Financial Analysis

Acquisition Infrastar Limited On May 17, 2025, we acquired Infrastar Limited for $35 million, which consisted of $15 million of cash and contingent consideration with an estimated fair value of $20 million that is contingent upon the achievement of certain performance targets through May 2027. The contingent consideration could result in cash payments aggregating up to approximately $24 million. The purchase price allocation for the Infrastar business combination is final as of July 3, 2026. Within our STS segment, as of July 3, 2026, we recognized $2 million of cash, $11 million of intangible assets related to customer relationships and goodwill of $24 million primarily related to future growth opportunities. There were no changes to the fair value of assets acquired and liabilities assumed as reported in our 2025 Annual Report on Form 10-K. For U.S. tax purposes, the transaction is treated as a stock deal. As a result, there is no step-up in tax basis and the goodwill recognized is not deductible for tax purposes.

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"Commitments and Contingencies We are a party to litigation and other proceedings that arise in the ordinary course of our business. These types of matters could result in fines, penalties, cost reimbursements or contributions, compensatory or treble damages or non-monetary sanctions or relief. We believe the probability is remote that the outcome of any individual matter, including the matters described below, will have a material adverse effect on the corporation as a whole, notwithstanding that the unfavorable resolution of any matter may have a material effect on our net earnings and cash flows in any particular reporting period. Among the factors that we consider in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisers, our experience in similar cases and the experience of other companies, the facts available to us at the time of assessment and how we intend to respond to the proceeding or claim. Our assessment of these factors may change over time as individual proceedings or claims progress. Although we cannot predict the outcome of legal or other proceedings with certainty, when it is probable that a loss will be incurred and the amount is reasonably estimable, U.S. GAAP requires us to accrue an estimate of the probable loss or range of loss. In the event a loss is probab …

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"Debt and Other Credit Facilities Our outstanding debt consisted of the following at the dates indicated: Dollars in millions July 3, 2026 January 2, 2026 Term Loan A $ 967 $ 989 Term Loan B 978 983 Senior Notes 250 250 Revolver 375 395 Unamortized debt issuance costs and discounts (18) (21) Total debt 2,552 2,596 Less: current portion 49 49 Total long-term debt, net of current portion $ 2,503 $ 2,547 Senior Credit Facility Our existing Credit Agreement, dated as of April 25, 2018, as amended (""Credit Agreement""), consists of a $1 billion revolving credit facility (the ""Revolver""), a Term Loan A (""Term Loan A"") with debt tranches denominated in U.S. dollars and British pound sterling and a Term Loan B (""Term Loan B"" and together with the Revolver and Term Loan A, the ""Senior Credit Facility""). We entered into Amendment No. 14 to our Credit Agreement on July 29, 2026 (the ""Amendment""). The Amendment modified the Credit Agreement to, among other things, permit internal reorganization transactions necessary or desirable to prepare for our previously announced spin-off of the Mission Technology Solutions business and effect additional modifications to the terms and provisions of the Credit Agreement, as further set forth in the Amendment. We had cash borrowings of $141 million on our Revolver that occurred during the six months ended July 3, 2026. We had cash repayments of $161 million on our Revolver, $20 million on our Term Loan A and $5 million on our Term Loan B t …

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Revenue by customer type was as follows: Three months ended Six months ended July 3, 2026 July 3, 2026 Dollars in millions MTS STS Total MTS STS Total U.S. Government Defense and Intelligence Clients $ 834 $ $ 834 $ 1,650 $ $ 1,650 U.S. Government Federal Civilian Clients 254 254 516 516 International Government Clients 199 38 237 391 84 475 Commercial and Infrastructure Clients 21 638 659 47 1,219 1,266 Total revenue $ 1,308 $ 676 $ 1,984 $ 2,604 $ 1,303 $ 3,907 Three months ended Six months ended July 4, 2025 July 4, 2025 Dollars in millions MTS STS Total MTS STS Total U.S. Government Defense and Intelligence Clients $ 856 $ $ 856 $ 1,762 $ $ 1,762 U.S. Government Federal Civilian Clients 273 273 554 554 International Government Clients 181 42 223 348 94 442 Commercial and Infrastructure Clients 26 574 600 53 1,159 1,212 Total revenue $ 1,336 $ 616 $ 1,952 $ 2,717 $ 1,253 $ 3,970 Revenue by geographic destination was as follows: Three months ended Six months ended Dollars in millions July 3, 2026 July 3, 2026 Total by Countries/Regions MTS STS Total MTS STS Total United States $ 951 $ 67 $ 1,018 $ 1,901 $ 149 $ 2,050 Europe 218 143 361 433 294 727 Middle East 32 213 245 63 405 468 Australia 65 92 157 128 178 306 Africa 20 32 52 39 70 109 Asia 5 44 49 9 79 88 Other countries 17 85 102 31 128 159 Total revenue $ 1,308 $ 676 $ 1,984 $ 2,604 $ 1,303 $ 3,907 Three months ended Six months ended Dollars in millions July 4, 2025 July 4, 2025 Total by Countries/Regions MTS STS Total …

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"Fair Value of Financial Instruments and Risk Management Fair value measurements. The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We utilize a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable, as reflected in the condensed consolidated balance sheets, approximates fair value due to the short-term maturities of these financial instruments. The carrying values and e …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

"Income Taxes The effective tax rate was approximately 28% and 27% on income from continuing operations for the six months ended July 3, 2026 and July 4, 2025, respectively. The effective tax rate of 28% for the six months ended July 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. and discrete activity for the year. The effective tax rate of 27% for the six months ended July 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. On July 4, 2025, the reconciliation bill H.R. 1 was enacted into law in the U.S. H.R.1 includes a broad range of tax reform provisions, including the elective deduction for domestic Research and Development (""R&D""), a reinstatement of elective 100% first-year bonus depreciation and changes to the interest limitation calculation under 163(j), among other provisions. The Company is currently evaluating the impact of the H.R. 1 tax provisions which could affect the Company's effective tax rate and deferred tax assets in 2026 and future periods. A quantitative estimate of the specific financial effects cannot be reasonably determined at this time due to the complexity of the changes in the tax reform and optionality of voluntary elections. The valuation allowance for deferred tax assets as of July 3, 2026 and …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

Recent Accounting Pronouncements New accounting pronouncements requiring implementation in future periods are discussed below. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires disclosure of additional information about certain income statement expense categories. ASU 2024-03 will be effective for our fiscal year ending December 31, 2027. Early adoption is permitted and the amendments can be applied on a prospective or retrospective basis. We expect this ASU to impact our disclosures with no impact to our results of operations, cash flows and financial condition. In September 2025, the FASB issued ASU 2025-06, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This guidance removes all references to project stages throughout ASC 350-40 and clarifies the threshold entities apply to begin capitalizing costs. Under the new standard, cost capitalization should only commence when an entity has committed to funding a software project and it is probable the project will be completed and the software will be used for its intended function. The amendments are effective for annual reporting periods beginning after December 15, 2027 and interim reporting periods within those annual reporting periods. Entities may apply the guidance us …

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Retirement Benefits We have two frozen defined benefit pension plans in the U.S., one frozen and one active plan in the U.K. and one frozen plan in Germany. The components of net periodic pension benefit related to the frozen U.K. pension for the three and six months ended July 3, 2026 and July 4, 2025, respectively, were as follows: Three months ended Six months ended Dollars in millions July 3, 2026 July 4, 2025 July 3, 2026 July 4, 2025 Components of net periodic pension benefit Interest cost $ 15 $ 15 $ 31 $ 30 Expected return on plan assets (28) (28) (57) (54) Prior service cost amortization 1 1 Recognized actuarial loss 4 1 8 2 Net periodic pension benefit $ (9) $ (11) $ (18) $ (21) 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. …

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"Spin-off Mission Technology Solutions Spin-off In September 2025, we announced our intention to spin off our Mission Technology Solutions business (the ""Planned Spin-Off"") 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 is reported as continuing operations. During the three and six months ended July 3, 2026, we recognized $31 million and $46 million, respectively, of costs related to the Planned Spin-Off which are included within ""Spin-off costs and other charges"" in our condensed consolidated statements of operations. Leased office facilities and related assets . In connection with the Planned Spin-Off, the Company assessed its leased real estate footprint and expected future utiliz …

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Revenue Disaggregated Revenue We disaggregate our revenue from customers by customer type, geographic destination and contract type for each of our segments as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Revenue by customer type was as follows: Three months ended Six months ended July 3, 2026 July 3, 2026 Dollars in millions MTS STS Total MTS STS Total U.S. Government Defense and Intelligence Clients $ 834 $ $ 834 $ 1,650 $ $ 1,650 U.S. Government Federal Civilian Clients 254 254 516 516 International Government Clients 199 38 237 391 84 475 Commercial and Infrastructure Clients 21 638 659 47 1,219 1,266 Total revenue $ 1,308 $ 676 $ 1,984 $ 2,604 $ 1,303 $ 3,907 Three months ended Six months ended July 4, 2025 July 4, 2025 Dollars in millions MTS STS Total MTS STS Total U.S. Government Defense and Intelligence Clients $ 856 $ $ 856 $ 1,762 $ $ 1,762 U.S. Government Federal Civilian Clients 273 273 554 554 International Government Clients 181 42 223 348 94 442 Commercial and Infrastructure Clients 26 574 600 53 1,159 1,212 Total revenue $ 1,336 $ 616 $ 1,952 $ 2,717 $ 1,253 $ 3,970 Revenue by geographic destination was as follows: Three months ended Six months ended Dollars in millions July 3, 2026 July 3, 2026 Total by Countries/Regions MTS STS Total MTS STS Total United States $ 951 $ 67 $ 1,018 $ 1,901 $ 149 $ 2,050 Europe 218 143 361 433 294 727 Middle East 32 213 245 63 405 468 …

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"Business Segment Information We provide a wide range of professional services, and the management of our business is heavily focused on major projects or programs within each of our reportable segments. At any given time, government programs and joint ventures represent a substantial part of our operations. Effective for fiscal 2026, a portion of a business unit within our Mission Technology Solutions segment became part of our Sustainable Technology Solutions segment. All information in this Quarterly Report on Form 10-Q is presented in accordance with the realigned reportable segments and all prior period information was recast to reflect the realigned reportable segments. We are organized into two core business segments, Mission Technology Solutions and Sustainable Technology Solutions and one non-core business segment as described below: Mission Technology Solutions. Our Mission Technology Solutions business segment provides full life-cycle support solutions to defense, intelligence, space, aviation and other programs and missions for military and other government agencies primarily in the U.S., U.K. and Australia. KBR's full-spectrum solutions span research and development, advanced prototyping, acquisition support, systems engineering, C5ISR, cyber analytics, space domain awareness, test and evaluation, data analytics and integration, systems integration and program management, global supply chain management, operations readiness and support and professional advisory s …

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"Accumulated Other Comprehensive Loss Changes in AOCL, net of tax, by component Dollars in millions Accumulated foreign currency translation adjustments Accumulated pension liability adjustments Changes in fair value of derivatives Total Balance at January 2, 2026 $ (248) $ (688) $ 8 $ (928) Other comprehensive income (loss) adjustments before reclassifications (22) 8 (14) Amounts reclassified from AOCL 7 (6) 1 Net other comprehensive income (loss) (22) 7 2 (13) Balance at July 3, 2026 $ (270) $ (681) $ 10 $ (941) Dollars in millions Accumulated foreign currency translation adjustments Accumulated pension liability adjustments Changes in fair value of derivatives Total Balance at January 3, 2025 $ (320) $ (655) $ 29 $ (946) Other comprehensive income (loss) adjustments before reclassifications 88 (3) 85 Amounts reclassified from AOCL 2 (9) (7) Net other comprehensive income (loss) 88 2 (12) 78 Balance at July 4, 2025 $ (232) $ (653) $ 17 $ (868) Reclassifications out of AOCL, net of tax, by component Six months ended Dollars in millions July 3, 2026 July 4, 2025 Affected line item on the Condensed Consolidated Statements of Operations Accumulated pension liability adjustments Prior service cost amortization $ $ (1) See (a) below Recognized actuarial loss (8) (2) See (a) below Tax benefit 1 1 Provision for income taxes Net pension and post-retirement benefits $ (7) $ (2) Net of tax Changes in fair value for derivatives Interest rate swap settlements $ 7 $ 11 Interest expense T …

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