KBR, INC., 10-Q filed on 4/25/2013
Quarterly Report
Document And Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 12, 2013
Document and Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2013 
 
Entity Registrant Name
KBR, INC. 
 
Entity Central Index Key
0001357615 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
147,809,878 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
KBR 
 
Consolidated Statements Of Income (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Revenue:
 
 
Services
$ 1,829 
$ 1,964 
Equity in earnings of unconsolidated affiliates, net
30 
37 
Total revenue
1,859 
2,001 
Operating costs and expenses:
 
 
Cost of services
1,673 
1,838 
General and administrative
52 
55 
Gain on disposition of assets, net
(4)
Total operating costs and expenses
1,726 
1,889 
Operating income
133 
112 
Interest expense, net
(1)
(2)
Foreign currency gains (losses), net
(4)
(1)
Other non-operating expense
(1)
(2)
Income before income taxes and noncontrolling interests
127 
107 
Provision for income taxes
(30)
(9)
Net income
97 
98 
Net income attributable to noncontrolling interests
(9)
(7)
Net income attributable to KBR
$ 88 
$ 91 
Net income attributable to KBR per share:
 
 
Basic
$ 0.59 
$ 0.61 
Diluted
$ 0.59 
$ 0.61 
Basic weighted average common shares outstanding
147 
148 
Diluted weighted average common shares outstanding
148 
149 
Cash dividends declared per share
$ 0 
$ 0.05 
Consolidated Statements Of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Statement of Other Comprehensive Income [Abstract]
 
 
Net income
$ 97 
$ 98 
Net cumulative translation adjustments (CTA)[Abstract]
 
 
Cumulative translation adjustments, net of tax
(8)
Reclassification adjustment for CTA included in net income
 
(3)
Reclassification adjustment for pension liability losses included in net income
 
Net cumulative translation adjustment, net of tax of $0 and $0
(7)
(1)
Unrealized gains (losses) on derivatives:
 
 
Unrealized holding gains (losses) on derivatives, net of tax
(1)
Reclassification adjustments for losses included in net income
Net unrealized gain (loss) on derivatives, net of taxes of $0 and $(1)
(1)
Other comprehensive income (loss), net of tax
(1)
Comprehensive income
96 
105 
Less: Comprehensive income attributable to noncontrolling interests
(9)
(8)
Comprehensive income attributable to KBR
87 
97 
Reclassification out of Accumulated Other Comprehensive Income [Member]
 
 
Net cumulative translation adjustments (CTA)[Abstract]
 
 
Reclassification adjustment for CTA included in net income
 
Accumulated Defined Benefit Plans Adjustment [Member] |
Reclassification out of Accumulated Other Comprehensive Income [Member]
 
 
Net cumulative translation adjustments (CTA)[Abstract]
 
 
Income (Loss) from Continuing Operations, Including Portion Attributable to Noncontrolling Interest
$ 7 
 
Consolidated Statements Of Comprehensive Income (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Statement of Other Comprehensive Income [Abstract]
 
 
CTA, taxes
$ 0 
$ 0 
Pension liability adjustment, taxes
(2)
(2)
Net unrealized gain (loss) on derivatives, tax
$ 0 
$ (1)
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and equivalents
$ 904 
$ 1,053 
Receivables:
 
 
Accounts receivable, net of allowance for bad debts of $15 and $24
1,280 
1,196 
Unbilled receivables on uncompleted contracts
784 
704 
Total receivables
2,064 
1,900 
Current deferred income tax asset
194 
251 
Other current assets
333 
464 
Total current assets
3,495 
3,668 
Property, plant, and equipment, net of accumulated depreciation of $356 and $364 (including net PPE of $72 and $75 owned by a variable interest entity – see Note 15)
390 
390 
Goodwill
778 
779 
Intangible assets, net
94 
99 
Equity in and advances to related companies
202 
217 
Noncurrent deferred income tax asset
164 
203 
Noncurrent unbilled receivables on uncompleted contracts
294 
294 
Other noncurrent assets
130 
117 
Total assets
5,547 
5,767 
Current liabilities:
 
 
Accounts payable
766 
756 
Due to former parent, net
49 
49 
Advance billings on uncompleted contracts
522 
536 
Reserve for estimated losses on uncompleted contracts
47 
56 
Employee compensation and benefits
226 
242 
Current non-recourse project-finance debt of a variable interest entity (Note 15)
10 
Other current liabilities
404 
628 
Total current liabilities
2,023 
2,277 
Noncurrent employee compensation and benefits
471 
511 
Noncurrent non-recourse project-finance debt of a variable interest entity (Note 15)
79 
84 
Other noncurrent liabilities
211 
217 
Noncurrent income tax payable
89 
90 
Noncurrent deferred tax liability
75 
77 
Total liabilities
2,948 
3,256 
KBR Shareholders' equity:
 
 
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding
Common stock, $0.001 par value, 300,000,000 shares authorized, 173,218,898 and 172,367,045 shares issued, and 147,584,764 and 148,143,420 shares outstanding
Paid-in capital in excess of par (PIC)
2,056 
2,049 
Accumulated other comprehensive loss (AOCL)
(611)
(610)
Retained earnings
1,797 
1,709 
Treasury stock, 25,634,134 shares and 24,223,625 shares, at cost
(610)
(606)
Total KBR shareholders' equity
2,632 
2,542 
Noncontrolling interests (NCI)
(33)
(31)
Total shareholders' equity
2,599 
2,511 
Total liabilities and shareholders' equity
$ 5,547 
$ 5,767 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2011
Receivables:
 
 
Allowance for bad debts
$ 16 
$ 15 
Property, plant, and equipment:
 
 
Accumulated depreciation
355 
356 
PP&E owned by a VIE, net
$ 65 
$ 72 
KBR Shareholders' equity:
 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
50,000,000 
50,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
300,000,000 
300,000,000 
Common stock, shares issued
173,515,165 
173,218,898 
Common stock, shares outstanding
147,751,679 
147,584,764 
Treasury stock, shares
25,763,486 
25,634,134 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Cash flows from operating activities:
 
 
Net income
$ 97 
$ 98 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
15 
16 
Equity in earnings of unconsolidated affiliates
(30)
(37)
Deferred income tax (benefit) expense
81 
25 
Gain on disposition of assets, net
(4)
Other
Changes in operating assets and liabilities:
 
 
Receivables
(95)
132 
Unbilled receivables on uncompleted contracts
(88)
(148)
Accounts payable
17 
(4)
Advance billings on uncompleted contracts
(5)
(181)
Accrued employee compensation and benefits
(28)
(29)
Reserve for loss on uncompleted contracts
(10)
(4)
Collection (repayment) of advances from (to) unconsolidated affiliates, net
(3)
Distributions of earnings from unconsolidated affiliates
41 
12 
Other, net
(96)
10 
Total cash flows provided by operating activities
(93)
(107)
Cash flows from investing activities:
 
 
Capital expenditures
(20)
(16)
Proceeds from sale of assets and investments
(2)
(Investment in) / return equity method joint ventures
Total cash flows provided by (used in) investing activities
(20)
(15)
Cash flows from financing activities:
 
 
Payments to reacquire common stock
(6)
(7)
Distributions to noncontrolling interests, net
(11)
(5)
Payments of dividends to shareholders
(7)
Net proceeds from issuance of stock
Excess tax benefits from stock-based compensation
Total cash flows used in financing activities
(15)
(15)
Effect of exchange rate changes on cash
(21)
Increase (decrease) in cash and equivalents
(149)
(129)
Cash and equivalents at beginning of period
1,053 
966 
Cash and equivalents at end of period
904 
837 
Supplemental disclosure of cash flow information:
 
 
Cash paid for interest
Cash paid for income taxes (net of refunds)
17 
14 
Noncash operating activities
 
 
Other assets change for Barracuda arbitration and FCPA matters (Note 10)
(219)
Other liabilities change for Barracuda arbitration and FCPA matters (Note 10)
$ 219 
$ (3)
Description Of Company And Significant Accounting Policies
Description of Company and Significant Accounting Policies
Description of Company and Basis of Presentation

KBR, Inc., a Delaware corporation, was formed on March 21, 2006. KBR, Inc. and its subsidiaries (collectively, “KBR”) is a global engineering, construction and services company supporting the energy, hydrocarbons, government services, minerals, civil infrastructure, power, industrial and commercial markets. Headquartered in Houston, Texas, we offer a wide range of services through our Hydrocarbons; Infrastructure, Government and Power (“IGP”); Services; and Other business segments. See Note 4 for additional financial information about our business segments.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules of the United States Securities and Exchange Commission (“SEC”) for interim financial statements and do not include all annual disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”).  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC.  We believe that the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all normal adjustments that management considers necessary for a fair presentation of our condensed consolidated results of operations, financial position and cash flows.  Operating results for interim periods are not necessarily indicative of results to be expected for the full fiscal year 2013 or any other future periods.

Our condensed consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities where we are the primary beneficiary (see Note 10). The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies. The cost method is used when we do not have the ability to exert significant influence. All intercompany accounts and transactions are eliminated in consolidation.

Use of estimates

The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We believe the most significant estimates and judgments are associated with revenue recognition on engineering and construction contracts and government contracts, recognition of estimated losses on uncompleted contracts, recoverability assessments that must be periodically performed with respect to goodwill and intangible asset balances and deferred tax assets, estimation of pension obligations, assessment of variable interest entities as well as the determination of liabilities related to contingencies. Actual results could differ materially from those estimates.

Certain prior quarter amounts have been reclassified to conform to current quarter presentation on the condensed consolidated statements of cash flows.

Accounting for pre-contract costs

Pre-contract costs incurred in anticipation of a specific contract award are deferred only if the costs can be directly associated with a specific anticipated contract and their recoverability from that contract is probable. Pre-contract costs related to unsuccessful bids are written off no later than the period we are informed that we are not awarded the specific contract. Costs related to one-time activities such as introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or commencing new operations are expensed when incurred. We had no deferred pre-contract costs at March 31, 2013 and December 31, 2012.

Cash and equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and equivalents include cash related to contracts in progress as well as cash held by our joint ventures that we consolidate for accounting purposes. Joint venture cash balances are limited to joint venture activities and are not available for other projects, general cash needs or distributions to us without approval of the board of directors of the respective joint ventures. Cash held by our joint ventures that we consolidate for accounting purposes totaled approximately $197 million at March 31, 2013 and $201 million at December 31, 2012. We expect to use the cash in these joint ventures to pay project costs.

Accounting for retainage receivable

Retainage receivable represents balances billed but not paid by clients pursuant to retainage provisions in the contracts and will be due upon completion of specific tasks or the completion of the contract. Our retainage receivable excludes amounts withheld under Form 1s related to certain contracts with the U.S. government (see Note 5). As of March 31, 2013 and December 31, 2012, the current portion of retainage receivable included in accounts receivable was $100 million and $84 million, respectively, and the noncurrent portion of retainage receivable included in other noncurrent assets was $12 million and $11 million, respectively.
Income Per Share
Income Per Share
Income per Share

Basic income per share is based upon the weighted average number of common shares outstanding during the period. Dilutive income per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect had been issued using the treasury stock method. A reconciliation of the number of shares used for the basic and diluted income per share calculations is as follows:
 
Three Months Ended March 31,
Millions of Shares
2013
 
2012
Basic weighted average common shares outstanding
147

 
148

Stock options and restricted shares
1

 
1

Diluted weighted average common shares outstanding
148

 
149



For purposes of applying the two-class method in computing earnings per share, net earnings allocated to participating securities was approximately $0.3 million for the three months ended March 31, 2013 and $0.4 million for the three months ended March 31, 2012. The diluted earnings per share calculation did not include 1.2 million and 0.6 million antidilutive weighted average shares for the three months ended March 31, 2013 and 2012, respectively.
Percentage-Of-Completion Contracts
Percentage-of-Completion Contracts
Percentage-of-Completion Contracts

Unapproved change orders and claims

The amounts of unapproved change orders and claims included in determining the profit or loss on contracts and recorded in current and noncurrent unbilled receivables on uncompleted contracts are as follows:
 
March 31,
 
December 31,
Millions of dollars
2013
 
2012
Claims
$
129

 
$
126

Unapproved change orders
$
57

 
$
35



As of March 31, 2013, claims and unapproved change orders related to several projects. Included in the table above are claims associated with the reimbursable portion of an EPC contract to construct an LNG facility for which we have recognized additional contract revenue totaling $109 million. The claims on this project represent incremental subcontractor costs that we are legally entitled to recover from the customer under the terms of the EPC contract. See Note 5 for a discussion of U.S. government claims, which are not included in the table above. Also included in the table above are unapproved change orders of $37 million related to a building expansion project and $16 million associated with our two Indonesian projects for which we are currently negotiating contractual terms with the customer.

For our unconsolidated subsidiaries, our share of claims and unapproved change orders was $16 million and $30 million, respectively, as of March 31, 2013.

Liquidated damages

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

Based upon our evaluation of our performance and other legal analysis, we have not accrued for possible liquidated damages related to several projects totaling $2 million at March 31, 2013 and December 31, 2012, respectively, (including amounts related to our share of unconsolidated subsidiaries) that we could incur based upon completing the projects as currently forecasted.

Advances

We receive customer advances in the normal course of business.  Most of these are periodic progress payments and are applied to invoices usually within one to three months. However, as of March 31, 2013 and December 31, 2012, we held advances from customers of $73 million and $82 million, respectively, which were designed to assist us in financing project activity including subcontractor costs. These balances are included in advance billings on uncompleted contracts in our condensed consolidated balance sheets. For these customers, the balances in trade accounts receivable and unbilled receivables on uncompleted contracts exceeded the amount of the advances.

Changes in Estimates

During the quarter ended March 31, 2013, significant revisions to contract estimates had a $38 million positive impact on the segment operating income of our Hydrocarbons business group as a result of revised project estimates on two of our projects in our Gas Monetization business unit.
Business Segment Information
Business Segment Information
Business Segment Information

We provide a wide range of services and the management of our business is heavily focused on major projects within each of our reportable segments. At any given time, a relatively few number of projects and joint ventures represent a substantial part of our operations. Our equity in earnings and losses of unconsolidated affiliates that are accounted for using the equity method of accounting is included in revenue of the applicable segment.

Reportable segment performance is evaluated by our chief operating decision maker using operating segment income which is defined as operating segment revenue less the cost of services and segment overhead directly attributable to the operating segment. Reportable segment income excludes certain cost of services and general and administrative expenses directly attributable to the operating segment that is managed and reported at the corporate level and corporate general and administrative expenses. Labor cost absorption in the following table represents income or expense generated by our central service labor and resource groups for amounts charged to the operating segments. Additionally in the following table, depreciation and amortization associated with corporate assets are allocated to our operating segments for determining operating income or loss.

The table below presents information on our reportable segments.
 
Three Months Ended March 31,
Millions of dollars
2013
 
2012
Revenue:
 
 
 
Hydrocarbons
$
947

 
$
1,116

Infrastructure, Government and Power
407

 
518

Services
485

 
348

Other
20

 
19

Total revenue
$
1,859

 
$
2,001

Segment operating income:
 
 
 
Hydrocarbons
$
148

 
$
105

Infrastructure, Government and Power
27

 
39

Services
18

 
12

Other
7

 
10

Segment operating income
200

 
166

Unallocated amounts:
 
 
 
Labor cost absorption income (expense)
(15
)
 
1

Corporate general and administrative expense
(52
)
 
(55
)
Total operating income
$
133

 
$
112

U.S. Government Matters
U.S. Government Matters
U.S. Government Matters

We provide substantial work under our government contracts to the United States Department of Defense (“DoD”) and other governmental agencies. These contracts include our worldwide United States Army logistics contracts, known as LogCAP III and IV.

Given the demands of working in Iraq and elsewhere for the U.S. government, we have disagreements and have experienced performance issues with the various government customers for which we work. When performance issues arise under any of our government contracts, the government retains the right to pursue remedies, which could include termination, under any affected contract. If any contract were so terminated, our ability to secure future contracts could be adversely affected, although we would receive payment for amounts owed for our allowable costs under cost-reimbursable contracts. Other remedies that could be sought by our government customers for any improper activities or performance issues include sanctions such as forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government. Further, the negative publicity that could arise from disagreements with our customers or sanctions as a result thereof could have an adverse effect on our reputation in the industry, reduce our ability to compete for new contracts and may also have a material adverse effect on our business, financial condition, results of operations and cash flow.

We have experienced and expect to be a party to various claims against us by employees, third parties, soldiers, subcontractors and others that have arisen out of our work in Iraq such as claims for wrongful termination, personal injury claims by third parties and army personnel, and subcontractor claims. While we believe we conduct our operations safely, the environments in which we operate often lead to these types of claims. We believe the vast majority of these claims are governed by the Defense Base Act or precluded by other defenses. We have a dispute resolution program under which most employment claims are subject to binding arbitration. However, as a result of amendments to the Department of Defense Appropriations Act of 2010, certain types of employee claims cannot be compelled to binding arbitration. An unfavorable resolution or disposition of these matters could have a material adverse effect on our business, results of operations, financial condition and cash flow.

Government Compliance Matters

The negotiation, administration and settlement of our contracts with the U.S. government, consisting primarily of DoD contracts, are subject to audit by the Defense Contract Audit Agency (“DCAA”), which serves in an advisory role to the Defense Contract Management Agency (“DCMA”), which is responsible for the administration of our contracts. The scope of these audits include, among other things, the allowability, allocability and reasonableness of incurred costs, approval of annual overhead rates, compliance with the Federal Acquisition Regulation (“FAR”) and Cost Accounting Standards (“CAS”), compliance with certain unique contract clauses and audits of certain aspects of our internal control systems. Issues identified during these audits are typically discussed and reviewed with us, and certain matters are included in audit reports issued by the DCAA, with its recommendations to our customer’s Administrative Contracting Officer (“ACO”). We attempt to resolve all issues identified in audit reports by working directly with the DCAA and the ACO. When agreement cannot be reached, the DCAA may issue a Form 1, “Notice of Contract Costs Suspended and/or Disapproved,” which recommends withholding the previously paid amounts or it may issue an advisory report to the ACO. KBR is permitted to respond to these actions and provide additional support. At March 31, 2013, we have open Form 1s from the DCAA recommending suspension of payments totaling approximately $283 million associated with our contract costs incurred in prior years, of which $138 million has been withheld from our current billings. As a consequence, for certain of these matters, we have withheld $50 million from our subcontractors under the payment terms of those contracts. In addition, we have outstanding demand letters received from our customer requesting that we remit a total of $99 million of disapproved costs for which we do not believe we have a legal obligation to pay. We continue to work with our ACOs, the DCAA and our subcontractors to resolve these issues. However, for certain of these matters, we have filed claims with the Armed Services Board of Contract Appeals (“ASBCA”) or the United States Court of Federal Claims (“U.S. COFC”).

KBR excludes from billings to the U.S. government costs that are potentially unallowable, expressly unallowable, or mutually agreed to be unallowable, or not allocable to government contracts pursuant to applicable regulations. Revenue recorded for government contract work is reduced at the time we identify and estimate potentially refundable costs related to issues that may be categorized as disputed or unallowable as a result of cost overruns or the audit process. Our estimates of potentially unallowable costs are based upon, among other things, our internal analysis of the facts and circumstances, terms of the contracts and the applicable provisions of the FAR and CAS, quality of supporting documentation for costs incurred and subcontract terms as applicable. From time to time, we engage outside counsel to advise us on certain matters in determining whether certain costs are allowable. We also review our analysis and findings with the ACO as appropriate. In some cases, we may not reach agreement with the DCAA or the ACO regarding potentially unallowable costs which may result in our filing of claims in various courts such as the ASBCA or the U.S. COFC. We only include amounts in revenue related to disputed and potentially unallowable costs when we determine it is probable that such costs will result in the collection of revenue. We generally do not recognize additional revenue for disputed or potentially unallowable costs for which revenue has been previously reduced until we reach agreement with the DCAA and/or the ACO that such costs are allowable.

Certain issues raised as a result of contract audits and other investigations are discussed below.

Private Security. In 2007, we received a Form 1 from the Department of the Army ("Army") informing us of their intent to adjust payments under the LogCAP III contract associated with the cost incurred for the years 2003 through 2006 by certain of our subcontractors to provide security to their employees. Based on that notice, the Army withheld its initial assessment of $20 million. The Army based its initial assessment on one subcontract wherein, based on communications with the subcontractor, the Army estimated 6% of the total subcontract costs related to the private security. We subsequently received Form 1s from the DCAA disapproving an additional $83 million of costs for a total of $103 million alleged to have been incurred by us and our subcontractors to provide security during the same periods. In late January 2013, the Principal Contracting Officer (PCO) issued a Contracting Officers Final Determination (“COFD”) which concluded that only $55 million was properly subject to challenge and therefore, the prior Form 1 for $103 million was no longer relevant. The Army has withheld an additional $25 million in payments from us bringing the total payments withheld to $45 million as of March 31, 2013 out of the Form 1s issued to date of $55 million. Of these amounts, approximately $20 million relates to indirect costs of security incurred by KBR and the remainder relates to alleged costs incurred by KBR's subcontractors.

The Army indicated that they believe our LogCAP III contract prohibits us and our subcontractors from billing costs of privately armed security. We believe that, while the LogCAP III contract anticipates that the Army will provide force protection to KBR employees, it does not prohibit us or any of our subcontractors from using private security services to provide force protection to KBR or subcontractor personnel. In addition, a significant portion of our subcontracts are competitively bid fixed price subcontracts. As a result, we do not receive details of the subcontractors’ cost estimate nor are we legally entitled to it. Further, we have not paid our subcontractors any additional compensation for security services. Accordingly, we believe that we are entitled to reimbursement by the Army for the cost of services provided by us or our subcontractors, even if they incurred costs for private force protection services. Therefore, we do not agree with the Army’s position that such costs are unallowable and that they are entitled to withhold amounts incurred for such costs.

We have provided at the Army’s request information that addresses the use of armed security either directly or indirectly charged to LogCAP III. In 2007, we filed a complaint in the ASBCA to recover $44 million of the amounts withheld from us. In April 2012, the ASBCA ruled, as requested by KBR, that our contract with the Army does not prohibit the use of private security contractors by either KBR or its subcontractors.  However, our motion to dismiss was denied on grounds that potential fact issues remain related to the reasonableness of the private security costs charged to the contract.  The three private security-related appeals currently pending before the ASBCA now have been consolidated for a single, four-week hearing starting April 15, 2013. These appeals potentially involve the alleged use of private security contractors by both KBR and up to 33 of its LOGCAP III subcontractors. We believe these sums were properly billed under our contract with the Army. At this time, we believe the likelihood that we would incur a loss related to this matter is remote. We have not adjusted our revenues or accrued any amounts related to this matter.

Containers. In June 2005, the DCAA recommended withholding certain costs associated with providing containerized housing for soldiers and supporting civilian personnel in Iraq. The DCMA agreed that the costs be withheld pending receipt of additional explanation or documentation to support the subcontract costs. During the first quarter of 2011, we received a Form 1 from the DCAA disapproving $25 million in costs related to containerized housing that had previously been deemed allowable. As of March 31, 2013, $51 million of costs have been suspended under Form 1s of which $26 million have been withheld from us by our customer. We have withheld $30 million from our subcontractor related to this matter. In April 2008, we filed a counterclaim in arbitration against our LogCAP III subcontractor, First Kuwaiti Trading Company, to recover the $51 million we paid to the subcontractor for containerized housing as further described under the caption First Kuwaiti Trading Company arbitration below. During the first quarter of 2011, we filed a complaint before the ASBCA to contest the Form 1s and to recover the amounts withheld from us by our customer. At the request of the government, that complaint was dismissed without prejudice in January 2013 so that the government could pursue its False Claims Act suit described below. We are free to re-file the complaint in the future. We believe that the costs incurred associated with providing containerized housing are reasonable, and we intend to vigorously defend ourselves in this matter. We do not believe that we face a risk of material loss from any disallowance of these costs in excess of the amounts we have withheld from subcontractors and the loss accruals we have recorded. At this time, we believe that the likelihood we would incur a loss related to this matter in excess of the amounts we have withheld from subcontractors and the loss accruals we have recorded is remote. This matter is also the subject of a separate claim filed by the DOJ for alleged violation of the False Claims Act as discussed further below under the heading “Investigations, Qui Tams and Litigation.”

Dining facilities. In 2006, the DCAA raised questions regarding our billings and price reasonableness of costs related to dining facilities in Iraq. We responded to the DCMA that our costs are reasonable. As of March 31, 2013, we have outstanding Form 1s from the DCAA disapproving $104 million in costs related to these dining facilities until such time we provide documentation to support the price reasonableness of the rates negotiated with our subcontractor and demonstrate that the amounts billed were in accordance with the contract terms. We believe the prices obtained for these services were reasonable and intend to vigorously defend ourselves on this matter. We filed claims in the U.S. COFC or ASBCA to recover $55 million of the $57 million withheld from us by the customer. In April 2012, the U.S. COFC ruled that KBR's negotiated price for certain DFAC services were not reasonable and that we are entitled to $12 million of the total $41 million withheld from us by our customer related to one of our subcontractors, Tamimi. As a result of this ruling, we recognized a noncash, pre-tax charge of $28 million as a reduction to revenue related to the disallowed portion of the questioned costs in the second quarter of 2012. We appealed the U.S. COFC ruling and are awaiting a hearing date. Prior to the U.S. COFC ruling, Tamimi filed for arbitration against us in 2009 to recover the payments we withheld from Tamimi pending the resolution of Form 1s with our customer. In December 2010, the arbitration panel ruled that our subcontract terms were not sufficient to hold retention from Tamimi for price reasonableness matters and awarded the subcontractor $38 million including interest and certain legal costs. We paid the award to Tamimi during the third quarter of 2011. We do not believe we have the ability to recover the disallowed portion of the questioned costs previously paid to Tamimi. With respect to remaining questions raised regarding billing in accordance with contract terms, as of March 31, 2013, we believe it is reasonably possible that we could incur losses in excess of the amount accrued for possible subcontractor costs billed to the customer that were possibly not in accordance with contract terms. However, we do not believe we face a risk of material loss from any disallowance of these costs in excess of amounts withheld from subcontractors. As of March 31, 2013, we had withheld $16 million in payments from several of our subcontractors pending the resolution of these remaining matters with our customer.

In March 2011, the DOJ filed a counterclaim in the U.S. COFC alleging KBR employees accepted bribes from Tamimi in exchange for awarding a master agreement for DFAC services to Tamimi. The DOJ sought disgorgement of all funds paid to KBR under the master agreement as well as all award fees paid to KBR under the related task orders. Trial in the U.S. COFC took place during the fourth quarter of 2011. In conjunction with the April 2012 ruling on the Tamimi matter discussed above, the U.S. COFC issued a judgment in favor of KBR on the common law fraud counterclaim ruling that the fraud allegations brought by the DOJ were without merit. The DOJ has filed a notice of appeal. Briefing has been completed and oral arguments before the Federal Circuit Court of Appeals are scheduled for May 2013.

In August 2011, another DFAC subcontractor, Gulf Catering Company, filed for arbitration in the London Court of International Arbitration to recover $11 million for payments we have withheld from them pending resolution of outstanding Form 1s with our customer. The hearing was held in November 2012 in London and we expect a decision in the second quarter of 2013. As noted above, we have claims pending in the U.S. COFC to recover these amounts from the U.S. government.

Transportation costs. In 2007, the DCAA raised a question about our compliance with the provisions of the Fly America Act. During the first quarter of 2011, we received a Form 1 from the DCAA totaling $6 million for alleged violations of the Fly America Act in 2004. Subject to certain exceptions, the Fly America Act requires Federal employees and others performing U.S. government-financed contracts to travel by U.S. flag air carriers. There are times when we transported personnel in connection with our services for the U.S. military where we may not have been in compliance with the Fly America Act and its interpretations through the Federal Acquisition Regulations and the Comptroller General. In October 2011, at the request of the DCMA, we submitted an estimate of the impact of our non-compliance with the Fly America Act for 2003 and 2004. In February 2012, the DCAA commenced an audit of our estimate. This audit is in process. Included in our March 31, 2013 and December 31, 2012 accompanying consolidated balance sheets is an accrued estimate of the cost incurred for these potentially noncompliant flights. As a result of their audit, the DCAA may consider additional flights to be noncompliant resulting in potentially larger amounts of disallowed costs than the amount we have accrued. At this time, we cannot estimate a range of reasonably possible losses that may have been incurred, if any, in excess of the amount accrued. We will continue to work with our customer to resolve this matter.

In the first quarter of 2011, we received a Form 1 from the DCAA disapproving certain transportation costs totaling $27 million associated with replacing employees who were deployed in Iraq and Afghanistan for less than 179 days.  The DCAA claims these replacement costs violate the terms of the LogCAP III contract which expressly disallow certain costs associated with the contractor rotation of employees who have deployed less than 179 days including costs for transportation, lodging, meals, orientation and various forms of per diem allowances.  We disagree with the DCAA’s interpretation and application of the contract terms as it was applied to circumstances outside of our control including sickness, death, termination for cause or resignation and that such costs should be allowable.  We do not believe we face a risk of material loss from any disallowance of these costs in excess of the loss accruals we have recorded.

Construction services. From February 2009 through September 2010, we received Form 1s from the DCAA disapproving $25 million in costs related to work performed under our CONCAP III contract with the U.S. Navy to provide emergency construction services primarily to government facilities damaged by Hurricanes Katrina and Wilma. The DCAA claims the costs billed to the U.S. Navy primarily related to subcontract costs that were either inappropriately bid, included unallowable profit markup or were unreasonable. In February 2012, the Contracting Officer rendered a COFD allowing $10 million and disallowing $15 million of direct costs. We filed an appeal with the ASBCA in June 2012. As of March 31, 2013, the U.S. Navy has withheld $10 million from us. We believe we undertook adequate and reasonable steps to ensure that proper bidding procedures were followed and the amounts billed to the customer were reasonable and not in violation of the FAR. Notwithstanding, as of March 31, 2013, we have accrued our estimate of probable loss related to this matter and do not believe we face a risk of material loss in excess of the amounts accrued.

Investigations, Qui Tams and Litigation

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

McBride Qui Tam suit. In September 2006, we became aware of a qui tam action filed against us in the U.S. District Court in the District of Columbia by a former employee alleging various wrongdoings in the form of overbillings to our customer on the LogCAP III contract. This case was originally filed pending the government’s decision whether or not to participate in the suit. In June 2006, the government formally declined to participate. The principal allegations are that our compensation for the provision of Morale, Welfare and Recreation (“MWR”) facilities under LogCAP III is based on the volume of usage of those facilities and that we deliberately overstated that usage. In accordance with the contract, we charged our customer based on actual cost, not based on the number of users. It was also alleged that, during the period from November 2004 into mid-December 2004, we continued to bill the customer for lunches, although the dining facility was closed and not serving lunches. There are also allegations regarding housing containers and our provision of services to our employees and contractors. On July 5, 2007, the court granted our motion to dismiss the qui tam claims and to compel arbitration of employment claims including a claim that the plaintiff was unlawfully discharged. The majority of the plaintiff’s claims were dismissed but the plaintiff was allowed to pursue limited claims pending discovery and future motions. Substantially all employment claims were sent to arbitration under the Company’s dispute resolution program and were subsequently resolved in our favor. In January 2009, the Relator filed an amended complaint which is pending a ruling on a discovery matter before further motions can be filed. On September 17, 2012, the Relator filed an objection to the Magistrate's ruling, essentially appealing the ruling to the U.S. District Court. The motion remained pending for several years. On November 19, 2012, the U.S. District Court affirmed and adopted the prior ruling, limiting the Relator's claims to our sites and dates previously claimed. We have completed the remaining depositions and the Magistrate set a schedule for the filing of any dispositive motions due on or before April 30, 2013. No trial date has been set, pending resolution of dispositive motions. We believe the Relator's claim is without merit and that the likelihood that a loss has been incurred is remote. As of March 31, 2013, no amounts have been accrued.

First Kuwaiti Trading Company arbitration. In April 2008, First Kuwaiti Trading Company ("FKTC" or "First Kuwaiti"), one of our LogCAP III subcontractors, filed for arbitration of a subcontract under which KBR had leased vehicles related to work performed on our LogCAP III contract. The FKTC arbitration is conducted under the rules of the American Association / International Centre for Dispute Resolution and the venue is in the District of Columbia. First Kuwaiti alleged that we did not return or pay rent for many of the vehicles and seeks damages in the amount of $134 million. We filed a counterclaim to recover amounts which may ultimately be determined due to the government for the $51 million in suspended costs as discussed in the preceding section of this footnote titled “Containers.” To date, arbitration hearings for four subcontracts have taken place primarily related to claims involving unpaid rents and damages on lost or unreturned vehicles. The arbitration panel has awarded $16 million to FKTC for claims involving unpaid rents and damages on lost or unreturned vehicles, repair costs on certain vehicles, damages suffered as a result of late vehicle returns and interest thereon, net of maintenance, storage and security costs awarded to KBR. In addition, we have stipulated that we owe FKTC $26 million in connection with five other subcontracts. No payments are expected to occur until all claims are arbitrated and awards finalized. The final hearing on FKTC's claims was heard before the arbitration panel in January 2013, and there is one more claim that will be submitted to the arbitration panel for decision without the need for a hearing. KBR's counterclaims have not yet been scheduled for hearing. We believe any damages ultimately awarded to First Kuwaiti will be billable under the LogCAP III contract. Accordingly, we have accrued amounts payable and a related unbilled receivable for the amounts awarded to First Kuwaiti pursuant to the terms of the contract.

Electrocution litigation. During 2008, a lawsuit was filed against KBR in Pittsburgh, PA, in the Allegheny County Common Pleas Court alleging that the Company was responsible for an electrical incident which resulted in the death of a soldier. This incident occurred at the Radwaniyah Palace Complex near Baghdad, Iraq. It is alleged in the suit that the electrocution incident was caused by improper electrical maintenance or other electrical work. KBR denies that its conduct was the cause of the event and denies legal responsibility. Plaintiffs are claiming unspecified damages for personal injury, death and loss of consortium by the parents. On July 13, 2012, the Court granted our motions to dismiss, concluding that the case is barred by the Political Question Doctrine and preempted by the Combatant Activities Exception to the Federal Tort Claims Act. The plaintiffs filed their notice of appeal with the Third Circuit Court of Appeals in the Western District of Pennsylvania, and filed their first brief October 12, 2012. We filed our brief on November 30, 2012, and the Appellants filed their reply brief on December 20, 2012. Oral argument is expected in the first half of 2013. At this time, we believe the likelihood we would incur a loss related to this matter is remote. As of March 31, 2013, no amounts have been accrued.

Burn Pit litigation. From November 2008 through March 2013, KBR was served with over 50 lawsuits in various states alleging exposure to toxic materials resulting from the operation of burn pits in Iraq or Afghanistan in connection with services provided by KBR under the LogCAP III contract. Each lawsuit has multiple named plaintiffs collectively representing approximately 250 individual plaintiffs. The lawsuits primarily allege negligence, willful and wanton conduct, battery, intentional infliction of emotional harm, personal injury and failure to warn of dangerous and toxic exposures which has resulted in alleged illnesses for contractors and soldiers living and working in the bases where the pits were operated. The plaintiffs are claiming unspecified damages. All of the pending cases were removed to Federal Court and have been consolidated for multi-district litigation treatment before the U.S. Federal District Court in Baltimore, Maryland. In December 2010, the Court stayed virtually all discovery proceedings pending a decision from the Fourth Circuit Court of Appeals on three other cases involving the Political Question Doctrine and other jurisdictional issues. In May 2012, the Court denied plaintiffs' request for jurisdictional discovery. In June 2012, KBR filed a renewed motion to dismiss which was heard in July 2012. In February 2013, the Court dismissed the case against KBR, accepting all of KBR's defense claims including the Political Question Doctrine; the Combat Activities Exception in the Federal Tort Claims Act; and Derivative Sovereign Immunity. The plaintiff's filed their notice of appeal with the Fourth Circuit Court of Appeals on March 27, 2013. At this time we believe the likelihood that we would incur a loss related to this matter is remote. As of March 31, 2013, no amounts have been accrued.

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

On August 16, 2012, the court in the case pending in the U.S. District Court for the Southern District of Texas Court denied KBR's motion to dismiss plaintiffs' claims. On August 29, 2012, the court certified its order for immediate appeal under 28 U.S.C. § 1292(b) to the United States Court of Appeals for the Fifth Circuit, and stayed proceedings in the District Court pending the appeal. On November 28, 2012, the Fifth Circuit granted KBR permission to appeal, and the appeal is underway. At this time we believe the likelihood that we would incur a loss related to this matter is remote. As of March 31, 2013, no amounts have been accrued.

In the Oregon case, the Court denied KBR's motion to dismiss, and thereafter denied our request to certify the ruling for immediate appeal to the Ninth Circuit Court of Appeals.  On October 9, 2012, the case proceeded to trial on the merits and resulted in an adverse jury verdict against KBR. On November 2, 2012, a jury in the U.S. District Court for the District of Oregon issued a verdict in favor of the plaintiffs on their claims, and awarded them approximately $10 million in actual damages and $75 million in punitive damages. The potential financial impact is unknown until a final judgment is entered by the U.S. District Court for the District of Oregon, which may differ from the jury verdict. We filed post-verdict motions asking the court to overrule the verdict or order a new trial. Those motions were argued in late February 2013 and we do not yet have a ruling. We have also requested that the court allow us to appeal many legal issues to the Ninth Circuit Court of Appeals before additional trials are held. We have already filed proceedings to enforce our rights to reimbursement and payment pursuant to the Federal Acquisition Regulations under the Restore Iraqi Oil contract ("RIO contract") with the U.S. Army Corp. of Engineers. Following the final judgment, our actions may include appealing the decision on the same grounds as have been recognized in the Electrocution and the Burn pit matters. The timing of the final judgment and our ensuing actions are unknown at this time, and a jury verdict is not a final judgment in the case. At this time we believe the likelihood that we will ultimately incur a loss related to this matter is remote. As of March 31, 2013, no amounts have been accrued.

During the period of time since the first litigation was filed against us, we have incurred legal defense costs that we believe are reimbursable under the related customer contract. We have billed for these costs and we have filed claims to recover the associated costs incurred to date. On November 16, 2012, we filed a suit against the U.S. government in the U.S. COFC for denying indemnity in the sodium dichromate cases.  The RIO contract required KBR personnel to begin work in Iraq as soon as the invasion began in March 2003. Due to KBR's inability to procure adequate insurance coverage for this work, the Secretary of the Army approved the inclusion of an indemnification provision in the RIO Contract pursuant to Public Law 85-804. The claim is for more than $15 million in legal fees KBR has incurred in defending these cases and for any judgment that is issued against KBR in the litigation. On December 21, 2012, we also sent the USACE RIO Contracting Officer a certified claim for $23 million in legal costs associated with all of the sodium dichromate cases. The contracting officer declined to issue a decision on the claim. Therefore on March 6, 2013, we filed this claim for $23 million in the COFC. The COFC granted our request to treat this claim as related to the previously mentioned, pending indemnity claim. The two COFC cases are assigned to the same judge and we expect the two cases will proceed together. Contemporaneously, in February 2013, we filed a second claim with the RIO contracting officer due to notification we received of underfunding of the RIO contract. The contracting officer has not issued a decision on this claim, but if the contracting officer denies this second claim as he has done previously, we intend to add it to the two claims already filed with the COFC.

DOJ False Claims Act complaint - Containers. In November 2012, the DOJ filed a complaint in the U.S. District Court for the Central District of Illinois in Rock Island, IL, related to our settlement of delay claims by our subcontractor, FKTC, in connection with FKTC's provision of living trailers for the bed down mission in Iraq in 2003-2004. The DOJ alleges that KBR knew that FKTC had submitted inflated costs; that KBR did not verify the costs; that FKTC had contractually assumed the risk for the costs which KBR submitted to the government; that KBR concealed information about FKTC's costs from the government; that KBR claimed that an adequate price analysis had been done when in fact one had not been done; and that KBR submitted false claims for reimbursement to the government in connection with FKTC's services during the bed down mission. Our contractual dispute with the Army over this settlement has been ongoing since 2005. We believe these sums were properly billed under our contract with the Army and are not prohibited under the LogCAP III contract, and we strongly contend that no fraud was committed. We have moved to transfer the case to the Eastern District of Virginia, because it is the proper venue and we are seeking as speedy a trial as possible. We will move to dismiss the complaint once the motion to transfer is decided. At this time, we believe the likelihood that we would incur a loss related to this matter is remote. As of March 31, 2013, no amounts have been accrued.

Other Matters

Claims. Included in receivables in our consolidated balance sheets are claims for costs incurred under various government contracts totaling $213 million at March 31, 2013, of which $103 million is included in “Accounts receivable” and $110 million is included in “Unbilled receivables on uncompleted contracts.” These claims relate to contracts where our costs have exceeded the customer’s funded value of the task order. The $103 million of claims included in Accounts receivable results primarily from de-obligated funding on certain task orders that were also subject to Form 1s relating to certain DCAA audit issues discussed above.  We believe such disputed costs will be resolved in our favor at which time the customer will be required to obligate funds from appropriations for the year in which resolution occurs.  The remaining claims balance of $110 million primarily represents costs for which incremental funding is pending in the normal course of business.  The claims outstanding at March 31, 2013 are considered to be probable of collection and have been previously recognized as revenue.
Other Commitments And Contingencies
Other Commitments and Contingencies
Other Commitments and Contingencies

Foreign Corrupt Practices Act (“FCPA”) investigations

In February 2009, KBR LLC, entered a guilty plea to violations of the FCPA in the United States District Court, Southern District of Texas, Houston Division (the “Court”), related to the Bonny Island investigation. The plea agreement reached with the DOJ resolved all criminal charges in the DOJ’s investigation and called for the payment of a criminal penalty of $402 million, of which Halliburton was obligated to pay $382 million under the terms of the Master Separation Agreement (“MSA”), while we were obligated to pay $20 million. In addition, we settled a civil enforcement action by the SEC which called for Halliburton and KBR, jointly and severally, to make payments totaling $177 million, which was paid by Halliburton pursuant to the indemnification under the MSA. We also agreed to a period of organizational probation, during which we retained a monitor who assessed our compliance with the plea agreement and evaluated our FCPA compliance program over a three year period that ended on February 17, 2012. At the end of the three year period the monitor certified that KBR’s current anti-corruption compliance program is appropriately designed and implemented to ensure compliance with the FCPA and other applicable anti-corruption laws.

In February 2011, M.W. Kellogg Limited (“MWKL”) reached a settlement with the U.K. Serious Fraud Office (“SFO”) in which the SFO accepted that MWKL was not party to any unlawful conduct and assessed a civil penalty of approximately $11 million including interest and reimbursement of certain costs of the investigation, which was paid during the first quarter of 2011. The settlement terms included a full release of all claims against MWKL, its current and former parent companies, subsidiaries and other related parties including their respective current or former officers, directors and employees with respect to the Bonny Island project. Due to the indemnity from Halliburton under the MSA, we received approximately $6 million from Halliburton in the second quarter of 2011.

On March 18, 2013, we received a letter from the African Development Bank Group ("ADBG") stating that they are in the process of opening a formal investigation into corruption related to the Bonny Island project discussed above. In accordance with the indemnity clauses under the MSA, we notified Halliburton and they have responded that the matter does not fall within the scope of their indemnity.  We disagree with Halliburton's position and have taken necessary actions to preserve our rights. We are working with the ADBG to resolve the issue. At this time because we only recently received the letter from the ADBG and are still in the process of evaluating the matter, it is not possible to determine the outcome, financial implications or possible debarment of one or more KBR related entities arising from this investigation.

PEMEX Arbitration

In 1997 and 1998, we entered into three contracts with PEMEX, the project owner, to build offshore platforms, pipelines and related structures in the Bay of Campeche, offshore Mexico. The three contracts were known as Engineering, Procurement and Construction (“EPC”) 1, EPC 22 and EPC 28. All three projects encountered significant schedule delays and increased costs due to problems with design work, late delivery and defects in equipment, increases in scope and other changes. PEMEX took possession of the offshore facilities of EPC 1 in March 2004 after having achieved oil production but prior to our completion of our scope of work pursuant to the contract.

We filed for arbitration with the International Chamber of Commerce (“ICC”) in 2004 claiming recovery of damages of approximately $323 million for the EPC 1 project. PEMEX subsequently filed counterclaims totaling $157 million. In December 2009, the ICC ruled in our favor, and we were awarded a total of approximately $351 million including legal and administrative recovery fees as well as interest. PEMEX was awarded approximately $6 million on counterclaims, plus interest on a portion of that sum. In connection with this award, we recognized a gain of $117 million net of tax in 2009. The arbitration award is legally binding and on November 2, 2010, we received a judgment in our favor in the U.S. District Court for the Southern District of New York to recognize the award in the U.S. of approximately $356 million plus Mexican value added tax and interest thereon until paid. PEMEX initiated an appeal to the U.S. Court of Appeals for the Second Circuit and asked for a stay of the enforcement of the judgment while on appeal. The stay was granted, but PEMEX was required to post collateral of $395 million with the court registry. On February 16, 2012, the Second Circuit issued an order remanding the case to the District Court to consider if the decision of the Collegiate Court in Mexico, described below, would have affected the trial court’s ruling.

After remand to the District Court in New York, both parties filed briefs and hearings were conducted in May, July and September 2012 at which time the matter was put on informal stay and KBR was ordered to file suit in Mexican courts in order to determine if such remedies were, in fact, available. As requested by the District Court, we filed suit in Mexico on November 6, 2012 in the Tax and Administrative Court. On December 3, 2012, the Mexican Tax and Administrative Court decided not to admit the lawsuit, and the suit could not proceed. This result indicates that we do not have a remedy in Mexico where we can fully and fairly present our claims. Both parties informed the District Court of this outcome. In their communication with the District Court, PEMEX argued that we did not file suit in the correct Mexican court, and that we should be required to appeal the denial of admission of the Mexican suit or file suit in a different Mexican court. We strongly disagree with this conclusion. At the instruction of the of the trial court in New York, we met with PEMEX in Mexico on March 5, 2013, to discuss if we had any further remedy in Mexico. We were unable to reach any further agreement with PEMEX on this issue. The New York Federal Court Judge in the court where the enforcement action for the award is pending held a three day hearing April 10-12, 2013. The purpose of the hearing was to hear evidence about the Collegiate Court decision in Mexico which annulled the arbitration award and to hear evidence about whether we have a full and fair remedy in Mexico. At the conclusion of the hearing the judge took the matter under advisement.

Following the Second Circuit's order remanding the case to the District Court, PEMEX filed a motion seeking release of the collateral posted with the court registry and on January 17, 2013, the District Court granted PEMEX's motion. The District Court ruled that such bonds are intended to secure judgments until an appeal is final and since a determination is yet to be made on the mandate from the Second Circuit, there was no longer a justification for holding the collateral. We believe the ICC Award was proper and enforceable in U.S courts or courts of other countries in which PEMEX has assets. However, an unfavorable ruling by the U.S trial court or courts in other jurisdictions could have a material adverse impact to our results of operations.

PEMEX attempted to nullify the award in Mexico which was rejected by the Mexican trial court in June 2010. PEMEX then filed an “amparo” action on the basis that its constitutional rights had been violated which was denied by the Mexican court in October 2010. PEMEX subsequently appealed the adverse decision with the Collegiate Court in Mexico on the grounds that the arbitration tribunal did not have jurisdiction and that the award violated the public order of Mexico. Although these arguments were presented in the initial nullification and amparo action, and were rejected in both cases, in September 2011, the Collegiate Court ruled that PEMEX, by administratively rescinding the contract in 2004, deprived the arbitration panel of jurisdiction thereby nullifying the arbitration award. The Collegiate Court's decision is contrary to the ruling received from the ICC as well as all other Mexican courts which have denied PEMEX’s repeated attempts to nullify the arbitration award. We also believe the Collegiate Court's decision is contrary to Mexican law governing contract arbitration. However, we do not expect the Collegiate Court's decision to affect the outcome of the U.S. appeal discussed above or our ability to ultimately collect the ICC arbitration award in the U.S. due to the significant assets of PEMEX in the U.S. The circumstances of this matter are unique and in the unlikely event we are not able to collect the arbitration award in the U.S., we will pursue other remedies including filing a North American Free Trade Agreement (“NAFTA”) arbitration to recover the award as an unlawful expropriation of assets by the government of Mexico and collection efforts in other jurisdictions.

We have recently instituted collection proceedings in Luxembourg on the ICC award. We asked the Luxembourg court to issue, and the court has issued, a seizure order on the assets of PEMEX with a number banks and financial institutions in Luxembourg that we believe may have assets subject to seizure. We have been notified that PEMEX assets have been seized, however under Luxembourg procedure, we will not find out the value of the seized assets until the proceeding is validated, which will take several months. We have also been notified that PEMEX is contesting the Luxembourg court order. We will pursue our remedies in the U.S., Luxembourg and any other jurisdiction that we determine have assets which can be used to pay the award.

During 2008, we were successful in litigating and collecting on valid international arbitration awards against PEMEX on the EPC 22 and EPC 28 projects. Additionally, PEMEX has sufficient assets in the U.S. which we believe we will be able to attach as a result of the recognition of the ICC arbitration award in the U.S. Although it is possible we could resolve and collect the amounts due from PEMEX in the next 12 months, we believe the timing of the collection of the award is uncertain and therefore, we have continued to classify the amount due from PEMEX as a long term receivable included in “Noncurrent unbilled receivable on uncompleted contracts” as of March 31, 2013. No adjustments have been made to our receivable balance since recognition of the initial award in 2009. Although we believe we will ultimately collect the award, our failure to do so could result in the write off of the receivable amount included in "Noncurrent unbilled receivable on uncompleted contracts."

In connection with the EPC 1 project, we have approximately $80 million in outstanding performance bonds furnished to PEMEX when the project was awarded. The bonds were written by a Mexican bond company and backed by a U.S. insurance company which is indemnified by KBR. As a result of the ICC arbitration award in December 2009, the panel determined that KBR had performed on the project, and we believe recovery on the bonds by PEMEX was precluded by the ICC Award.  PEMEX filed an action in Mexico in June 2010 against the Mexican bond company to collect the bonds even though the arbitration award determined the limited amounts to be paid to PEMEX on their counterclaims. In May 2011, the Mexican trial court ruled PEMEX could collect the bonds even though PEMEX at the time was unsuccessful in its attempts to nullify the arbitration award.  The decision was immediately appealed by the bonding company, and PEMEX was not able to call the bonds while on appeal. In October 2011, we were officially notified that the appellate court ruled in favor of PEMEX, therefore allowing PEMEX to call the bonds. In December 2011, we and the Mexican bond company stayed payment of the bonds by filing a direct amparo action in the Mexican court, and we filed a bond to cover interest of approximately $28 million accruing during the pendency of our amparo action. During the third quarter of 2012, the Collegiate Court hearing the amparo action asked the lower court to review the proceedings. We filed a revision appeal with the Mexican Supreme Court, and in January 2013, this Court denied our amparo action, returning the case to the lower court with instructions to enter judgment in favor of PEMEX, allowing them to collect on the bonds. The judgment issued by the lower court contained an error, and the Mexican bonding company filed an amparo as a result of this error. PEMEX cannot collect on the bonds until this amparo case is heard. If the Mexican bonding company's amparo is denied, and PEMEX were to collect the bonds and any accrued interest, the U.S. insurance company would make payment to the Mexican bonding company. We would then be required to indemnify the U.S. insurance company.  In the event the bonds were called, we would pursue collection of any sums paid in the enforcement action in the U.S. District Court for the Southern District of New York, the courts of Luxembourg, or by the filing of a NAFTA arbitration to recover the bonds as an unlawful expropriation of assets by the government of Mexico. We have not recorded any amounts related to the contingent payment of the performance bonds.

Letters of credit, surety bonds and guarantees

In connection with certain projects, we are required to provide letters of credit, surety bonds or guarantees to our customers. Letters of credit are provided to certain customers and counter-parties in the ordinary course of business as credit support for contractual performance guarantees, advanced payments received from customers and future funding commitments. We have approximately $2.2 billion in committed and uncommitted lines of credit to support the issuance of letters of credit and as of March 31, 2013, we have utilized $706 million of our present capacity under lines of credit. Surety bonds are also posted under the terms of certain contracts to guarantee our performance. The letters of credit outstanding included $212 million issued under our Credit Agreement and $494 million issued under uncommitted bank lines at March 31, 2013. Of the total letters of credit outstanding, $269 million relate to our joint venture operations. As the need arises, future projects will be supported by letters of credit issued under our Credit Agreement or other lines of credit arranged on a bilateral, syndicated or other basis.
Income Taxes
Income Taxes
Income Taxes

Our effective tax rate was approximately 23% for the three months ended March 31, 2013 and 9% for the three months ended March 31, 2012. The adjusted effective tax rate excluding discrete items was approximately 28% for the three months ended March 31, 2013 and 27% for the three months ended March 31, 2012. The U.S. statutory tax rate for all periods was 35%. Our adjusted effective tax rate for the three months ended March 31, 2013 was lower than the U.S. statutory rate due to favorable tax rate differentials on foreign earnings, lower tax expense on foreign income from unconsolidated joint ventures and tax benefits from unincorporated joint ventures. The adjusted effective tax rate includes increases of 2% as a result of incremental income taxes on certain undistributed foreign earnings in Australia that were previously deemed to be permanently reinvested. In the first quarter of 2013, we recognized discrete net tax benefits of approximately $5 million including benefits primarily related to the recognition of previously unrecognized tax benefits related to tax positions taken in prior years.

Our adjusted effective tax rate for the three months ended March 31, 2012 was lower than the U.S. statutory rate due to favorable tax rate differentials on foreign earnings and lower tax expense on foreign income from unincorporated joint ventures. In the first quarter of 2012, we recognized discrete net tax benefits of approximately $20 million including benefits primarily related to deductions arising from an unconsolidated joint venture in Australia as well as the recognition of previously unrecognized tax benefits related to tax positions taken in prior years based on progress in resolving transfer pricing matters with certain taxing jurisdictions.
Shareholders' Equity
Shareholders' Equity
. Shareholders’ Equity

The following tables summarize our activity in shareholders’ equity:
Millions of dollars
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at December 31, 2012
$
2,511

 
$
2,049

 
$
1,709

 
$
(606
)
 
$
(610
)
 
$
(31
)
Share-based compensation
4

 
4

 

 

 

 

Common stock issued upon exercise of stock options
3

 
3

 

 

 

 

Repurchases of common stock
(6
)
 

 

 
(6
)
 

 

Issuance of ESPP shares
2

 

 

 
2

 

 

Distributions to noncontrolling interests
(11
)
 

 

 

 

 
(11
)
Net income
97

 

 
88

 

 

 
9

Other comprehensive income, net of tax
(1
)
 

 

 

 
(1
)
 

Balance at March 31, 2013
$
2,599

 
$
2,056

 
$
1,797

 
$
(610
)
 
$
(611
)
 
$
(33
)
 
 
 
 
 
 
 
 
 
 
 
 
Millions of dollars
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at December 31, 2011
$
2,442

 
$
2,005

 
$
1,607

 
$
(569
)
 
$
(548
)
 
$
(53
)
Share-based compensation
5

 
5

 

 

 

 

Common stock issued upon exercise of stock options
2

 
2

 

 

 

 

Tax benefit increase related to share-based plans
2

 
2

 

 

 

 

Dividends declared to shareholders
(7
)
 

 
(7
)
 

 

 

Repurchases of common stock
(7
)
 

 

 
(7
)
 

 

Distributions to noncontrolling interests
(5
)
 

 

 

 

 
(5
)
Net income
98

 

 
91

 

 

 
7

Other comprehensive income, net of tax
8

 

 

 

 
7

 
1

Balance at March 31, 2012
$
2,538

 
$
2,014

 
$
1,691

 
$
(576
)
 
$
(541
)
 
$
(50
)
 
 
 
 
 
 
 
 
 
 
 
 


Changes in accumulated other comprehensive loss, net of tax, by component
Millions of dollars
Accumulated CTA

 
Accumulated pension liability adjustments

 
Accumulated unrealized losses on derivatives

 
Total

Balance at December 31, 2012
$
(88
)
 
$
(521
)
 
$
(1
)
 
$
(610
)
Other comprehensive income adjustments before reclassifications
(8
)
 

 
(1
)
 
(9
)
Amounts reclassified from accumulated other comprehensive income
1

 
7

 

 
8

Balance at March 31, 2013
$
(95
)
 
$
(514
)
 
$
(2
)
 
$
(611
)



Reclassifications out of accumulated other comprehensive loss, net of tax, by component
Millions of dollars
March 31, 2013

 
Affected line item in the Condensed Consolidated Statements of Income
Accumulated CTA
 
 
 
Realized CTA
1

 
Gain on disposition of assets
Tax expense

 
Income tax expense
Net CTA realized
1

 
Net of tax
 
 
 
 
Accumulated pension liability adjustments
 
 
 
    Amortization of actuarial loss
9

 
See Note 1 below
Tax expense
(2
)
 
Income tax expense
Net pension liability adjustment realized
7

 
Net of tax
 

Note 1 - This item is included in the computation of net periodic pension cost (see Note 11).
Equity Method Investments And Variable Interest Entities
Equity Method Investments And Variable Interest Entities
Equity Method Investments and Variable Interest Entities

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

Related Party Transactions

We often participate in larger projects as a joint venture partner and provide services, which include engineering and construction management services, to the joint venture as a subcontractor. The amounts included in our revenue represent our share of the earnings from joint ventures and revenue from services provided directly to the joint ventures. As of March 31, 2013, our revenues included $59 million and our receivables included $31 million related to services we provided to our joint ventures.

Unconsolidated VIEs

The following is a summary of the significant variable interest entities in which we have a significant variable interest, but we are not the primary beneficiary:
 
As of March 31, 2013
Unconsolidated VIEs
(in millions, except for percentages)
VIE Total assets
 
VIE Total liabilities
 
Maximum
exposure to 
loss
Aspire Defence project
$
2,794

 
$
2,735

 
$
29

Inpex LNG project
$
1,580

 
$
1,453

 
$
70

U.K. Road projects
$
1,284

 
$
1,428

 
$
31

EBIC Ammonia project
$
526

 
$
237

 
$
35

Fermoy Road project
$
213

 
$
238

 
$
4

 
Unconsolidated VIEs
(in millions, except for percentages)
Year ended December 31, 2012
VIE Total assets
 
VIE Total liabilities
Aspire Defence project
$
2,981

 
$
2,926

Inpex LNG project
$
1,417

 
$
1,324

U.K. Road projects
$
1,387

 
$
1,539

EBIC Ammonia project
$
675

 
$
379

Fermoy Road project
$
255

 
$
253



Aspire Defence project. In April 2006, Aspire Defence, a joint venture between us, Carillion Plc. and two financial investors, was awarded a privately financed project contract by the U.K. MoD to upgrade and provide a range of services to the British Army’s garrisons at Aldershot and around Salisbury Plain in the United Kingdom. In addition to a package of ongoing services to be delivered over 35 years, the project includes a nine-year construction program to improve soldiers’ single living, technical and administrative accommodations, along with leisure and recreational facilities. Aspire Defence manages the existing properties and is responsible for design, refurbishment, construction and integration of new and modernized facilities. We indirectly own a 45% interest in Aspire Defence, the project company that is the holder of the 35-year concession contract. In addition, we own a 50% interest in each of two joint ventures that provide the construction and the related support services to Aspire Defence. As of March 31, 2013, our performance through the construction phase is supported by $20 million in letters of credit. Furthermore, our financial and performance guarantees are joint and several, subject to certain limitations, with our joint venture partners. The project is funded through equity and subordinated debt provided by the project sponsors and the issuance of publicly held senior bonds which are nonrecourse to us. The entities we hold an interest in are variable interest entities; however, we are not the primary beneficiary of these entities. We account for our interests in each of the entities using the equity method of accounting. Our maximum exposure to construction and operating joint venture losses is limited to our proportion of any amounts required to fund future losses incurred by those entities under their respective contracts with the project company. As of March 31, 2013, our assets and liabilities associated with our investment in this project, within our consolidated balance sheet, were $29 million and $2 million, respectively. The $27 million difference between our recorded liabilities and aggregate maximum exposure to loss was primarily related to our equity investments and other receivables in the project as of March 31, 2013.

Inpex LNG project. In January 2012, we signed an agreement to provide fixed-price and cost-reimbursable EPC services to construct the Inpex Ichthys Onshore LNG Export Facility in Darwin, Australia (“Inpex LNG project”). The project will be executed using two joint ventures in which we own a 30% equity interest. The investments are accounted for using the equity method of accounting.  At March 31, 2013, our assets and liabilities associated with our investment in this project recorded in our condensed consolidated balance were $70 million and $0 million, respectively.  The $70 million difference between our recorded liabilities and aggregate maximum exposure to loss was related to our equity investment and other receivables due from the entity as of March 31, 2013. The joint venture executes a project that has a lump sum component, and we have an exposure to losses if the project exceeds the lump sum component to the extent of our ownership percentage in the joint venture.

U.K. Road projects. We are involved in four privately financed projects, executed through joint ventures, to design, build, operate and maintain roadways for certain government agencies in the United Kingdom. We have a 25% ownership interest in each of these joint ventures and account for them using the equity method of accounting. The joint ventures have obtained financing through third parties that is nonrecourse to the joint venture partners. These joint ventures are variable interest entities; however, we are not the primary beneficiary. Our maximum exposure to loss represents our equity investments in these ventures.

EBIC Ammonia project. We have an investment in a development corporation that has an indirect interest in the Egypt Basic Industries Corporation (“EBIC”) ammonia plant project located in Egypt. We performed the engineering, procurement and construction (“EPC”) work for the project and completed our operations and maintenance services for the facility in the first half of 2012. We own 65% of this development corporation and consolidate it for financial reporting purposes. The development corporation owns a 25% ownership interest in a company that consolidates the ammonia plant which is considered a variable interest entity. The development corporation accounts for its investment in the company using the equity method of accounting. The variable interest entity is funded through debt and equity. Indebtedness of EBIC under its debt agreement is non-recourse to us. We are not the primary beneficiary of the variable interest entity. As of March 31, 2013, our assets and liabilities associated with our investment in this project, within our consolidated balance sheet, were $56 million and $2 million, respectively. The $33 million difference between our recorded liabilities and aggregate maximum exposure to loss was related to our investment balance and other receivables in the project as of March 31, 2013.

Fermoy Road project. We participate in a privately financed project executed through certain joint ventures formed to design, build, operate and maintain a toll road in southern Ireland. The joint ventures were funded through debt and were formed with minimal equity. These joint ventures are variable interest entities; however, we are not the primary beneficiary. We have up to a 25% ownership interest in the project’s joint ventures, and we are accounting for these interests using the equity method of accounting.

Consolidated VIEs

The following is a summary of the significant VIEs where we are the primary beneficiary:
Consolidated VIEs
(in millions, except for percentages)
As of March 31, 2013
VIE Total assets
 
VIE Total liabilities
Gorgon LNG project
$
547

 
$
598

Escravos Gas-to-Liquids project
$
263

 
$
300

Fasttrax Limited project
$
98

 
$
100

 
Consolidated VIEs
(in millions, except for percentages)
Year ended December 31, 2012
VIE Total assets
 
VIE Total liabilities
Gorgon LNG project
$
580

 
$
620

Escravos Gas-to-Liquids project
$
267

 
$
320

Fasttrax Limited project
$
101

 
$
105



Gorgon LNG project. We have a 30% ownership in an Australian joint venture which was awarded a contract by Chevron for cost-reimbursable FEED and EPC management ("EPCm") services to construct a LNG plant. The joint venture is considered a VIE, and, because we are the primary beneficiary, we consolidate this joint venture for financial reporting purposes.

Escravos Gas-to-Liquids (“GTL”) project. During 2005, we formed a joint venture to engineer and construct a gas monetization facility. We own a 50% equity interest in the joint venture and determined that we are the primary beneficiary; accordingly, we have consolidated the joint venture for financial reporting purposes. There are no consolidated assets that collateralize the joint venture’s obligations. However, at March 31, 2013 and December 31, 2012, the joint venture had approximately $118 million and $117 million of cash, respectively, which mainly relate to advanced billings in connection with the joint venture’s obligations under the EPC contract.

Fasttrax Limited project. In December 2001, the Fasttrax Joint Venture (the “JV”) was created to provide to the U.K. MoD a fleet of 92 new heavy equipment transporters (“HETs”) capable of carrying a 72-ton Challenger II tank. The JV owns, operates and maintains the HET fleet and provides heavy equipment transportation services to the British Army. The purchase of the assets was completed in 2004, and the operating and service contracts related to the assets extend through 2023. The JV’s entity structure includes a parent entity and its 100%-owned subsidiary, Fasttrax Ltd (the “SPV”). KBR and its partner own each 50% of the parent entity, which is considered a variable interest entity. We determined that we are the primary beneficiary of this project entity because we control the activities that most significantly impact economic performance of the entity. Therefore, we consolidate this VIE.

The JV’s purchase of the assets was funded through the issuance of several series guaranteed secured bonds totaling approximately £84.9 million issued by the SPV including £12.2 million which was replaced in 2005 when the shareholders funded combined equity and subordinated debt of approximately £12.2 million. Assets collateralizing the JV’s senior bonds include cash and equivalents of $24 million and property, plant and equipment of approximately $65 million, net of accumulated depreciation of $51 million as of March 31, 2013.
Transactions With Former Parent
Transactions with Former Parent
Transactions with Former Parent

In connection with our initial public offering in November 2006 and the separation of our business from Halliburton, we entered into various agreements, including, among others, a master separation agreement ("MSA"), transition services agreements and a tax sharing agreement. Pursuant to our MSA, we agreed to indemnify Halliburton for, among other matters, past, present and future liabilities related to our business and operations. We agreed to indemnify Halliburton for liabilities under various outstanding and certain additional credit support instruments relating to our businesses and for liabilities under litigation matters related to our business. Halliburton agreed to indemnify us for, among other things, liabilities unrelated to our business, for certain other agreed matters relating to the investigation of FCPA and related corruption allegations and the Barracuda-Caratinga project and for other litigation matters related to Halliburton’s business. Under the transition services agreements, Halliburton provided various interim corporate support services to us and we provided various interim corporate support services to Halliburton. The tax sharing agreement provides for certain allocations of U.S. income tax liabilities and other agreements between us and Halliburton with respect to tax matters.

During the fourth quarter of 2011, Halliburton provided notice and demanded payment for $256 million, an amount significantly greater than our accrued liability, that it alleges are owed by us under the tax sharing agreement for various other tax-related transactions pertaining to periods prior to our separation from Halliburton. We believe that the MSA precludes the filing of this claim, and we believe the amount demanded by Halliburton is invalid based on our assessment of Halliburton’s methodology for computing the claim and due to the time limits in the MSA. Our estimate of amounts due to Halliburton under the tax sharing agreement relates to income tax adjustments paid by Halliburton subsequent to our separation that were directly attributable to us, primarily for the years from 2001 through 2006. As of March 31, 2013, “Due to former parent, net” was $49 million. As a result of our consideration of the risks associated with this matter as well as discussions with outside counsel, we believe the probability that we will incur a loss in excess of this amount is remote. Based on advice from internal and external legal counsel, we do not believe that Halliburton has a legal entitlement to payment of the amount in the demand. However, although we believe we have appropriately accrued for amounts potentially owed to Halliburton based on our interpretation of the tax sharing agreement, there may be changes to the amounts ultimately paid to or received from Halliburton under the tax sharing agreement upon final settlement. On July 3, 2012, KBR requested an arbitration panel be appointed to resolve certain intercompany issues arising under the master separation agreement in effect between the companies before issues in dispute under the tax sharing agreement were submitted to the designated “accounting referee” as provided for under the terms of the tax sharing agreement.  We believe these intercompany issues were settled and released as a result of our separation from Halliburton in 2007.  On July 10, 2012, Halliburton filed a complaint in Texas State Court seeking to compel resolution of all issues, including intercompany issues believed by KBR to be governed by the master separation agreement, under the tax sharing agreement.  In October 2012, the Court denied Halliburton's request, and we moved forward with the selection of arbitrators to decide the intercompany issues.  We are set for an arbitration hearing in May 2013.  The remaining tax-related issues in dispute will be resolved by the "accounting referee" as provided for under the terms of the tax sharing agreement.

As of March 31, 2013, included in “Other assets” is an income tax receivable of approximately $22 million related to a foreign tax credit generated as a result of a final settlement we paid to a foreign taxing authority in 2011 for a disputed tax matter that arose prior to our separation from Halliburton. In order to claim the tax credit, we requested, and Halliburton agreed to and did file an amended U.S. Federal tax return for the period in which the disputed tax liability arose. However, Halliburton notified us that it does not intend to remit to us the refund received or to be received by Halliburton as a result of the amended return. KBR disputes Halliburton’s position on this matter and believes it has legal entitlement to the $22 million refund. We intend to vigorously pursue collection of this amount and certain other unrecorded counterclaims.

As previously discussed in Note 6, on March 18, 2013, we received a letter from the African Development Bank Group ("ADBG") stating that they are in the process of opening a formal investigation into corruption related to the Bonny Island project discussed above. In accordance with the indemnity clauses under the MSA, we notified Halliburton and they have responded that the matter does not fall within the scope of their indemnity.  We disagree with Halliburton's position and have taken necessary actions to preserve our rights. We are working with the ADBG to resolve the issue. At this time because we only recently received the letter from the ADBG and are still in the process of evaluating the matter, it is not possible to determine the outcome, financial implications or possible debarment of one or more KBR related entities arising from this investigation.

Barracuda-Caratinga Project Arbitration

In June 2000, we entered into a contract with Barracuda & Caratinga Leasing Company B.V. ("BCLC"), the project owner and claimant, to develop the Barracuda and Caratinga crude oilfields, which are located off the coast of Brazil. Petrobras is a contractual representative that controls the project owner. In November 2007, we executed a settlement agreement with the project owner to settle all outstanding project issues except for the bolts arbitration discussed below.

At Petrobras’ direction, we replaced certain bolts located on the subsea flowlines that failed through mid-November 2005, and we understand that additional bolts failed thereafter, which were replaced by Petrobras. These failed bolts were identified by Petrobras when it conducted inspections of the bolts. In March 2006, Petrobras notified us they submitted this matter to arbitration claiming $220 million plus interest for the cost of monitoring and replacing the defective stud bolts and, in addition, all of the costs and expenses of the arbitration including the cost of attorneys’ fees. The arbitration was conducted in New York under the guidelines of the United Nations Commission on International Trade Law (“UNCITRAL”).

In September 2011, the arbitration panel awarded the claimant approximately $193 million. The damages awarded were based on the panel’s estimate to replace all subsea bolts, including those that did not manifest breaks, as well as legal and other costs incurred by the claimant in the arbitration and interest thereon since the date of the award. The panel rejected our argument, and the case law relied upon by us, that we were only liable for bolts that were discovered to be broken prior to the expiration of the warranty period that ended on June 30, 2006.

In January 2013, Halliburton paid $219 million to the claimant and the matter is considered concluded. We believe the arbitration award payable to Petrobras will be deductible for tax purposes when paid and the indemnification payment will be treated by KBR for tax purposes as a contribution to capital and accordingly is not taxable. In 2011 and 2012, we recorded discrete tax benefits of $71 million and $8 million, respectively. At March 31, 2013, the current deferred tax balance is $79 million. We have reviewed this matter in light of the direct payment by Halliburton to BCLC and its public announcement that they have recorded a tax benefit related to this transaction. Based on advice from outside legal counsel, we have determined that it is more likely than not that we are the proper taxpayer to recognize this benefit although the underlying uncertainties with respect to the tax treatment of the transaction may ultimately lead to alternate outcomes.
Retirement Plans
Retirement Plans
Retirement Plans

The components of net periodic benefit cost related to pension benefits for the three months ended March 31, 2013 and 2012 were as follows:
 
Three Months Ended March 31,
Millions of dollars
2013
 
2012
 
United States
 
Int’l
 
United States
 
Int’l
Components of net periodic benefit cost
 
 
 
 
 
 
 
Service cost
$

 
$
1

 
$

 
$
1

Interest cost
1

 
21

 
1

 
20

Expected return on plan assets
(1
)
 
(22
)
 
(1
)
 
(23
)
Recognized actuarial loss

 
8

 
1

 
6

Net periodic benefit cost
$

 
$
8

 
$
1

 
$
4


 
For the three months ended March 31, 2013, we contributed approximately $7 million of the $24 million we currently expect to contribute to our international plans in 2013, and we have made no contributions towards the $1 million we currently expect to contribute to our domestic plans in 2013.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
Recent Accounting Pronouncements

On March 4, 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.  This ASU requires that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, then the parent is required to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance still applies. In the case of an equity method investment that is not a foreign entity, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. Additionally, the amendments in this ASU clarify that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign entity (i.e., irrespective of any retained investment); and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step acquisition). Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events. The amendments in this ASU are effective prospectively for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU 2013-05 is not expected to have a material impact on our financial position, results of operations or cash flows.

On February 5, 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires that companies present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. ASU 2013-02 requires that companies present the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, companies would instead cross reference to the related footnote for additional information. This may be presented either in the notes or parenthetically on the face of the financial statements provided that all of the required information is presented in a single location. The requirements will take effect for public companies in interim and annual reporting periods beginning after December 15, 2012. We adopted ASU 2013-02 and have included the required disclosure in Note 9.
Description Of Company And Significant Accounting Policies (Policy)
Retainage receivable represents balances billed but not paid by clients pursuant to retainage provisions in the contracts and will be due upon completion of specific tasks or the completion of the contract. Our retainage receivable excludes amounts withheld under Form 1s related to certain contracts with the U.S. government (see Note 5). As of March 31, 2013 and December 31, 2012, the current portion of retainage receivable included in accounts receivable was $100 million and $84 million, respectively, and the noncurrent portion of retainage receivable included in other noncurrent assets was $12 million and $11 million, respectively.
Our condensed consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities where we are the primary beneficiary (see Note 10). The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies. The cost method is used when we do not have the ability to exert significant influence. All intercompany accounts and transactions are eliminated in consolidation.
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We believe the most significant estimates and judgments are associated with revenue recognition on engineering and construction contracts and government contracts, recognition of estimated losses on uncompleted contracts, recoverability assessments that must be periodically performed with respect to goodwill and intangible asset balances and deferred tax assets, estimation of pension obligations, assessment of variable interest entities as well as the determination of liabilities related to contingencies. Actual results could differ materially from those estimates.
Pre-contract costs incurred in anticipation of a specific contract award are deferred only if the costs can be directly associated with a specific anticipated contract and their recoverability from that contract is probable. Pre-contract costs related to unsuccessful bids are written off no later than the period we are informed that we are not awarded the specific contract. Costs related to one-time activities such as introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or commencing new operations are expensed when incurred. We had no deferred pre-contract costs at March 31, 2013 and December 31, 2012.
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and equivalents include cash related to contracts in progress as well as cash held by our joint ventures that we consolidate for accounting purposes. Joint venture cash balances are limited to joint venture activities and are not available for other projects, general cash needs or distributions to us without approval of the board of directors of the respective joint ventures. Cash held by our joint ventures that we consolidate for accounting purposes totaled approximately $197 million at March 31, 2013 and $201 million at December 31, 2012. We expect to use the cash in these joint ventures to pay project costs.
Income Per Share (Tables)
Schedule Of Basic And Diluted Weighted Average Common Shares Outstanding
 
Three Months Ended March 31,
Millions of Shares
2013
 
2012
Basic weighted average common shares outstanding
147

 
148

Stock options and restricted shares
1

 
1

Diluted weighted average common shares outstanding
148

 
149

Percentage-Of-Completion Contracts (Tables)
Schedule Of Unapproved Claims And Change Orders
 
March 31,
 
December 31,
Millions of dollars
2013
 
2012
Claims
$
129

 
$
126

Unapproved change orders
$
57

 
$
35

Business Segment Information (Tables)
Schedule of Operations by Reportable Segment
 
Three Months Ended March 31,
Millions of dollars
2013
 
2012
Revenue:
 
 
 
Hydrocarbons
$
947

 
$
1,116

Infrastructure, Government and Power
407

 
518

Services
485

 
348

Other
20

 
19

Total revenue
$
1,859

 
$
2,001

Segment operating income:
 
 
 
Hydrocarbons
$
148

 
$
105

Infrastructure, Government and Power
27

 
39

Services
18

 
12

Other
7

 
10

Segment operating income
200

 
166

Unallocated amounts:
 
 
 
Labor cost absorption income (expense)
(15
)
 
1

Corporate general and administrative expense
(52
)
 
(55
)
Total operating income
$
133

 
$
112

Shareholders' Equity (Tables)
Millions of dollars
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at December 31, 2012
$
2,511

 
$
2,049

 
$
1,709

 
$
(606
)
 
$
(610
)
 
$
(31
)
Share-based compensation
4

 
4

 

 

 

 

Common stock issued upon exercise of stock options
3

 
3

 

 

 

 

Repurchases of common stock
(6
)
 

 

 
(6
)
 

 

Issuance of ESPP shares
2

 

 

 
2

 

 

Distributions to noncontrolling interests
(11
)
 

 

 

 

 
(11
)
Net income
97

 

 
88

 

 

 
9

Other comprehensive income, net of tax
(1
)
 

 

 

 
(1
)
 

Balance at March 31, 2013
$
2,599

 
$
2,056

 
$
1,797

 
$
(610
)
 
$
(611
)
 
$
(33
)
 
 
 
 
 
 
 
 
 
 
 
 
Millions of dollars
Total
 
PIC
 
Retained
Earnings
 
Treasury
Stock
 
AOCL
 
NCI
Balance at December 31, 2011
$
2,442

 
$
2,005

 
$
1,607

 
$
(569
)
 
$
(548
)
 
$
(53
)
Share-based compensation
5

 
5

 

 

 

 

Common stock issued upon exercise of stock options
2

 
2

 

 

 

 

Tax benefit increase related to share-based plans
2

 
2

 

 

 

 

Dividends declared to shareholders
(7
)
 

 
(7
)
 

 

 

Repurchases of common stock
(7
)
 

 

 
(7
)
 

 

Distributions to noncontrolling interests
(5
)
 

 

 

 

 
(5
)
Net income
98

 

 
91

 

 

 
7

Other comprehensive income, net of tax
8

 

 

 

 
7

 
1

Balance at March 31, 2012
$
2,538

 
$
2,014

 
$
1,691

 
$
(576
)
 
$
(541
)
 
$
(50
)
 
 
 
 
 
 
 
 
 
 
 
 


Millions of dollars
Accumulated CTA

 
Accumulated pension liability adjustments

 
Accumulated unrealized losses on derivatives

 
Total

Balance at December 31, 2012
$
(88
)
 
$
(521
)
 
$
(1
)
 
$
(610
)
Other comprehensive income adjustments before reclassifications
(8
)
 

 
(1
)
 
(9
)
Amounts reclassified from accumulated other comprehensive income
1

 
7

 

 
8

Balance at March 31, 2013
$
(95
)
 
$
(514
)
 
$
(2
)
 
$
(611
)
Equity Method Investments And Variable Interest Entities (Tables)
The following is a summary of the significant variable interest entities in which we have a significant variable interest, but we are not the primary beneficiary:
 
As of March 31, 2013
Unconsolidated VIEs
(in millions, except for percentages)
VIE Total assets
 
VIE Total liabilities
 
Maximum
exposure to 
loss
Aspire Defence project
$
2,794

 
$
2,735

 
$
29

Inpex LNG project
$
1,580

 
$
1,453

 
$
70

U.K. Road projects
$
1,284

 
$
1,428

 
$
31

EBIC Ammonia project
$
526

 
$
237

 
$
35

Fermoy Road project
$
213

 
$
238

 
$
4

 
Unconsolidated VIEs
(in millions, except for percentages)
Year ended December 31, 2012
VIE Total assets
 
VIE Total liabilities
Aspire Defence project
$
2,981

 
$
2,926

Inpex LNG project
$
1,417

 
$
1,324

U.K. Road projects
$
1,387

 
$
1,539

EBIC Ammonia project
$
675

 
$
379

Fermoy Road project
$
255

 
$
253

Consolidated VIEs
(in millions, except for percentages)
As of March 31, 2013
VIE Total assets
 
VIE Total liabilities
Gorgon LNG project
$
547

 
$
598

Escravos Gas-to-Liquids project
$
263

 
$
300

Fasttrax Limited project
$
98

 
$
100

 
Consolidated VIEs
(in millions, except for percentages)
Year ended December 31, 2012
VIE Total assets
 
VIE Total liabilities
Gorgon LNG project
$
580

 
$
620

Escravos Gas-to-Liquids project
$
267

 
$
320

Fasttrax Limited project
$
101

 
$
105

Retirement Plans (Tables)
Components Of Net periodic Benefit Cost
 
Three Months Ended March 31,
Millions of dollars
2013
 
2012
 
United States
 
Int’l
 
United States
 
Int’l
Components of net periodic benefit cost
 
 
 
 
 
 
 
Service cost
$

 
$
1

 
$

 
$
1

Interest cost
1

 
21

 
1

 
20

Expected return on plan assets
(1
)
 
(22
)
 
(1
)
 
(23
)
Recognized actuarial loss

 
8

 
1

 
6

Net periodic benefit cost
$

 
$
8

 
$
1

 
$
4

Description Of Company And Significant Accounting Policies (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Accounting Policies [Abstract]
 
 
Document Period End Date
Mar. 31, 2013 
 
Contract Receivable Retainage, Due in Next Twelve Months
$ 100 
$ 84 
Contract Receivable Retainage, Due after Next Twelve Months
12 
11 
Cash held by consolidated joint ventures
$ 197 
$ 201 
Income Per Share (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2013
Dec. 31, 2011
Earnings Per Share [Abstract]
 
 
Net earnings allocated to participating securities
$ 0 
$ 0 
Antidilutive weighted average shares
1.2 
0.6 
Income Per Share (Schedule Of Basic And Diluted Weighted Average Common Shares Outstanding) (Details)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2011
Earnings Per Share [Abstract]
 
 
 
Basic weighted average common shares outstanding
147 
148 
148 
Stock options and restricted shares
 
Diluted weighted average common shares outstanding
148 
149 
149 
Percentage-Of-Completion Contracts (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Additional contract revenue
$ 109 
 
Share of claims
129 
126 
Unapproved change orders
57 
35 
Liquidated damages
Customer Advances, Current
73 
82 
Revisions to Contract Estimates
38 
 
Parent Share of Probable Unapproved Claims of Unconsolidated Subsidiary [Member]
 
 
Share of claims
16 
 
Unapproved change orders
30 
 
Building Expansion Project [Member]
 
 
Unapproved change orders
37 
 
Indonesian Projects [Member]
 
 
Unapproved change orders
$ 16 
 
Percentage-Of-Completion Contracts (Schedule Of Unapproved Claims And Change Orders) (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Contractors [Abstract]
 
 
Claims
$ 129 
$ 126 
Unapproved change orders
$ 57 
$ 35 
Business Segment Information (Schedule Of Operations By Reportable Segment) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Segment Reporting Information [Line Items]
 
 
Revenue
$ 1,859 
$ 2,001 
Segment operating income
133 
112 
Corporate general and administrative expense
(52)
(55)
Capital expenditures
20 
16 
Equity in earnings (losses) of unconsolidated affiliates, net
30 
37 
Depreciation and amortization
15 
16 
Hydrocarbons [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Revenue
947 
1,116 
Segment operating income
148 
105 
Infrastructure, Government And Power [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Revenue
407 
518 
Segment operating income
27 
39 
Services [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Revenue
485 
348 
Segment operating income
18 
12 
Other [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Revenue
20 
19 
Segment operating income
10 
Operating Segment Income [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Segment operating income
200 
166 
Unallocated Amounts [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Labor cost absorption income (expense)
(15)
Corporate general and administrative expense
$ (52)
$ (55)
Business Segment Information (Schedule Of Balance Sheet Information By Operating Segment) (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Segment Reporting Information [Line Items]
 
 
Total assets
$ 5,547 
$ 5,767 
Goodwill
778 
779 
Total equity in/advances to related companies
$ 202 
$ 217 
U.S. Government Matters (Details) (USD $)
In Millions, unless otherwise specified
1 Months Ended 1 Months Ended 1 Months Ended 1 Months Ended 12 Months Ended 3 Months Ended 10 Months Ended 3 Months Ended
Mar. 31, 2013
All DCAA Audit Issues [Member]
Mar. 31, 2013
Private Security [Member]
Dec. 31, 2007
Private Security [Member]
Apr. 30, 2008
Containers [Member]
Mar. 31, 2013
Containers [Member]
Mar. 31, 2011
Containers [Member]
Aug. 30, 2011
Dining Facilities [Member]
Mar. 31, 2013
Dining Facilities [Member]
Dec. 31, 2010
Dining Facilities [Member]
Apr. 30, 2012
Tamimi Dining Facility [Member]
Feb. 29, 2012
Construction Services [Member]
Mar. 31, 2013
Construction Services [Member]
Sep. 30, 2010
Construction Services [Member]
Apr. 30, 2008
First Kuwaiti Trading Company Arbitration [Member]
Mar. 31, 2013
First Kuwaiti Trading Company Arbitration [Member]
Contracts
Dec. 31, 2011
Burn Pit Litigation [Member]
lawsuits
plantiffs
Dec. 31, 2010
Burn Pit Litigation [Member]
lawsuits
Mar. 31, 2013
Sodium Dichromate Litigation [Member]
lawsuits
plantiffs
Sep. 30, 2009
Sodium Dichromate Litigation [Member]
lawsuits
Mar. 31, 2013
Claims [Member]
Mar. 31, 2011
Fly America Act [Member]
Transportation Costs [Member]
Mar. 31, 2011
LogCAP III Contract [Member]
Transportation Costs [Member]
United States Government Contract Work [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of DCAA Form 1's - Notice of contract costs suspended and/or disapproved issued to the enterprise
$ 283 
$ 55 
 
 
$ 51 
$ 25 
 
$ 104 
 
 
 
 
$ 25 
 
 
 
 
 
 
 
$ 6 
$ 27 
DCAA Form 1 total withholding(s) of payments from remittances on contract billings
138 
45 
 
 
26 
 
 
57 
 
 
 
10 
 
 
 
 
 
 
 
 
 
 
Amount Awarded by COFC
 
 
 
 
 
 
 
 
 
12 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of payments withheld from subcontractors as a result of disapproved costs related to DCAA Form 1's issued to the enterprise
50 
 
 
 
30 
 
 
16 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Claims filed for arbitration to recover payments withheld from subcontractor
 
 
 
 
 
 
11 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of payment demanded by the DCAA in demand letters issued for disapproved costs related to DCAA Form 1's issued
99 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 initial assessment and withholding(s) from remittances on contract billings
 
 
20 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated percentage of the total subcontract costs related to the private security costs
 
 
6.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 disapproval of contract costs in addition to the initial assessment
 
 
83 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 withholding(s) from remittances on contract billings in addition to the initially-withheld amount
 
25 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appeal to recover the DCAA Form 1 withhold from remittances on contract billings
 
 
44 
 
 
 
 
55 
 
41 
 
 
 
 
 
 
 
 
 
 
 
 
Appeals to recover Dcaa form1 withhold from remittances on contract billings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of pre tax charge for disallowed amount by COFC
 
 
 
 
 
 
 
 
 
28 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of counterclaims filed by the enterprise against a subcontractor
 
 
 
51 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount awarded to subcontractor for damages
 
 
 
 
 
 
 
 
38 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum number of deployment days in the contractor rotation terms under the LogCAP III contract
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
179 days 
Amount of costs deemed allowable
 
 
 
 
 
 
 
 
 
 
10 
 
 
 
 
 
 
 
 
 
 
 
Amount of costs deemed unallowable
 
 
 
 
 
 
 
 
 
 
15 
 
 
 
 
 
 
 
 
 
 
 
Total claim by subcontractor related to leased vehicles
 
 
 
 
 
 
 
 
 
 
 
 
 
134 
 
 
 
 
 
 
 
 
Amount of subcontractor claims that have been subject to arbitration hearings
 
33 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Partial arbitration award to subcontractor for damages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16 
 
 
 
 
 
 
 
Amount owed to subcontractor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26 
 
 
 
 
 
 
 
Subcontracts not subject to arbitration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Punitive damages relating to the settlement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75 
 
 
 
 
Amount of arbitration claim filed by enterprise
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 
 
 
 
 
Amount of claim filed against us ace rio contracting officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23 
 
 
 
 
Number of lawsuits the enterprise has been served, minimum
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50 
 
 
 
 
Number of lawsuits consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of individual plaintiffs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
250 
 
170 
 
 
 
 
Damages awarded, value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10 
 
 
 
 
Unapproved claims included in accounts receivables related to various government contracts where costs have exceeded the customer's funded value of task orders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
213 
 
 
Amount of unapproved claims related to de-obligation of funding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
103 
 
 
Unapproved balance for which incremental funding is pending
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 110 
 
 
Other Commitments And Contingencies (Foreign Corrupt Practices Act) (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
1 Months Ended
Feb. 28, 2009
Feb. 28, 2011
Serious Fraud Office [Member]
Bonny Island [Member]
Dec. 31, 2010
Serious Fraud Office [Member]
Bonny Island [Member]
Loss Contingencies [Line Items]
 
 
 
Department Of Justice FCPA Plea Agreement Obligation
$ 402 
 
 
Portion of criminal penalty indemnified by former parent
382 
 
 
The enterprise's liability under the DOJ FCPA plea agreement
20 
 
 
The SEC's settled civil enforcement action
177 
 
 
Organizational probation period (in years)
3 years 
 
 
Civil Penalty Related Cost
 
11 
 
Portion of SFO penalty indemnified by former parent
 
 
$ 6 
Other Commitments And Contingencies (Other) (Narrative) (Details) (USD $)
0 Months Ended 1 Months Ended 3 Months Ended 12 Months Ended
Nov. 2, 2010
Pemex [Member]
Dec. 31, 2009
Pemex [Member]
Mar. 31, 2013
Pemex [Member]
Dec. 31, 2004
Pemex [Member]
Dec. 31, 2011
Pemex [Member]
Dec. 31, 1998
Pemex [Member]
Contracts
Mar. 31, 2013
Letters Of Credit Surety Bonds And Bank Guarantees [Member]
Dec. 31, 2012
Letters Of Credit Surety Bonds And Bank Guarantees [Member]
Mar. 31, 2013
Uncommitted Bank Lines [Member]
Letters Of Credit Surety Bonds And Bank Guarantees [Member]
Mar. 31, 2013
Credit Agreement [Member]
Letters Of Credit Surety Bonds And Bank Guarantees [Member]
Loss Contingencies [Line Items]
 
 
 
 
 
 
 
 
 
 
Committed And Uncommitted Lines Of Credit Total
 
 
 
 
 
 
$ 2,200,000,000 
 
 
 
Letters of Credit Outstanding, Amount
 
 
 
 
 
 
 
706,000,000 
494,000,000 
212,000,000 
Letters of credit outstanding relate to joint venture operations
 
 
 
 
 
 
269,000,000 
 
 
 
Terms of settlement agreement
 
 
Although it is possible we could resolve and collect the amounts due from PEMEX in the next 12 months, we believe the timing of the collection of the award is uncertain and therefore, we have continued to classify the amount due from PEMEX as a long term receivable included in “Noncurrent unbilled receivable on uncompleted contracts” as of March 31, 2013. 
 
 
 
 
 
 
 
Outstanding performance bonds by enterprise
 
 
80,000,000 
 
 
 
 
 
 
 
Bonds filed to cover interest accrued
 
 
 
 
28,000,000 
 
 
 
 
 
Customer's arbitration claim
 
 
 
157,000,000 
 
 
 
 
 
 
Number of contracts entered into with project owner
 
 
 
 
 
 
 
 
 
Amount of arbitration claim filed by enterprise
 
 
 
323,000,000 
 
 
 
 
 
 
Amount awarded to enterprise in arbitration
 
351,000,000 
 
 
 
 
 
 
 
 
Amount of counterclaims awarded to project owner in arbitration
 
6,000,000 
 
 
 
 
 
 
 
 
Gain recognized
 
117,000,000 
 
 
 
 
 
 
 
 
Amount required for collateral from project owner
395,000,000 
 
 
 
 
 
 
 
 
 
Amount of judgment awarded to enterprise
$ 356,000,000 
 
 
 
 
 
 
 
 
 
Income Taxes (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Income Tax Disclosure [Abstract]
 
 
Effective Income Tax Rate Reconciliation, Other Adjustments
2.00% 
 
Discrete Income Tax Benefit
$ 5 
$ 20 
Effective Income Tax Rate, Continuing Operations
23.00% 
9.00% 
Adjusted Effective Income Tax Rate Excluding Discrete Items
28.00% 
0.00% 
Shareholders' Equity (Shareholders' Equity Activities) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Dec. 31, 2011
Shareholders Equity [Line Items]
 
 
 
Beginning Balance
$ 2,511 
$ 2,442 
 
Stock-based compensation
 
Common stock issued upon exercise of stock options
 
Tax benefit decrease related to stock-based plans
 
 
Dividends, Common Stock, Cash
 
 
Repurchases of common stock
(6)
(7)
 
Issuance of ESPP shares
 
 
Distributions to noncontrolling interests
(11)
(5)
 
Net income
97 
98 
 
Other comprehensive gains (losses), net of tax
(1)
 
Ending Balance
2,599 
2,538 
 
Additional Paid-in Capital [Member]
 
 
 
Shareholders Equity [Line Items]
 
 
 
Beginning Balance
2,049 
2,005 
 
Stock-based compensation
 
Common stock issued upon exercise of stock options
 
Tax benefit decrease related to stock-based plans
 
 
Ending Balance
2,056 
2,014 
2,005 
Retained Earnings [Member]
 
 
 
Shareholders Equity [Line Items]
 
 
 
Beginning Balance
1,709 
1,607 
 
Dividends, Common Stock, Cash
 
 
Net income
88 
91 
 
Ending Balance
1,797 
1,691 
 
Treasury Stock [Member]
 
 
 
Shareholders Equity [Line Items]
 
 
 
Beginning Balance
(606)
(569)
 
Repurchases of common stock
(6)
(7)
 
Issuance of ESPP shares
 
 
Ending Balance
(610)
(576)
 
Accumulated Other Comprehensive Income (Loss) [Member]
 
 
 
Shareholders Equity [Line Items]
 
 
 
Beginning Balance
(610)
(548)
 
Other comprehensive gains (losses), net of tax
(1)
 
Ending Balance
(611)
(541)
 
Noncontrolling Interests [Member]
 
 
 
Shareholders Equity [Line Items]
 
 
 
Beginning Balance
(31)
(53)
 
Distributions to noncontrolling interests
(11)
(5)
 
Net income
 
Other comprehensive gains (losses), net of tax
 
Ending Balance
$ (33)
$ (50)
 
Shareholders' Equity (Accumulated Other Comprehensive Income (Loss)) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Balance at the beginning of the year
$ (610)
 
Other comprehensive income adjustments before reclassifications
(9)
 
Amounts reclassified from accumulated other comprehensive income
 
Balance at the end of the year
(611)
 
Realized CTA
(1)
Amortization of actuarial loss
127 
107 
Tax expense
(30)
(9)
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Reclassification Adjustment Realized upon Sale or Liquidation, Net of Tax
 
(3)
Reclassification out of Accumulated Other Comprehensive Income [Member]
 
 
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Reclassification Adjustment Realized upon Sale or Liquidation, Net of Tax
 
Accumulated CTA
 
 
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Balance at the beginning of the year
(88)
 
Other comprehensive income adjustments before reclassifications
(8)
 
Amounts reclassified from accumulated other comprehensive income
 
Balance at the end of the year
(95)
 
Accumulated CTA |
Reclassification out of Accumulated Other Comprehensive Income [Member]
 
 
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Realized CTA
 
Tax expense
 
Accumulated pension liability adjustments
 
 
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Balance at the beginning of the year
(521)
 
Other comprehensive income adjustments before reclassifications
 
Amounts reclassified from accumulated other comprehensive income
 
Balance at the end of the year
(514)
 
Accumulated unrealized losses on derivatives
 
 
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Balance at the beginning of the year
(1)
 
Other comprehensive income adjustments before reclassifications
(1)
 
Amounts reclassified from accumulated other comprehensive income
 
Balance at the end of the year
(2)
 
Accumulated pension liability adjustments |
Reclassification out of Accumulated Other Comprehensive Income [Member]
 
 
Reclassifications out of Accumulated Other Comprehensive Income [Line Items]
 
 
Amortization of actuarial loss
 
Tax expense
(2)
 
Net of Tax
$ 7 
 
Equity Method Investments And Variable Interest Entities (Narrative) (Details)
In Millions, unless otherwise specified
3 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 12 Months Ended 3 Months Ended 3 Months Ended
Mar. 31, 2013
USD ($)
Dec. 31, 2012
USD ($)
Mar. 31, 2013
Aspire Defence [Member]
Mar. 31, 2013
Inpex Lng Project [Member]
Mar. 31, 2013
Fermoy Road Project [Member]
Mar. 31, 2013
U.K. Road Projects [Member]
Apr. 30, 2006
Allenby & Connaught Project [Member]
Mar. 31, 2013
Allenby & Connaught Project [Member]
USD ($)
Mar. 31, 2013
Construction And Related Support Services Joint Ventures [Member]
Mar. 31, 2013
EBIC Ammonia Project [Member]
USD ($)
Mar. 31, 2013
EBIC Ammonia Project [Member]
Parent Company [Member]
Mar. 31, 2013
EBIC Ammonia Project [Member]
Development Corporation [Member]
Mar. 31, 2013
Inpex Lng Project [Member]
USD ($)
Dec. 31, 2010
Fasttrax Limited Project [Member]
Mar. 31, 2013
Fasttrax Limited Project [Member]
USD ($)
Mar. 31, 2013
Fasttrax Limited Project [Member]
GBP (£)
Mar. 31, 2013
Escravos Gas-To-Liquids Project [Member]
USD ($)
Dec. 31, 2011
Escravos Gas-To-Liquids Project [Member]
USD ($)
Mar. 31, 2013
Gorgon LNG Project [Member]
Schedule of Equity Method Investments [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Document Period End Date
Mar. 31, 2013 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable interest entity, ownership percentage
 
 
45.00% 
30.00% 
25.00% 
25.00% 
 
 
50.00% 
 
 
 
 
50.00% 
 
 
50.00% 
 
30.00% 
Term of contracted services portion of project (in years)
 
 
 
 
 
 
35 years 
 
 
 
 
 
 
 
 
 
 
 
 
Term of construction portion of project (in years)
 
 
 
 
 
 
9 years 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of letters of credit supporting construction portion
 
 
 
 
 
 
 
$ 20 
 
 
 
 
 
 
 
 
 
 
 
Amount of assets associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
 
 
29 
 
56 
 
 
70 
 
 
 
 
 
 
Amount of liabilities associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ownership percentage the enterprise has in a development company that has a minority interest in a VIE
 
 
 
 
 
 
 
 
 
 
65.00% 
 
 
 
 
 
 
 
 
Development company's ownership interest in a company that consolidates a VIE
 
 
 
 
 
 
 
 
 
 
 
25.00% 
 
 
 
 
 
 
 
Difference between our recorded liabilities and aggregate maximum exposure to loss
 
 
 
 
 
 
 
27 
 
33 
 
 
70 
 
 
 
 
 
 
Cash held by consolidated joint ventures
197 
201 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
118 
117 
 
Percentage of subsidiary owned by the parent entity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100.00% 
100.00% 
 
 
 
Assets collateralizing the Joint Venture's senior bonds, cash and equivalents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24 
 
 
 
 
Property Plant and Equipment Collateral For Borrowed Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
65 
 
 
 
 
Assets collateralizing the Joint Venture's senior bonds, accumulated depreciation of related property, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51 
 
 
 
 
Secured bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84.9 
 
 
 
Combined equity and subordinated debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12.2 
 
 
 
Revenue from Related Parties
59 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Due from Related Parties, Current
$ 31 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investments And Variable Interest Entities (Schedule Of Variable Interest Entities) (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Variable Interest Entity, Not Primary Beneficiary [Member] |
U.K. Road Projects [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Unconsolidated VIEs, Total assets
$ 1,284 
$ 1,387 
Unconsolidated VIEs, Total liabilities
1,428 
1,539 
Maximum exposure to loss
31 
 
Variable Interest Entity, Not Primary Beneficiary [Member] |
Fermoy Road Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Unconsolidated VIEs, Total assets
213 
255 
Unconsolidated VIEs, Total liabilities
238 
253 
Maximum exposure to loss
 
Variable Interest Entity, Not Primary Beneficiary [Member] |
Allenby & Connaught Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Unconsolidated VIEs, Total assets
2,794 
2,981 
Unconsolidated VIEs, Total liabilities
2,735 
2,926 
Maximum exposure to loss
29 
 
Variable Interest Entity, Not Primary Beneficiary [Member] |
EBIC Ammonia Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Unconsolidated VIEs, Total assets
526 
675 
Unconsolidated VIEs, Total liabilities
237 
379 
Maximum exposure to loss
35 
 
Variable Interest Entity, Not Primary Beneficiary [Member] |
Inpex Lng Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Unconsolidated VIEs, Total assets
1,580 
1,417 
Unconsolidated VIEs, Total liabilities
1,453 
1,324 
Maximum exposure to loss
70 
 
Variable Interest Entity, Primary Beneficiary [Member] |
Fasttrax Limited Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Consolidated VIEs, Total assets
98 
101 
Consolidated VIEs, Total liabilities
100 
105 
Variable Interest Entity, Primary Beneficiary [Member] |
Escravos Gas-To-Liquids Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Consolidated VIEs, Total assets
263 
267 
Consolidated VIEs, Total liabilities
300 
320 
Variable Interest Entity, Primary Beneficiary [Member] |
Gorgon LNG Project [Member]
 
 
Schedule of Equity Method Investments [Line Items]
 
 
Consolidated VIEs, Total assets
547 
580 
Consolidated VIEs, Total liabilities
$ 598 
$ 620 
Transactions With Former Parent (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended 1 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Mar. 31, 2013
Halliburton [Member]
Dec. 31, 2011
Halliburton [Member]
Dec. 31, 2011
Halliburton [Member]
Sep. 30, 2011
Barracuda Caratinga Project [Member]
Mar. 31, 2006
Barracuda Caratinga Project [Member]
Demanded Payment
 
 
 
$ 256 
 
 
 
Document Period End Date
Mar. 31, 2013 
 
Mar. 31, 2013 
 
 
 
 
Total amount due to former parent, net
 
 
49 
 
 
 
 
Amount due from former parent for foreign tax credit
 
 
22 
 
 
 
 
Refund of foreign tax credit disputed by former parent
 
 
22 
 
 
 
 
Loss Contingency, Damages Sought, Value
 
 
 
 
 
 
220 
Amount Awarded By Arbitration Panel
 
 
 
 
 
193 
 
Indemnification receivable due from related parties
 
 
219 
 
 
 
 
Discrete income tax benefit
20 
(8)
 
(71)
 
 
Deferred tax balance
 
 
$ 79 
 
 
 
 
Retirement Plans (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
United States Pension Benefits [Member]
 
Defined Benefit Plan Disclosure [Line Items]
 
Defined Benefit Plan, Contributions by Employer
$ 0 
Defined benefit plan, estimated total employer contributions in current fiscal year
International Pension Benefits [Member]
 
Defined Benefit Plan Disclosure [Line Items]
 
Defined Benefit Plan, Contributions by Employer
Defined benefit plan, estimated total employer contributions in current fiscal year
$ 24 
Retirement Plans (Schedule Of Changes In Projected Benefit Obligations) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
United States Pension Benefits [Member]
 
 
Defined Benefit Plan Disclosure [Line Items]
 
 
Interest cost
$ 1 
$ 1 
International Pension Benefits [Member]
 
 
Defined Benefit Plan Disclosure [Line Items]
 
 
Service cost
Interest cost
$ 21 
$ 20 
Retirement Plans (Schedule Of Changes In Plan Assets) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
United States Pension Benefits [Member]
 
Defined Benefit Plan Disclosure [Line Items]
 
Employer contributions
$ 0 
International Pension Benefits [Member]
 
Defined Benefit Plan Disclosure [Line Items]
 
Employer contributions
$ 7 
Retirement Plans (Components Of Net Periodic Benefit Cost) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
United States Pension Benefits [Member]
 
 
Defined Benefit Plan Disclosure [Line Items]
 
 
Interest cost
$ 1 
$ 1 
Expected return on plan assets
(1)
(1)
Recognized actuarial loss
Net periodic benefit cost
International Pension Benefits [Member]
 
 
Defined Benefit Plan Disclosure [Line Items]
 
 
Service cost
Interest cost
21 
20 
Expected return on plan assets
(22)
(23)
Recognized actuarial loss
Net periodic benefit cost
$ 8 
$ 4