KBR 10-K & 10-Q changes, risk factors and insider trading

A considerable percentage of our revenues, particularly in our GSMTS business segment, is generated under contracts with certain significant customers. Revenues from the U.S. government represented 57% of our total consolidated revenues for fiscal 2024.2025. Budget uncertainty, the potential for U.S. government shutdowns, the use of continuing resolutions and the federal debt ceiling can adversely affect our industry and the funding for our contracts. In addition, government acquisition reform and spending cut initiatives, including executive orders, may impact our business. For example, on January 20, 2025, an executive order was signed to create an advisory commission, DOGE, to reform federal government processes and reduce expenditures. Although DOGE was disbanded in November 2025, we cannot rule out the possibility of similar initiatives occurring in the future. Further, on April 15, 2025, Executive Order 14275, “Restoring Common Sense to Federal Procurement,” was signed, directing major revisions to the FAR to make the government’s procurement process more efficient, and on November 7, 2025, the U.S. DoW released a memorandum and strategy on defense acquisition reform titled “Transforming the Warfighting Acquisition System” that aims to overhaul the procurement landscape and prioritizes speed to capability delivery. If appropriations are delayed ordelayed, a government shutdown were to occur and were to continue for an extended period of time, or changes in budgetary priorities or U.S. government spending levels were to occur, we could be at risk of contract cancellationscancellations, contract options not being exercised, funding shortages, nonpayment, increased uncertainty in the conversion of our book to bill to revenue and other disruptions and nonpayment.nonrepayment. When the U.S. government operates under a continuing resolution, new contract starts are restricted and funding for our programs may be unavailable, reduced or delayed. Shifting funding priorities or federal budget compromises also could result in reductions in overall defense spending on an absolute or inflation-adjusted basis, which could negatively affect our business, financial performance and condition. In addition, if we are unable to effectively respond to proposed acquisition reform in the U.S., our ability to secure and perform government contracts could be adversely affected, which may negatively impact our business.business, financial condition and results of operations. If we are deemed to be underperforming on our contracts, our business, financial condition and results of operations may likewise be adversely impacted.

Following contract award, we may also encounter significant expense, delay, contract modifications or even contract loss. Additionally, certain contract awards (including the performance of such awards) have been and may in the future be contested and/or otherwise involved in ongoing bid protests, legal proceedings, inquiries or other similar developments outside of our control, which may result in significant delays in the project timeline or the wholesale cancellation or termination of a project. Any project delays, cancellations or contract modifications following the award of a contract could have a material adverse effect on our business, financial condition, results of operations, backlog, revenue recognition timing and cash flows.

Political, economic and other conditions in foreign countries and regions, including geopolitical risks, such as the current conflict between Russia and UkraineUkraine, political and economic instability in Venezuela and political and economic instability and ongoing conflict in the Middle East, may adversely affect our business and operations as a portion of our revenue is derived from foreign operations. Additionally, the full scope, duration and broader implications of international conflicts, which may include additional international sanctions, embargoes, regional instability and geopolitical shifts; increased tensions between the United States and countries in which we operate; and the extent of thea conflicts’conflict's effects on our business and results of operations as well as the global economy, cannot be predicted. Any alleged or actual failure to comply with any sanctions and trade control measures implemented in response to international conflicts may subject us to government scrutiny, civil and/or criminal proceedings, sanctions and other liabilities, which may have an adverse effect on our international operations, financial condition and results of operations.

If wethere are unableany to enforce oursuccessful intellectual property rights,infringement orproceedings ifagainst our intellectual property rights are challenged or become obsolete,us, our competitive position could be adversely impacted.

We utilize a variety of intellectualproprietary propertyand rightsthird-party technologies in providing technology and services to our customers. We view our portfolio of process and design technologies as one of our competitive strengths and we use it as part of our efforts to differentiate our service offerings. We may not be able to successfully preserve theseour proprietary intellectual property rights in the future, and these rights could be invalidated, circumvented, challenged or infringed upon. In addition, the laws of some foreign countries in which our services may be sold do not protect intellectual property rights to the same extent as the laws of the U.S. We also license technologies from third parties and there is a risk that our relationships with licensors may terminate, expire or be interrupted or harmed. If we are unable to protect and maintain our intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against us, our ability to differentiate our service offerings could diminish. In addition, if our intellectual property rights or work processes become obsolete, we may not be able to differentiate our service offerings and some of our competitors may be able to offer more attractive services to our customers. We will also need to continue to respond to and anticipate changes resulting from disruptive technologies, including in areas of artificial intelligence and machine learning. If we are not successful in protecting and preserving our intellectual property rights and licenses, or in staying ahead of developing artificial intelligence and machine learning technologies and strategically incorporating them into our business, our business and financial performance could be materially and adversely affected.

We operate in global markets with customers who demand innovation, technical and domain expertise and digitally-enabled, technology-led solutions. Robust information technology systems, platforms and products are integral in our efforts to differentiate our service offerings and maintain our competitive advantages. Disruptive technologies, including in areas of artificial intelligence and machine learning, are rapidly changing the environment in which we, our customers, and our competitors operate and could affect the nature of how we generate revenue. We will need to continue to respond to and anticipate these changes by enhancing our product and service offerings to maintain our competitive position. If we are not successful in staying ahead of developing artificial intelligence and machine learning technologies and strategically incorporating them into our business, our business and financial performance could be materially and adversely affected.

Artificial intelligence, machine learning, data science and similar technologies (collectively, “AI”), including third-party AI tools, may be enabled by, or integrated into some of our business and solutions. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawedflawed, biased or biased.produce incorrect information. Datasets used to train or develop AI systems may be insufficient, of inferior quality, or contain biased information. Additionally, the laws and regulations concerning the use of AI continue to evolve. If the use or integration of AI systems, or the outputs generated by such systems, were determined to be non-compliant (e.g., in relation to intellectual property or data privacy rights), this may result in liability, including legal liability,liability or adversely affect our business, reputation, brand, financial condition and results of operations. It is possible that emerging regulations may limit or block the use of AI in our business and solutions or otherwise impose other restrictions that may affect or impair the usability or efficiency of our business or services for an extended period of time or indefinitely. Our competitors or other third parties may incorporate AI into their product development, product offerings, technology and infrastructure products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our business, financial condition and results of operations.

KBR's forward-looking strategy requires talent with dynamic and elite skills as KBR moves upmarket. Our rate of growth and the success of our business depend upon our ability to attract, develop, retain and replace key qualified technical and management professionals, either through direct hire,hires, subcontracts or acquisition of other firms, who possess the elite skills to successfully deliver the solutions strategy. The market for these professionals is competitive in the sectors in which we compete, and we rely heavily upon the expertise and leadership of our professionals to perform, execute and complete projects as required by our clients.

We currently hold U.S. government-issued facility security clearances and a large number of our employees have qualified for and hold U.S.U.S., U.K. and Australian government-issued personal security clearances necessary to perform certain U.S.U.S., U.K. and Australian government contracts. Obtaining and maintaining security clearances for employees involves lengthy processes, and it is difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain or retain security clearances or if our employees who hold security clearances terminate employment with us and we are unable to find replacements with equivalent security clearances, we may be unable to perform our obligations to customers whose work requires cleared employees, or such customers could terminate their contracts or decide not to renew them upon their expiration. Our facility security clearances could be marked as "invalid" for several reasons including unapproved foreign ownership, control or influence, mishandling of classified materials or failure to properly report required activities. An inability to obtain or retain our facility security clearances or engage employees with the required security clearances for a particular contract could disqualify us from bidding for and winning new contracts with security requirements.requirements or result in negative consequences for current contracts, including termination for default if security concerns are not remedied.

We engage in activities for large facilities where design, construction or systems failures can result in substantial injury or damage to employees or other third parties or delaysservice indelivery completion or commencement of commercial operations,impacts, exposing us to legal proceedings, investigations and disputes. The nature of our business results in clients, subcontractors and vendors occasionally presenting claims against us for recovery of costs they incurred in excess of what they expected to incur or for which they believe they are not contractually liable. If it is determined that we have liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed our policy limits. Our professional liability coverage is on a “claims-made” basis covering only claims actually made during the policy period currently in effect. In addition, even where insurance is maintained for such exposures, the policies have deductibles, which result in our assumption of exposure for a layer of coverage with respect to any such claims. We also manage and maintain a portion of our retained risk through our wholly-ownedwholly owned captive insurance company, which insures certain claims up to the applicable deductible amount of our third-party insurance programs. Additionally, our captive insurance company is a registered and licensed insurance company with the Texas Department of Insurance, and is therefore subject to various rules and regulations including meeting certain capital requirements, which can result in additional use of our resources such as securing the captive insurance company's retained risks with issuing letters of credit. Any liability not covered by our insurance, in excess of our insurance limits or if covered by insurance but subject to a high deductible, could result in a significant loss for us, which may reduce our profits and cash available for operations. Furthermore, there is risk of mass casualty or environmentally damaging events that may involve our and third-party personnel and property, which could lead to future claims and litigation, impact our reputation and investor confidence and ultimately result in reduced share price.

We occasionally bring claims against project ownerscustomers 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-causedcustomer-caused delays, changes from the initial project scope or other economic changes not stipulated under the contract that may result in additional direct and indirect costs. Often these claims can be the subject of lengthy negotiations, arbitration or litigation proceedings, and it is difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to recover on these types of claims fully or promptly could have a material adverse impact on our liquidity and financial results.

We conduct our business under various types of contracts where costs must be estimated in advance of our performance. A portion of the value of our current backlog is attributable to fixed-price contracts where we bear a significant portion of the risk of cost overruns. These types of contracts are priced, in part, on cost and scheduling estimates that are based on assumptions including pricing and availability of experienced labor, equipment and materials as well as productivity, performance and future economic conditions. If these estimates prove inaccurate, if there are errors or ambiguities as to contract terms or specifications, or if circumstances change due to, among other things, the recent riseincreases in interest rates, continued inflation, supply-chain disruptions, tariffs, unanticipated technical problems, poor project execution, difficulties in obtaining permits or approvals, changes in local laws or labor conditions, weather delays, increased costs of equipment and materials from inflation or other factors or our suppliers’ or subcontractors’ inability to perform, then cost overruns may occur. Our approach to include annual price escalations in our bids for multi-year work may be insufficient to counter inflationary cost pressures, which may result in significant cost overruns on our contracts. This could result in reduced profits on a contract, losses on a contract and negative impacts to our cash flows, and our longer-term multi-year contracts could become less favorable to us over time.

As of January 3,2, 2025,2026, the future revenues we expect to realize as a result of backlog was approximately $17.3$16.9 billion. Of this amount, we currently estimate that 83% will be recognized in revenues on our consolidated statement of operations and 17% will be recorded by our unconsolidated joint ventures. We cannot guarantee that the revenues projected in our backlog will be realized or that the projects will be profitable. Many of our contracts are subject to cancellation, termination or suspension at the discretion of the customer. From time to time, changes in project scope may occur with respect to contracts reflected in our backlog and could reduce the dollar amount of our backlog or the timing of the revenues and profits that we ultimately earn. Projects may remain in our backlog for an extended period of time because of the nature of the project and the timing of the particular services or equipment required by the project. Delays, suspensions, cancellations, payment defaults, scope changes and poor project execution could materially reduce or eliminate profits that we actually realize from projects in backlog. We cannot predict the impact that future economic conditions may have on our backlog, which could include a diminished ability to replace backlog once projects are completed or could result in the termination, modification or suspension of projects currently in our backlog. Such developments could have a material adverse effect on our financial condition, results of operations and cash flows.

•governmental activities or judicial actions that limit or disrupt markets, restrict payments, limit the movement of funds, result in the deprivation of contract rights or result in the inability for us to obtain or retain licenses required for operation; or

•increased polarization of political parties, in the U.S. and abroad, which may lead to more volatility in government spending or other developments such as trade wars or changes in military priorities.priorities; or

As a U.S. government contractor and a provider of services operating in multiple regulated industries and geographies, we and our business partners (including our service providers, joint venture partners, suppliers and subcontractors) handle a variety of sensitive information including personally identifiable information, personnel information, protected health information, classified and controlled unclassified information, and financial information, concerning our business, employees and customers. We and our business partners are continuously exposed to cyber and other security threats, including cyberattacks such as malware/computer viruses, ransomware and phishing attacks, insider threats related to malicious and non-malicious activities from authorized and unauthorized employees or third parties, catastrophic events, power outages, natural disasters, computer system or network failures or physical break-ins. We also utilize third-party software in the performance of certain critical accounting, project management, and financial reporting systems. Technological developments in artificial intelligence and machine learning, particularly those that provide actors with the capability to use more sophisticated means to attack our systems, may exacerbate cybersecurity and data privacy risks. Any unauthorized electronic or physical intrusion or other security threat may jeopardize the protection of sensitive or other information stored or transmitted through our IT systems and networks and those of our business partners and third-party software providers. This could lead to disruptions in our business and result in decreased performance, significant remediation costs, reputational damage, transaction errors, loss of data (including personally identifiable information), data leakage of confidential information, processing inefficiencies, downtime, litigation and the loss of suppliers or customers. Under certain contracts with the U.S. government subject to the FAR and CAS, the adequacy of our business processes and related systems could be called into question. Any significant disruptions or failures could have a material adverse effect on our business operations, financial performance, financial condition and reputation.

Additionally, we work with the defense industrial base industry and the U.S. government to gather and share threat intelligence and promote increased awareness and enhanced protections against cybersecurity threats. However, because of the evolving nature of these security threats, there can be no assurance that our policies, procedures and other controls will detect or prevent them, and we cannot predict their full impact. We may experience similar security threats to the IT systems that we develop, install or maintain under customer contracts, including customer contracts under which we may have access to or management responsibility for customer databases or networks that contain sensitive information relating to our customers, their employees or related third parties. Although we work cooperatively with our customers to seek to minimize the impacts of cyber and other security threats, we must usually rely on the safeguards used or required by those customers. In the event of unauthorized access to sensitive information for which we are responsible under customer contracts, our customers, their employees, or third parties may seek to hold us liable for any costs or other damages associated with the unauthorized access. In addition, government agencies may bring legal actions against us for violation of or noncompliance with regulatory requirements relating to any unauthorized access to sensitive information. Any remediation costs, damages or other liabilities related to unauthorized access of sensitive information of ours or our customers caused by cyber or other security threats may not be fully insured or indemnified by other means or our insurers. Occurrence of any unauthorized access caused by these security threats could adversely affect our reputation, business operations and financial results.

In addition, laws and regulations governing data privacy and the unauthorized disclosure of personal data, including the European Union General Data Protection Regulation ("GDPR"),Regulation, the United Kingdom Data Protection Act, the California Consumer Privacy Act, the California Privacy Rights Act and other emerging U.S. state and global privacy laws pose increasingly complex compliance challenges and potentially elevate costs and may require changes to our business practices resulting from the variation of regulatory requirements and increased enforcement frequency. Failure to comply with these laws and regulations, including related regulatory enforcement and/or private litigation resulting from a potential privacy breach, could result in governmental investigations, significant fines and penalties, damages from private causes of action or reputational harm. Additionally, we are subject to laws, rules and regulations regarding cross-border transfers of personal data, including laws relating to transfer of personal data outside the European Economic Area. If we cannot rely on existing mechanisms for transferring personal data, we may be unable to transfer personal data of employees and clients in those regions, which could adversely affect our business, financial condition and operating results.

As of January 3,2, 2025,2026, we had $2,630$2,677 million of goodwill and $763$727 million of intangible assets recorded on our consolidated balance sheets. Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. We perform an annual analysis of our goodwill on the first day of the fourth fiscal quarter to determine if it has become impaired. WeIn addition, we perform an interim analysisanalyses to determine if our goodwill has become impaired if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in a reporting unit’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of our business, potential government actions toward our facilities and various other factors. If the fair value of a reporting unit is less than its carrying value, we could be required to record an impairment charge. An impairment of all or a part of our goodwill or intangible assets could have a material adverse effect on our net earnings and net worth.

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses for the periods covered and certain amounts disclosed in the notes to our consolidated financial statements.statements statements in Part II, Item 8 of this Annual Report on Form 10-K. These estimates are based on information available through the date of the issuance of the financial statements and actual results could differ from those estimates, which could have a material adverse impact on our financial condition, results of operations and cash flows.

Our profitability and cash flow may vary based on the mix of our contracts and programs, our performance,performance and our ability to control costs and seasonal factors.costs.

Our GSMTS business segment primarily performs work in the U.S. under cost-reimbursable contracts with the DoDDoW and other U.S. governmental agencies. If the U.S. government concludes costs charged to a contract are not reimbursable under the terms of the contract or applicable procurement regulations, these costs are disallowed or, if already reimbursed, we may be required to refund the reimbursed amounts to the customer. Such conditions may also include interest and other financial penalties.

Under fixed price contracts, we receive a fixed price irrespective of the actual costs we incur and therefore we carry the burden of any cost overruns. Due to the fixed-price nature of the contracts, if our actual costs exceed our estimates, our margins and profits are reduced and we could incur a loss on the respective contract which could adversely affect our financial results. In addition, the timing of our profitability and cash flows may be affected by seasonal factors. For example, the peak amount of military moves in the U.S. typically occurs between May and September.

The U.S. government may issue or revise existing rules, regulations and directives, adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.

We face rigorous competition and pricing pressures for any additional contract awards from the U.S. government. Our industry has experienced, and we expect it will continue to experience, significant changes to business practices as a result of an increased focus on affordability, efficiencies and recovery of costs, among other items. From time to time, new lawslaws, executive orders and regulations are enacted, and government agencies adopt new interpretations and enforcement priorities relative to laws and regulations already in effect.effect, including recent U.S. government initiatives such as the FAR overhaul under E.O. 14275, DOGE and defense acquisition reform. U.S. government agencies have and may continue to face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors. Legislation, regulations and initiatives dealing with procurement reform as well as any resulting shifts in the buying practices of U.S. government agencies, such as increased usage of fixed-price contracts, multiple-award contracts and small business set-aside contracts, could have adverse effects on government contractors, including us. In addition, U.S. government procurement practices sometimes emphasize price over qualitative factors, such as technical capability and past performance. As a result of these competitive pricing pressures, our profit margins on future U.S. government contracts may be reduced and may require us to make sustained efforts to reduce costs to remain competitive.

The markets in which we operate are characterized by rapidly changing technology and the needs of our customers changechanging and evolveevolving regularly. Therefore, our success depends on our ability to invest in and develop our people and technology to enable us to deliver services and products that address these changing needs. To remain competitive, we must consistently provide superior service, technology and performance on a cost-effective basis to our customers while understanding customer priorities and maintaining customer relationships. Our competitors may be able to provide our customers with differentiated or superior capabilities or technologies or more attractive contract terms than we can provide, including technical qualifications, past contract experience, geographic presence, price and the availability of qualified professional personnel. Some of our competitors have made or could make acquisitions of businesses, or establish teaming or other agreements among themselves or third parties, that allow them to offer more competitive and comprehensive solutions. As a result of such acquisitions or arrangements, our current or potential competitors may be able to accelerate the adoption of new technologies that better address customer needs, devote greater resources to bring these products and services to market, initiate or withstand substantial price competition or develop and expand their product and service offerings at a more accelerated rate. These competitive pressures in our market or our failure to compete effectively may result in fewer orders, reduced revenue and margins and loss of market share.

U.S. government contracts are subject to specific regulations such as the FAR, the Truthful Cost or Pricing Data Statute, CAS, the Service Contract Act and DoDDoW security regulations. Failure to comply with any of these regulations, requirements or statutes may result in contract price adjustments, financial penalties or contract termination. Our U.S. government contracts are subject to audits, cost reviews and investigations by U.S. government contracting oversight agencies such as the DCAA. The DCAA reviews the adequacy of, and our compliance with, our internal control systems and policies, including our labor, billing, accounting, purchasing, property, estimating, compensation and management information systems. The DCAA has the authority to conduct audits and reviews to determine if we are complying with the requirements under the FAR and CAS, pertaining to the allocation, period assignment and allowability of costs assigned to U.S. government contracts. The DCAA presents its report findings to the DCMA. Should the DCMA determine that we have not complied with the terms of our contract or applicable statutes and regulations, payments to us may be disallowed, which could result in adjustments to previously reported revenues and refunding of previously collected cash proceeds. Additionally, we previously have been, and may in the future be subject to additional qui tam litigation brought by private individuals on behalf of the U.S. government under the Federal False Claims Act, which could include claims for treble damages. These suits may remain under seal (and hence, be unknown to us) for some time while the U.S. government decides whether to intervene on behalf of the qui tam plaintiff. For more information, see Note 14. "U.S. Government Matters" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Given the demands of working for the U.S. government, we may have disagreements or experience performance issues. When performance issues arise under any of our U.S. government contracts, the U.S. government retains the right to pursue remedies, which could include termination under any affected contract. If any contract were so terminated, our ability to secure future contracts could be adversely affected. Other remedies that could be sought by our U.S. government customers for any improper activities or performance issues include sanctions such as forfeiture of profits, suspensionwithholding of payments, finesliquidated damages and suspensions or debarment from doing business with the U.S. government. Further, the negative publicity that could arise from disagreements with our customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry, reduce our ability to compete for new contracts and may also have a material adverse effect on our business, financial condition, results of operations and cash flows.

•policy or spending changes, or changes in enforcement priorities or resource allocation, implemented by the current administrations, war/defense departments or other government agencies;

•advisory commissions created to review budgetary priorities, including efficiency initiatives such as the Department of Government EfficiencyDOGE;

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

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

We have maintained a regular cash dividend program since 2007. We anticipate continuing to pay quarterly dividends during fiscal 2025.2026. However, any future payment of dividends, including the timing and amount of any such dividends, is at the discretion of our Board of Directors and may depend upon our earnings, liquidity, financial condition, alternate capital deployment opportunities or any other factors that our Board of Directors considers relevant. A change in our regular cash dividend program could have an adverse effect on the market price of our common stock. In addition, pursuant to a January 7, 2026 Executive Order, the Secretary of War could seek to limit our ability to pay cash dividends or make share repurchases if the Secretary of War determines that we have underperformed or lacked sufficient prioritization of, investment in or production speed in carrying out or performing under our U.S. government contracts.

Risks Related to RegulationsRegulations, Compliance and ComplianceLitigation

To the extent that we export products, technical data and services outside of the U.S., we are subject to laws and regulations governing tradetrade, exports and exports,sanctions including, but not limited to, the International Traffic in Arms Regulations andRegulations, the Export Administration Regulations,Regulations and trade sanctions against embargoed countries, entities and individuals, including sanctions and export restrictions related to Russia's invasion of Ukraine, which are administered by the Office of Foreign Asset Control within the Department of the Treasury. In addition, Presidentthe TrumpU.S. Government has directedrecently variousannounced federal agencies to further evaluate key aspects of U.S.significant trade policy and there has been ongoing discussion and commentary regarding potential significant changes to U.S. trade policies, treaties and tariffs. A failure to comply with these laws and regulations could result in civil or criminal penalties or sanctions, including the imposition of fines as well as the denial of export privileges and debarment from participation in U.S. government contracts. U.S. government contract violations could result in the imposition of civil and criminal penalties or sanctions, contract termination, forfeiture of profit or suspension of payment, any of which could result in losing our status as an eligible U.S. government contractor and cause us to suffer serious reputational harm, which could have a material adverse effect on our business, financial condition or results of operations.

The FCPA, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions ("Anti-bribery Laws") in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these Anti-bribery Laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with Anti-bribery Laws may conflict with local customs and practices. We train our staff concerning Anti-bribery Laws and we also inform our partners, subcontractors, agents and other third parties who work for us or on our behalf that they must comply with the requirements of these Anti-bribery Laws. We also have procedures and controls in place to monitor internal and external compliance. We cannot provide complete assurance that our internal controls and procedures will always protect us from the reckless or criminal acts committed by our employees or third parties working on our behalf. If we are found to be liable for violations of these laws (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from criminal or civil penalties or other sanctions, which could have a material adverse effect on our business.

Certain work sites often expose our employees and others to chemical and manufacturing processes, highly-regulated materials, large pieces of mechanized equipment and moving vehicles. Additionally, our employees and others at certain project sites may be exposed to severe weather eventsevents, austere or remote environments or high security risks. Failure to implement effective safety procedures may result in injury, disability or loss of life to these parties. In addition, the projects may be delayed and we may be exposed to litigation or investigations.

Internationally, our Government Solutionsgovernment work is performed primarily for the U.K. MoD and the Australian Department of Defence. In MarchJune 2024,2025, leaders of the North Atlantic Treaty Organization agreed to invest 5% of their countries' gross domestic product ("GDP") on defense and security-related spending by 2035. Additionally, in June 2025, the Strategic Defence Review was completed in the U.K. government announced the defense budget, with the defense budget remaining consistent with the defense budget from the prior fiscal year. A general election was held in the United Kingdom in July 2024, with the Labour Party becoming the primary governing party of the House of Commons. The Labour Party has committed to increasing defense spending to 2.5% of GDP in the future, which is an increase from the previous commitmentplans to increase defense spending to 2.25%.2.50% Theof LabourGDP Partyby has2027 commissionedand aadditional strategicincreases defensein reviewfollowing years to determine futurereach defense spending priorities.of 3.00% of GDP. Recognizing the importance of strong defense and the role the U.K. plays across the globe, the U.K. has prioritized investment in military research and investment in key areas to advance and develop capabilities around artificial intelligence, cyber security and space superiority. The Australian government continues to invest in defense spending, with particular focus on enhancing regional security, modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability. TheIn fiscalMarch year budget for Australia for the 2024 - 2025 financial year was finalized, with2025, the Australian governmentMinister increasingfor Defence announced that the Australian defense spendingbudget is expected to AUDincrease 55.7over billion,the ornext approximatelyfour 2.00% of GDP.years.

A shift in funding priorities in the U.S. government or internationally could have material impacts on defense spending broadly and our programs. With defense and civil budgets driven in part by political instability, military conflicts, aging platforms and infrastructure and the need for technology advances, we expect continued opportunities to provide solutions and technologies to mission critical work aligned with our customers’ and our nation’s critical priorities.

Long-range commercial market fundamentals are supported by global population growth, expanding global development and an acceleration of demand for energy transition, renewable energy sources and climate-related solutions. The globe is in search of the solution to the energy trilemma, the balance between energy affordability, ensuring energy security and achieving environmental sustainability. While we have not had any material impact to our cost structure or ability to operate, we are monitoring the evolving macroeconomic environment due to ongoing tariffs including how those tariffs and any inflationary pressure may impact investment decisions from our core client base. Clients are prioritizing their efforts to solve the energy trilemma by investing in digital solutions to optimize operations, increase end-product flexibility and energy efficiency, reduce unplanned downtime and minimize environmental footprint. As the global focus on energy security intensifies and companies continue to commit to near-term carbon neutrality and longer-range net-zero carbon emissions, we expect spending to continue in areas such as decarbonization; carbon capture, utilization and sequestration; biofuels; and circular economy. Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia, which complements KBR's proprietary process technologies, solutions and capabilities. We expect climate protection, energy security and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a cleaner, more secure future.

The following tables set forth our results of operations for the periods presented, including by segment. A discussion regarding our financial condition and results of operations for the years ended January 3, 2025 ("fiscal 2024") and December 29, 2023 and("fiscal December 31, 20222023") is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended DecemberJanuary 29,3, 2023 ("fiscal 2023"),2025, as filed with the SEC on February 20,25, 2024.2025.

Revenues. Revenues increased by $786$76 million, or 11%,1%, to $7,742$7,786 million in fiscal 2024,2025, compared to $6,956$7,710 million in fiscal 2023.2024. The increase was primarilyis due to growthincreases on high-endin defense engineering, classified intelligence and internationalintel programs withinassociated with the acquisition of LinQuest (in August 2024) in our GSMTS business,segment and increased revenues from engineering and professional services in our STS businesssegment, offset by reduced activity within the European command and $181science and space programs in our MTS segment. Additionally, revenues increased by $26 million in revenuefiscal associated2025 withdue LinQuest. The increase was offset byto the final resolution of an outstanding legacy claim associated with a U.S. government project, resulting in a $26 million decreaseproject in fiscal 2024.2024 that did not recur in fiscal 2025.

Gross profit. The increase in overall gross profit of $126$51 million, or 13%,5%, was primarily driven by items increasing revenues discussed above and $32 million in gross profit associated with LinQuest. This was partially offset by favorable resolutions on various legacy matters in fiscal 2023 that did not recur in fiscal 2024.above.

Equity in earnings (losses) of unconsolidated affiliates. Equity in earnings (losses) of unconsolidated affiliates decreasedincreased by $7$103 million, or 96%, to $210 million in earnings in fiscal 2025 compared to $107 million in earnings in fiscal 20242024. comparedThe toincrease $114 million in earnings in fiscal 2023,is primarily dueattributed to decreased equity in earnings from services on an LNG project within our STS segment.

Selling, general and administrative expenses. Selling, general and administrative expenses were $56$35 million higherhigher, or 6%, in fiscal 20242025 compared to fiscal 2023,2024, which was primarily driven by additional expenses incurred to support the growth in both our GSMTS and STS business segments.segments, expenses incurred related to the implementation of a new enterprise resource planning system and expenses incurred related to the Planned Spin-Off of MTS.

Interest Expense. The increase in interest expense was primarily driven by increases in the U.S. federal reserve funds rate and increased outstanding average debt principal from fiscal 20232024 to fiscal 2024.2025.

Provision for income taxes. The provision for income taxes for fiscal 2024 reflects a 25% tax rate for fiscal 2025 and 2024. The effective tax rate of 25%, as compared to athe (57)%U.S. taxstatutory rate of 21%, for fiscal 2023.2025 was affected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S., partially offset by the resolution reached with tax authorities. The effective tax rate of 25%, as compared to the U.S. statutory rate of 21%, for fiscal 2024 was primarily impactedaffected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S. The effective tax rate of (57)%, as compared to the U.S. statutory rate of 21%, for fiscal 2023 was primarily impacted by the non-deductible portion of a legal settlement on a legacy matter and the non-deductible charge associated with the cash election and Convertible Notes repurchase in fiscal 2023. The impacts of these non-deductible items were partially offset by the release of a previously reserved position based on developments associated with the ongoing IRS examination and appeals process for certain years. See Note 1212. "Income Taxes" to our consolidated financial statements for further discussion on income taxes, including our reconciliation of the U.S. statutory tax rate to our effective tax rate.

GSMTS revenues increased by $518$26 million, or 10%,million to $5,871$5,581 million in fiscal 20242025 compared to $5,353$5,555 million in fiscal 2023.2024. TheIn increasefiscal 2025, we had revenue increases in defense and intel programs associated with the acquisition of LinQuest (in August 2024), offset by revenue is primarilydecreases due to growthreduced onactivity high-endwithin defensethe engineering,European classified intelligencecommand and international programsscience and $181space programs. Additionally, revenues increased by $26 million in revenuefiscal associated2025 withdue LinQuest. The increase was offset byto the final resolution of an outstanding legacy claim associated with a U.S. government program, resulting in a $26 million decreaseproject in fiscal 2024.2024 that did not recur in fiscal 2025.

GSMTS operating income increased by $168$48 million, or 59%,12%, to $453$463 million in fiscal 20242025 compared to $285$415 million in fiscal 2023.2024. The increase in operating income was primarily driven by the $144growth associated with LinQuest. Additionally, operating income increased by $26 million charge recognized in fiscal 20232025 relateddue to the settlementfinal resolution of aan outstanding legacy legalclaim matterassociated with a U.S. government project in fiscal 2024 that did not recur in fiscal 2024,2025. $16The millionincrease in operating income associatedwas withoffset LinQuestby and growth in the areas discussed above. Additionally, in fiscal 2024, we recognizeda $6 million gain related to the sale of our investment interest in a joint venture.venture Theseduring increasesfiscal were2024 offsetthat bydid thenot final resolution of an outstanding legacy claim associated with a U.S. government project, resulting in a $26 million decreaserecur in fiscal 2024.2025.

STS revenues increased by $268$50 million, or 17%,2%, to $1,871$2,205 million in fiscal 20242025 compared to $1,603$2,155 million in fiscal 2023.2024. This increase iswas primarily driven by increased revenues from engineering and professional services.

We define backlog, as it relates to U.S. government contracts, as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period (including customer approved option periods) for which work scope and price have been agreed with the customer. We define funded backlog as the portion of backlog for which funding currently is appropriated, less the amount of revenue we have previously recognized. We define unfunded backlog as the total backlog less the funded backlog. Our GSMTS backlog does not include any estimate of future potential delivery orders that might be awarded under our government-wide acquisition contracts, agency-specific indefinite delivery/indefinite quantity contracts or other multiple-award contract vehicles, nor does it include option periods that have not been exercised by the customer.

Within our GSMTS business segment, we calculate estimated backlog for long-term contracts associated with the U.K. government's PFIs based on the aggregate amount that our client would contractually be obligated to pay us over the life of the project. We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog if necessary.

Refer to "Item 1A. Risk Factors" contained in Part 1I of this Annual Report on Form 10-K for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.

We have included in the table below our proportionate share of unconsolidated joint ventures' estimated backlog. As these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our results of operations. Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled $2.8 billion at January 3,2, 2025,2026 and $4.1January billion3, at December 29, 2023.2025.

As of January 3,2, 2025,2026, 17% of our backlog was attributable to fixed-price contracts, 36%39% was attributable to PFIs, 30%24% was attributable to cost-reimbursable contracts and 17%20% was attributable to time-and-materials contracts. PFI arrangements are predominantly fixed‑price in nature, and therefore the PFI portion of backlog primarily reflects fixed‑price contractual structures. For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or time-and materials according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of January 3,2, 2025,2026, $9.1$9.0 billion of our GSMTS backlog was currently funded by our customers. Excluding PFIs, 40% of our MTS backlog is currently funded by our customers. As of January 2, 2026, we had approximately $6.3 billion of priced option periods not yet exercised by the customer for U.S. government contracts that are not included in the backlog amounts presented above.

The difference between backlog of $17.3$16.9 billion and the remaining performance obligations as defined by ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") of $13.8$13.3 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. See Note 33. "Revenue" to our consolidated financial statements for discussion of the remaining performance obligations.

Cash and cash equivalents totaled $350$500 million at January 2, 2026 and $342 million at January 3, 2025 and $304 million at December 29, 2023 and consisted of the following:

Our cash balances are held in numerous accounts throughout the world to fund our global activities, including acquisitions, joint ventures and other business partnerships. Domestic cash relates to cash balances held by U.S. entities and is largely used to support project activities of those businesses as well as general corporate needs such as the payment of dividends to shareholders, repayment of debt and potential repurchases of our outstanding common stock. Additionally, domestic cash and cash equivalents includes $15 million and $12 million held by our wholly-ownedwholly owned captive insurance company as of January 2, 2026 and January 3, 20252025, respectively, which is generally not available to KBR to utilize to support its other operations.

Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes. These amounts are limited to those entities' activities and are not readily available for general corporate purposes; however, portions of such amounts may become available to us in the future should there be a distribution of dividends to the joint venture partners. We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture purposes or for paying dividends. In fiscal 2025 a contractual repayment was made by the Aspire Defence subcontracting entities.

Operating Activities.Activities - continuing operations. Cash provided by operations totaled $462$557 million and $331$450 million in fiscal 20242025 and fiscal 2023,2024, respectively, as compared to net income from continuing operations of $381$458 million and net loss of $261$379 million in fiscal 20242025 and fiscal 2023,2024, respectively. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by our volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world.

The increase in operating cash flows in fiscal 20242025 compared to fiscal 20232024 is primarily relateddue to the $144 million payment made in fiscal 2023 related to the settlementresolution of aan legacyoutstanding legalunapproved matterchange thatorder didwithin notour recurMission inTechnology fiscalSolutions 2024segment. and increased distributions of earnings from unconsolidated affiliates. In fiscal 2024, we received $163 million in distributions of earnings from unconsolidated affiliates compared to $74 million in fiscal 2023. TheThis increase inwas operating cash flows wasoffset primarily offset by increased employer pension contributions in fiscal 2024. In fiscal 2024, we made an advance payment to our U.K. defined benefit pension plan for approximately £17 million ($21 million at the current exchange rate). Additionally, we made an advance payment to our U.K pension plan in fiscal 2022 that resulted in decreased employer pension contributions in fiscal 2023. Further, there were decreases in operating cash flows in fiscal 2024 from changes in the primary components of our working capital. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. TheseIn fiscal 2025, the accounts payable cash outflow included a contractual repayment made by the Aspire Defence subcontracting entities. The working capital components are also impacted by the size and changes in the mix of our cost-reimbursable and time-and-materials projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business. Additionally, in fiscal 2025 there were decreases in pension funding that resulted in additional operating cash flows.

Investing Activities. Cash used in investing activities totaled $776$751 million in fiscal 2024 and was primarily related to the acquisition of LinQuest, net of cash acquired of $738 million, capital expenditures of $77$52 million and funding in other investment of $5 million. This was offset by a return of equity method investment from JKC in fiscal 2024 of approximately $36 million related to our proportionate share of a tax refund. Additionally, we received $7 million primarily from the sale of our investment interest in a joint venture within our GSMTS segment. See Note 4. "Acquisition of LinQuest Corporation" to our consolidated financial statements for further discussion around the acquisition of LinQuest and Note 9. "Equity Method Investments and Variable Interest Entities" for further details around the return of investment from JKC.

Financing Activities - continuing operations. Cash used in financing activities totaled $359 million in fiscal 2023 and was primarily due to a net cash outflow of $567$403 million for thefiscal settlement2025. andThe maturityprimary uses of our outstanding Convertible Notes, corresponding note hedge and warrants settled and paid during the year. Cash usedcash in financing activities alsowere included $72$505 million of dividendin payments toon commonthe shareholders,Revolver, $125$26 million in payments on our Term Loan A, $10 million in payments on our Term Loan B, $323 million for the repurchase of common stock under our share repurchase program, $13$6 million for the repurchase of common stock under our "withhold to cover" program, $340 million in payments on our revolving credit facilityprogram and $17$84 million of principaldividend payments related to ourcommon Senior Credit Facility.shareholders. These decreases were partially offset by $785$555 million in borrowings related toon our Revolver. See Note 11 "Debt and Other Credit Facilities" for further discussion of our Senior Credit Facility.

U.K. pension obligation. We have recognized on our consolidated balance sheets a funding surplus of approximately $82$84 million (calculated as the excessdifference ofbetween the fair value of plan assets overand the projected benefit obligations) as of January 3,2, 20252026 for our frozen U.K. defined benefit pension plan. The total amount of employer pension contributions paid for the year ended January 3, 2025 is $61 million for our defined benefit plan in the U.K. The funding requirements for our U.K. pension plan are determined based on the U.K. Pensions Act 1995. Annual minimum funding requirements are based on a binding agreement with the Trustee of the U.K. pension plan that is negotiated on a triennial basis. This schedule of contributions will be reviewed by the Trustee and KBR no later than 15 months after the effective date of each actuarial valuation, due every three years. In 2024, the Trustee of the U.K. defined benefit pension plan commenced the triennial actuarial valuation of the plan.plan which was finalized in fiscal 2025. At this time, we do not anticipate contributing additional funding to this plan at least until the next triennial valuation.valuation occurs. In the future, pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan asset return performance and other factors. A significant increase in our funding requirements for the U.K. pension plan could result in a material adverse impact on our financial position.

In our joint venture arrangements, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically, each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects and the terms of the related contracts. In May 2024, a partner in one of our project-based joint ventures voluntarily filed for Chapter 11 bankruptcy reorganization. Our joint venture operations have not been materially impacted by these bankruptcy proceedings. See “Item 1A. Risk Factors” contained in Part I of this Annual Report on Form 10-K for information regarding our fixed-price contracts and operations through joint ventures and partnerships.

In certain limited circumstances, we enter into financial guarantees in the ordinary course of business, with financial institutions and other credit grantors, which generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation. We account for both financial and performance guarantees at fair value at issuance in accordance with ASC 460-10Subtopic Guarantees460-10, and,Guarantees, as of January 3,2, 2025,2026, we had no material guarantees of the work or obligations of third parties recorded.

(b)In the ordinary course of business, we enter into commitments to purchase software and related maintenance, materials, supplies and similar items. The purchase obligations disclosed above do not include purchase obligations that we enter into with vendors in the normal course of business that support direct project costs on existing contracting arrangements with our customers. We expect to recover such obligations from our customers. Fiscal 2025 and fiscal 2026 each include approximately $30 million related to contractual repayments associated with a joint venture in our GS segment.

HomeSafe, a joint venture with Tier One Relocation, informed us on June 18, 2025, that U.S. Transportation Command unexpectedly terminated HomeSafe's role in the Global Household Goods Contract. KBR owns a 72% interest in HomeSafe. As of AprilJuly 3, 2026 all of HomeSafe operations, including run-off operations, have ceased. The financial results and financial position of HomeSafe are presented as discontinued operations in the condensed consolidated statements of operations, condensed consolidated balance sheets and condensed consolidated statements of cash flows for all periods presented. See Note 17. "Discontinued Operations" to our condensed consolidated financial statements in Part 1,I, Item 1 of this Quarterly Report on Form 10-Q for more information. Unless otherwise indicated, any reference to statements of operations items in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" refers to results from continuing operations.

On February 3, 2026, the Consolidated Appropriations Act of 2026 was passed, which finalized defense appropriations for fiscal year 2026. This legislation provides for $839 billion in discretionary defense spending. In December 2025, the National Defense Authorization Act ("NDAA") was signed into law. The NDAA authorizes programs, projects and policies to be carried out with funds appropriated by Congress as part of the annual budgetary process. The NDAA supports up to approximately $901 billion in fiscal year 2026 funding for national defense. Additionally, the approved fiscal year 2026 budget for NASA is $24 billion. Additionally, currentCurrent and future funding requirements related to the ongoing conflict in the Middle East have impacted our customers' budgets and spending priorities.

Internationally, our government work is performed primarily for the U.K. MoD and the Australian Department of Defence. In June 2025, leaders of the North Atlantic Treaty Organization ("NATO") agreed to invest 5% of their countries' gross domestic product ("GDP") on defense and security-related spending by 2035. In June 2025, the Strategic Defence Review was completed in the U.K. with plans to increase defense spending to 2.50% of GDP by 2027 and additional increases in following years to reach defense spending of 3.00% of GDP. In 2026, the U.K. Ministry of Defence published its 2026 Defence Investment Plan, reaffirming the U.K.’s planned commitment to NATO defense and security-related spending initiatives. Additionally, the new Prime Minister reiteratedin the U.K., appointed in July 2026, has signaled his goalcommitment to continuestrengthening tothe increase U.KU.K.’s defense spending in future years.capabilities. The Australian government continues to invest in defense spending, with particular focus on enhancing regional security, modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability. In April 2026, the Australian Minister for Defence announced that the Australian defense budget will increase to 3.00% of GDP by 2033.

In September 2025, we announced our intention to spin off our Mission Technology Solutions business into a separate, U.S. publicly-traded company. The Planned Spin-Off is intended to be tax-free to us and our shareholders for U.S. federal income tax purposes and targeting completion on January 4, 2027, which is the first business day of fiscal 2027. The spin-off will be subject to final approval by our Board of Directors and other customary conditions, including receipt of a favorable opinion of legal counsel and/or a private letter ruling from the U.S. Internal Revenue Service with respect to the tax treatment of the transaction for U.S. federal income tax purposes, the effectiveness of a registration statement on Form 10 filed with the SEC, satisfactory completion of financing and other regulatory approvals. Because the intended transaction is a spin-off, the Mission Technology Solutions business is not classified as held for sale and will beis reported as continuing operations.

Three months ended AprilJuly 3, 2026 compared to the three months ended AprilJuly 4, 2025

The information below is an analysis of our consolidated results for the three months ended AprilJuly 3, 20262026, compared to the three months ended AprilJuly 4, 2025. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.

Revenues. The decreaseincrease in overall revenue of $95$32 million, or 5%,2%, to $1,923$1,984 million for the three months ended AprilJuly 3, 20262026, fromcompared $2,018to $1,952 million for the three months ended AprilJuly 4, 2025 is primarily due to increases from engineering and professional services within our STS segment, offset by reduced contingent activity within the European command in our MTS segment.

Gross profit. The decrease in overall grossGross profit ofwas $35materially consistent, increasing by $3 million, or 12%,1%, wasin primarilyline driven by items decreasingwith revenues discussed above and changes in licensing mix within our STS segment.above.

Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increasedwere materially consistent for each of the three months ended July 3, 2026 and July 4, 2025, increasing by $9$1 million, or 21%,2%, to $52 million in earnings for the three months ended July 3, 2026, compared to $51 million in earnings for the three months ended April 3, 2026, compared to $42 million in earnings for the three months ended AprilJuly 4, 2025. The increase is primarily attributed to equity in earnings from services on an LNG project within our STS segment.

Selling, general and administrative expenses. Selling, general and administrative expenses inwere materially consistent for each of the three months ended AprilJuly 3, 2026 wereand $7July 4, 2025, decreasing by $3 million, or 2%, to $143 million lower, a 5% decrease compared tofor the three months ended AprilJuly 3, 2026, compared to $146 million for the three months ended July 4, 2025, which was primarily driven by a favorable closeout in the first quarter of 2026. This was offset by increased expenses incurred related to the Planned Spin-Off.2025.

Interest expense. The decrease in interest expense was primarily driven by decreaseslower inaverage theoutstanding U.S.debt federal reserve funds rateprincipal from the three months ended AprilJuly 4, 2025 to the three months ended AprilJuly 3, 2026.

Provision for income taxes. The provision for income taxes for income from continuing operations for the three months ended AprilJuly 3, 2026 and AprilJuly 4, 2025 reflects a 28% tax rate and a 26%27% tax rate, respectively. The effective tax rate of 28% for the three months ended AprilJuly 3, 2026, as compared to the U.S. statutory rate of 21%, was affected by the rate differential on our foreign earnings, the impact of state and local taxes in the U.S.U.S and discrete activity for the quarter. The effective tax rate of 26%27% for the three months ended AprilJuly 4, 2025, as compared to the U.S. statutory rate of 21%, was primarily affected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S. See Note 9. "Income Taxes" to our condensed consolidated financial statements for further discussion on income taxes.

Net income (loss) from discontinued operations, net of tax. Net income (loss) from discontinued operations, net of tax, was $2 million and $6$(48) million during the three months ended AprilJuly 3, 2026 and AprilJuly 4, 2025, respectively, due to the disposal of HomeSafe.HomeSafe during the three months ended July 4, 2025.

Net income (loss) attributable to noncontrolling interests included in discontinued operations. Net income (loss) attributable to noncontrolling interests included in discontinued operations was $1 million and $2$(16) million during the three months ended AprilJuly 3, 2026 and AprilJuly 4, 2025, respectively, due to the disposal of HomeSafe.HomeSafe during the three months ended July 4, 2025.

MTS revenues decreased by $85$28 million, or 6%,2%, to $1,296$1,308 million for the three months ended AprilJuly 3, 2026,2026 compared to $1,381$1,336 million for the three months ended AprilJuly 4, 2025. The decrease in revenue is primarily due to reduced contingent activity within the European command in our MTS segment.command.

MTS operating income decreasedincreased by $2$8 million, or 2%,7%, to $111$116 million for the three months ended AprilJuly 3, 2026,2026 compared to $113$108 million for the three months ended AprilJuly 4, 2025. The decreaseincrease in operating income was primarily driven by changes in our services mix, offset by costs associated with the itemPlanned discussed aboveSpin-Off and increasedlease selling,right-of-use generalasset andimpairment administrativecharges expenses.associated with the Planned Spin-Off.

STS operating income decreased by $14$22 million, or 11%,18%, to $113$103 million forin the three months ended AprilJuly 3, 2026,2026 compared to $127$125 million forin the three months ended AprilJuly 4, 2025. The decrease in operating income iswas primarily due to changes in licensing mix, offset by a favorable closeout in the three months ended April 3, 2026 and increased equity in earnings from services on an LNG project.mix.

Corporate operating loss increased by $6$8 million, or 16%,21%, to $44$47 million forin the three months ended AprilJuly 3, 2026,2026 compared to $38$39 million forin the three months ended AprilJuly 4, 2025. The increase in operating loss was primarily duedriven toby increasedcosts selling,associated generalwith the Planned Spin-Off and administrativelease expensesright-of-use relatedasset toimpairment charges associated with the Planned Spin-Off.

We have included in the table below our proportionate share of unconsolidated joint ventures' estimated backlog. As these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our results of operations. Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled $2.9$3.3 billion and $2.8 billion at AprilJuly 3, 2026 and January 2, 2026, respectively.

The following table summarizes our backlog by business segment as of AprilJuly 3, 2026, and January 2, 2026, respectively.respectively:

We estimate that as of AprilJuly 3, 2026, 37%38% of our backlog will be executed within one year. Of this amount, we estimate that 81% will be recognized in revenues on our condensed consolidated statements of operations and 19% will be recorded by our unconsolidated joint ventures. As of AprilJuly 3, 2026, $98$64 million of our backlog relates to active contracts that are in a loss position.

As of AprilJuly 3, 2026, 14%15% of our backlog was attributable to fixed-price contracts, 39%37% was attributable to PFIs, 23%22% was attributable to cost-reimbursable contracts and 24%26% was attributable to time-and-materials contracts. PFI arrangements are predominantly fixed‑price in nature, and therefore the PFI portion of backlog primarily reflects fixed‑price contractual structures. For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or time-and-materials according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of AprilJuly 3, 2026, $9.0$8.8 billion of our MTS backlog was currently funded by our customers. Excluding PFIs, 39% of our MTS backlog is currently funded by our customers. As of AprilJuly 3, 2026, we had approximately $5.9$5.2 billion of priced option periods not yet exercised by the customer for U.S. government contracts that are not included in the backlog amounts presented above.

We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months. As of AprilJuly 3, 2026, we are in compliance with all financial covenants related to our debt agreements.

Cash and cash equivalents totaled $380$312 million at AprilJuly 3, 2026, and $500 million at January 2, 2026, and consisted of the following:

Our cash balances are held in numerous accounts throughout the world to fund our global activities, including acquisitions, joint ventures and other business partnerships. Domestic cash relates to cash balances held by U.S. entities and is largely used to support project activities of those businesses as well as general corporate needs such as the payment of dividends to shareholders, repayment of debt and potential repurchases of our outstanding common stock. Additionally, domestic cash and cash equivalents includes $10 million and $15 million held by our wholly owned captive insurance company as of AprilJuly 3, 2026 and January 2, 2026, respectively, which is generally not available to KBR to support its other operations.

As of AprilJuly 3, 2026, substantially all of our excess cash was held in interest bearing operating accounts or short-term investment accounts with the primary objectives of preserving capital and maintaining liquidity.

Operating Activities - continuing operations. Cash provided by operations totaled $110$160 million and $91$308 million for the threesix months ended AprilJuly 3, 2026 and AprilJuly 4, 2025, respectively, as compared to net income from continuing operations of $103$200 million and $121$227 million for the threesix months ended AprilJuly 3, 2026 and AprilJuly 4, 2025, respectively. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by our volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world.

During the threesix months ended AprilJuly 3, 2026, cash flows increaseddecreased primarily due to the resolution of an outstanding unapproved change order within our Mission Technology Solutions segment in the six months ended July 4, 2025 that did not recur in the six months ended July 3, 2026 and decreases in distributions of earnings from unconsolidated affiliates. These decreases were offset by changes in the primary components of our working capital. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. These components are impacted by the size and changes in the mix of our cost-reimbursable and time-and-materials projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business. These increases were offset by decreases in distributions of earnings from unconsolidated affiliates.

Investing Activities - continuing operations. Cash used in investing activities totaled $188$216 million for the threesix months ended AprilJuly 3, 2026 primarily due to an investment within the BRIS joint venture for $115 million associated with BRIS closing on an agreement to acquire a welding and turnaround services provider. Additionally, we had purchases of available-for-sale debt securities of $49 million, purchases of other investments of $13 million and capital expenditures of $12$28 million. See Note 6. "Equity Method Investments and Variable Interest Entities" to our condensed consolidated financial statements for further discussion on the investment in equity method investment to BRIS and Note 15. "Fair Value of Financial Instruments and Risk Management" to our condensed consolidated financial statements for further discussion on the available-for-sale debt securities. Cash used in investing activities totaled $3 million for the three months ended April 4, 2025, primarily related to capital expenditures.

Financing Activities - continuing operations. Cash used in financing activities totaled $43$128 million for the threesix months ended AprilJuly 3, 2026. The primary uses of cash in financing activities were $141$161 million in payments on the Revolver, $21 million of dividend payments to common shareholders, $9$20 million in payments on our Term Loan A, $3$5 million in payments on our Term Loan BB, $42 million of dividend payments to common shareholders, $25 million for the repurchase of common stock under our share repurchase program and $4 million for the repurchase of common stock under our "withhold to cover" program. These decreases were offset by $141 million in borrowings on our Revolver.

Cash used in financing activities totaled $6$219 million for the threesix months ended AprilJuly 4, 2025. The primary uses of cash in financing activities were $150$323 million in payments on the Revolver, $13 million in payments on our Term Loan A, $5 million in payments on our Term Loan B, $198 million for the repurchase of common stock under our share repurchase program, $6 million for the repurchase of common stock under our "withhold to cover" program, $95 million in payments on the Revolverprogram and $20$41 million of dividend payments to common shareholders. These decreases were offset by $275$373 million in borrowings on our Revolver.

Cash flows from discontinued operations. Cash flows from discontinued operations are associated with the disposal of HomeSafe. Cash provided by (used in) operations totaled $(2)$2 million and $7$27 million for the threesix months ended AprilJuly 3, 2026 and AprilJuly 4, 2025, respectively. Changes in HomeSafe's working capital accounts were the primary components of operating cash flows for the threesix months ended April 3, 2026 and AprilJuly 4, 2025. Cash used in investing activities totaled $6$12 million for the threesix months ended AprilJuly 4, 2025 which is related to capital expenditures. Cash provided by financing activities totaled $8 million for the six months ended July 4, 2025 due to investments from the noncontrolling interest partner. See Note 17. "Discontinued Operations" to our condensed consolidated financial statements for additional information.

U.K. pension obligation. We have recognized on our condensed consolidated balance sheets a funding surplus of $95$107 million (calculated as the difference between the fair value of plan assets and the projected benefit obligations as of AprilJuly 3, 2026) for our frozen U.K. defined benefit pension plan. The funding requirements for our U.K. pension plan are determined based on the U.K. Pensions Act 1995. Annual minimum funding requirements are based on a binding agreement with the Trustee of the U.K. pension plan that is negotiated on a triennial basis. This schedule of contributions will be reviewed by the Trustee and KBR no later than 15 months after the effective date of each actuarial valuation, due every three years. In 2024, the Trustee of the U.K. defined benefit pension plan commenced the triennial actuarial valuation of the plan which was finalized during the year ended January 2, 2026. At this time, we do not anticipate contributing additional funding to this plan at least until the next triennial valuation occurs. In the future, pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan asset return performance and other factors. A significant increase in our funding requirements for the U.K. pension plan could result in a material adverse impact on our financial position.