013, the Court dismissed the case against KBR, accepting all of
KBR's defense claims including the Political Question Doctrine; the Combatant Activities Exception to the Federal Tort Claims
Act; and Derivative Sovereign Immunity. The plaintiffs appealed to the Fourth Circuit Court of Appeals on March 27, 2013. On
March 6, 2014, the Fourth Circuit Court vacated the order of dismissal and remanded this multi-district litigation for further
action, including a ruling on state tort law and its impact upon the "Contractor on the Battlefield" defenses. KBR filed a petition
for certiorari with the U.S. Supreme Court and on January 20, 2015, the Supreme Court denied certiorari. KBR will continue to
pursue all available jurisdictional and other dismissal options. At this time, we believe the likelihood that we would incur a loss
related to this matter is remote. As of December 31, 2014, no amounts have been accrued.

Sodium Dichromate litigation. From December 2008 through September 2009, five cases were filed in various Federal
District Courts against KBR by national guardsmen and other military personnel alleging exposure to sodium dichromate at the
Qarmat Ali Water Treatment Plant in Iraq in 2003. The majority of the cases were re-filed and consolidated into two cases, with
one pending in the U.S. District Court for the Southern District of Texas and one pending in the U.S. District Court for the
District of Oregon. A single plaintiff case was filed on November 30, 2012 in the District of Oregon Eugene Division.
Collectively, the suits represent approximately 170 individual plaintiffs all of which are current and former national guardsmen
or British soldiers who claim they were exposed to sodium dichromate while providing security services or escorting KBR
employees who were working at the water treatment plant, claim that the defendants knew or should have known that the
potentially toxic substance existed and posed a health hazard, and claim that the defendants negligently failed to protect the
plaintiffs from exposure. The plaintiffs are claiming unspecified damages. The U.S. Army Corps of Engineers (“USACE”) was
contractually obligated to provide a benign site free of war and environmental hazards before KBR's commencement of work on
the site. KBR notified the USACE within two days after discovering the potential sodium dichromate issue and took effective
measures to remediate the site. Services provided by KBR to the USACE were under the direction and control of the military
and therefore, KBR believes it has adequate defenses to these claims. KBR also has asserted the Political Question Doctrine and
other government contractor defenses. Additionally, studies by the U.S. government and others on the effects of exposure to the
sodium dichromate contamination at the water treatment plant have found no long term harm to the soldiers.

Texas Proceedings. After an interlocutory appeal under 28 U.S.C. § 1292(b) to the U.S. Court of Appeals for the Fifth
Circuit on KBR's motion to dismiss regarding its "Contractor on the Battlefield" defenses, on November 7, 2013 a three judge
panel of the Court returned the case to the trial court, holding the interlocutory appeal was improperly granted. We sought
review by the entire court on this opinion which was denied. On January 23, 2015, the District Court issued several orders
dismissing all of the plaintiffs' claims except for intentional infliction of emotional distress. On February 2, 2015, KBR filed a
motion for summary judgment on this claim. At this time, we believe the likelihood that we would incur a loss related to this
matter is remote. As of December 31, 2014, no amounts have been accrued.

Oregon Proceedings. On November 2, 2012 in the Oregon case, a jury in the U.S. District Court for the District of
Oregon issued a verdict in favor of the plaintiffs on their claims, and awarded them approximately $10 million in actual damages
and $75 million in punitive damages. We filed post-verdict motions asking the court to overrule the verdict or order a new trial.
On April 26, 2013, the court ruled for plaintiffs on all issues except one, reducing the total damages to $81 million which consists
of $6 million in actual damages and $75 million in punitive damages. Trials for the remaining plaintiffs in Oregon will not take
place until the appellate process is concluded. The court issued a final judgment on May 10, 2013, which was consistent with the
previous ruling. KBR appealed the ruling. Briefing is complete and oral arguments have not yet been scheduled by the court.
Additionally, five amicus curiae briefs have been filed in support of our arguments. Our basis for appeal include the trial court's
denial of the Political Question Doctrine, the Combat Activities Exception in the Federal Tort Claims Act, a lack of personal
jurisdiction over KBR in Oregon and numerous other legal issues stemming from the court's rulings before and during the trial.
We have already filed proceedings to enforce our rights to reimbursement and payment pursuant to the FAR under the RIO
contract with the USACE as referenced below.

In the U.S. Court of Appeals for the Ninth Circuit, we have also filed a motion for summary reversal of the court's
decision on personal jurisdiction due to a recent Supreme Court decision which supports our position that the Oregon court did
not have jurisdiction in the case because KBR did not have contact with the state. The U.S. Court of Appeals for the Ninth
Circuit has consolidated the motion with our pending appeal.

At this time we believe the likelihood that we will ultimately incur a loss related to this matter is remote. As of

December 31, 2014, no amounts have been accrued.

COFC/ASBCA Claims. During the period of time since the first litigation was filed against us, we have incurred legal
defense costs that we believe are reimbursable under the related government contract. We have billed for these costs and filed
claims to recover the associated costs incurred to date. In late 2012 and early 2013, we filed suits against the U.S. government in
the COFC for denying indemnity in the sodium dichromate cases, for reimbursement of legal fees pursuant to our contract with
the government and for breach of contract by the government for failure to provide a benign site as required by our contract. The
RIO contract required KBR personnel to begin work in Iraq as soon as the invasion began in March 2003. Due to KBR's
inability to procure adequate insurance coverage for this work, the Secretary of the Army approved the inclusion of an
indemnification provision in the RIO Contract pursuant to Public Law 85-804.

On March 7, 2014, the COFC issued a ruling on the government's motion dismissing KBR's claims on procedural
grounds. The decision did not prohibit us from resubmitting the claims to the contracting officer and we promptly refiled those
claims. On April 4, 2014, we submitted a supplemental certified claim to the RIO contracting officer for additional legal fees
incurred in defending the sodium dichromate cases. On June 9, 2014, we filed an appeal to the ASBCA due to the contracting
officer's failure to issue a final decision on claims totaling approximately $30 million. The USACE filed an answer, denying our
claims. We filed a motion for judgment on the pleadings, asking the court to rule in KBR's favor on the 85-804 indemnity clause
based on the admissions made by the USACE in its answer. The court has agreed to stay our other claims while we conduct
limited discovery on the 85-804 indemnity. On December 23, 2014, we filed a Motion for Partial Summary Judgment asking the
board to find that, based on discovery conducted to date, the sodium dichromate related incidents and litigation are within the
definition of the "unusually hazardous risks" language in the 85-804 indemnity agreement.

Qui tams. Of the active qui tams for which we are aware, the government has joined one of them (see DOJ FCA
complaint - Iraq Subcontractor below). We believe the likelihood that we would incur a loss in the qui tams the government has
not joined is remote and as of December 31, 2014, no amounts have been accrued. Costs incurred in defending the qui tams
cannot be billed to the government until those matters are successfully resolved in our favor. If successfully resolved, we can bill
80% of the costs to the government under the controlling provisions of the FAR. As of December 31, 2014, we have incurred
$10 million in legal costs to date in defending ourselves in qui tams.

Barko qui tam. Relator Harry Barko was a KBR subcontracts administrator in Iraq for a year in 2004/2005. He filed a qui
tam lawsuit in June 2005 in the U.S. District Court for the District of Columbia (D.C.), alleging violations of the FCA by KBR
and KBR subcontractors Daoud & Partners and Eamar Combined for General Trading and Contracting. The claim was unsealed
in March of 2009. Barko alleges that KBR fraudulently charged the government for the purchase of laundry facilities from
Daoud, that KBR paid Daoud for the construction of a substandard man-camp, that Daoud double-billed KBR for labor, that
KBR improperly awarded well-drilling subcontracts to Daoud, and that Daoud charged excessive prices for these services and
did not satisfactorily complete them. Barko also alleges fraudulent charges arising out of Eamar’s well-drilling services.

The DOJ investigated Barko’s allegations and elected not to intervene. KBR filed its Answer to the First Amended
Complaint and a Motion for Summary Judgment. We have had a series of continuing procedural disputes over the application of
KBR's attorney-client privileges for KBR's investigative process. First, on February 3, 2014, Barko filed a Motion to Compel
production of privileged investigative files, which KBR opposed. On March 6, 2014, in an unprecedented opinion, the District
Court granted the motion and ordered KBR to produce the records, thereafter also denying KBR’s motions to stay the order and
for interlocutory appeal. On March 12, 2014, KBR filed its Petition for Mandamus with the D.C. Circuit Court, seeking an order
reversing the trial court’s order of production. On June 27, 2014, the Circuit Court granted KBR's Petition and vacated the trial
court's order of production. On July 28, 2014, Barko appealed the ruling and on September 2, 2014 that appeal was denied.
Barko filed a petition for certiorari with the U.S. Supreme Court on November 30, 2014, and that petition was denied on January
20, 2015.

Second, after remand from the first Mandamus proceeding, the District Court ordered briefing as to whether KBR waived
its privilege, and after extensive briefing, on November 20, 2014, the District Court entered an order finding that KBR had
impliedly waived privilege and requiring KBR to produce the same documents which had previously been the subject of the first
proceeding. On December 17, 2014, the District Court issued additional orders, denying KBR's Motion for Reconsideration,
request for stay and request for immediate appeal. In a separate ruling, the District Court found that some of the documents in
question were not privileged at all. On December 19, 2014, KBR filed a second Petition for Mandamus and for entry of

Emergency Stay Order in the D.C. Circuit Court. An Administrative Stay was granted and briefing on both the Mandamus and
full stay request was ordered. The U.S. Chamber of Commerce has indicated that it will file an amicus brief in support of KBR's
position. We will not know until sometime after March 2015 where the Court of Appeals will hear our Mandamus petition.

While we believe it is important to protect the privileges that attached to KBR's corporate compliance process, we do not
believe that the merits of the underlying claims ultimately will be impacted by a forced disclosure should that occur. We believe
the likelihood that we will incur a loss related to this matter is remote, and therefore as of December 31, 2014 we have not
accrued any loss provisions related to this matter.

DOJ False Claims Act complaint - Containers. In November 2012, the DOJ filed a complaint in the U.S. District Court
for the Central District of Illinois in Rock Island, IL, related to our settlement of delay claims by our subcontractor, FKTC, in
connection with FKTC's provision of living trailers for the bed down mission in Iraq in 2003-2004. The DOJ alleges that KBR
knew that FKTC had submitted inflated costs; that KBR did not verify the costs; that FKTC had contractually assumed the risk
for the costs which KBR submitted to the government; that KBR concealed information about FKTC's costs from the
government; that KBR claimed that an adequate price analysis had been done when in fact one had not been done; and that KBR
submitted false claims for reimbursement to the government in connection with FKTC's services during the bed down mission.
Our contractual dispute with the Army over this settlement has been ongoing since 2005. We believe these sums were properly
billed under our contract with the Army and are not prohibited under the LogCAP III contract. We strongly contend that we
followed the law and no fraud was committed. On May 6, 2013, KBR filed a motion to dismiss and in March 2014 the motion to
dismiss was denied. We filed our answer on May 2, 2014 and on May 23, 2014 the government filed a Motion to Strike certain
affirmative defenses. We are contesting that motion and proceeding with discovery. On September 30, 2014, the District Court
granted FKTC's motion to dismiss for lack of personal jurisdiction. A scheduling conference was held on December 5, 2014. At
this time, we believe the likelihood that we would incur a loss related to this matter is remote. As of December 31, 2014, no
amounts have been accrued.

DOJ False Claims Act complaint - Iraq Subcontractor. In January 2014, the DOJ filed a complaint in the U.S. District
Court for the Central District of Illinois in Rock Island, IL, against KBR and two former KBR subcontractors alleging that 3
former KBR employees were offered and accepted kickbacks from these subcontractors in exchange for favorable treatment in
the award and performance of subcontracts to be awarded during the course of KBR's performance of the LogCAP III contract in
Iraq. The complaint alleges that as a result of the kickbacks, we submitted invoices with inflated or unjustified subcontract
prices, resulting in alleged violations of the FCA and the Anti-Kickback Act. While the suit is new, the DOJ's investigation dates
back to 2004. We self-reported most of the violations and tendered credits to the government as appropriate. On April 22, 2014,
we filed our answer and on May 13, 2014 the government filed a Motion to Strike certain affirmative defenses. We are
contesting this motion. As of December 31, 2014, we have accrued our best estimate of probable loss related to an unfavorable
settlement of this matter recorded in "other liabilities" on our condensed consolidated balance sheets. At this time, we believe
the likelihood that we would incur a loss related to this matter in excess of the amounts we have accrued is remote.

Other Matters

Claims. We have filed claims with the government related to payments not yet received for costs incurred under various
government contracts. Included in our consolidated balance sheets are claims for costs incurred under various government
contracts totaling $138 million at December 31, 2014. These claims relate to disputed costs and/or contracts where our costs
have exceeded the government's funded value on the task order. We have $122 million of claims primarily from de-obligated
funding on certain task orders that were also subject to Form 1s relating to certain DCAA audit issues discussed above. We
believe such disputed costs will be resolved in our favor at which time the government will be required to obligate funds from
appropriations for the year in which resolution occurs. These claims are recorded in "claims and accounts receivable" on our
consolidated balance sheets. The remaining claims balance of $16 million is recorded in "CIE" on our consolidated balance
sheets. The amounts recorded in CIE represent costs for which incremental funding is pending in the normal course of business.
The claims outstanding at December 31, 2014 are considered to be probable of collection and have been previously recognized
as revenues.

Subsequent Events. On January 21, 2015 we were notified by the U.S. government Defense Security Service ("DSS")
Facility Security Office that our facility security clearance has been marked "invalid" based on findings from their recent
evaluation of our processes and procedures for handling documents inappropriately provided to KBR by the U.S. Army during
the performance of our LogCAP III contract. Due to the invalidation of our facility security clearance, the GS business segment
is precluded from bidding on new work for contracts with security requirements. We may continue the work we are currently
performing and be awarded new task orders under existing contracts; however, no new work can be awarded until this matter is
resolved. We have been working closely with the DSS to remediate the identified deficiencies.

Note 15. Other Commitments and Contingencies

Litigation and regulatory matters related to the Company’s restatement of its 2013 annual financial statements

After the Company announced it would be restating its 2013 annual financial statements, three complaints were filed in
the United States District Court for the Southern District of Texas against the Company, our former chief executive officer, our
current and former chief financial officers. Two of those complaints were voluntarily dismissed by the plaintiffs, and four
parties moved to be appointed lead plaintiff. In September 2014, the court appointed Arkansas Public Employees Retirement
System and Local 58/NECA Funds as lead plaintiffs and ordered any new cases arising from the same matters to be
consolidated together as In re KBR, Inc. Securities Litigation, Master File No. 14-cv-01287. Lead plaintiffs filed an amended
and consolidated complaint on October 20, 2014, adding our former chief accounting officer as a defendant. The amended
complaint seeks class action status on behalf of our shareholders, alleges violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 arising out of the restatement of our 2013 annual financial statements and seeks undisclosed
damages. The defendants intend to vigorously defend against these claims and filed a motion to dismiss the consolidated
complaint for failure to plead particularized facts supporting a strong inference of scienter on the part of the individual
defendants. The lead plaintiffs filed their opposition on January 23, 2015 and defendants filed their reply on February 6, 2015.
Oral argument on the motion to dismiss is currently scheduled for early March 2015. At this early stage, we are not yet able to
determine the likelihood of loss, if any, arising from this matter.

In addition, a shareholder derivative complaint, Butorin v. Blount et al, was filed on May 27, 2014 in the United States
District Court for the Southern District of Texas on behalf of the Company naming certain current and former members of the
Company's board of directors as defendants and the Company as a nominal defendant. The complaint alleges that the named
directors breached their fiduciary duties by permitting the Company's internal controls to be inadequate. In August 2014, we
filed a motion to dismiss the matter based on the mandatory forum selection clause in the Company's bylaws, which requires,
among other things, that all shareholder derivative suits be filed in Delaware. The plaintiff filed his opposition on October 6,
2014 to which we replied on October 21, 2014. On November 3, 2014, plaintiff filed an amended complaint adding a claim for
violations of Section 14 of the Securities Exchange Act of 1934 alleging that the Company's 2014 proxy statement was false
and misleading. We filed a motion to dismiss the amended compliant on November 17, 2014 for the same reasons as stated in
the original motion to dismiss. Plaintiff filed its response on December 8, 2014 and we replied on December 15, 2014. The
motion to dismiss is still pending. At this early stage, we are not yet able to determine the likelihood of loss, if any, arising
from this matter.

We have also received requests for information and a subpoena for documents from the Securities Exchange
Commission ("SEC") regarding the restatement of our 2013 annual financial statements. We have been and intend to continue
cooperating with the SEC.

PEMEX and PEP Arbitration

In 1997, we entered into a contract with PEP, a subsidiary of PEMEX, the Mexican national oil company, to build
offshore platforms and treatment and reinjection facilities in the Bay of Campeche, offshore Mexico. The project, known as
EPC 1, encountered significant schedule delays and increased costs due to problems with design work, late delivery and defects
in equipment, increases in scope and other changes.

PEP took possession of the facilities in March 2004 prior to the completion of our scope of work and without paying us
for our work. We filed for arbitration with the International Chamber of Commerce ("ICC") in 2004 claiming recovery of
damages of approximately $323 million. PEP subsequently filed counterclaims totaling $157 million. In December 2009, the
ICC arbitration panel ruled in our favor, and we were awarded a total of approximately $351 million including legal and
administrative recovery fees as well as interest. PEP was awarded approximately $6 million on counterclaims, plus interest on
a portion of that sum. In connection with this award, we recognized a gain of $117 million net of tax in 2009.

U.S. Proceedings. Collection efforts have involved multiple actions. On August 27, 2013, the District Court entered an
order stating it would confirm the award even though it had been annulled in Mexico (see Mexico proceedings discussion
below). On September 25, 2013, the District Court entered the signed final judgment of $465 million, which includes the
arbitration award and approximately $106 million for performance bonds discussed below, plus interest. The judgment also
requires that each party pay value added tax on the amounts each has been ordered to pay. PEP filed a notice of appeal to the
U.S. Court of Appeals for the Second Circuit on October 16, 2013 and posted $465 million cash as security for the judgment
pending appeal. Oral argument on the appeal was held on November 20, 2014. The U.S. government was invited to file a brief
and did so, and the parties have filed responses to the U.S. government's brief. Absent some request by the court for more
briefing, the matter is ready for decision.

Mexico Proceedings. PEP's multiple attempts to nullify the award in Mexico was rejected by the Mexican courts. PEP
then filed an “amparo” action alleging that its constitutional rights had been violated and this action was denied by the Mexican
court in October 2010. PEP then appealed to the Mexican Collegiate Court. In September 2011, the Collegiate Court ruled that
PEP, by administratively rescinding the contract in 2004, deprived the arbitration panel of jurisdiction and the award was null
and void. We believe the Collegiate Court's decision is contrary to Mexican law governing contract arbitration. However, we
do not expect the Collegiate Court's decision to affect our ability to ultimately collect the ICC arbitration award in the U.S. due
to the posting of cash as security for the judgment pending appeal.

Other Proceedings. We have initiated collection proceedings to pursue our remedies in Luxembourg and under the North

American Free Trade Agreement.

Performance Bonds

We had provided approximately $80 million in performance bonds to PEP when the project was awarded. The bonds
were written by a Mexican bond company and backed by a U.S. insurance company which is indemnified by KBR. As a result
of the ICC arbitration award in December 2009, the panel determined that KBR had performed on the project and recovery on
the bonds by PEP was precluded. Notwithstanding, PEP filed an action in Mexico in June 2010 against the Mexican bond
company to collect the bonds. On June 17, 2013, after proceedings in multiple Mexican courts, we were required to pay $108
million to the Mexican bond company. The $108 million consists of the $80 million in outstanding bonds, plus $26 million in
related interest and other expenses and $2 million in legal and banking fees.

Consistent with our treatment of claims, we have recorded $401 million, net of advances, in "claims and accounts
receivable" on the consolidated balance sheets as we believe it is probable we will recover the amounts awarded to us,
including interest and expenses and the amounts we paid on the bonds. PEP has cash posted in the U.S. and sufficient assets in
Luxembourg, which we believe we will be able to attach as a result of the recognition of the ICC arbitration award. Although it
is possible we could resolve and collect the amounts due from PEP in the next 12 months, we believe the timing of the
collection of the award is uncertain; therefore, consistent with our prior practice, as of December 31, 2014, we continue to
classify the amount due from PEP, including the amounts paid on the performance bonds as long term.

Environmental

We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. In
the United States, these laws and regulations include, among others: the Comprehensive Environmental Response,
Compensation and Liability Act; the Resources Conservation and Recovery Act; the Clean Air Act; the Federal Water Pollution
Control Act; and the Toxic Substances Control Act. In addition to federal and state laws and regulations, other countries where
we do business often have numerous environmental regulatory requirements by which we must abide in the normal course of
our operations. These requirements apply to our business segments where we perform construction and industrial maintenance
services or operate and maintain facilities.

We continue to monitor conditions at sites we own or owned and until further information is available, we are only able
to estimate a possible range of remediation costs. These locations were primarily utilized for manufacturing or fabrication
work and are no longer in operation. The use of these facilities created various environmental issues including deposits of
metals, volatile and semi-volatile compounds and hydrocarbons impacting surface and subsurface soils and groundwater. The
range of remediation costs could change depending on our ongoing site analysis and the timing and techniques used to
implement remediation activities. We do not expect costs related to environmental matters will have a material adverse effect
on our consolidated financial position or results of operations. Based on the information presently available to us, we have
accrued approximately $1 million for the assessment and remediation costs associated with all environmental matters and we
do not anticipate incurring any additional costs.

We have been named as a potentially responsible party in various clean-up actions taken by federal and state agencies in
the U.S. We are unable to determine whether we will ultimately be deemed responsible for any costs associated with these
actions.

Leases

We are obligated under operating leases, principally for the use of land, offices, equipment, field facilities and
warehouses. We recognize minimum rental expenses over the term of the lease. When a lease contains a fixed escalation of the
minimum rent or rent holidays, we recognize the related rent expense on a straight-line basis over the lease term and record the
difference between the recognized rental expense and the amounts payable under the lease as deferred lease credits. We have
certain leases for office space where we receive allowances for leasehold improvements. We capitalize these leasehold
improvements as property, plant and equipment and deferred lease credits. Leasehold improvements are amortized over the
shorter of their economic useful lives or the lease term. Total rent expense was $158 million, $159 million and $149 million in
2014, 2013 and 2012, respectively. The current portion of the deferred lease credits of $3 million at December 31, 2014 and
2013, respectively, is recorded in "other current liabilities" on our consolidated balance sheets and the noncurrent deferred lease
credits of $128 million and $129 million at December 31, 2014 and 2013, respectively, is recorded in "other liabilities" on our
consolidated balance sheets.

Future total rental payments on noncancelable operating leases are as follows:

Dollars in millions
2015
2016
2017
2018
2019
Beyond 2019

Future rental
payments (a)

$
$
$
$
$
$

99
85
71
62
53
383

(a) Amounts presented are net of subleases.

601 Jefferson Building Lease. In November 2012, the joint venture in which we hold a 50% interest sold the 601
Jefferson building in which we lease office space in Houston, Texas. We continue to lease the building from the new owner
under the same lease agreement and terms, except for the elimination of an early termination and contraction option, for which
we were paid an $11 million modification fee. This lease incentive will be amortized over the remaining term of the lease,
which runs through June 30, 2030 and includes renewal options for three consecutive additional periods from 5 to 10 years
each at prevailing market rates. Annual base rent for the leased office space escalates ratably over the lease term from $10
million to $15 million.

500 Jefferson Building Lease. The term of the lease runs through June 30, 2030 and includes renewal options for three
consecutive additional periods from 5 to 10 years each at prevailing market rates. Annual base rent for the leased office space
escalates ratably over the lease term from $2 million to $4 million. For a small fee we have agreed to change our early
termination option date for all or a portion of the leased premises from 2022 to 2026.

Insurance Programs

Our employee-related health care benefits program is self-funded. Our workers’ compensation, automobile and general
liability insurance programs include a deductible applicable to each claim. Claims in excess of our deductible are paid by the
insurer. The liabilities are based on claims filed and estimates of claims incurred but not reported. As of December 31, 2014,
liabilities for anticipated claim payments and incurred but not reported claims for all insurance programs totaled approximately
$66 million, comprised of $14 million included in "accrued salaries, wages and benefits," $19 million included in "other current
liabilities" and $33 million included in "other liabilities" all on our consolidated balance sheets. As of December 31, 2013,
liabilities for unpaid and incurred but not reported claims for all insurance programs totaled approximately $75 million,
comprised of $12 million included in "accrued salaries, wages and benefits," $26 million included in "other current liabilities"
and $37 million included in "other liabilities" all on our consolidated balance sheets.

Note 16. Shareholders’ Equity

The following tables summarize our activity in shareholders’ equity:

Retained
Earnings

Treasury
Stock

AOCL

NCI

Dollars in millions
Balance at December 31, 2011

Deferred tax and foreign currency adjustments (a)
Share-based compensation

Common stock issued upon exercise of stock options

Tax benefit increase related to share-based plans

Dividends declared to shareholders

Repurchases of common stock

Issuance of ESPP shares

Distributions to noncontrolling interests

Net income

Other comprehensive (loss), net of tax

Balance at December 31, 2012

Share-based compensation
Common stock issued upon exercise of stock options

Dividends declared to shareholders

Adjustment pursuant to Accounting Referee's report
on tax sharing agreement
Repurchases of common stock

Issuance of ESPP shares

Investments by noncontrolling interests

Distributions to noncontrolling interests

Change in NCI due to consolidation of previously
unconsolidated JV and other transactions
Net income

Other comprehensive (loss), net of tax

Balance at December 31, 2013

Share-based compensation
Common stock issued upon exercise of stock options

Dividends declared to shareholders

Repurchases of common stock

Issuance of ESPP shares

Investments by noncontrolling interests

Distributions to noncontrolling interests

Other noncontrolling interests activity

Net income (loss)

Total

2,442 $
17
16
7
4
(42 )

(40 )
3
(36 )
202
(62 )
2,511 $
16
6
(36 )

(7 )

(7 )
4
9
(109 )

2
171
(121 )
2,439 $
22
4
(47 )

(106 )
4
10
(61 )
2
(1,198 )

Other comprehensive income (loss), net of tax

Balance at December 31, 2014

(134 )
935 $

PIC
2,005 $
17
16
7
4
—
—
—
—
—
—
2,049 $
16
6
—

(7 )
—
1
—
—

1,607
—
—
—
—
(42 )
—
—
—
144
—
1,709 $
—
—
(36 )

—
—
—
—
—

—
—
—
2,065 $
22
4
—
—
—
—
—
—
—
—
2,091 $

—
75
—
1,748 $
—
—
(47 )
—
—
—
—
—
(1,262 )
—
439 $

(569 ) $

(548 ) $

—
—
—
—
—
(40 )
3
—
—
—
(606 ) $

—
—
—

—

(7 )
3
—
—

—
—
—
(610 ) $

—
—
—
(106 )
4
—
—
—
—
—
(712 ) $

—
—
—
—
—
—
—
—
—
(62 )

(610 ) $

—
—
—

—
—
—
—
—

—
—
(130 )

(740 ) $

—
—
—
—
—
—
—
—
—
(136 )

(876 ) $

(53 )

—
—
—
—
—
—
—
(36 )
58
—
(31 )

—
—
—

—
—
—
9
(109 )

2
96
9
(24 )

—
—
—
—
—
10
(61 )
2
64
2
(7 )

(a) During the third quarter of 2012, we recorded out-of-period adjustments in our deferred tax accounts, most of which
relate to years before 2010. These adjustments were not material to 2012 or the periods to which they relate. The out-
of-period adjustments were $3 million to our 2012 annual tax expense and $9 million to our equity accounts. Deferred
tax and foreign currency adjustments above includes $16 million related to these adjustments.

Accumulated other comprehensive loss, net of tax

Dollars in millions
Accumulated foreign currency translation adjustments, net of tax of $(4), $0 and $27 $
Pension and post-retirement benefits, net of tax of $(231), $(221) and $(203)
Changes in fair value of derivatives, net of tax of $0, $0 and $0

Total accumulated other comprehensive loss

December 31,

2014

2013

2012

(203 ) $
(670 )
(3 )
(876 ) $

(131 ) $
(608 )
(1 )
(740 ) $

(88 )
(521 )
(1 )
(610 )

Changes in accumulated other comprehensive loss, net of tax, by component

Dollars in millions
Balance as of December 31, 2012

Other comprehensive income adjustments before

reclassifications

Amounts reclassified from accumulated other comprehensive

income

Balance at December 31, 2013

Other comprehensive income adjustments before

reclassifications

Amounts reclassified from accumulated other comprehensive

income

Balance at December 31, 2014

Accumulated
foreign currency
translation
adjustments

Pension and
post-retirement
benefits

Changes in fair
value of
derivatives

Total

(88 ) $

(521 ) $

(1 ) $

(610 )

(44 )

(122 )

(165 )

(131 ) $

(608 ) $

(73 )

(104 )

(1 )

(1 ) $

(2 )

—

(740 )

(179 )

(203 ) $

(670 ) $

(3 ) $

(876 )

Reclassifications out of accumulated other comprehensive loss, net of tax, by component

Dollars in millions

Accumulated foreign currency translation adjustments

Realized foreign currency translation adjustments

Tax expense

Net foreign currency translation adjustments realized

Pension and post-retirement benefits
Amortization of actuarial loss (a)

Tax benefit

Net pension and post-retirement benefits

Changes in fair value of derivatives
Realized losses on derivatives

Tax benefit

Net change in fair value of derivatives

December 31,
2014

December 31,
2013

Affected line item on the
Consolidated Statements of
Operations

(4 ) $
3
(1 ) $

(52 ) $
10
(42 ) $

— $
—
— $

Loss (gain) on disposition
of assets, net

(1 )
— Provision for income taxes
(1 ) Net of tax

(53 ) See (a) below
18 Provision for income taxes
(35 ) Net of tax

1 Cost of revenues
— Provision for income taxes
1 Net of tax

(a) This item is included in the computation of net periodic pension cost. See Note 11 to our consolidated financial

statements for further discussion.

Shares of common stock

Shares in millions
Balance at December 31, 2012
Common stock issued

Balance at December 31, 2013
Common stock issued

Balance at December 31, 2014

Shares of treasury stock

Shares and dollars in millions
Balance at December 31, 2012

Treasury stock acquired, net of ESPP shares issued

Balance at December 31, 2013

Treasury stock acquired, net of ESPP shares issued

Balance at December 31, 2014

Dividends

173.2
0.7
173.9
0.5
174.4

Amount

25.6 $
0.1
25.7
3.9
29.6 $

606
4
610
102
712

We declared dividends totaling $47 million in 2014 and $36 million in 2013. As of December 31, 2014 and 2013, we

had accrued dividends payable of $12 million included in "other current liabilities" on our consolidated balance sheets.

Note 17. Share Repurchases

On February 25, 2014, our Board of Directors authorized a plan to repurchase up to $350 million of our outstanding
common shares, which replaced and terminated the August 26, 2011 share repurchase program. The authorization does not
obligate the company to acquire any particular number of common shares and may be commenced, suspended or discontinued
without prior notice. The newly authorized share repurchase program operates alongside the existing share maintenance
program which we may use to repurchase shares vesting as part of employee compensation programs. The share repurchases
are intended to be funded through the company’s current and future cash and the authorization does not have an expiration date.
The table below presents information on our share repurchases activity under the share repurchase authorization:

December 31, 2014

Repurchases under the $350 million authorized share repurchase program
Repurchases under the existing share maintenance program

Total

Note 18. Share-based Compensation and Incentive Plans

Stock Plans

Number of
Shares
3,374,479 $
666,599 $
4,041,078

Average Price
per Share

Dollars in
Millions

26.13 $
26.24

88
18
106

In 2014, 2013 and 2012 share-based compensation awards were granted to employees under KBR share-based

compensation plans.

KBR Stock and Incentive Plan (Amended May 2012)

In November 2006, KBR established the KBR Stock and Incentive Plan ("KBR Stock Plan"), which provides for the

grant of any or all of the following types of share-based compensation listed below:

•
•
•

stock options, including incentive stock options and nonqualified stock options;
stock appreciation rights, in tandem with stock options or freestanding;
restricted stock;

•
•
•

restricted stock units;
cash performance awards; and
stock value equivalent awards.

In May 2012, the KBR Stock Plan was amended to add 2 million shares of our common stock available for issuance
under the KBR Stock Plan. Additionally, this amendment increased the sublimit under the Stock Plan in the form of restricted
stock awards, restricted stock unit awards or pursuant to performance awards by 2 million. Under the terms of the KBR Stock
Plan, 12 million shares of common stock have been reserved for issuance to employees and non-employee directors. The plan
specifies that no more than 5.5 million shares can be awarded as restricted stock or restricted stock units or pursuant to cash
performance awards. At December 31, 2014, approximately 3.5 million shares were available for future grants under the KBR
Stock Plan, of which approximately 1.5 million shares remained available for restricted stock awards or restricted stock unit
awards.

KBR Stock Options

Under the KBR Stock Plan, stock options are granted with an exercise price not less than the fair market value of the
common stock on the date of the grant and a term no greater than 10 years. The term and vesting periods are established at the
discretion of the Compensation Committee at the time of each grant. We amortize the fair value of the stock options over the
vesting period on a straight-line basis. Options are granted from shares authorized by our Board of Directors.

Total number of stock options granted and the assumptions used to determine the fair value of granted options were as

follows:

KBR stock options assumptions summary
Granted stock options (shares in millions)
Weighted average expected term (in years)
Weighted average grant-date fair value per share

KBR stock options range assumptions summary

Expected volatility range
Expected dividend yield range
Risk-free interest rate range

Years ended December 31,

2014

2013

0.6
5.5
9.57 $

0.9
6.5
11.40

Years ended December 31,

2014
Range

2013
Range

Start

End

Start

End

36.48 %
1.08 %
1.67 %

40.49 %
1.52 %
2.21 %

39.98 %
0.89 %
0.98 %

41.89 %
1.11 %
2.09 %

For KBR stock options granted in 2014, 2013 and 2012, the fair value of options at the date of grant was estimated using
the Black-Scholes-Merton option pricing model. The expected volatility of KBR options granted in each year is based upon a
blended rate that uses the historical and implied volatility of common stock for KBR and selected peers. The expected term of
KBR options granted in 2014 was based on KBR's historical experience. The expected term of KBR options granted in 2013
was based on the average of the life of the option and the vesting period of the option. The estimated dividend yield is based
upon KBR’s annualized dividend rate divided by the market price of KBR’s stock on the option grant date. The risk-free
interest rate is based upon the yield of U.S. government issued treasury bills or notes on the option grant date.

The following table presents stock options granted, exercised, forfeited and expired under KBR share-based

compensation plans for the year ended December 31, 2014.

KBR stock options activity summary
Outstanding at December 31, 2013

Granted

Exercised

Forfeited

Expired

Outstanding at December 31, 2014

Exercisable at December 31, 2014

Weighted
Average
Exercise Price
per Share

Weighted
Average
Remaining
Contractual
Term (years)

Aggregate
Intrinsic Value
(in millions)

6.93 $

22.49

6.54 $

5.48 $

2.40
2.40

26.27
27.78
15.91
30.41
27.26
26.96
25.59

Number
of Shares
3,274,623 $
638,270
(266,829 )

(339,882 )

(146,091 )
3,160,091 $
2,078,401 $

The total intrinsic values of options exercised for the years ended December 31, 2014, 2013 and 2012 were $3 million,
$7 million and $9 million, respectively. As of December 31, 2014, there was $7 million of unrecognized compensation cost,
net of estimated forfeitures, related to non-vested KBR stock options, expected to be recognized over a weighted average
period of approximately 1.65 years. Stock option compensation expense was $6 million in 2014, $9 million in 2013 and $8
million in 2012. Total income tax benefit recognized in net income for share-based compensation arrangements was $2 million
in 2014 and $3 million in 2013 and 2012.

KBR Restricted stock

Restricted shares issued under the KBR Stock Plan are restricted as to sale or disposition. These restrictions lapse
periodically over a period of time not exceeding 10 years. Restrictions may also lapse for early retirement and other conditions
in accordance with our established policies. Upon termination of employment, shares on which restrictions have not lapsed
must be returned to us, resulting in restricted stock forfeitures. The fair market value of the stock on the date of grant is
amortized and ratably charged to income over the period during which the restrictions lapse on a straight-line basis. For awards
with performance conditions, an evaluation is made each quarter as to the likelihood of meeting the performance criteria.
Share-based compensation is then adjusted to reflect the number of shares expected to vest and the cumulative vesting period
met to date.

The following table presents the restricted stock awards and restricted stock units granted, vested and forfeited during

2014 under the KBR Stock Plan.

Restricted stock activity summary
Nonvested shares at December 31, 2013

Granted

Vested

Forfeited

Nonvested shares at December 31, 2014

Number of
Shares

Weighted
Average
Grant-Date
Fair Value per
Share

668,766 $

1,060,480
(397,521 )

(202,848 )
1,128,877 $

29.64
28.46
27.82
30.63
28.99

The weighted average grant-date fair value per share of restricted KBR shares granted to employees during 2014, 2013
and 2012 were $28.46, $30.64 and $33.13, respectively. Restricted stock compensation expense was $16 million for 2014, $7
million for 2013 and $8 million for 2012. Total income tax benefit recognized in net income for share-based compensation
arrangements was $6 million in 2014 and $3 million in 2013 and 2012. As of December 31, 2014, there was $22 million of
unrecognized compensation cost, net of estimated forfeitures, related to KBR’s non-vested restricted stock and restricted stock
units, which is expected to be recognized over a weighted average period of 2.39 years. The total fair value of shares vested
was $6 million in 2014, $8 million in 2013 and $12 million in 2012 based on the weighted-average fair value on the vesting
date. The total fair value of shares vested was $11 million in 2014, $7 million in 2013 and $9 million in 2012 based on the
weighted-average fair value on the date of grant.

100

Share-based compensation expense

The grant-date fair value of employee share options is estimated using option-pricing models. If an award is modified
after the grant date, incremental compensation cost is recognized immediately as of the modification. Share-based
compensation expense consists of $9 million recorded to cost of services on the consolidated income statements, while the
remaining $13 million is recorded to general and administrative expenses on the consolidated income statements. The benefits
of tax deductions in excess of the compensation cost recognized for the options (excess tax benefits) are classified as additional
paid-in-capital, and cash retained as a result of these excess tax benefits is presented in the statements of cash flows as
financing cash inflows.

Share-based compensation summary table

Dollars in millions
Share-based compensation
Total income tax benefit recognized in net income for share-based compensation
arrangements
Incremental compensation cost

Tax benefit increase related to share-based plans

Years ended December 31

2014

2013

2012

22 $

16 $

$
8
2 $
— $

$
6
1 $
— $

6
1
4

Incremental compensation cost resulted from modifications of previously granted share-based awards which allowed
certain employees to retain their awards after leaving the company. Excess tax benefits realized from the exercise of share-
based compensation awards are recognized as paid-in capital in excess of par.

KBR Cash Performance Based Award Units (“Cash Performance Awards”)

Under the KBR Stock Plan, for Cash Performance Awards granted in the year 2014, 2013 and 2012, performance is
based 100% on average Total Shareholder Return (“TSR”) as compared to the average TSR of KBR’s peers. The cash
performance award units may only be paid in cash. In accordance with the provisions of ASC 718 - Compensation-Stock
Compensation, the TSR portion of the performance award units are classified as liability awards and remeasured at the end of
each reporting period at fair value until settlement. The fair value approach uses the Monte Carlo valuation method which
analyzes the companies comprising KBR’s peer group, considering volatility, interest rate, stock beta and TSR through the
grant date.

Under the KBR Stock Plan, in 2014, we granted 27 million performance based award units (“Cash Performance
Awards”) with a three-year performance period from January 1, 2014 to December 31, 2016. In 2013, we granted 30 million
Cash Performance Awards with a three-year performance period from January 1, 2013 to December 31, 2015. In 2012, we
granted 29 million Cash Performance Awards with a three-year performance period from January 1, 2012 to December 31,
2014. At December 31, 2014, Cash Performance Awards forfeited, net of previous plan payout, totaled 17 million in 2014, 10
million in 2013 and 8 million in 2012. At December 31, 2014, the outstanding balance for Cash Performance Awards is
79.2 million units. Cash Performance Awards are not considered earned until required performance conditions are met.
Additionally, approval by the Compensation Committee of the Board of Directors is required before earned Cash Performance
Awards are paid.

Cost for the Cash Performance Awards is accrued over the requisite service period. For the years ended December 31,
2014, 2013 and 2012, we recognized $0 million, $8 million and $18 million, respectively, in expense for the Cash Performance
Awards. The expense associated with these Cash Performance Awards is included in cost of services and general and
administrative expense in our consolidated statements of operations. The liability for awards included in “employee
compensation and benefits” on our consolidated balance sheets were $1 million at December 31, 2014, of which none will
become due within one year and $23 million at December 31, 2013.

KBR Employee Stock Purchase Plan (“ESPP”)

Under the ESPP, eligible employees may withhold up to 10% of their earnings, subject to some limitations, to purchase
shares of KBR’s common stock. Unless KBR’s Board of Directors determine otherwise, each six-month offering period
commences at the beginning of February and August of each year. Employees who participate in the ESPP will receive a 5%
discount on the stock price at the end of each period. During 2014 and 2013, our employees purchased approximately 159,000
and 131,000 shares, respectively, through the ESPP. These shares were issued from our treasury share account.

101

Note 19. Income (Loss) per Share

Basic income (loss) per share is based upon the weighted average number of common shares outstanding during the
period. Dilutive income (loss) per share includes additional common shares that would have been outstanding if potential
common shares with a dilutive effect had been issued using the treasury stock method.

A reconciliation of the number of shares used for the basic and diluted income (loss) per share calculations is as follows:

Shares in millions
Basic weighted average common shares outstanding

Stock options and restricted shares

Diluted weighted average common shares outstanding

Years ended December 31,

2014

2013

2012

146
—
146

148
1
149

For purposes of applying the two-class method in computing earnings (loss) per share, net earnings allocated to
participating securities was none for the fiscal year 2014, approximately $0.3 million, or a negligible amount per share, for
fiscal year 2013 and $1 million, or a negligible amount per share, for fiscal year 2012. The diluted earnings (loss) per share
calculation did not include 3.0 million, 1.8 million and 1.3 million antidilutive weighted average shares for the years ended
December 31, 2014, 2013 and 2012, respectively.

Note 20. Financial Instruments and Risk Management

Foreign currency risk. We conduct business globally in numerous currencies and are therefore exposed to foreign
currency fluctuations. We use derivative instruments to reduce the volatility of earnings and cash flows associated with
changes in foreign currency exchange rates. We do not use derivative instruments for speculative trading purposes.

We generally utilize foreign exchange forwards and currency option contracts to hedge exposures associated with
forecasted future cash flows and to hedge exposures present on our balance sheet. As of December 31, 2014, we had foreign
exchange contracts of up to 12 months in duration to exchange major world currencies.

The following table presents, by currency, the gross notional value of our foreign currency exchange forwards and

option contracts used to hedge exposures on our balance sheet that were outstanding as of December 31, 2014 and 2013:

USD Equivalent, Dollars in Millions
Australian Dollar

United States Dollar

Pound Sterling

Swedish Kroner

Norwegian Kroner

Qatari Riyal

Canadian Dollar

Saudi Riyal

Total balance sheet hedges

Years ended December 31,

2014

2013

190
459
126
6
5
3
—
—
789

309
185
91
3
5
—
138
3
734

These fair values are considered Level 2 under ASC 820 - Fair Value Measurement as they are based on quoted prices

directly observable in active markets. The following provides additional detail regarding these hedging activities.

We hedge certain forecasted future cash flows using derivatives instruments. In most cases, these derivatives are
designated as cash flow hedges and are carried at fair value. The effective portion of the gain or loss is initially recognized as a
component of accumulated other comprehensive income (loss), and upon occurrence of the forecasted transaction, is
subsequently reclassed into the income or expense line item to which the hedged transaction relates. In each period the
ineffective portion of the designated hedge and the changes in fair value of non-designated hedges are recognized in our
consolidated statement of operations. The notional amounts and the impact of our hedges of future cash flows on our
consolidated financial statements for the periods presented was not material.

102

We also hedge portions of our balance sheet exposures associated with changes in fair value of monetary assets and
liabilities denominated in currencies other than the functional currency of the consolidated subsidiary that is party to the
transaction. Changes in fair value associated with these derivative instruments are recorded within our consolidated statement
of operations and largely offset the remeasurement of the underlying assets and liabilities being hedged. The fair value of the
derivative instruments used to hedge our balance sheet exposure was not material to our consolidated balance sheet for the
periods presented.

The following table summarizes the recognized changes in fair value of our balance sheet hedges offset by
remeasurement of balance sheet positions. These amounts are recognized in our statements of operations for the periods
presented. The net of our changes in fair value of hedges and the remeasurement of our assets and liabilities is included in
"other non-operating income (expense)" on our consolidated statement of operations.

Gains (Losses) Dollars in Millions
Balance Sheet Hedges - Fair Value

Balance Sheet Position - Remeasurement

Net

Years ended December 31,

2014

2013

(47 )
47
—

(22 )
21
(1 )

Interest rate risk. Certain of our unconsolidated subsidiaries and joint-ventures are exposed to interest rate risk through
their variable rate borrowings. This variable-rate exposure is managed with interest rate swaps. We had unrealized net losses
on the interest rate swaps held by our unconsolidated subsidiaries and joint-ventures of approximately $2 million as of
December 31, 2014, 2013 and 2012, respectively.

Note 21. Recent Accounting Pronouncements6

On August 27, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2014-15, Presentation of Financial Statements - Going Concern. This ASU provides guidance on management's
responsibility to evaluate whether there is substantial doubt about a company's ability to continue as a going concern and about
related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions
or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the
financial statements are issued. Substantial doubt exists when relevant conditions and events indicate that it is probable that the
entity will be unable to meet its obligations as they become due within the time frame specified earlier. This ASU is effective
for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. The adoption
of ASU 2014-15 is not expected to have a material impact on our financial position, results of operations or cash flows.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes
the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-
specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the
ASU recognized at the date of initial application. We are in the process of assessing the impact of the adoption of ASU 2014-
09 on our financial position, results of operations or cash flows. We have not yet selected a transition method nor have we
determined the effect of the standard on our ongoing financial reporting.

On January 24, 2014, the FASB issued ASU No. 2014-05, Service Concession Arrangements. A service concession
agreement is an arrangement between a public-sector entity and an operating entity under which the operating entity operates
the grantor's infrastructure. This ASU specifies that an operating entity should not account for a service concession
arrangement within the scope of this ASU as a lease in accordance with ASC 840 - Leases. An operating entity should refer to
other ASUs as applicable to account for various aspects of a service concession arrangement. The amendments also specify
that the infrastructure used in a service concession agreement should not be recognized as property, plant and equipment of the
operating entity. The amendments in this ASU are effective using a modified retrospective approach for annual reporting
periods beginning after December 15, 2014 and interim periods within those annual periods. We are in the process of adopting
ASU 2014-05 for the next fiscal year beginning January 1, 2015 and the adoption of this standard could have a material impact
on our financial position or results of operations.

103

Note 22. Quarterly Data (Unaudited)

Summarized quarterly financial data for the years ended December 31, 2014 and 2013 are presented in the following
table. In the following table, the sum of basic and diluted “Net income (loss) attributable to KBR per share” for the four
quarters may differ from the annual amounts due to the required method of computing weighted average number of shares in
the respective periods. Additionally, due to the effect of rounding, the sum of the individual quarterly earnings per share
amounts may not equal the calculated year earnings per share amount.

(Dollars in millions, except per share amounts)
2014
Total revenues

Gross profit (loss) (a)

Equity in earnings of unconsolidated affiliates

Operating income (loss) (b)

Net income (loss) (c)

Net income attributable to noncontrolling interests

Net income (loss) attributable to KBR

First

Second

Third

Fourth

Year

1,633 $
39
31
10
(20 )

(23 )

(43 )

1,659 $
28
49
25
8
(16 )

(8 )

1,657 $
30
38
10
45
(15 )
30

1,417 $
(162 )
45
(839 )

6,366
(65 )
163
(794 )

(1,231 )

(1,198 )

(10 )

(64 )

(1,241 )

(1,262 )

Net income (loss) attributable to KBR per share:
Net income (loss) attributable to KBR per share—Basic
$
Net income (loss) attributable to KBR per share—Diluted $

(0.29 ) $

(0.06 ) $

(0.29 ) $

(0.06 ) $

0.21 $
0.21 $

(8.57 ) $

(8.66 )

(Dollars in millions, except per share amounts)
2013
Total revenues

Gross profit (d)

Equity in earnings of unconsolidated affiliates

Operating income (loss)

Net income (loss) (d)

Net income attributable to noncontrolling interests

Net income (loss) attributable to KBR

First

Second

Third

Fourth

Year

1,829 $
156
30
133
97
(9 )
88

1,950 $
140
46
123
111
(21 )
90

1,755 $
114
31
79
15
(62 )

(47 )

1,680 $
7
30
(27 )

(52 )

(4 )

(56 )

7,214
417
137
308
171
(96 )
75

Net income (loss) attributable to KBR per share:
Net income (loss) attributable to KBR per share—Basic
$
Net income (loss) attributable to KBR per share—Diluted $

0.59 $
0.59 $

0.61 $
0.61 $

(0.32 ) $

(0.38 ) $

(0.32 ) $

(0.38 ) $

0.50
0.50

(a) The losses in gross profit in the fourth quarter of 2014 reflect changes in cost estimates increasing the loss provision by
$80 million on two power projects in our Non-strategic Business segment and changes in estimates of $53 million in
our E&C business segment. See Note 2 to our consolidated financial statements.

(b) Included in the operating loss of the fourth quarter of 2014 is a goodwill impairment charge of $446 million as well as
asset impairment and restructuring charges of $214 million. See Notes 8 and 9 for our discussion on these charges.
(c) Net loss for the fourth quarter of 2014 includes $391 million of provision for income taxes primarily from an increase

in our valuation allowance on deferred tax assets.

(d) We corrected an error originating in periods prior to 2013. The correction of this error resulted in a net unfavorable
impact to gross profit of $25 million in our E&C business segment for the year ended December 31, 2013, including
$22 million in the fourth quarter. The correction of this error resulted in an after tax unfavorable impact to net income
of $17 million for the year ended December 31, 2013, including $14 million in the fourth quarter.

104

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures

Not applicable.

Item 9A. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

In accordance with Rules 13a-15(b) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”),
we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to
ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2014 at the reasonable assurance
level.

Management does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system's objectives will be met. There are inherent limitations in all control systems, including the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the intentional acts of one or more persons. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system
of controls is based in part upon certain assumptions about the likelihood of future events, and while our disclosure controls
and procedures are designed to be effective under circumstances where they should reasonably be expected to operate
effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been detected.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a
process designed by management, under the supervision of our Chief Executive Officer and Chief Financial Officer, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of our internal control over financial reporting as of December 31, 2014. In conducting this evaluation, our
management used the criteria for effective internal control over financial reporting described in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, management has determined our internal control over financial reporting was effective as of December 31, 2014.

KPMG LLP has issued an attestation report dated February 27, 2015, on our internal control over financial reporting,

which is contained in this Annual Report on Form 10-K.

105

Changes in Internal Control Over Financial Reporting

During the year ended December 31, 2014, we implemented additional internal controls to address material weaknesses
disclosed in our Annual Report on 10-K for the year ended December 31, 2013, as amended. These material weaknesses, and
the related remediation activities conducted during 2014, are shown below:

• Material weakness related to project reporting over the completeness and accuracy of estimates of revenues, costs

and profit at completion for certain long-term construction projects with multiple currencies.

•

Implemented a control to include the actual and estimated foreign currency effects in the estimates of
revenues, costs and profit at completion on projects with multiple currencies by enhancing the design of our
project status templates and our procedures for completion of our project status templates.

• Enhanced the design of our monitoring controls over the completeness and accuracy of estimated revenues,
costs and profit at completion for long-term construction projects with multiple currencies to specifically
include a process for monitoring and reviewing project status reports for proper application of foreign currency
effects in project estimates.

• Provided training to our personnel involved in the estimation of revenues, costs and profit at completion on

projects with multiple currencies.

• Material weakness related to control environment for our Canadian pipe fabrication and modular assembly

business.

• Conducted town hall meetings throughout the Company's worldwide organization led by executive
management to reinforce the requirement for employees to follow the Company's corporate culture, policies
and procedures.

• Changed certain management personnel and increased the number of qualified professionals.
• Provided additional training to new and key personnel on roles and responsibilities, including line of

communications in the event of concerns.

• Provided additional training to new and key personnel on Company standard processes and systems across all
project operations, oversight and support functions, including project management and module yard
management.
Implemented processes to ensure standard project controls work processes and systems were executed across
the Canada pipe fabrication and module assembly projects.
Increased standard project management oversight from corporate management.

•

After testing the design and operating effectiveness of the new controls described above, management concluded that the
material weaknesses described above were remediated as of December 31, 2014. We will continue to monitor execution of our
standard project controls work processes and systems in our Canadian pipe fabrication and module assembly business to ensure
the effectiveness of those controls, and make enhancements when and where necessary. Additionally we will continue to train
new and key personnel on our standard processes and systems as required.

Except as described above, there were no changes in our internal controls over financial reporting during the three
months ended December 31, 2014 that have materially affected, or are reasonably likely to affect, our internal control over
financial reporting.

106

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
KBR, Inc.:

We have audited KBR, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). KBR, Inc.’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, KBR, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of KBR, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated
statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2014, and our report dated February 27, 2015 expressed an unqualified opinion on those
consolidated financial statements.

/s/ KPMG LLP

Houston, Texas
February 27, 2015

107

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement

for our 2015 Annual Meeting of Stockholders.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement

for our 2015 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement

for our 2015 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement

for our 2015 Annual Meeting of Stockholders.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference to the KBR, Inc. Company Proxy Statement

for our 2015 Annual Meeting of Stockholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report or incorporated by reference:
1. The consolidated financial statements of the Company listed on page 45 of this annual report.
2.

The consolidated financial statement schedule on page 113 of this report.

3. The exhibits of the Company listed below under Item 15(b); all exhibits are incorporated herein by reference to

a prior filing as indicated, unless designated by a * or **.

(b) Exhibits:

108

Exhibit
Number

Description

3.1

3.2

4.1

KBR Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to KBR’s

current report on Form 8-K filed June 7, 2012; File No. 1-33146)

Amended and Restated Bylaws of KBR, Inc. (incorporated by reference to Exhibit 3.2 to KBR’s annual report on

Form 10-K for the year ended December 31, 2013 filed on February 27, 2014; File No. 1-33146)

Form of specimen KBR common stock certificate (incorporated by reference to Exhibit 4.1 to KBR’s registration

statement on Form S-1; Registration No. 333-133302)

10.1

Master Separation Agreement between Halliburton Company and KBR, Inc. dated as of November 20, 2006

(incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated November 20, 2006; File
No. 1-33146)

10.2

Tax Sharing Agreement, dated as of January 1, 2006, by and between Halliburton Company, KBR Holdings, LLC

and KBR, Inc., as amended effective February 26, 2007 (incorporated by reference to Exhibit 10.2 to KBR’s
Annual Report on Form 10-K for the year ended December 31, 2006; File No. 1-33146)

10.3

10.4

10.5

10.6

10.7

10.8

Transition Services Agreement dated as of November 20, 2006, by and between Halliburton Energy Services, Inc.
and KBR, Inc. (KBR as service provider) (incorporated by reference to Exhibit 10.4 to KBR’s current report on
Form 8-K dated November 20, 2006; File No. 1-33146)

Transition Services Agreement dated as of November 20, 2006, by and between Halliburton Energy Services, Inc.
and KBR, Inc. (Halliburton as service provider) (incorporated by reference to Exhibit 10.5 to KBR’s current report
on Form 8-K dated November 20, 2006; File No. 1-33146)

Employee Matters Agreement dated as of November 20, 2006, by and between Halliburton Company and KBR,
Inc. (incorporated by reference to Exhibit 10.6 to KBR’s current report on Form 8-K dated November 20, 2006;
File No. 1-33146)

Intellectual Property Matters Agreement dated as of November 20, 2006, by and between Halliburton Company and
KBR, Inc. (incorporated by reference to Exhibit 10.7 to KBR’s current report on Form 8-K dated November 20,
2006; File No. 1-33146)

Form of Indemnification Agreement between KBR, Inc. and its directors and executive officers (incorporated by
reference to Exhibit 10.7 to KBR’s annual report on Form 10-K for the year ended December 31, 2013 filed on
February 27, 2014; File No. 1-33146)

Five Year Revolving Credit Agreement dated as of December 2, 2011 among KBR, Inc., the Banks party thereto,
The Royal Bank of Scotland PLC, as Syndication Agent, ING Bank, N.V. and The Bank of Nova Scotia, as Co-
Documentation Agents, Citigroup Global Markets Inc., RBS Securities Inc. ING Bank, N.V., and The Bank of
Nova Scotia as Joint Lead Arrangers and Bookrunners, and Citibank, N.A., as Administrative Agent. (incorporated
by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated December 7, 2011; File No. 1-33146

10.9

Waiver dated May 9, 2014 (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K dated

May 9, 2014; File No. 1-33146)

10.10

First Amendment to Credit Agreement dated as of December 11, 2014 to the Five Year Revolving Credit

Agreement dated as of December 2, 2011 among KBR, Inc., the several banks and other institutions parties to the
Credit Agreement, Citibank, NA., as administrative agent, The Royal Bank of Scotland PLC, as syndication agent,
and ING Bank, N.V. and The Bank of Nova Scotia as co-documentation agents (incorporated by reference to
Exhibit 10.1 to KBR’s current report on Form 8-K dated December 11, 2014; File No. 1-33146)

10.11+

KBR, Inc. 2006 Stock and Incentive Plan (As Amended and Restated March 7, 2012) (incorporated by reference to

KBR's definitive Proxy Statement dated April 5, 2012; File No. 1-33146)

10.12+

KBR, Inc. Senior Executive Performance Pay Plan (incorporated by reference to Exhibit 10.10 to KBR’s annual

report on Form 10-K for the year ended December 31, 2013 filed on February 27, 2014; File No. 1-33146)

10.13+

KBR, Inc. Management Performance Pay Plan (incorporated by reference to Exhibit 10.11 to KBR’s annual report

on Form 10-K for the year ended December 31, 2013 filed on February 27, 2014; File No. 1-33146)

10.14+

KBR, Inc. Transitional Stock Adjustment Plan (incorporated by reference to Exhibit 10.23 to KBR’s Form 10-K for

the fiscal year ended December 31, 2006; File No. 1-33146)

109

Exhibit
Number

10.15+

Description

KBR Dresser Deferred Compensation Plan (incorporated by reference to Exhibit 4.5 to KBR’s Registration

Statement on Form S-8 filed on April 13, 2007)

10.16+

KBR Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.3 to KBR’s current report

on Form 8-K dated April 9, 2007; File No. 1-33146)

10.17+

KBR Benefit Restoration Plan (incorporated by reference to Exhibit 10.4 to KBR’s current report on Form 8-K

dated April 9, 2007; File No. 1-33146)

10.18+

KBR Elective Deferral Plan (incorporated by reference to Exhibit 10.5 to KBR’s current report on Form 8-K dated

April 9, 2007; File No. 1-33146)

10.19+

KBR Non-Employee Directors Elective Deferral Plan (incorporated by reference to exhibit 10.1 to KBR's current

report on Form 8-K dated December 11, 2013; File No. 1-33146)

10.20+

Form of Stock Option Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference

to Exhibit 10.3 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146)

10.21+

Form of KBR Restricted Stock Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by

reference to Exhibit 10.4 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146)

10.22+

Form of KBR, Inc. Transitional Stock Adjustment Plan Stock Option Award (incorporated by reference to Exhibit

10.5 to KBR’s Form 10-Q for the quarter ended June 30, 2007; File No. 1-33146)

10.23+

Form of Restricted Stock Agreement between KBR, Inc. and William P. Utt pursuant to KBR, Inc. 2006 Stock and
Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s Form 10-Q for the quarter ended September 30,
2007; File No. 1-33146)

10.24+

Form of revised KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan

(incorporated by reference to Exhibit 10.25 to KBR’s Form 10-K for the year ended December 31, 2010; File
No. 1-33146)

10.25+

Form of revised KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan

(incorporated by reference to Exhibit 10.25 to KBR’s annual report on Form 10-K for the year ended December 31,
2012; File No. 1-33146)

10.26+

Form of revised Nonstatutory Stock Option Agreement for US and Non-US Employees pursuant to KBR, Inc. 2006
Stock and Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s quarterly report on Form 10-Q for the
period ended March 31, 2013; File No. 1-33146)

10.27+

Form of revised Restricted Stock Unit Agreement (U.S. Employee) pursuant to KBR, Inc. 2006 Stock and Incentive

Plan (incorporated by reference to Exhibit 10.2 to KBR’s quarterly report on Form 10-Q for the period ended
March 31, 2013; File No. 1-33146)

10.28+

10.29+

10.30+

Form of revised Restricted Stock Unit Agreement (International Employee) pursuant to KBR, Inc. 2006 Stock and
Incentive Plan (incorporated by reference to Exhibit 10.5 to KBR’s quarterly report on Form 10-Q for the period
ended March 31, 2013; File No. 1-33146)

Form of revised Restricted Stock Unit Agreement (Director) pursuant to KBR, Inc. 2006 Stock and Incentive Plan
(incorporated by reference to Exhibit 10.3 to KBR’s quarterly report on Form 10-Q for the period ended March 31,
2013; File No. 1-33146)

Form of revised Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated
by reference to Exhibit 10.4 to KBR’s quarterly report on Form 10-Q for the period ended March 31, 2013; File No.
1-33146)

10.31+

Form of Restricted Stock Unit Agreement (Three-Year Cliff Vesting) pursuant to KBR, Inc. 2006 Stock and

Incentive Plan (incorporated by reference to Exhibit 10.29 to KBR’s annual report on Form 10-K for the year ended
December 31, 2013 filed on February 27, 2014; File No. 1-33146)

10.32+

Form of revised KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan

(incorporated by reference to Exhibit 10.1 to KBR’s quarterly report on Form 10-Q for the period ended March 31,
2014; File No. 1-33146)

10.33+

Form of revised Nonstatutory Stock Option Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan

(incorporated by reference to Exhibit 10.2 to KBR’s quarterly report on Form 10-Q for the period ended March 31,
2014; File No. 1-33146)

110

Exhibit
Number

10.34+

Description

Form of revised Restricted Stock Unit Agreement (U.S. Employee) pursuant to KBR, Inc. 2006 Stock and Incentive

Plan (incorporated by reference to Exhibit 10.3 to KBR’s quarterly report on Form 10-Q for the period ended
March 31, 2014; File No. 1-33146)

10.35+

Form of revised Restricted Stock Unit Agreement (U.S. Employee - 3 Year Vesting) pursuant to KBR, Inc. 2006

Stock and Incentive Plan (incorporated by reference to Exhibit 10.1 to KBR’s quarterly report on Form 10-Q for the
period ended September 31, 2014; File No. 1-33146)

10.36+

Form of revised Restricted Stock Unit Agreement (International Employee - 3 Year Vesting) pursuant to KBR, Inc.
2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.2 to KBR’s quarterly report on Form 10-Q
for the period ended September 31, 2014; File No. 1-33146)

10.37+

Form of Restricted Stock Unit Agreement (U.S. Employee - 3 Year Vesting; Involuntary Termination Trigger)

pursuant to KBR, Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3 to KBR’s quarterly
report on Form 10-Q for the period ended September 31, 2014; File No. 1-33146)

10.38+

Form of Restricted Stock Unit Agreement (U.S. Employee - 5 Year Vesting; TSR Requirement) pursuant to KBR,
Inc. 2006 Stock and Incentive Plan (incorporated by reference to Exhibit 10.4 to KBR’s quarterly report on Form
10-Q for the period ended September 31, 2014; File No. 1-33146)

10.39+

Form of Restricted Stock Unit Agreement (U.S. Employee - 3 Year Vesting; TSR Requirement) pursuant to KBR,

Inc. 2006 Stock and Incentive Plan

10.40+

Form of KBR Performance Award Agreement pursuant to KBR, Inc. 2006 Stock and Incentive Plan

10.41+

Form of Severance and Change in Control Agreement (incorporated by reference to Exhibit 10.1 to KBR’s Form

10-Q for the quarter ended September 30, 2008; File No. 1-33146)

10.42+

Severance and Change of Control Agreement effective as of October 21, 2009, between KBR Technical Services,
Inc., a Delaware corporation, KBR, Inc., and Susan K. Carter (incorporated by reference to Exhibit 10.1 to KBR’s
current report on Form 8-K dated October 26, 2009; File No. 1-33146)

10.43+

Severance and Change of Control Agreement effective as of December 31, 2008, by and between KBR Technical

Services, Inc., a Delaware corporation, KBR, Inc., and William P. Utt (incorporated by reference to Exhibit 10.33 to
KBR's annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146)

10.44+

Severance and Change of Control Agreement effective as of August 26, 2008, by and between KBR Technical
Services, Inc., a Delaware corporation, KBR, Inc., and Andrew D. Farley (incorporated by reference to Exhibit
10.34 to KBR’s annual report on Form 10-K for the year ended December 31, 2011; File No. 1-33146)

10.45+

Amendment to the 2008 Severance and Change in Control Agreements effective as of December 31, 2008

(incorporated by reference to Exhibit 10.36 to KBR’s annual report on Form 10-K for the year ended December 31,
2011; File No. 1-33146)

10.46+

Amendment to the Severance and Change in Control Agreement with Susan K. Carter effective as of January 15,

2010 (incorporated by reference to Exhibit 10.37 to KBR’s annual report on Form 10-K for the year ended
December 31, 2011; File No. 1-33146)

10.47+

10.48+

Severance and Change of Control Agreement effective as of July 9, 2012, by and between KBR Technical Services,
Inc., a Delaware corporation, KBR, Inc., and Ivor Harrington (incorporated by reference to Exhibit 10.1 to KBR's
current report on Form 8-K dated July 9, 2012; File No. 1-33146)

Severance and Change in Control Agreement effective as of June 2, 2014, between KBR Technical Services, Inc., a
Delaware corporation, KBR, Inc. and Stuart J. Bradie (incorporated by reference to Exhibit 10.1 to KBR’s current
report on Form 8-K dated April 9, 2014; File No. 1-33146)

10.49+

Severance and Change of Control Agreement effective as of December 11, 2011, by and between KBR Technical

Services, Inc., a Delaware corporation, KBR, Inc., and Roy Oelking (incorporated by reference to Exhibit 10.38 to
KBR’s annual report on Form 10-K for the year ended December 31, 2012; File No. 1-33146)

10.50+

Severance and Change of Control Agreement effective as of April 8, 2013, by and between KBR Technical

Services, Inc., a Delaware corporation, KBR, Inc., and Andrew Summers (incorporated by reference to Exhibit 10.1
to KBR’s current report on Form 8-K dated March 6, 2013; File No. 1-33146)

10.51+

Severance and Change of Control Agreement effective as of December 14, 2011, by and between KBR Technical
Services, Inc., a Delaware corporation, KBR, Inc., and Mitch Dauzat (incorporated by reference to Exhibit 10.1 to
KBR’s quarterly report on Form 10-Q for the period ended September 30, 2013; File No. 1-33146)

111

Exhibit
Number

10.52+

Description

Severance and Change of Control Agreement effective as of October 28, 2013, by and between KBR Technical

Services, Inc., a Delaware corporation, KBR, Inc., and Brian Ferraioli (incorporated by reference to Exhibit 10.1 to
KBR’s current report on Form 8-K dated October 28, 2013; File No. 1-33146)

10.53+

Transition Agreement dated December 13, 2013 among KBR, Inc., KBR Technical Services, Inc., a Delaware

corporation, and William P. Utt (incorporated by reference to Exhibit 10.1 to KBR’s current report on Form 8-K
dated December 11, 2013; File No. 1-33146)

*21.1

*23.1

*31.1

*31.2

List of subsidiaries

Consent of KPMG LLP—Houston, Texas

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

**32.1

Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-

Oxley Act of 2002.

**32.2

Certification Furnished Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-

Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Management contracts or compensatory plans or arrangements

Filed with this Form 10-K

Furnished with this Form 10-K

112

KBR, Inc.
Schedule II—Valuation and Qualifying Accounts (Dollars in Millions)

The table below presents valuation and qualifying accounts for continuing operations.

Descriptions
Year ended December 31, 2014:

Deducted from accounts and notes receivable:

Allowance for doubtful accounts

Reserve for losses on uncompleted contracts

Reserve for potentially disallowable costs incurred
under government contracts
Year ended December 31, 2013:

Deducted from accounts and notes receivable:

Allowance for doubtful accounts

Reserve for losses on uncompleted contracts

Reserve for potentially disallowable costs incurred
under government contracts
Year ended December 31, 2012:

Deducted from accounts and notes receivable:

Allowance for doubtful accounts

Reserve for losses on uncompleted contracts

Reserve for potentially disallowable costs incurred
under government contracts

Additions

Balance at
Beginning
Period

Charged to
Costs and
Expenses

Charged to
Other
Accounts

Deductions

Balance at
End of Period

18 $
109 $

11 $
177 $

—
—

(10 )(a) $

(127 )

—

— (b) $

(17 )

15 $
56 $

5 $
106 $

—
—

(2 )(a) $

(53 )

122

—

2 (b) $

(33 )

24 $
22 $

6 $
53 $

—
—

(15 )(a) $

(19 )

19
159

18
109

15
56

127

—

5 (b) $

(10 )

122

(a) Receivable write-offs, net of recoveries, and reclassifications.
(b) Reserves have been recorded as reductions of revenues, net of reserves no longer required.

See accompanying report of independent registered public accounting firm.

113

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused

this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 27, 2015

KBR, INC.
(Registrant)

By:

/s/ Stuart Bradie

Stuart Bradie
President and Chief Executive Officer

Dated: February 27, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following

persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature

/s/ Stuart Bradie

Stuart Bradie

/s/ Brian K. Ferraioli
Brian K. Ferraioli

/s/ Nelson E. Rowe
Nelson E. Rowe

/s/ Mark E. Baldwin
Mark E. Baldwin

/s/ James R. Blackwell
James R. Blackwell

/s/ W. Frank Blount
W. Frank Blount

/s/ Loren K. Carroll
Loren K. Carroll

/s/ Umberto della Sala
Umberto della Sala

/s/ Jeffrey E. Curtiss
Jeffrey E. Curtiss

/s/ Lester L. Lyles
Lester L. Lyles

/s/ Richard J. Slater
Richard J. Slater

/s/ Jack B. Moore
Jack B. Moore

Title

Principal Executive Officer,
President, Chief Executive Officer and Director

Principal Financial Officer,

Executive Vice President and Chief Financial Officer

Principal Accounting Officer,
Vice President and Chief Accounting Officer

Director

114

(This page intentionally left blank)

Board of Directors

Corporate Officers

Mark E. Baldwin
Former Executive Vice President
And Chief Financial Officer
Dresser-Rand Group, Inc.

James R. Blackwell
Former Executive Vice President,
Technology and Services
Chevron Corporation

W. Frank Blount
Chairman and Chief Executive Officer
JI Ventures, Inc.

Stuart J.B. Bradie
President and Chief Executive Officer
KBR, Inc.

Loren K. Carroll
Independent Consultant & Advisor
Smith International, Inc.

Jeffrey E. Curtiss
Private Investor

Umberto della Sala
Former Chief Executive Officer
Foster Wheeler AG

Lester L. Lyles
Independent Consultant

Jack B. Moore
Chairman and Chief Executive Officer
Cameron International Corporation

Richard J. Slater
Chairman
ORBIS LLC

Stuart J.B. Bradie
President and Chief Executive Officer
Group President, Engineering & Construction

Brian K. Ferraioli
Executive Vice President and Chief Financial Officer

Eileen G. Akerson
Executive Vice President and General Counsel

Graham Hill
Executive Vice President,
Global Business Development & Strategy

Ian Mackey
Executive Vice President,
Global Human Resources

Farhan F. Mujib
Executive Vice President,
Commercial

John Derbyshire
President, Technology & Consulting

Jan Egil Braendeland
President, Engineering & Construction,
Europe, Middle East & Africa

Ivor J. Harrington
President, Engineering & Construction Asia Pacific

Roy B. Oelking
President, Engineering & Construction Americas

David Zelinski
President, Onshore, Engineering &
Construction Americas

Andrew Pringle
President, Government Services

_____________________________________________________________________________________________

Shareholder Information
Shares Listed
New York Stock Exchange
Symbol: KBR

Transfer Agent and Registrar
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
info@amstock.com

To Contact Investor Relations
Shareholders may call the Company at 1-886-380-7721 or 713-753-5082 or contact us via email at
investors@kbr.com

The CEO and CFO certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 have been filed as
exhibits to KBR’s Form 10-K. Our Annual CEO Certification for fiscal year 2014 was submitted to the NYSE
timely and without qualification.