KBR, INC., 10-Q filed on 7/29/2010
Quarterly Report
Condensed Consolidated Statements of Income (Unaudited) (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Income Statement [Abstract]
 
 
 
 
Revenue:
 
 
 
 
Services
$ 2,610 
$ 5,226 
$ 3,075 
$ 6,254 
Equity in earnings of unconsolidated affiliates, net
61 
76 
26 
47 
Total revenue
2,671 
5,302 
3,101 
6,301 
Operating costs and expenses:
 
 
 
 
Cost of services
2,415 
4,898 
2,910 
5,919 
General and administrative
55 
104 
54 
103 
Loss (gain) on disposition of assets, net
(2)
Total operating costs and expenses
2,472 
5,004 
2,964 
6,020 
Operating income
199 
298 
137 
281 
Interest income (expense), net
(5)
(9)
Foreign currency gains (losses), net
(3)
(5)
(4)
Other non-operating expense
(1)
(1)
Income before income taxes and noncontrolling interests
191 
284 
132 
282 
Provision for income taxes
(69)
(103)
(49)
(104)
Net income
122 
181 
83 
178 
Less: Net income attributable to noncontrolling interests
(16)
(29)
(16)
(34)
Net income attributable to KBR
106 
152 
67 
144 
Net income attributable to KBR per share:
 
 
 
 
Basic
0.66 
0.94 
0.42 
0.9 
Diluted
0.66 
0.94 
0.42 
0.89 
Basic weighted average common shares outstanding
160 
160 
160 
160 
Diluted weighted average common shares outstanding
161 
161 
161 
161 
Cash dividends declared per share
$ 0.05 
$ 0.1 
$ 0.05 
$ 0.1 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Assets
 
 
Current assets:
 
 
Cash and equivalents
$ 1,235 
$ 941 
Receivables:
 
 
Accounts receivable, net of allowance for bad debts of $29 and $26
1,419 
1,243 
Unbilled receivables on uncompleted contracts
529 
657 
Total receivables
1,948 
1,900 
Deferred income taxes
216 
192 
Other current assets
404 
608 
Total current assets
3,803 
3,641 
Property, plant, and equipment, net of accumulated depreciation of $299 and $264 (including $80 and $0, net, owned by a variable interest entity - see Note 11)
335 
251 
Goodwill
696 
691 
Intangible assets, net
77 
58 
Equity in and advances to related companies
226 
164 
Noncurrent deferred income taxes
103 
120 
Noncurrent unbilled receivables on uncompleted contracts
320 
321 
Other assets
87 
81 
Total assets
5,647 
5,327 
Liabilities and Shareholders' Equity
 
 
Current liabilities:
 
 
Accounts payable
977 
1,045 
Due to former parent, net
49 
53 
Advance billings on uncompleted contracts
621 
407 
Reserve for estimated losses on uncompleted contracts
31 
40 
Employee compensation and benefits
239 
191 
Current non-recourse project-finance debt of a variable interest entity (See Note 11)
Other current liabilities
492 
552 
Current liabilities related to discontinued operations, net
Total current liabilities
2,419 
2,291 
Noncurrent employee compensation and benefits
431 
469 
Noncurrent non-recourse project-finance debt of a variable interest entity (See Note 11)
93 
Other noncurrent liabilities
126 
106 
Noncurrent income tax payable
78 
43 
Noncurrent deferred tax liability
116 
122 
Total liabilities
3,263 
3,031 
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, 170,963,437 and 170,686,531 shares issued, and 158,149,618 and 160,363,830 shares outstanding
Paid-in capital in excess of par
2,104 
2,103 
Accumulated other comprehensive loss
(439)
(444)
Retained earnings
998 
854 
Treasury stock, 12,813,819 shares and 10,322,701 shares, at cost
(281)
(225)
Total KBR shareholders' equity
2,382 
2,288 
Noncontrolling interests
Total shareholders' equity
2,384 
2,296 
Total liabilities and shareholders' equity
$ 5,647 
$ 5,327 
Parenthetical Data to the Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, except Share and Per Share data
Jun. 30, 2010
Dec. 31, 2009
Receivables:
 
 
Allowance for bad debts
$ 29 
$ 26 
Property Plant and Equipment:
 
 
Accumulated depreciation
299 
264 
PP&E owned by a variable interest entity, net
80 
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
170,963,437 
170,686,531 
Common stock, shares, outstanding
158,149,618 
160,363,830 
Treasury stock, shares
12,813,819 
10,322,701 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Statement of Income and Comprehensive Income [Abstract]
 
 
 
 
Net income
$ 122 
$ 181 
$ 83 
$ 178 
Other comprehensive income (loss), net of tax benefit (provision):
 
 
 
 
Net cumulative translation adjustments
(8)
(6)
14 
10 
Pension liability adjustments
10 
Net unrealized gain (loss) on derivatives
(2)
Total other comprehensive income (loss), net of tax
(4)
19 
18 
Comprehensive income
118 
185 
102 
196 
Less: Comprehensive income attributable to noncontrolling interests
(15)
(28)
(21)
(41)
Comprehensive income attributable to KBR
$ 103 
$ 157 
$ 81 
$ 155 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions
6 Months Ended
Jun. 30,
2010
2009
Statement of Cash Flows [Abstract]
 
 
Cash flows from operating activities:
 
 
Net income
$ 181 
$ 178 
Adjustments to reconcile net income to net cash provided by (used in) operations:
 
 
Depreciation and amortization
29 
28 
Equity in earnings of unconsolidated affiliates
(76)
(47)
Deferred income taxes
(20)
(33)
Other
20 
Changes in operating assets and liabilities:
 
 
Receivables
(183)
(65)
Unbilled receivables on uncompleted contracts
95 
70 
Accounts payable
(65)
(125)
Advanced billings on uncompleted contracts
261 
(79)
Accrued employee compensation and benefits
50 
Reserve for loss on uncompleted contracts
(9)
(16)
Collection (repayment) of advances from (to) unconsolidated affiliates, net
(4)
Distribution of earnings from unconsolidated affiliates
29 
17 
Other assets
32 
(1)
Other liabilities
92 
56 
Total cash flows provided by (used in) operating activities
432 
(8)
Cash flows from investing activities:
 
 
Capital expenditures
(19)
(16)
Investment in equity method joint venture
(7)
Investment in licensing arrangement
(20)
Acquisition of business, net of cash acquired
(10)
Other investing activities
Total cash flows used in investing activities
(56)
(13)
Cash flows from financing activities:
 
 
Payments to reacquire common stock
(58)
(21)
Payments of dividends to shareholders
(16)
(16)
Distributions to noncontrolling shareholders, net
(30)
(9)
Net proceeds from issuance of stock
Payments on long-term borrowings
(4)
Return (funding) of cash collateral on letters of credit, net
24 
(13)
Total cash flows used in financing activities
(83)
(59)
Effect of exchange rate changes on cash
(21)
12 
Increase (decrease) in cash and equivalents
272 
(68)
Cash increase due to consolidation of a variable interest entity
22 
Cash and equivalents at beginning of period
941 
1,145 
Cash and equivalents at end of period
1,235 
1,077 
Noncash operating activities
 
 
Other assets (see Note 7)
83 
322 
Other liabilities (see Note 7)
(83)
(322)
Noncash investing activities
 
 
Purchase of computer software
(19)
Noncash financing activities
 
 
Dividends declared or payable
$ 8 
$ 8 
Description of Business and Basis of Presentation
Description of Business and Basis of Presentation
Note 1.  Description of Business and Basis of Presentation

KBR, Inc. and its subsidiaries (collectively, “KBR”) is a global engineering, construction and services company supporting the energy, petrochemicals, government services, industrial and civil infrastructure sectors. We offer a wide range of services through four business segments: Infrastructure, Government and Power (“IGP”), Hydrocarbons, Services and Ventures.  See Note 4 for financial information about our reportable business segments.

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.  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, 2009 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 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 2010 or any other future periods.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and costs during the reporting periods.  Actual results could differ materially from those estimates.  On an ongoing basis, we review our estimates based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Our condensed consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities where we are the primary beneficiary.  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 material intercompany accounts and transactions are eliminated.

Effective January 1, 2010, we elected to change our annual goodwill impairment testing to the fourth quarter of every year based on carrying values of our reporting units as of October 1 from our previous method of using our reporting unit carrying values as of September 30.  An annual goodwill impairment test date of October 1 better aligns with our annual budgetary process which is completed during the fourth quarter of each year.  In addition, performing our annual goodwill impairment test during the fourth quarter will allow for a more thorough consideration of the valuations of our reporting units subsequent to the completion of our annual budgetary process but prior to our financial year end reporting date.  As a result of this accounting change, there are no required adjustments to any of the financial statement line items in the accompanying financial statements.
Income per Share
Income per Share
Note 2.  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
  
Six Months Ended
 
   
June 30,
  
June 30,
 
Millions of shares
 
2010
  
2009
  
2010
  
2009
 
Basic weighted average common shares outstanding
  160   160   160   160 
Dilutive effect of:
                
Stock options and restricted shares
  1   1   1   1 
Diluted weighted average common shares outstanding
  161   161   161   161 

For purposes of applying the two-class method in computing earnings per share, net earnings allocable to participating securities was approximately $1 million for the three and six months ended June 30, 2010, and for the six months ended June 30, 2009.  Net earnings allocable to participating securities did not have a material impact on earnings per share for the three months ended June 30, 2009. The diluted earnings per share calculation did not include 1.0 million and 1.4 million anti-dilutive weighted average shares for the three and six months ended June 30, 2010, respectively.  The diluted earnings per share calculation did not include 2.8 million and 2.6 million anti-dilutive weighted average shares for the three and six months ended June 30, 2009, respectively.
Percentage-of-Completion Contracts
Percentage-of-Completion Contracts
Note 3.  Percentage-of-Completion Contracts

Unapproved claims
 
The amounts of unapproved claims and change orders included in determining the profit or loss on contracts and recorded in current and non-current unbilled receivables on uncompleted contracts are as follows:

   
June 30,
   
December 31,
 
Millions of dollars
 
2010
 
 
2009
 
Probable unapproved claims
 
$
31
 
 
$
33
 
Probable unapproved change orders
 
 
12
 
 
 
61
 
Probable unapproved change orders related to unconsolidated subsidiaries
 
 
4
 
 
 
2
 

As of June 30, 2010, the probable unapproved claims related to two completed projects.  See Note 6 for a discussion of U.S. government contract claims, which are not included in the table above.

Included in the table above are amounts that will likely not be settled within one year totaling $18 million at June 30, 2010, and $20 million at December 31, 2009, which are reflected as a non-current asset in “Noncurrent unbilled receivables on uncompleted contracts” on the condensed consolidated balance sheets. Other probable unapproved claims and change orders that we believe will be settled within one year, have been recorded as a current asset in “Unbilled receivables on uncompleted contracts” on the condensed consolidated balance sheets.

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 $323 million for EPC 1 and PEMEX subsequently filed counterclaims totaling $157 million.  The EPC 1 arbitration hearings were held in November 2007. 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.  The amount of the award exceeded the book value of our claim receivable resulting in our recognition of a $183 million of operating income and $117 million of net income in the fourth quarter of 2009.  The arbitration award is legally binding and we have filed a proceeding in U.S. Federal Court to recognize the award pursuant to which hearings were held in July 2010.   PEMEX has attempted to challenge jurisdiction of the U.S. Federal Court and to nullify the award in Mexican court.  In the second quarter of 2010, the Mexican trial court rejected PEMEX’s nullification petition.  We will respond to further efforts by PEMEX to nullify our award as may be required.  We believe the timing of the collection of the award is uncertain and therefore, we have classified the amount due from PEMEX for EPC 1 as a long term receivable included in “Noncurrent unbilled receivable on long term contracts” as of June 30, 2010.

In Amenas Project.  We own a 50% interest in an unconsolidated joint venture which began construction of a gas processing facility in Algeria in early 2003 known as the In Amenas project which was completed in 2006.  Five months after the contract was awarded in 2003, the client requested the joint venture to relocate to a new construction site as a result of soil conditions discovered at the original site.  The joint venture subsequently filed for arbitration with the ICC claiming recovery of $129 million.  During the first quarter of 2009, we received a ruling on the claim brought forth by the joint venture against the client.  Although the joint venture was awarded recovery of relocation costs thereon of approximately $33 million, it did not prevail on the claim for extension of time for filing of liquidated damages and other damage claims.  As a result of the ruling, we recognized a loss of approximately $15 million during the first quarter of 2009 which is recorded in “Equity in earnings of unconsolidated affiliates, net” in our Condensed Consolidated Statements of Income.  The loss represents the difference in the amount awarded by the ICC and the amount initially recorded in 2006.
Business Segment Information
Business Segment Information
Note 4.  Business Segment Information
 
We provide a wide range of services, but 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.

The table below presents information on our reportable business segments.

   
Three Months Ended
  
Six Months Ended
 
   
June 30,
  
June 30,
 
Millions of dollars
 
2010
  
2009
  
2010
  
2009
 
Revenue: (a)
            
Hydrocarbons
 $1,004  $933  $1,926  $1,817 
Infrastructure, Government and Power
  1,197   1,658   2,471   3,481 
Services
  452   498   867   973 
Other
  18   12   38   30 
Total revenue
 $2,671  $3,101  $5,302  $6,301 
                  
Operating segment income: (a)
                
Hydrocarbons
 $116  $83  $192  $160 
Infrastructure, Government and Power
  105   86   151   171 
Services
  25   24   46   43 
Other
  6   1   15   12 
Operating segment income
  252   194   404   386 
                  
Unallocated amounts:
                
Labor cost absorption (b)
  4   (3)     (2)
Corporate loss on disposition of assets
  (2)     (2)   
Corporate general and administrative
  (55)  (54)  (104)  (103)
Total operating income
 $199  $137  $298  $281 
____________________
(a)
Operating 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.  Intersegment revenues are eliminated from operating segment revenues.  Operating segment income excludes certain cost of services directly attributable to the operating segment that is managed and reported at the corporate level, and corporate general and administrative expenses.  We believe this is the most accurate measure of the ongoing profitability of our operating segments.

(b)
Labor cost absorption represents costs incurred by our central service labor and resource groups (above)/under the amounts charged to the operating segments.


Balance Sheet Information by Operating Segment
 
 
June 30,   
Millions of dollars
 
2010
 
 
 
 
 
Total assets:
 
 
 
Hydrocarbons
 
$
2,131
 
Infrastructure, Government and Power
   
2,809
 
Services
 
 
581
 
Other
 
 
126
 
Total assets
 
$
5,647
 
 
 
 
 
 
Goodwill:
 
 
 
 
Hydrocarbons
 
$
249
 
Infrastructure, Government and Power
   
149
 
Services
 
 
286
 
Other
 
 
12
 
Total
 
$
696
 
 
 
 
 
 
Equity in/advances to related companies:
 
 
 
 
Hydrocarbons
 
$
48
 
Infrastructure, Government and Power
   
10
 
Services
 
 
40
 
Other
 
 
128
 
Total
 
$
226
 

Committed and Restricted Cash
Committed and Restricted Cash
Note 5.  Committed and Restricted Cash
 
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 distribution 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 $267 million at June 30, 2010 and $236 million at December 31, 2009.   We expect to use the cash on these projects to pay project costs.

Included in “Other current assets” and “Other assets” at June 30, 2010 is restricted cash in the amounts of $14 million and $9 million, respectively.  Restricted cash primarily consists of amounts held in deposit with certain banks to collateralize standby letters of credit.
United States Government Contract Work
United States Government Contract Work
Note 6.  United States Government Contract Work

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

Given the demands of working in Iraq and elsewhere for the United States government, as discussed further below, 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 threatened termination or termination, under any affected contract. If any contract were so terminated, we may not receive award fees under the affected contract, and 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, assaults against employees, 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 types of 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.

Award Fees

In accordance with the provisions of the LogCAP III contract, we earn profits on our services rendered based on a combination of a fixed fee plus award fees granted by our customer. Both fees are measured as a percentage rate applied to estimated and negotiated costs.  The LogCAP III customer is contractually obligated to periodically convene Award-Fee Boards, which are comprised of individuals who have been designated to assist the Award Fee Determining Official (“AFDO”) in making award fee determinations.  Award fees are based on evaluations of our performance using criteria set forth in the contract, which include non-binding monthly evaluations made by our customers in the field of operations. Although these criteria have historically been used by the Award-Fee Boards in reaching their recommendations, the amounts of award fees are determined at the sole discretion of the AFDO.

On February 19, 2010, KBR was notified by the AFDO that a determination had been made regarding the Company’s performance for the period January 2008 to April 2008 in Iraq. The notice stated that based on information received from various Department of Defense individuals and organizations after the date of the evaluation board held in June 2008, the AFDO made a unilateral decision to grant no award fees for the period of performance from January 2008  to April 2008.

As a result of the AFDO’s adverse determination, in the fourth quarter of 2009, we reversed award fees that had previously been estimated as earned and recognized as revenue.  Until we are able to reliably estimate fees to be awarded in the future, we will recognize award fees on the LogCAP III contract in the period they are awarded.  In May 2010, we received an award fee of approximately $60 million representing approximately 47% of the available award fee pool for the period of performance from May 2008 through August 2009 which we recorded as an increase to revenue in the second quarter of 2010.  We expect to be notified in the second half of 2010 of the results of the Award Fee Evaluation Boards held in late June 2010 for the periods of performance from September 2009 through February 2010 on task orders in Iraq and from September 2009 through May 2010 on task orders in Afghanistan.  If our next award fee letter has performance scores and award rates at levels for which we receive an award, our revenues and earnings will increase accordingly.

Prior to the fourth quarter of 2009, we recognized award fees on the LogCAP III contract using an estimated accrual of the amounts to be awarded.  Once task orders underlying the work are definitized and award fees are granted, we adjust our estimate of award fees to the actual amounts earned.  We used 72% as our accrual rate through the third quarter of 2009.

DCAA Audit Issues

The negotiation, administration and settlement of our contracts with the U.S. Government, consisting primarily of Department of Defense contracts, are subject to audit by the Defense Contract Audit Agency (“DCAA”), which serves in an advisory role to government administrative contracting officers who administer 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”), 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. We attempt to resolve all issues identified in audit reports by working directly with the DCAA and the administrative contracting officer. When agreement cannot be reached, 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 administrative contracting officer.  KBR is permitted to respond to these documents and provide additional support. The Company has open Form 1’s from DCAA recommending suspension of payments totaling approximately $356 million associated with our contract costs incurred in prior years, of which approximately $165 million has been withheld from our current billings. As a consequence, for certain of these matters, we have withheld approximately $124 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 $135 million of disapproved costs for which we currently do not intend to pay.  We continue to work with our administrative contracting officers, 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 or the United States Court of Federal Claims.

We self-disallow costs that are expressly not allowable or allocable to government contracts per the relevant regulations. Revenue recorded for government contract work is reduced for our estimate of 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, 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 DCMA’s Administrative Contracting Officer (“ACO”) as appropriate.  In some cases, we may not reach agreement with the DCAA or the ACO regarding potentially unallowable costs which may result in our filing of claims in various courts.  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 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 February 2007, we received a Form 1 notice from the Department of the 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 cost related to the private security costs. The Army previously indicated that not all task orders and subcontracts have been reviewed and that they may make additional adjustments.  In August 2009, we received a Form 1 notice from the DCAA disapproving an additional $83 million of costs incurred by us and our subcontractors to provide security during the same periods.   Since that time, the Army withheld an additional $24 million in payments from us bringing the total payments withheld to approximately $44 million as of June 30, 2010 out of the Form 1 notices issued to date of $103 million.

The Army indicated that they believe our LogCAP III contract prohibits us and our subcontractors from billing costs of privately acquired 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 believe that the Army’s position that such costs are unallowable and that they are entitled to withhold amounts incurred for such costs is wrong as a matter of law.

 In 2007, we provided at the Army's request information that addresses the use of armed security either directly or indirectly charged to LogCAP III. In October 2007, we filed a claim to recover the original $20 million that was withheld which was deemed denied as a result of no response from the contracting officer.  To date, we have filed appeals to the Armed Services Board of Contract Appeals (“ASBCA”) to recover $44 million of the amounts withheld from us.  We believe these sums were properly billed under our contract with the Army.  At this time, we believe the likelihood that a loss related to this matter has been incurred is remote.  We have not adjusted our revenues or accrued any amounts related to this matter.  This matter is also the subject of a separate claim filed by the Department of Justice (“DOJ”) for alleged violation of the False Claims Act as discussed further below under the heading “Investigations, Qui Tams and Litigation.”  Our appeal to the ASBCA is effectively stayed pending the resolution of the separate claim filed by the DOJ.

Containers. In June 2005, the DCAA recommended withholding certain costs associated with providing containerized housing for soldiers and supporting civilian personnel in Iraq. The Defense Contract Management Agency (“DCMA”) recommended that the costs be withheld pending receipt of additional explanation or documentation to support the subcontract costs. We have not received a final determination by the DCMA and continue to provide information as requested by the DCMA. As of June 30, 2010, approximately $30 million of costs have been suspended under Form 1 notices and withheld from us by our customer related to this matter of which $28 million has been withheld by us from our subcontractors. In April 2008, we filed a counterclaim in arbitration against one of our LogCAP III subcontractors, First Kuwaiti Trading Company, to recover approximately $51 million paid to the subcontractor for containerized housing as further described under the caption First Kuwaiti Trading Company arbitration below. We will continue working with the government and our subcontractors to resolve the remaining amounts.  We believe that the costs incurred associated with providing containerized housing are reasonable and we intend to vigorously defend ourselves in this matter and we do not believe that we face a risk of significant 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, the likelihood that a loss in excess of the amount accrued for this matter is remote.

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.  Since 2007, the DCAA has sent Form 1 notices totaling $187 million suspending 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. Court of Federal Claims to recover $57 million of the $77 million withheld from us by the customer.  With respect to questions raised regarding billing in accordance with contract terms, as of June 30, 2010, 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 are unable to estimate an amount of possible loss or range of possible loss in excess of the amount accrued related to any costs billed to the customer that were not in accordance with the contract terms.  We believe the prices obtained for these services were reasonable, we intend to vigorously defend ourselves in this matter and we do not believe we face a risk of significant loss from any disallowance of these costs in excess of amounts withheld from subcontractors.  As of June 30, 2010, we had withheld $87 million in payments from our subcontractors pending the resolution of these matters with our customer.

Additionally, one of our subcontractors, Tamimi, has filed for arbitration to recover approximately $35 million for payments we have withheld from them pending the resolution of the Form 1 notices with our customer.  Should we not reach a favorable resolution of the Form 1 notices, the subcontract terms allow us to offset the amounts owed to our subcontractor to the extent we do not receive payment from our customer related to these questioned costs.

Transportation costs. The DCAA, in performing its audit activities under the LogCAP III contract, raised a question about our compliance with the provisions of the Fly America Act.  Subject to certain exceptions, the Fly America Act requires Federal employees and others performing U.S. Government-financed foreign air travel 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.  As of June 30, 2010, we have accrued an estimate of the cost incurred for these potentially non-compliant flights with a corresponding reduction to revenue.  The DCAA may consider additional flights to be noncompliant resulting in potential 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.

Construction services. In the third quarter of 2009, we received Form 1 notices from the DCAA disapproving approximately $28 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 April 2010, we met with the U.S. Navy in an attempt to settle the potentially unallowable costs.  As a result of the meeting, approximately $7 million of the potentially unallowable costs were deemed allowable by our customer and less than $1 million was deemed unallowable.  Settlement of the remaining $20 million is pending further discussions with the customer regarding the applicable provisions of the FAR and interpretations thereof, as well as providing additional supporting documentation to the customer.  As of June 30, 2010, the U.S. Navy has withheld approximately $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.  As of June 30, 2010, we have accrued our estimate of probable loss related to this matter; however, it is reasonably possible we could incur additional losses.

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 by a former employee alleging various wrongdoings in the form of overbillings of 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 nearing completion of the discovery process.  Trial for this matter is expected in early 2011.  We believe the relator’s claim is without merit and that the likelihood that a loss has been incurred is remote.  As of June 30, 2010, no amounts have been accrued.

Godfrey Qui Tam suit.  In December 2005, we became aware of a qui tam action filed against us and several of our subcontractors by a former employee alleging that we violated the False Claims Act by submitting overcharges to the government for dining facility services provided in Iraq under the LogCAP III contract.  As required by the False Claims Act, the lawsuit was filed under seal to permit the government to investigate the allegations.  In early April 2007, the court denied the government’s motion for the case to remain under seal, and on April 23, 2007, the government filed a notice stating that it was not participating in the suit.  In August 2007, the relator filed an amended complaint which added an additional contract to the allegations and added retaliation claims.  We filed motions to dismiss and to compel arbitration which were granted on March 13, 2008 for all counts except as to the employment issues which were sent to arbitration.  The relator filed an appeal and our position was upheld at the Appellate Court level as of January 6, 2010.  As no further actions was taken by the relator with regard to the remaining employment issues sent to arbitration, we consider this matter to be concluded.

First Kuwaiti Trading Company arbitration.  In April 2008, First Kuwaiti Trading Company, 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.  First Kuwaiti alleged that we did not return or pay rent for many of the vehicles and sought initial damages in the amount of $39 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.”  First Kuwaiti subsequently responded by adding additional subcontract claims, increasing its total claim to approximately $133 million as of June 30, 2010.  The first of several arbitration hearings were held during the first quarter of 2010 involving unpaid rents and damages on vehicles and lost vehicles representing approximately $65 million of First Kuwaiti’s total claim.  In the second quarter of 2010, the arbitration panel rejected the majority of First Kuwaiti’s claims which primarily related to unpaid rents beyond the expiration of the contractual lease term.  The arbitration panel rendered a partial award to First Kuwaiti for damages of approximately $6 million plus an unquantified amount for repair costs on certain vehicles, damages suffered as a result of late vehicle returns, and interest thereon, to be determined at a later date.  No payments are expected to occur until all claims are arbitrated and awards finalized.  The remaining arbitration hearings are scheduled to occur throughout 2010 and 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.

Paul Morell, Inc. d/b/a The Event Source vs. KBR, Inc.  TES is a former LogCAP III subcontractor who provided DFAC services at six sites in Iraq from mid-2003 to early 2004.  TES sued KBR in Federal Court in Virginia for breach of contract and tortious interference with TES’s subcontractors by awarding subsequent DFAC contracts to the subcontractors.  In addition, the Government withheld funds from KBR that KBR had submitted for reimbursement of TES invoices, and at that time, TES agreed that it was not entitled to payment until KBR was paid by the Government.  Eventually KBR and the Government settled the dispute, and in turn KBR and TES agreed that TES would accept, as payment in full with a release of all other claims, the amount the Government paid to KBR for TES’s services.  TES filed a suit to overturn that settlement and release, claiming that KBR misrepresented the facts.  The trial was completed in June 2009 and in January 2010, the Federal Court issued an order against us in favor of TES in the amount of $15 million in actual damages and interest and $4 million in punitive damages relating to the settlement and release entered into by the parties in May 2005.  We recorded un-reimbursable expenses of $19 million for the judgment received.  As of December 31, 2009, the full amount of the damages and interest awarded to TES was accrued.  In addition, we have filed a notice of appeal with the Court.

Electrocution litigation.  During 2008, a lawsuit was filed against KBR alleging that the Company was responsible for an electrical incident which resulted in the death of a soldier.  This incident occurred at Al Taqaddum.  It is alleged in the suit that the electrocution incident was caused by improper electrical maintenance or other electrical work.  We intend to vigorously defend this matter.  KBR denies that its conduct was the cause of the event and denies legal responsibility. The case was removed to Federal Court where motion to dismiss was filed.  The court has issued a stay in the discovery of the case.  The case is pending an appeal of certain pre-trial motions to dismiss that were previously denied.  Hearings on the appeal were held in June 2010 and the court has taken the arguments under advisement.  We are unable to determine the likely outcome nor can we estimate a range of potential loss, if any, related to this matter at this time.  As of June 30, 2010, no amounts have been accrued.

Burn Pit litigation.  KBR has been served with over 40 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 who purport to represent a large class of unnamed persons.  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 are operated.  All of the pending cases have been removed to Federal Court, the majority of which have been consolidated for multi-district litigation treatment.  In the second quarter of 2010, we filed various motions including a motion to strike an amended consolidated petition filed by the plaintiffs and a motion to dismiss which the court has taken under advisement.  We intend to vigorously defend these matters.  Due to the inherent uncertainties of litigation and because the litigation is at a preliminary stage, we cannot at this time accurately predict the ultimate outcome nor can we estimate a range of potential loss, if any, related to this matter at this time.  Accordingly, as of June 30, 2010, no amounts have been accrued.

Convoy Ambush litigation.  In April 2004, a fuel convoy in route from Camp Anaconda to Baghdad International Airport for the U.S. Army under our LogCAP III contract was ambushed resulting in deaths and severe injuries to truck drivers hired by KBR.  In 2005, survivors of the drivers killed and those that were injured in the convoy, filed suit in state court in Houston, Texas against KBR and several of its affiliates, claiming KBR deliberately intended that the drivers in the convoy would be attacked and wounded or killed.  The suit also alleges KBR committed fraud in its hiring practices by failing to disclose the dangers associated with working in the Iraq combat zone.  In September 2006, the case was dismissed based upon the court’s ruling that it lacked jurisdiction because the case presented a non-justiciable political question.  Subsequently, three additional suits were filed, arising out of insurgent attacks on other convoys that occurred in 2004 and were likewise dismissed as non-justiciable under the Political Question Doctrine. 

The plaintiffs in all cases appealed the dismissals to the Fifth Circuit Court of Appeals which reversed and remanded the remaining cases to trial court.  In July 2008, the trial court directed substantive discovery to commence including the re-submittal of dispositive motions on various grounds including the Defense Base Act and Political Question Doctrine.  In February 2010, the trial court ruled in favor of the plaintiffs, denying two of our motions to dismiss the case.  In March 2010, the trial court granted in part and denied in part our third motion to dismiss the case.  In March 2010, we filed appeals on all issues with the Fifth Circuit Court of Appeals and have moved to stay all proceedings in the trial court pending the resolution of these appeals.  The cases have been removed from the trial docket and the Fifth Circuit Court of Appeals will now hear all previous motions filed by both parties.  We are unable to determine the likely outcome of these cases at this time.  As of June 30, 2010, no amounts have been accrued nor can we estimate the amount of potential loss, if any.   

DOJ False Claims Act complaint.  On April 1, 2010, the DOJ filed a complaint in the U.S. District Court in the District of Columbia alleging certain violations of the False Claims Act related to the use of private security firms.  The complaint alleges, among other things, that we made false or fraudulent claims for payment under the LogCAP III contract because we allegedly knew that they contained costs of services for or that included improper use of private security.  We believe these sums were properly billed under our contract with the Army and that the use of private security was not prohibited under LogCAP III.  We have filed motions to dismiss the complaint which are currently pending.  We have not adjusted our revenues or accrued any amounts related to this matter.

Other Matters

Claims.   Included in unbilled receivables in the accompanying balance sheets are unapproved claims for costs incurred under various government contracts totaling $101 million at June 30, 2010 and $113 million at December 31, 2009.  Unapproved claims relate to contracts where our costs have exceeded the customer’s funded value of the task order.  The unapproved claims at June 30, 2010 include approximately $59 million largely resulting from the de-obligation of 2004 funding on certain task orders that were also subject to Form 1 notices relating to certain DCAA audit issues discussed primarily under Dining Facilities above.  The customer de-obligated funds which were nearing the 5-year expiration date of September 30, 2009.  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 unapproved claims outstanding at June 30, 2010 are considered to be probable of collection and have been recognized as revenue.
Other Commitments and Contingencies
Other Commitments and Contingencies
Note 7.  Other Commitments and Contingencies
 
Foreign Corrupt Practices Act investigations
 
On February 11, 2009 KBR LLC, entered a guilty plea related to the Bonny Island investigation in the United States District Court, Southern District of Texas, Houston Division (the “Court”).  KBR LLC pled guilty to one count of conspiring to violate the FCPA and four counts of violating the FCPA, all arising from the intent to bribe various Nigerian officials through commissions paid to agents working on behalf of TSKJ on the Bonny Island project.  The plea agreement reached with the DOJ resolves all criminal charges in the DOJ’s investigation into the conduct of KBR LLC relating to the Bonny Island project, so long as the conduct was disclosed or known to DOJ before the settlement, including previously disclosed allegations of coordinated bidding. The plea agreement 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 indemnity in the master separation agreement, while we were obligated to pay $20 million.  The criminal penalties are to be paid in quarterly payments over a two-year period ending October 2010.  We also agreed to a period of organizational probation of three years, during which we retain a monitor who assesses our compliance with the plea agreement and evaluate our FCPA compliance program over the three year period, with periodic reports to the DOJ.

On the same date, the SEC filed a complaint and we consented to the filing of a final judgment against us in the Court. The complaint and the judgment were filed as part of a settled civil enforcement action by the SEC, to resolve the civil portion of the government’s investigation of the Bonny Island project. The complaint alleges civil violations of the FCPA’s antibribery and books-and-records provisions related to the Bonny Island project. The complaint enjoins us from violating the FCPA’s antibribery, books-and-records, and internal-controls provisions and requires Halliburton and KBR, jointly and severally, to make payments totaling $177 million, all of which has been paid by Halliburton pursuant to the indemnification under the master separation agreement.  The judgment also requires us to retain an independent monitor on the same terms as the plea agreement with the DOJ.

Under both the plea agreement and judgment, we have agreed to cooperate with the SEC and DOJ in their investigations of other parties involved in TSKJ and the Bonny Island project.

As a result of the settlement, in the fourth quarter 2008 we recorded the $402 million obligation to the DOJ and, accordingly, recorded a receivable from Halliburton for the $382 million that Halliburton will pay to the DOJ on our behalf.  The resulting charge of $20 million to KBR was recorded in cost of sales of our Hydrocarbons business unit in the fourth quarter of 2008. Likewise, we recorded an obligation to the SEC in the amount of $177 million and a receivable from Halliburton in the same amount.  Halliburton paid seven installments totaling $335 million to the DOJ and $177 million to the SEC as of June 30, 2010, and such payments totaled $512 million.  Of the payments mentioned above, Halliburton paid $95 million in the first six months of 2010 and $322 million in the first six months of 2009, which have been reflected in the accompanying statement of cash flows as noncash operating activities.  We have paid a total of approximately $14 million related to our portion of the settlement agreement.

At June 30, 2010, the remaining obligation to the DOJ of $53 million has been classified on our condensed consolidated balance sheet in “Other current liabilities.”  This classification is based on payment terms that provide for quarterly installments of $50 million each due on the first day of each subsequent quarter beginning on April 1, 2009 through October 1, 2010.  Likewise, the remaining indemnification receivable from Halliburton for the DOJ obligation of $48 million has been classified on our condensed consolidated balance sheet in “Other current assets.”

As part of the settlement of the FCPA matters, we have agreed to the appointment of a corporate monitor for a period of up to three years.  We proposed the appointment of a corporate monitor and received approval from the DOJ in the third quarter of 2009.  We are responsible for paying the fees and expenses related to the monitor’s review and oversight of our policies and activities relating to compliance with applicable anti-corruption laws and regulations.

Because of the guilty plea by KBR LLC, we are subject to possible suspension or debarment of our ability to contract with governmental agencies of the United States and of certain foreign countries. We received written confirmation from the U.S. Department of the Army stating that it does not intend to suspend or debar KBR from DoD contracting as a result of the guilty plea by KBR LLC.  The U.K. Ministry of Defence (“MoD”) has indicated that it does not have any grounds to debar the KBR subsidiary with which it contracts under its public procurement regulations.  Although there has been a threat to challenge the MOD’s decision not to debar KBR, no formal proceedings have been issued since the threat was made.  Therefore, we believe the risk of being debarred from contracting with the MOD is considered low.  Although we do not believe we will be suspended or debarred of our ability to contract with other governmental agencies of the United States or any other foreign countries, suspension or debarment from the government contracts business would have a material adverse effect on our business, results of operations, and cash flow.

Under the terms of the Master Separation Agreement, Halliburton has agreed to indemnify us, and any of our greater than 50%-owned subsidiaries, for our share of fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of claims made or assessed by a governmental authority of the United States, the United Kingdom, France, Nigeria, Switzerland or Algeria or a settlement thereof relating to FCPA and related corruption allegations, which could involve Halliburton and us through The M. W. Kellogg Company, M. W. Kellogg Limited (“MWKL”), or their or our joint ventures in projects both in and outside of Nigeria, including the Bonny Island, Nigeria project. Halliburton’s indemnity will not apply to any other losses, claims, liabilities or damages assessed against us as a result of or relating to FCPA matters and related corruption allegations or to any fines or other monetary penalties or direct monetary damages, including disgorgement, assessed by governmental authorities in jurisdictions other than the United States, the United Kingdom, France, Nigeria, Switzerland or Algeria, or a settlement thereof, or assessed against entities such as TSKJ, in which we do not have an interest greater than 50%. As of June 30, 2010, we are not aware of any uncertainties related to the indemnity from Halliburton nor any material limitations on our ability to recover amounts due to us for matters covered by the indemnity from Halliburton.

We are aware that the U.K. Serious Fraud Office (“SFO”) is conducting an investigation of activities conducted by current or former employees of MWKL regarding the Bonny Island project.  Violations of corruption laws in the U.K. could result in fines, restitution and confiscation of revenues, among other penalties.  MWKL has self reported to the SFO its corporate liability for corruption-related offenses arising out of the Bonny Island project and expects to enter into a plea negotiation process under the “Attorney General’s Guidelines on Plea Discussions in Cases of Serious and Complex Fraud” issued by the Attorney General for England and Wales.  MWKL is in the process of responding to inquiries and providing information as requested by the SFO.  As a result of the unique factors associated with this matter and in light of MWKL’s cooperation, the SFO has confirmed it will treat MWKL as having made an early self report in accordance with the SFO’s guidelines.  Whether the SFO pursues criminal prosecution or civil recovery, and the amount of any fines, restitution, confiscation of revenues or other penalties that could be assessed will depend on, among other factors, the SFO’s findings regarding the amount, timing, nature and scope of any improper payments or other activities, whether any such payments or other activities were authorized by or made with knowledge of MWKL, the amount of revenue involved, and the level of cooperation provided to the SFO during the investigations.  Our indemnity from Halliburton under the master separation agreement with respect to MWKL is limited to our 55% beneficial ownership in MWKL.  Due to the indemnity from Halliburton, we believe any outcome of this matter will not have a material adverse impact to our operating results or financial position.  Investigations by other foreign governmental authorities are continuing.  At this time, other than the claims being considered by the SFO discussed above, no claims by governmental authorities in foreign jurisdictions have been asserted.

Commercial Agent Fees

We have both before and after the separation from our former parent used commercial agents on some of our large-scale international projects to assist in understanding customer needs, local content requirements, vendor selection criteria and processes and in communicating information from us regarding our services and pricing.  Prior to separation, it was identified by our former parent in performing its investigation of anti-corruption activities that certain of these agents may have engaged in activities that were in violation of anti-corruption laws at that time and the terms of their agent agreements with us.  Accordingly, we have ceased the receipt of services from and payment of fees to these agents.  Fees for these agents are included in the total estimated cost for these projects at their completion.  In connection with actions taken by U.S. Government authorities, we have removed certain unpaid agent fees from the total estimated costs in the period that we obtained sufficient evidence to conclude such agents clearly violated the terms of their contracts with us.  In the first and third quarters of 2009, we reduced project cost estimates by $16 million and $5 million, respectively, as a result of making such determinations.  We have initiated a dialogue with some of the agents in question to explore the possibility of achieving resolution of these matters in accordance with our existing compliance procedures.  As of June 30, 2010, agent fees of approximately $90 million are included in our estimated costs for various projects.  We will make no payments to these agents until we are assured that any payment complies with all applicable laws.

Barracuda-Caratinga Project Arbitration

In June 2000, we entered into a contract with Barracuda & Caratinga Leasing Company B.V., the project owner, 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 is being conducted in New York under the guidelines of the United Nations Commission on International Trade Law (“UNCITRAL”). Petrobras contends that all of the bolts installed on the project are defective and must be replaced.

During the time that we addressed outstanding project issues and during the conduct of the arbitration, KBR believed the original design specification for the bolts was issued by Petrobras, and as such, the cost resulting from any replacement would not be our responsibility.  A hearing on legal and factual issues relating to liability with the arbitration panel was held in April 2008.  In June 2009, we received an unfavorable ruling from the arbitration panel on the legal and factual issues as the panel decided the original design specification for the bolts originated with KBR and its subcontractors.  The ruling concluded that KBR’s express warranties in the contract regarding the fitness for use of the design specifications for the bolts took precedence over any implied warranties provided by the project owner.  Our potential exposure would include the costs of the bolts replaced to date by Petrobras, any incremental monitoring costs incurred by Petrobras and damages for any other bolts that are subsequently found to be defective.  We believe that it is probable that we have incurred some liability in connection with the replacement of bolts that have failed during the contract warranty period which expired June 30, 2006.  In May 2010, the arbitration tribunal heard arguments from both parties regarding various damage scenarios and estimates of the amount of KBR’s overall liability in this matter.  The final arbitration arguments will be made in August of 2010.  Based on the damage estimates presented at this hearing, we estimate our minimum exposure, excluding interest, to be approximately $12 million representing our estimate for replacement of bolts that failed during the warranty period and were not replaced.  During the second quarter of 2010, we recorded a liability of $12 million.  Likewise, we recorded an indemnification receivable from Halliburton in the amount of $12 million.  The amount of any remaining liability will be dependent upon the legal and factual issues to be determined by the arbitration tribunal in the final arbitration hearings.  For the remaining bolts at dispute, we can not determine that we have liability nor determine the amount of any such liability and no additional amounts have been accrued.

Any liability incurred by us in connection with the replacement of bolts that have failed to date or related to the remaining bolts at dispute in the bolt arbitration is covered by an indemnity from our former parent Halliburton.  Under the master separation agreement, Halliburton has agreed to indemnify us and any of our greater than 50%-owned subsidiaries as of November 2006, for all out-of-pocket cash costs and expenses (except for ongoing legal costs), or cash settlements or cash arbitration awards in lieu thereof, we may incur after the effective date of the master separation agreement as a result of the replacement of the subsea flowline bolts installed in connection with the Barracuda-Caratinga project.  As of June 30, 2010, we are not aware of any uncertainties related to the indemnity from Halliburton nor any material limitations on our ability to recover amounts due to us for matters covered by the indemnity from Halliburton.  We do not believe any outcome of this matter will have a material adverse impact to our operating results or financial position.

Foreign tax laws

We conduct operations in many tax jurisdictions throughout the world. Tax laws in certain of these jurisdictions are not as mature as those found in highly developed economies.  As a consequence, although we believe we are in compliance with such laws, interpretations of these laws could be challenged by the foreign tax authorities.  In many of these jurisdictions, non-income based taxes such as property taxes, sales and use taxes, and value-added taxes are assessed on our operations in that particular location. While we strive to ensure compliance with these various non-income based tax filing requirements, there have been instances where potential non-compliance exposures have been identified.  In accordance with accounting principles generally accepted in the United States of America, we make a provision for these exposures when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated.  To date, such provisions have been immaterial, and we believe that, as of June 30, 2010, we adequately provided for such contingencies.  However, it is possible that our results of operations, cash flows, and financial position could be adversely impacted if one or more non-compliance tax exposures are asserted by any of the jurisdictions where we conduct our operations.
 
Environmental

We are subject to numerous environmental, legal, and regulatory requirements related to our operations worldwide. In the United States, these laws and regulations include, among others: the Comprehensive Environmental Response, Compensation, and Liability Act; the Resources Conservation and Recovery Act; the Clean Air Act; the Federal Water Pollution Control Act; and the Toxic Substances Control Act.

In addition to federal and state laws and regulations, other countries where we do business often have numerous environmental regulatory requirements by which we must abide in the normal course of our operations. The portions of our business to which these requirements apply primarily relates to our Gas Monetization, Oil & Gas, Downstream and Services business units where we perform construction and industrial maintenance services or operate and maintain facilities. For certain locations, including our property at Clinton Drive, we have not completed our analysis of the site conditions and until further information is available, we are only able to estimate a possible range of remediation costs. These locations were primarily utilized for manufacturing or fabrication work and are no longer in operation. The use of these facilities created various environmental issues including deposits of metals, volatile and semi-volatile compounds, and hydrocarbons impacting surface and subsurface soils and groundwater. The range of remediation costs could change depending on our ongoing site analysis and the timing and techniques used to implement remediation activities. We do not expect costs related to environmental matters will have a material adverse effect on our condensed consolidated financial position or results of operations. Based on the information presently available to us, we have accrued approximately $7 million for the assessment and remediation costs associated with all environmental matters, which represents the low end of the range of possible costs that could be as much as $14 million.

Letters of credit

In connection with certain projects, we are required to provide letters of credit, surety bonds or other financial and performance guarantees to our customers. As of June 30, 2010, we had approximately $507 million in letters of credit and financial guarantees outstanding, of which $326 million were issued under our Revolving Credit Facility and $181 million issued under uncommitted bank lines. We have an additional $197 million of letters of credit that were issued under various other facilities and are irrevocably and unconditionally guaranteed by Halliburton.

Other

We had commitments to provide funds to our privately financed and other projects of $47 million as of June 30, 2010 and $52 million as of December 31, 2009.  Commitments to fund these projects are supported by letters of credit as described above.  At June 30, 2010, approximately $19 million of the $47 million in commitments will become due within one year.

Effective December 24, 2009, we entered into a collaboration agreement with BP p.l.c. to market and license certain technology.  In conjunction with this arrangement, we acquired a license granting us the exclusive right to the technology.  In January 2010, as partial consideration for the license, we paid an initial fee of $20 million, which will be amortized on a straight-line basis over the 25-year life of the arrangement. 

Liquidated damages

Many of our engineering and construction contracts have milestone due dates that must be met or we may be subject 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 met 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.

We have not accrued for liquidated damages related to several projects, including the exposure described in the above paragraph, totaling $19 million at June 30, 2010 and $18 million at December 31, 2009 (including amounts related to our share of unconsolidated subsidiaries), that we could incur based upon completing the projects as forecasted.

Leases

We are obligated under operating leases, principally for the use of land, offices, equipment, field facilities, and warehouses. We recognize minimum rental expenses over the term of the lease. When a lease contains a fixed escalation of the minimum rent or rent holidays, we recognize the related rent expense on a straight-line basis over the lease term and record the difference between the recognized rental expense and the amounts payable under the lease as deferred lease credits. We have certain leases for office space where we receive allowances for leasehold improvements. We capitalize these leasehold improvements as property, plant, and equipment and deferred lease credits. Leasehold improvements are amortized over the shorter of their economic useful lives or the lease term.

In February 2010, we executed two lease amendments for office space located in two separate high-rise office buildings in Houston, Texas for the purpose of significantly expanding our current leased office space and to extend the original term of the leases to June 30, 2030.  These amendments did not change our historical accounting for these agreements as operating leases.  The essential provisions of the lease amendments are as follows:

601 Jefferson Building Lease.  The lease amendment extends the original term of the lease to June 30, 2030 and includes renewal options for three consecutive additional periods from 5 to 10 years each at prevailing market rates.  Annual base rent for the leased office space escalates ratably over the lease term from $9 million to $14 million.  The lease amendment includes a leasehold improvement allowance of $29 million primarily for the construction of leasehold improvements.  The lease may be terminated under a one-time option in March 2022 for all, or a portion, of the leased premises subject to a termination fee.  The 601 Jefferson building is owned by a joint venture in which KBR owns 50% interest with an unrelated party owning the remaining 50% interest.  The joint venture is currently evaluating options to finance the leasehold improvement allowance including debt that is non-recourse to the joint venture partners or capital contributions from each partner on a pro-rata basis according to ownership interest.  The nature of the funding for the leasehold improvement allowance has not yet been determined.

500 Jefferson Building Lease.  The lease amendment extends the original term of the lease to June 30, 2030 and includes renewal options for three consecutive additional periods from 5 to 10 years each at prevailing market rates.  The lease terms include a rent holiday for the first six months of the lease beginning July 1, 2010.  Annual base rent for the leased office space escalates ratably over the lease term from $2 million to $3 million.  The lease amendment includes a leasehold improvement allowance of $6 million primarily for the construction of leasehold improvements.  The lease may be terminated under a one-time option in March 2022 for all, or a portion, of the leased premises subject to a termination fee.

Income Taxes
Income Taxes
Note 8.  Income Taxes
 
Our effective tax rate was approximately 36% for the three and six months ended June 30, 2010.  Our effective tax rate for the three and six months ended June 30, 2009 was approximately 37%.  Our effective tax rate for the three and six months ended June 30, 2010 was higher than our statutory rate of 35% primarily due to discrete items charged to income tax expense related to increased tax accruals due to several items including Subpart F income and true-up of prior year foreign taxes.   Our effective tax rate for the three and six months of 2009 was higher than our statutory rate of 35% primarily due to discrete items charged to income tax expense from the true-up of prior year foreign and domestic taxes.
Shareholders' Equity
Shareholders' Equity
Note 9.  Shareholders’ Equity

The following tables summarize our shareholders’ equity activities in the first six months of 2010:

      
KBR Shareholders
    
Millions of dollars
 
Total
 
 
Paid-in Capital in Excess of par
 
 
Retained Earnings
 
 
Treasury Stock
 
 
Accumulated Other Comprehensive Loss
 
 
Noncontrolling Interests
 
Balance at December 31, 2009
 
$
2,296
 
 
$
2,103
 
 
$
854
 
 
 
(225
)
 
$
(444
)
 
$
8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
8
 
 
 
8
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued upon exercise of stock options
 
 
1
 
 
 
1
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax benefit related to stock-based plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared to shareholders
 
 
(8
)
 
 
 
 
 
(8
)
 
 
 
 
 
 
 
 
 
Adjustments pursuant to tax sharing agreement with former parent
 
 
(8
)
 
 
(8
)
 
 
 
 
 
 
 
 
 
 
 
 
Repurchases of common stock
 
 
(58
)
 
 
 
 
 
 
 
 
(58
)
 
 
 
 
 
 
Issuance of ESPP shares
   
2
     
 
 
 
     
2
     
 
 
 
 
Dividends paid to noncontrolling interests
   
(30
)
   
 
 
 
     
 
 
 
     
(30
)
Consolidation of Fasttrax Limited
   
(4
)
   
     
     
     
     
(4
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
181
 
 
 
 
 
 
152
 
 
 
 
 
 
 
 
 
29
 
Other comprehensive income, net of tax (provision):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cumulative translation adjustment
 
 
(6
)
 
 
 
 
 
 
 
 
 
 
 
(4
)
 
 
(2
)
Pension liability adjustment, net of tax
 
 
6
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
1
 
Net unrealized gains (losses) on derivatives
 
 
4
   
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
Total
   
185
                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2010
 
$
2,384
 
 
$
2,104
 
 
$
998
 
 
$
(281
)
 
$
(439
)
 
$
2
 

The following tables summarize our shareholders’ equity activities for the first six months of 2009:

      
KBR Shareholders
    
Millions of dollars
 
Total
 
 
Paid-in Capital in Excess of par
 
 
Retained Earnings
 
 
Treasury Stock
 
 
Accumulated Other Comprehensive Loss
 
 
Noncontrolling Interests
 
Balance at December 31, 2008
 
$
2,034
 
 
$
2,091
 
 
$
596
 
 
 
(196
)
 
$
(439
)
 
$
(18
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
8
 
 
 
8
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared to shareholders
 
 
(8
)
 
 
 
 
 
(8
)
 
 
 
 
 
 
 
 
 
Repurchases of common stock
 
 
(21
)
 
 
 
 
 
 
 
 
(21
)
 
 
 
 
 
 
Dividends paid to noncontrolling interests
   
(21
)
   
 
 
 
     
 
 
 
     
(21
)
Investments by noncontrolling interests
   
12
     
     
     
     
     
12
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
178
 
 
 
 
 
 
144
 
 
 
 
 
 
 
 
 
34
 
Other comprehensive income, net of tax (provision):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cumulative translation adjustment
 
 
10
 
 
 
 
 
 
 
 
 
 
 
 
6
 
 
 
4
 
Pension liability adjustment, net of tax
 
 
10
 
 
 
 
 
 
 
 
 
 
 
 
7
 
 
 
3
 
Net unrealized gains (losses) on derivatives
 
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
(2
)
 
 
 
Total
   
196
                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2009
 
$
2,200
 
 
$
2,099
 
 
$
732
 
 
$
(217
)
 
$
(428
)
 
$
14
 
 
Accumulated other comprehensive loss consisted of the following balances:

   
June 30,
  
December 31,
 
Millions of dollars
 
2010
  
2009
 
Cumulative translation adjustments
 $(58) $(54)
Pension liability adjustments
  (381 )  (386 )
Unrealized losses on derivatives
     (4 )
Total accumulated other comprehensive loss
 $(439) $(444)
Fair Value Measurements
Fair Value Measurements
Note 10. Fair Value Measurements
 
The financial assets and liabilities measured at fair value on a recurring basis are included below:

 
 
Fair Value Measurements at Reporting Date Using
 
Millions of dollars
 
June 30, 2010
   
Quoted Prices in Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
                                 
Marketable securities
 
$
16
 
 
$
11
 
 
$
5
 
 
$
 
                                 
Derivative assets
 
$
18
 
 
$
 
 
$
18
 
 
$
 
                                 
Derivative liabilities
 
$
2
 
 
$
 
 
$
2
 
 
$
 

Derivative instruments. Currency derivative instruments are carried on the condensed consolidated balance sheet at fair value and are primarily based upon market observable inputs and significant other observable inputs.  We manage our currency exposures through the use of foreign currency derivative instruments denominated in our major currencies, which are generally the currencies of the countries for which we do the majority of our international business. We utilize derivative instruments to manage the foreign currency exposures related to specific assets and liabilities that are denominated in foreign currencies, and to manage forecasted cash flows denominated in foreign currencies generally related to long-term engineering and construction projects. The purpose of our foreign currency risk management activities is to protect us from the risk that the eventual dollar cash flow resulting from the sale and purchase of products and services in foreign currencies will be adversely affected by changes in exchange rates.

Marketable securities. We use quoted market prices and other observable inputs to determine the fair value of our marketable securities.  These financial instruments primarily consist of mutual funds, exchange-traded fixed income securities and money market accounts.
Equity Method Investments and Variable Interest Entities
Equity Method Investments and Variable Interest Entities
Note 11.  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 which are further described under “Variable Interest Entities.”

Equity Method Investments

Brown & Root Condor Spa (“BRC”) BRC is a joint venture in which we owned 49% interest. During the third quarter of 2007, we sold our 49% interest and other rights in BRC to Sonatrach for approximately $24 million resulting in a pre-tax gain of approximately $18 million which is included in “Equity in earnings (losses) of unconsolidated affiliates”. As of June 30, 2010, we have not collected the remaining $18 million due from Sonatrach for the sale of our interest in BRC, which is included in “Accounts receivable.” In the fourth quarter of 2008, we filed for arbitration in an attempt to force collection.

Variable Interest Entities

We account for variable interest entities (“VIEs”) in accordance with FASB ASC 810. As a result of the adoption of ASU 2009-17, Consolidations (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, effective January 1, 2010, FASB ASC 810 requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE.  If a reporting enterprise meets these conditions then it has a controlling financial interest and is the primary beneficiary of the VIE.  We have applied the requirements of FASB ASC 810 on a prospective basis from the date of adoption.

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

As required by ASC 810-10, we perform a qualitative assessment to determine whether we are the primary beneficiary once an entity is identified as a VIE.  A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed, and the parties involved in the design of the entity.  We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity investments, subordinated debt financing, letters of credit, and financial and performance guarantees, and significant, contracted service providers.  Once we identify the variable interests, we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities.  Though infrequent, some of our assessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions.  Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment, significant service contracts, and other subordinated financial support.

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:

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 of these joint ventures.  As of June 30, 2010, these joint ventures had total assets and liabilities of $1.5 billion each.  As of December 31, 2009, these joint ventures had total assets of $1.7 billion and total liabilities of $1.6 billion.  Our maximum exposure to loss was $31 million at June 30, 2010, which represents our investment in these ventures.

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 of the joint ventures.  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.  As of June 30, 2010 and December 31, 2009, the joint ventures had combined total assets of $226 million and $271 million, and total liabilities of $252 million and $295 million, respectively. Our maximum exposure to loss was $2 million at June 30, 2010.

Allenby & Connaught Project.  In April 2006, Aspire Defence, a joint venture between us, Carillion Plc. and two financial investors, was awarded a privately financed project contract, the Allenby & Connaught project, by the 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.  Our performance through the construction phase is supported by $89 million in letters of credit and surety bonds totaling approximately $15 million as of June 30, 2010, both of which have been guaranteed by Halliburton.  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.  As of June 30, 2010, the aggregate total assets and total liabilities of the variable interest entities were both $2.9 billion.  As of December 31, 2009, the aggregate total assets and total liabilities of the variable interest entities were both $3.0 billion.  Our maximum exposure to project company losses as of June 30, 2010 was $68 million.  Our maximum exposure to construction and operating joint venture losses is limited to the funding of any future losses incurred by those entities under their respective contracts with the project company.  As of June 30, 2010, our assets and liabilities associated with our investment in this project, within our condensed consolidated balance sheet, were $50 million and $27 million, respectively.  The $41 million difference between our recorded liabilities and aggregate maximum exposure to loss was primarily related to our $44 million remaining commitment to fund subordinated debt to the project in the future.

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 are performing the engineering, procurement and construction (“EPC”) work for the project and operations and maintenance services for the facility. 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 June 30, 2010, the variable interest entity had total assets of $618 million and total liabilities of $467 million.  As of December 31, 2009, the variable interest entity had total assets of $598 million and total liabilities of $489 million.  Our maximum exposure to loss related to our involvement with this project at June 30, 2010 was $52 million.  As of June 30, 2010, our assets and liabilities associated with our investment in this project, within our condensed consolidated balance sheet, were $50 million and $10 million, respectively.  The $42 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 June 30, 2010.

Other Liquefied Natural Gas (“LNG”) Projects.  We have equity ownership in two joint ventures to execute EPC projects.  Our equity ownership ranges from 33% to 50%, and these joint ventures are variable interest entities.  We are not the primary beneficiary and thus account for these joint ventures using the equity method of accounting.  At June 30, 2010 and December 31, 2009, these joint ventures had aggregate assets of $306 million and $410 million and aggregate liabilities of $285 million and $467 million, respectively.  As of June 30, 2010, total assets and liabilities recorded within our balance sheets were $30 million and $3 million, respectively.  Our aggregate, maximum exposure to loss related to these entities was $31 million at June 30, 2010, and comprises primarily our equity investment and contract receivables with both joint ventures.

Consolidated VIEs

The following is a summary of the significant VIEs where we are the primary beneficiary:

Fasttrax Limited Project.  In December 2001, the Fasttrax Joint Venture (the “JV”) was created to provide to the United Kingdom Ministry of Defense (“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.

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.  The bonds are guaranteed by Ambac Assurance U.K. Ltd under a policy that guarantees the schedule of principle and interest payments to the bond trustee in the event of non-payment by Fasttrax.  The total amount of debt consolidated at June 30, 2010, was approximately $101 million of which $8 million was classified as “Current non-recourse project-finance debt of a variable interest entity” and $93 million was classified as “Noncurrent non-recourse project-finance debt of a variable interest entity” on KBR’s condensed consolidated balance sheet.

The guaranteed secured bonds were issued in two classes consisting of Class A 3.5% Index Linked Bonds in the amount of £56 million and Class B 5.9% Fixed Rate Bonds in the amount of £16.7 million.  Principal payments on both classes of bonds commenced in March 2005 and are due in semi-annual installments over the term of the bonds which end in 2021.  Subordinated notes payable to our 50% partner initially bear interest at 11.25% increasing to 16% over the term of the note through 2025.  Payments on the subordinated debt commenced in March 2006 and are due in semi-annual installments over the term of the note. 

The combined principal installments for both classes of bonds and subordinated notes, including inflation adjusted bond indexation, due for the years ended December 31, 2010, 2011 and 2012 and thereafter total approximately £3 million, £6 million, £6 million and £67 million, respectively.

Effective January 1, 2010, upon the adoption of the newly issued guidance in FASB ASC 810 – Consolidation, 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.   This variable interest entity, in which we have a 50% ownership interest, was previously accounted for using the equity method of accounting because no party absorbed the majority of the expected losses which was the determining factor under the superceded standard.  We have applied the requirements of FASB ASC 810 on a prospective basis from the date of adoption.  Upon consolidation of this joint venture, consolidated current assets increased by $26 million primarily related to cash and equivalents, consolidated noncurrent assets increased by $89 million related to property, plant and equipment, consolidated current liabilities increased by $10 million primarily related to accounts payable, and noncurrent liabilities increased by $112 million related to the outstanding senior bonds and subordinated debt issued to finance the JV’s operations.  No gain or loss was recognized by KBR upon consolidation of this VIE.  As of June 30, 2010 and December 31, 2009, the joint venture had total assets of $100 million and $117 million, and total liabilities of $102 million and $124 million, respectively.  Assets collateralizing the JV’s senior bonds include cash and equivalents of $20 million and property, plant, and equipment of approximately $80 million, net of accumulated depreciation of $35 million as of June 30, 2010.  The bonds of the SPV, being non-recourse to KBR, are shown on the face of our condensed consolidated balance sheet as “Non-recourse project-finance debt.”

Escravos Gas-to-Liquids (“GTL”) Project.  During 2005, we formed a joint venture to engineer and construct a gas monetization facility. We own 50% equity interest and determined that we are the primary beneficiary of the joint venture which is consolidated for financial reporting purposes. At June 30, 2010 and December 31, 2009, the joint venture had $331 million and $387 million in total assets and $428 million and $482 million in total liabilities, respectively. There are no consolidated assets that collateralize the joint venture’s obligations. However, at June 30, 2010 and December 31, 2009, the joint venture had approximately $95 million and $128 million of cash, respectively, which mainly relate to advanced billings in connection with the joint venture’s obligations under the EPC contract.

Pearl GTL Project.  In July 2006, we were awarded, through a 50%-owned joint venture, a contract with Qatar Shell GTL Limited to provide project management and cost-reimbursable engineering, procurement and construction management services for the Pearl GTL project in Ras Laffan, Qatar.  The project, which is expected to be completed by 2011, consists of gas production facilities and a GTL plant.  The joint venture is considered a VIE.  We consolidate the joint venture for financial reporting purposes because we are the primary beneficiary.  As of June 30, 2010, the Pearl joint venture had total assets of $172 million and total liabilities of $158 million. As of December 31, 2009, the Pearl joint venture had total assets of $157 million and total liabilities of $138 million.

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 EPCM services to construct a LNG plant.  The joint venture is considered a VIE, and, as a result of our being the primary beneficiary, we consolidate this joint venture for financial reporting purposes.  As of June 30, 2010, the joint venture had total assets of $173 million and total liabilities of $184 million.  As of December 31, 2009, the joint venture had total assets and total liabilities of $109 million.
Retirement Plans
Retirement Plans
Note 12.  Retirement Plans
 
The components of net periodic benefit cost related to pension benefits for the three and six months ended June 30, 2010 and 2009 were as follows:

   
Three Months Ended June 30,
 
   
2010
  
2009
 
Millions of dollars
 
United States
  
International
  
United States
  
International
 
              
Components of net periodic benefit cost:
            
Service cost
 $  $1  $  $ 
Interest cost
  1   22   1   19 
Expected return on plan assets
  (1)  (23)  (1)  (19)
Recognized actuarial loss
  1   4   1   3 
Curtailment
            
Net periodic benefit cost
 $1  $4  $1  $3 

   
Six Months Ended June 30,
 
   
2010
  
2009
 
Millions of dollars
 
United States
  
International
  
United States
  
International
 
              
Components of net periodic benefit cost:
            
Service cost
 $  $1  $  $2 
Interest cost
  2   44   2   37 
Expected return on plan assets
  (2)  (46)  (2)  (40)
Recognized actuarial loss
  1   9   1   6 
Curtailment
           (4)
Net periodic benefit cost
 $1  $8  $1  $1 

For the six months ended June 30, 2010, we contributed approximately $6 million of the $15 million we currently expect to contribute in 2010 to our international plans, and $1 million of the $3 million we currently expect to contribute to our domestic plans in 2010.  During the second quarter of 2010, we agreed with the trustees of one of our international plans to contribute £34 million over a 10-year period beginning in 2010 at an annual rate of approximately £5.5 million during the first three years and £2.5 million thereafter.

In March 2009, we amended the terms and conditions of one of our international pension plans and ceased future service and benefit accruals for all plan participants.  This action meets the definition of a curtailment under FASB ASC 715 - Compensation - Retirement Benefits, and resulted in a curtailment gain of approximately $4 million during the first quarter of 2009.

The components of net periodic benefit cost related to other postretirement benefits were immaterial for the three and six months ended June 30, 2010 and 2009.
Acquisitions
Acquisitions
Note 13.  Acquisitions

On April 5, 2010, we acquired 100% of the outstanding common stock of Houston-based Energo Engineering (“Energo”) for approximately $16 million in cash, subject to an escrowed holdback amount of $6 million to secure working capital adjustments, indemnification obligations of the sellers, and other contingent obligations related to the operation of the business.  As a result of the acquisition, we recognized goodwill of $6 million and other intangible assets of $3 million.  Energo provides Integrity Management (IM) and advanced structural engineering services to the offshore oil and gas industry.  Energo will be integrated into our Hydrocarbons segment, which will enable that business to expand its capabilities worldwide as well as support FEED and detailed design projects.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
Note 15.  Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605) - Multiple-Deliverable Revenue Arrangements. ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor's multiple-deliverable revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are evaluating the impact that the adoption of ASU 2009-13 will have on our financial position, results of operations, cash flows and disclosures.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:

 
·
A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and
 
·
In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements.

In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:

 
·
For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and
 
·
A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.

The ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted.  The adoption of this accounting standard update did not have a material impact on our financial position, results of operations, cash flows and disclosures.
Description of Business and Basis of Presentation (Policies)
6 Months Ended
Jun. 30, 2010
Basis of Accounting
Consolidation policy
Goodwill and Intangibles policy
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.  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, 2009 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 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 2010 or any other future periods.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and costs during the reporting periods.  Actual results could differ materially from those estimates.  On an ongoing basis, we review our estimates based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.
Our condensed consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities where we are the primary beneficiary.  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 material intercompany accounts and transactions are eliminated.
Effective January 1, 2010, we elected to change our annual goodwill impairment testing to the fourth quarter of every year based on carrying values of our reporting units as of October 1 from our previous method of using our reporting unit carrying values as of September 30.  An annual goodwill impairment test date of October 1 better aligns with our annual budgetary process which is completed during the fourth quarter of each year.  In addition, performing our annual goodwill impairment test during the fourth quarter will allow for a more thorough consideration of the valuations of our reporting units subsequent to the completion of our annual budgetary process but prior to our financial year end reporting date.  As a result of this accounting change, there are no required adjustments to any of the financial statement line items in the accompanying financial statements.
Equity Method Investments and Variable Interest Entities (Policies)
Consolidation, Variable Interest Entity, Policy
Variable Interest Entities

We account for variable interest entities (“VIEs”) in accordance with FASB ASC 810. As a result of the adoption of ASU 2009-17, Consolidations (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, effective January 1, 2010, FASB ASC 810 requires the consolidation of VIEs in which a company has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive the benefits from the VIE that could potentially be significant to the VIE.  If a reporting enterprise meets these conditions then it has a controlling financial interest and is the primary beneficiary of the VIE.  We have applied the requirements of FASB ASC 810 on a prospective basis from the date of adoption.


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

As required by ASC 810-10, we perform a qualitative assessment to determine whether we are the primary beneficiary once an entity is identified as a VIE.  A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed, and the parties involved in the design of the entity.  We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity investments, subordinated debt financing, letters of credit, and financial and performance guarantees, and significant, contracted service providers.  Once we identify the variable interests, we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities.  Though infrequent, some of our assessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions.  Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment, significant service contracts, and other subordinated financial support.
Income per Share (Tables)
Schedule of Basic and Diluted Weighted Average Common Shares Outstanding
A reconciliation of the number of shares used for the basic and diluted income per share calculations is as follows:

   
Three Months Ended
  
Six Months Ended
 
   
June 30,
  
June 30,
 
Millions of shares
 
2010
  
2009
  
2010
  
2009
 
Basic weighted average common shares outstanding
  160   160   160   160 
Dilutive effect of:
                
Stock options and restricted shares
  1   1   1   1 
Diluted weighted average common shares outstanding
  161   161   161   161 

Percentage-of-Completion Contracts (Tables)
Schedule Of Unapproved Claims And Change Orders
The amounts of unapproved claims and change orders included in determining the profit or loss on contracts and recorded in current and non-current unbilled receivables on uncompleted contracts are as follows:

   
June 30,
   
December 31,
 
Millions of dollars
 
2010
 
 
2009
 
Probable unapproved claims
 
$
31
 
 
$
33
 
Probable unapproved change orders
 
 
12
 
 
 
61
 
Probable unapproved change orders related to unconsolidated subsidiaries
 
 
4
 
 
 
2
 

Business Segment Information (Tables)
6 Months Ended
Jun. 30, 2010
Reportable Business Segments, Revenue and Balance Sheet Information by Operating Segment
Reconciliation of Operating Segment Income to Consolidated
   
Three Months Ended
  
Six Months Ended
 
   
June 30,
  
June 30,
 
Millions of dollars
 
2010
  
2009
  
2010
  
2009
 
Revenue: (a)
            
Hydrocarbons
 $1,004  $933  $1,926  $1,817 
Infrastructure, Government and Power
  1,197   1,658   2,471   3,481 
Services
  452   498   867   973 
Other
  18   12   38   30 
Total revenue
 $2,671  $3,101  $5,302  $6,301 
 
 
 
June 30,   
Millions of dollars
 
2010
 
 
 
 
 
Total assets:
 
 
 
Hydrocarbons
 
$
2,131
 
Infrastructure, Government and Power
   
2,809
 
Services
 
 
581
 
Other
 
 
126
 
Total assets
 
$
5,647
 
 
 
 
 
 
Goodwill:
 
 
 
 
Hydrocarbons
 
$
249
 
Infrastructure, Government and Power
   
149
 
Services
 
 
286
 
Other
 
 
12
 
Total
 
$
696
 
 
 
 
 
 
Equity in/advances to related companies:
 
 
 
 
Hydrocarbons
 
$
48
 
Infrastructure, Government and Power
   
10
 
Services
 
 
40
 
Other
 
 
128
 
Total
 
$
226
 
____________________
(a)
Operating 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.  Intersegment revenues are eliminated from operating segment revenues.  Operating segment income excludes certain cost of services directly attributable to the operating segment that is managed and reported at the corporate level, and corporate general and administrative expenses.  We believe this is the most accurate measure of the ongoing profitability of our operating segments.
Operating segment income: (a)
                
Hydrocarbons
 $116  $83  $192  $160 
Infrastructure, Government and Power
  105   86   151   171 
Services
  25   24   46   43 
Other
  6   1   15   12 
Operating segment income
  252   194   404   386 
                  
Unallocated amounts:
                
Labor cost absorption (b)
  4   (3)     (2)
Corporate loss on disposition of assets
  (2)     (2)   
Corporate general and administrative
  (55)  (54)  (104)  (103)
Total operating income
 $199  $137  $298  $281 

(b)
Labor cost absorption represents costs incurred by our central service labor and resource groups (above)/under the amounts charged to the operating segments.
Shareholders' Equity (Tables)
6 Months Ended
Jun. 30, 2010
Shareholders' Equity Activities
Accumulated Other Comprehensive Loss
The following tables summarize our shareholders’ equity activities in the first six months of 2010:

      
KBR Shareholders
    
Millions of dollars
 
Total
 
 
Paid-in Capital in Excess of par
 
 
Retained Earnings
 
 
Treasury Stock
 
 
Accumulated Other Comprehensive Loss
 
 
Noncontrolling Interests
 
Balance at December 31, 2009
 
$
2,296
 
 
$
2,103
 
 
$
854
 
 
 
(225
)
 
$
(444
)
 
$
8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
8
 
 
 
8
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued upon exercise of stock options
 
 
1
 
 
 
1
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax benefit related to stock-based plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared to shareholders
 
 
(8
)
 
 
 
 
 
(8
)
 
 
 
 
 
 
 
 
 
Adjustments pursuant to tax sharing agreement with former parent
 
 
(8
)
 
 
(8
)
 
 
 
 
 
 
 
 
 
 
 
 
Repurchases of common stock
 
 
(58
)
 
 
 
 
 
 
 
 
(58
)
 
 
 
 
 
 
Issuance of ESPP shares
   
2
     
 
 
 
     
2
     
 
 
 
 
Dividends paid to noncontrolling interests
   
(30
)
   
 
 
 
     
 
 
 
     
(30
)
Consolidation of Fasttrax Limited
   
(4
)
   
     
     
     
     
(4
)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
181
 
 
 
 
 
 
152
 
 
 
 
 
 
 
 
 
29
 
Other comprehensive income, net of tax (provision):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cumulative translation adjustment
 
 
(6
)
 
 
 
 
 
 
 
 
 
 
 
(4
)
 
 
(2
)
Pension liability adjustment, net of tax
 
 
6
 
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
1
 
Net unrealized gains (losses) on derivatives
 
 
4
   
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
Total
   
185
                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2010
 
$
2,384
 
 
$
2,104
 
 
$
998
 
 
$
(281
)
 
$
(439
)
 
$
2
 

The following tables summarize our shareholders’ equity activities for the first six months of 2009:

      
KBR Shareholders
    
Millions of dollars
 
Total
 
 
Paid-in Capital in Excess of par
 
 
Retained Earnings
 
 
Treasury Stock
 
 
Accumulated Other Comprehensive Loss
 
 
Noncontrolling Interests
 
Balance at December 31, 2008
 
$
2,034
 
 
$
2,091
 
 
$
596
 
 
 
(196
)
 
$
(439
)
 
$
(18
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
8
 
 
 
8
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared to shareholders
 
 
(8
)
 
 
 
 
 
(8
)
 
 
 
 
 
 
 
 
 
Repurchases of common stock
 
 
(21
)
 
 
 
 
 
 
 
 
(21
)
 
 
 
 
 
 
Dividends paid to noncontrolling interests
   
(21
)
   
 
 
 
     
 
 
 
     
(21
)
Investments by noncontrolling interests
   
12
     
     
     
     
     
12
 
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
178
 
 
 
 
 
 
144
 
 
 
 
 
 
 
 
 
34
 
Other comprehensive income, net of tax (provision):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cumulative translation adjustment
 
 
10
 
 
 
 
 
 
 
 
 
 
 
 
6
 
 
 
4
 
Pension liability adjustment, net of tax
 
 
10
 
 
 
 
 
 
 
 
 
 
 
 
7
 
 
 
3
 
Net unrealized gains (losses) on derivatives
 
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
(2
)
 
 
 
Total
   
196
                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2009
 
$
2,200
 
 
$
2,099
 
 
$
732
 
 
$
(217
)
 
$
(428
)
 
$
14
 
Accumulated other comprehensive loss consisted of the following balances:

   
June 30,
  
December 31,
 
Millions of dollars
 
2010
  
2009
 
Cumulative translation adjustments
 $(58) $(54)
Pension liability adjustments
  (381 )  (386 )
Unrealized losses on derivatives
     (4 )
Total accumulated other comprehensive loss
 $(439) $(444)
Fair Value Measurements (Tables)
Fair Value of Assets and Liabilities
The financial assets and liabilities measured at fair value on a recurring basis are included below:

 
 
Fair Value Measurements at Reporting Date Using
 
Millions of dollars
 
June 30, 2010
   
Quoted Prices in Active Markets for Identical Assets
(Level 1)
   
Significant Other Observable Inputs
(Level 2)
   
Significant Unobservable Inputs
(Level 3)
 
                                 
Marketable securities
 
$
16
 
 
$
11
 
 
$
5
 
 
$
 
                                 
Derivative assets
 
$
18
 
 
$
 
 
$
18
 
 
$
 
                                 
Derivative liabilities
 
$
2
 
 
$
 
 
$
2
 
 
$
 
Retirement Plans (Tables)
Schedule of Defined Benefit Plans Disclosures
The components of net periodic benefit cost related to pension benefits for the three and six months ended June 30, 2010 and 2009 were as follows:

   
Three Months Ended June 30,
 
   
2010
  
2009
 
Millions of dollars
 
United States
  
International
  
United States
  
International
 
              
Components of net periodic benefit cost:
            
Service cost
 $  $1  $  $ 
Interest cost
  1   22   1   19 
Expected return on plan assets
  (1)  (23)  (1)  (19)
Recognized actuarial loss
  1   4   1   3 
Curtailment
            
Net periodic benefit cost
 $1  $4  $1  $3 

   
Six Months Ended June 30,
 
   
2010
  
2009
 
Millions of dollars
 
United States
  
International
  
United States
  
International
 
              
Components of net periodic benefit cost:
            
Service cost
 $  $1  $  $2 
Interest cost
  2   44   2   37 
Expected return on plan assets
  (2)  (46)  (2)  (40)
Recognized actuarial loss
  1   9   1   6 
Curtailment
           (4)
Net periodic benefit cost
 $1  $8  $1  $1 

Income per Share (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Millions of Shares
 
 
 
 
Basic weighted average common shares outstanding
160 
160 
160 
160 
Dilutive effect of:
 
 
 
 
Stock options and restricted shares
Diluted weighted average common shares outstanding
161 
161 
161 
161 
Net earnings allocable to participating securities
 
Antidilutive weighted average shares not included in the diluted earnings per share calculation
1.0 
1.4 
2.8 
2.6 
Percentage-of-Completion Contracts (Details) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
3 Months Ended
Mar. 31, 2009
Sep. 30, 2007
Dec. 31, 2004
Dec. 31, 2003
Jan. 1, 1997 - Dec. 31, 1998
Probable unapproved claims
$ 31 
$ 33 
 
 
 
 
 
Probable unapproved change orders
12 
61 
 
 
 
 
 
Probable unapproved change orders related to unconsolidated subsidiaries
 
 
 
 
 
Number of projects that have probable unapproved claims
 
 
 
 
 
 
Non-current unbilled receivables on uncompleted contracts
18 
20 
 
 
 
 
 
Number of contracts for offshore platforms pipelines and related structures
 
 
 
 
 
 
Percentage of ownership in unconsolidated joint venture - In Amenas Project
 
 
 
4,900% 
 
 
 
EPC 1 arbitration
 
 
 
 
 
 
 
Amount of arbitration claim filed against the project owner
 
 
 
 
323 
 
 
Amount of counterclaims filed against the enterprise
 
 
 
 
157 
 
 
Amount Awarded To Enterprise In Arbitration
 
351 
 
 
 
 
 
Amount of counterclaims awarded to the project owner in arbitration
 
 
 
 
 
 
Amount of gain before income taxes recognized by the enterprise as a result of arbitration award
 
183 
 
 
 
 
 
Amount of gain after income taxes recognized by the enterprise as a result of arbitration award
 
117 
 
 
 
 
 
In Amenas Project
 
 
 
 
 
 
 
Percentage of ownership in unconsolidated joint venture - In Amenas Project
5,000% 
 
 
 
 
 
 
Amount of arbitration claim filed against the project owner
 
 
 
 
 
129 
 
Amount Awarded To Enterprise In Arbitration
 
 
33 
 
 
 
 
Amount of loss recognized by the enterprise as a result of arbitration award
 
 
$ 15 
 
 
 
 
Business Segment Information (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Dec. 31, 2009
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Total revenue
$ 2,671 
$ 5,302 
 
$ 3,101 
$ 6,301 
Total operating segment income
252 1
404 1
 
194 1
386 1
Total assets
5,647 
5,647 
5,327 
 
 
Total goodwill
696 
696 
691 
 
 
Total equity in/advances to related companies
226 
226 
164 
 
 
Unallocated amounts:
 
 
 
 
 
Labor cost absorption
2
2
 
(3)2
(2)2
Corporate loss on disposition of assets
(2)
(2)
 
Corporate general and administrative
(55)
(104)
 
(54)
(103)
Total operating income
199 
298 
 
137 
281 
Hydrocarbons
 
 
 
 
 
Total revenue
1,004 1
1,926 1
 
933 1
1,817 1
Total operating segment income
116 1
192 1
 
83 1
160 1
Total assets
2,131 
 
 
 
 
Total goodwill
249 
 
 
 
 
Total equity in/advances to related companies
48 
 
 
 
 
Infrastructure, Government and Power
 
 
 
 
 
Total revenue
1,197 1
2,471 1
 
1,658 1
3,481 1
Total operating segment income
105 1
151 1
 
86 1
171 1
Total assets
2,809 
 
 
 
 
Total goodwill
149 
 
 
 
 
Total equity in/advances to related companies
10 
 
 
 
 
Services
 
 
 
 
 
Total revenue
452 1
867 1
 
498 1
973 1
Total operating segment income
25 1
46 1
 
24 1
43 1
Total assets
581 
581 
 
 
 
Total goodwill
286 
286 
 
 
 
Total equity in/advances to related companies
40 
40 
 
 
 
Other
 
 
 
 
 
Total revenue
18 1
38 1
 
12 1
30 1
Total operating segment income
1
15 1
 
1
12 1
Total assets
126 
126 
 
 
 
Total goodwill
12 
12 
 
 
 
Total equity in/advances to related companies
$ 128 
$ 128 
 
 
 
Committed and Restricted Cash (Details) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Cash held by consolidated joint ventures
$ 267 
$ 236 
Restricted Cash and Cash Equivalents, Current
14 
 
Restricted Cash and Cash Equivalents, Noncurrent
$ 9 
 
United States Government Contract Work (Details) (USD $)
In Millions
3 Months Ended
Jun. 30,
1 Month Ended
2010
2010
1 Month Ended
May 31, 2010
Apr. 30, 2010
3 Months Ended
Mar. 31, 2010
Feb. 28, 2010
Feb. 28, 2010
1 Month Ended
Jan. 31, 2010
Dec. 31, 2009
9 Months Ended
Sep. 30, 2009
Aug. 31, 2009
Apr. 30, 2008
Feb. 28, 2007
Year Ended
Jun. 30, 2004
Award Fees
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Award fee
 
 
$ 60 
 
 
 
 
 
 
 
 
 
 
 
Award fee percentage
 
 
47 
 
 
 
 
 
 
 
 
 
 
 
LogCAPIII award fee accrual rate
 
 
 
 
 
 
 
 
 
72 
 
 
 
 
Amount of counterclaims filed by the enterprise against a subcontractor
51 
 
 
 
 
 
 
 
 
 
 
 
 
 
First Kuwaiti Trading Company Arbitration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial claim by subcontractor related to leased vehicles
 
 
 
 
 
 
 
 
 
 
 
39 
 
 
Amount of counterclaims filed by the enterprise against a subcontractor
51 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total claim by subcontractor related to leased vehicles
133 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total claim for unpaid rents and damages in the First Kuwaiti Trading Company arbitration
 
 
 
 
65 
 
 
 
 
 
 
 
 
 
Partial award for damages in the First Kuwaiti Trading Company arbitration
 
 
 
 
 
 
 
 
 
 
 
 
 
Paul Morell, Inc. d/ba/a The Event Source vs. KBR, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of locations where TES provided services related to a contract in Iraq.
 
 
 
 
 
 
 
 
 
 
 
 
 
Damages and interest expense related to lawsuit judgment in favor of TES
 
 
 
 
 
 
 
15 
 
 
 
 
 
 
Punitive damage expense related to lawsuit judgment in favor of TES
 
 
 
 
 
 
 
 
 
 
 
 
 
Total damages related to lawsuit judgment in favor of TES
 
 
 
 
 
 
 
 
19 
 
 
 
 
 
Burn Pit Litigation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of lawsuits related to burn pit litigation
40 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convoy Ambush
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional suits filed arising out of insurgent attacks on other convoys in 2004 that were also dismissed as non-justiciable
three 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of denied motions to dismiss a case related to Convoy Ambush litigation
 
 
 
 
 
 
 
 
 
 
 
 
 
Claims
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unapproved claims included in accounts receivables related to various government contracts where costs have exceeded the customer's funded value of task orders
101 
 
 
 
 
 
 
 
113 
 
 
 
 
 
Amount of unapproved claims related to de-obligation of funding
59 
 
 
 
 
 
 
 
 
 
 
 
 
 
All DCAA Audit Issues Member
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 total withholds of payments from remittances on contract billings
 
165 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of DCAA Form 1's - Notice of contract costs suspended and/or disapproved issued to the enterprise
 
356 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of payments withheld from subcontractors related to DCAA Form 1's issued
 
124 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of payment demanded by the DCAA in demand letters issued for disapproved costs related to DCAA Form 1's issued
 
114 
 
 
 
 
 
 
 
 
 
 
 
 
PrivateSecurityMember
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 initial assessment and withhold from remittances on contract billings
 
 
 
 
 
 
 
 
 
 
 
 
20 
 
Estimated percentage of the total subcontract costs related to the private security costs
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 disapproval of contract costs in addition to the initial assessment
 
 
 
 
 
 
 
 
 
 
83 
 
 
 
DCAA Form 1 withholds from remittances on contract billings in addition to the initially-withheld amount
 
24 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 total withholds of payments from remittances on contract billings
 
44 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of DCAA Form 1's - Notice of contract costs suspended and/or disapproved issued to the enterprise
 
103 
 
 
 
 
 
 
 
 
 
 
 
 
Claim to recover the DCAA Form 1 initial assessment and withhold from remittances on contract billings
 
20 
 
 
 
 
 
 
 
 
 
 
 
 
Appeal to recover the DCAA Form 1 withhold from remittances on contract billings related to the Private Security matter
 
44 
 
 
 
 
 
 
 
 
 
 
 
 
ContainersMember
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 total withholds of payments from remittances on contract billings
 
30 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of payments withheld from subcontractors related to DCAA Form 1's issued
 
28 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of counterclaims filed by the enterprise against a subcontractor
 
 
 
51 
 
 
 
 
 
 
 
 
 
 
Amount of counterclaims filed by the enterprise against a subcontractor
 
 
 
51 
 
 
 
 
 
 
 
 
 
 
DiningFacilitiesMember
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 total withholds of payments from remittances on contract billings
 
77 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of DCAA Form 1's - Notice of contract costs suspended and/or disapproved issued to the enterprise
 
187 
 
 
 
 
 
 
 
 
 
 
 
 
Claim to recover the DCAA Form 1 initial assessment and withhold from remittances on contract billings
 
57 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of payments withheld from subcontractors related to DCAA Form 1's issued
 
87 
 
 
 
 
 
 
 
 
 
 
 
 
Arbitration amount sought by subcontractor for payments withheld related to the Dining Facilities matter
 
35 
 
 
 
 
 
 
 
 
 
 
 
 
ConstructionServicesMember
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DCAA Form 1 total withholds of payments from remittances on contract billings
 
10 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount of DCAA Form 1's - Notice of contract costs suspended and/or disapproved issued to the enterprise
 
28 
 
 
 
 
 
 
 
 
 
 
 
 
Amount Attempting To Recover Costs Deemed Allowable
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount Attempting To Recover Costs Deemed Unallowable
 
less than 1 million 
 
 
 
 
 
 
 
 
 
 
 
 
Amount Attempting To Recover Potentially Unallowable Costs Not Settled
 
$ 20 
 
 
 
 
 
 
 
 
 
 
 
 
Other Commitments and Contingencies (Details) (USD $)
In Millions
1 Month Ended 3 Months Ended
Feb. 1, 2010 - Jun. 30, 2030
1 Month Ended
Mar. 31, 2022
Feb. 12, 2009 - Feb. 10, 2012
6 Months Ended
Dec. 31, 2010
Nov. 1, 2008 - Oct. 31, 2010
18 Months Ended
Oct. 1, 2010
Jun. 30, 2010
Feb. 28, 2010
Jan. 31, 2010
Dec. 31, 2009
Sep. 30, 2009
Mar. 31, 2009
Feb. 11, 2009
Nov. 30, 2006
1 Month Ended
Mar. 31, 2006
Foreign Corrupt Practices Act investigations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The 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 payment
 
 
 
 
 
 
 
 
 
 
 
 
20 
 
 
Criminal penalty payment period
 
 
 
 
two years 
 
 
 
 
 
 
 
 
 
 
Organizational probation period
 
 
three years 
 
 
 
 
 
 
 
 
 
 
 
 
The SEC's settled civil enforcement action
 
 
 
 
 
 
 
 
 
 
 
 
177 
 
 
Cumulative inception to date installment payments to the DOJ paid by the enterprise's former parent
 
 
 
335 
 
 
 
 
 
 
 
 
 
 
 
Payment of the SEC's settled civil enforcement action
 
 
 
177 
 
 
 
 
 
 
 
 
 
 
 
Cumulative inception to date payments made by the enterprise's former parent related to the DOJ FCPA plea agreement payment and the SEC's settled civil enforcement action
 
 
 
512 
 
 
 
 
 
 
 
 
 
 
 
Year to date installment payments to the DOJ paid by the enterprise's former parent
 
 
 
95 
 
 
 
 
 
 
 
 
 
 
 
Year to date payments made by the enterprise's former parent related to the DOJ FCPA plea agreement payment and the SEC's settled civil enforcement action
 
 
 
322 
 
 
 
 
 
 
 
 
 
 
 
Cumulative inception to date payments made by the enterprise related to the DOJ FCPA plea agreement payment
 
 
 
14 
 
 
 
 
 
 
 
 
 
 
 
Remaining obligation to the DOJ related to the FCPA plea agreement payment
 
 
 
53 
 
 
 
 
 
 
 
 
 
 
 
Quarterly installment payment due to the DOJ by the enterprise and the enterprise's former parent
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
 
Remaining indemnification receivable from the enterprise's former parent
 
 
 
48 
 
 
 
 
 
 
 
 
 
 
 
Minimum ownership percentage for indemnification
 
 
 
50 
 
 
 
 
 
 
 
 
 
50 
 
Ownership Percentage of the Subsidiary being indemnified
 
 
 
55 
 
 
 
 
 
 
 
 
 
 
 
Commercial Agent Fees
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reduction in project cost estimates related to commercial agent fees
 
 
 
 
 
 
 
 
 
 
16 
 
 
 
Commercial Agent Fees
 
 
 
90 
 
 
 
 
 
 
 
 
 
 
 
Barracuda-Caratinga Project Arbitration
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer's arbitration claim
 
 
 
 
 
 
 
 
 
 
 
 
 
 
220 
Estimated damages related to the Barracuda-Caratinga project
 
 
 
12 
 
 
 
 
 
 
 
 
 
 
 
The carrying value of the reserve regarding the contingency on the Barracuda-Caratinga matter
 
 
 
12 
 
 
 
 
 
 
 
 
 
 
 
Indemnification receivable recorded on the Barracuda-Caratinga Project
 
 
 
12 
 
 
 
 
 
 
 
 
 
 
 
Environmental
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Minimum Ownership Percentage For Indemnification
 
 
 
50 
 
 
 
 
 
 
 
 
 
50 
 
Accrual for environmental loss contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maximum possible assessment and remediation costs associated with all environmental matters
 
 
 
14 
 
 
 
 
 
 
 
 
 
 
 
Letters of credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Letters of credit and financial guarantees outstanding
 
 
 
507 
 
 
 
 
 
 
 
 
 
 
 
Letters of credit issued under the enterprise's revolving credit facility
 
 
 
326 
 
 
 
 
 
 
 
 
 
 
 
Letters of credit and financial guarantees outstanding, issued under uncommitted bank lines
 
 
 
181 
 
 
 
 
 
 
 
 
 
 
 
Letters of credit irrevocably and unconditionally guaranteed by the enterprise's former parent
 
 
 
197 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Committed funds to privately financed projects
 
 
 
47 
 
 
 
 
 
52 
 
 
 
 
 
Committed Funds For Privately Financed Projects Current
 
 
 
19 
 
 
 
 
 
47 
 
 
 
 
 
Technology Licenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Initial fee paid as consideration for a technology license.
 
 
 
 
 
 
 
 
20 
 
 
 
 
 
 
The useful life of the technology license
 
 
 
25 years 
 
 
 
 
 
 
 
 
 
 
 
Liquidated damages
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liquidated damages
 
 
 
19 
 
 
 
 
 
18 
 
 
 
 
 
Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of lease amendments
 
 
 
 
 
 
 
two 
 
 
 
 
 
 
 
Number of high-rise office buildings
 
 
 
 
 
 
 
two 
 
 
 
 
 
 
 
601 Jefferson Building
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing arrangements - operating leases
The lease amendment extends the original term of the lease to June 30, 2030 and includes renewal options for three consecutive additional periods from 5 to 10 years each at prevailing market rates. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease annual base rent at the beginning of the lease term
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual base rent at the end of the lease term
14 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasehold improvement allowance
29 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of lease termination opportunities
 
one 
 
 
 
 
 
 
 
 
 
 
 
 
 
Joint venture ownership percentage
 
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
Joint venture unowned percentage
 
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
500 Jefferson Building
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasing arrangements - operating leases
The lease amendment extends the original term of the lease to June 30, 2030 and includes renewal options for three consecutive additional periods from 5 to 10 years each at prevailing market rates. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease annual base rent at the beginning of the lease term
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual base rent at the end of the lease term
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leasehold improvement allowance
$ 6 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of lease termination opportunities
 
one 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rent holiday
 
 
 
six months 
 
 
 
 
 
 
 
 
 
 
 
Income Taxes (Details)
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Effective Income Tax Rate
3,600% 
3,600% 
3,700% 
3,700% 
Statutory Income Tax Rate
3,500% 
3,500% 
3,500% 
3,500% 
Shareholders' Equity (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Beginning Balance
 
$ 2,296 
 
$ 2,034 
Stock-based compensation
 
 
Common stock issued upon exercise of stock options
 
 
 
Tax benefit related to stock-based plans
 
 
 
Dividends declared to shareholders
 
(8)
 
(8)
Adjustments pursuant to the tax sharing agreement with the former parent.
 
(8)
 
 
Repurchases of common stock
 
(58)
 
(21)
Issuance of ESPP shares
 
 
 
Dividends paid to noncontrolling interests
 
(30)
 
(21)
Investments by noncontrolling interests
 
 
 
12 
Consolidation of Fasttrax Limited
 
(4)
 
 
Comprehensive income:
 
 
 
 
Net income
122 
181 
83 
178 
Other comprehensive income, net of tax (provision):
 
 
 
 
Net cumulative translation adjustments
(8)
(6)
14 
10 
Pension liability adjustment, net of tax
10 
Net unrealized gain (loss) on derivatives
(2)
Total
118 
185 
102 
196 
Ending Balance
2,384 
2,384 
2,200 
2,200 
Accumulated other comprehensive loss:
 
 
 
 
Cumulative translation adjustments
(58)
(58)
 
 
Pension liability adjustments
(381)
(381)
 
 
Unrealized losses on derivatives
 
 
Total accumulated other comprehensive loss
(439)
(439)
 
 
Paid-in Capital of Excess of par
 
 
 
 
Beginning Balance
 
2,103 
 
2,091 
Stock-based compensation
 
 
Common stock issued upon exercise of stock options
 
 
 
Tax benefit related to stock-based plans
 
 
 
Dividends declared to shareholders
 
 
Adjustments pursuant to the tax sharing agreement with the former parent.
 
(8)
 
 
Repurchases of common stock
 
 
Issuance of ESPP shares
 
 
 
Dividends paid to noncontrolling interests
 
 
Investments by noncontrolling interests
 
 
 
Consolidation of Fasttrax Limited
 
 
 
Comprehensive income:
 
 
 
 
Net income
 
 
Other comprehensive income, net of tax (provision):
 
 
 
 
Net cumulative translation adjustments
 
 
Pension liability adjustment, net of tax
 
 
Net unrealized gain (loss) on derivatives
 
 
Ending Balance
 
2,104 
 
2,099 
Retained Earnings
 
 
 
 
Beginning Balance
 
854 
 
596 
Stock-based compensation
 
 
Common stock issued upon exercise of stock options
 
 
 
Tax benefit related to stock-based plans
 
 
 
Dividends declared to shareholders
 
(8)
 
(8)
Adjustments pursuant to the tax sharing agreement with the former parent.
 
 
 
Repurchases of common stock
 
 
Issuance of ESPP shares
 
 
 
Dividends paid to noncontrolling interests
 
 
Investments by noncontrolling interests
 
 
 
Consolidation of Fasttrax Limited
 
 
 
Comprehensive income:
 
 
 
 
Net income
 
152 
 
144 
Other comprehensive income, net of tax (provision):
 
 
 
 
Net cumulative translation adjustments
 
 
Pension liability adjustment, net of tax
 
 
Net unrealized gain (loss) on derivatives
 
 
Ending Balance
 
998 
 
732 
Treasury Stock
 
 
 
 
Beginning Balance
 
(225)
 
(196)
Stock-based compensation
 
 
Common stock issued upon exercise of stock options
 
 
 
Tax benefit related to stock-based plans
 
 
 
Dividends declared to shareholders
 
 
Adjustments pursuant to the tax sharing agreement with the former parent.
 
 
 
Repurchases of common stock
 
(58)
 
(21)
Issuance of ESPP shares
 
 
 
Dividends paid to noncontrolling interests
 
 
Investments by noncontrolling interests
 
 
 
Consolidation of Fasttrax Limited
 
 
 
Comprehensive income:
 
 
 
 
Net income
 
 
Other comprehensive income, net of tax (provision):
 
 
 
 
Net cumulative translation adjustments
 
 
Pension liability adjustment, net of tax
 
 
Net unrealized gain (loss) on derivatives
 
 
Ending Balance
 
(281)
 
(217)
Accumulated Other Comprehensive Loss
 
 
 
 
Beginning Balance
 
(444)
 
(439)
Stock-based compensation
 
 
Common stock issued upon exercise of stock options
 
 
 
Tax benefit related to stock-based plans
 
 
 
Dividends declared to shareholders
 
 
Adjustments pursuant to the tax sharing agreement with the former parent.
 
 
 
Repurchases of common stock
 
 
Issuance of ESPP shares
 
 
 
Dividends paid to noncontrolling interests
 
 
Investments by noncontrolling interests
 
 
 
Consolidation of Fasttrax Limited
 
 
 
Comprehensive income:
 
 
 
 
Net income
 
 
Other comprehensive income, net of tax (provision):
 
 
 
 
Net cumulative translation adjustments
 
(4)
 
Pension liability adjustment, net of tax
 
 
Net unrealized gain (loss) on derivatives
 
 
(2)
Ending Balance
 
(439)
 
(428)
Noncontrolling Interests
 
 
 
 
Beginning Balance
 
 
(18)
Stock-based compensation
 
 
Common stock issued upon exercise of stock options
 
 
 
Tax benefit related to stock-based plans
 
 
 
Dividends declared to shareholders
 
 
Adjustments pursuant to the tax sharing agreement with the former parent.
 
 
 
Repurchases of common stock
 
 
Issuance of ESPP shares
 
 
 
Dividends paid to noncontrolling interests
 
(30)
 
(21)
Investments by noncontrolling interests
 
 
 
12 
Consolidation of Fasttrax Limited
 
(4)
 
 
Comprehensive income:
 
 
 
 
Net income
 
29 
 
34 
Other comprehensive income, net of tax (provision):
 
 
 
 
Net cumulative translation adjustments
 
(2)
 
Pension liability adjustment, net of tax
 
 
Net unrealized gain (loss) on derivatives
 
 
Ending Balance
 
$ 2 
 
$ 14 
Fair Value Measurements (Details) (USD $)
In Millions
Jun. 30, 2010
Fair Value Measurements at Reporting Date
 
Marketable securities
$ 16 
Derivative assets
18 
Derivative liabilities
Quote Prices in Active Markets for Identical Assets (Level 1)
 
Fair Value Measurements at Reporting Date
 
Marketable securities
11 
Derivative assets
Derivative liabilities
Significant Other Observable Inputs (Level 2)
 
Fair Value Measurements at Reporting Date
 
Marketable securities
Derivative assets
18 
Derivative liabilities
Significant Unobservable Inputs (Level 3)
 
Fair Value Measurements at Reporting Date
 
Marketable securities
Derivative assets
Derivative liabilities
$ 0 
Equity Method Investments and Variable Interest Entities (Details)
In Millions
Year Ended
Dec. 31,
3 Months Ended
Jun. 30,
2025
2023
2021
2011
2010
2010
Dec. 31, 2009
Dec. 31, 2009
3 Months Ended
Sep. 30, 2007
1 Month Ended
Mar. 31, 2006
Year Ended
Dec. 31, 2005
1 Month Ended
Mar. 31, 2005
Year Ended
Dec. 31, 2004
Jun. 30, 2010
Brown and Root Condor Spa (BRC)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
 
 
 
4,900% 
 
 
 
 
 
Net sales price of equity method investment
 
 
 
 
 
 
 
 
$ 24 
 
 
 
 
 
Gain on sale of equity method investment
 
 
 
 
 
 
 
 
18 
 
 
 
 
 
Accounts receivable on sale of equity method investment
 
 
 
 
18 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
 
 
 
4,900% 
 
 
 
 
 
Fasttrax Limited Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year asset purchase was completed
 
 
 
 
 
 
 
 
 
 
 
 
2004 
 
Expiration date of operating and service contracts related to assets purchased
 
2023 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage of subsidiary owned by the parent entity
 
 
 
 
100 
 
 
 
 
 
 
 
 
100 
Variable Interest Entity, Ownership Percentage
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
 
Guaranteed secured bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
84.9 
Shareholders funded combined equity and subordinated debt
 
 
 
 
 
 
 
 
 
 
 
 
 
12.2 
Year shareholders funded combined equity and subordinated debt
 
 
 
 
 
 
 
 
 
 
2005 
 
 
 
Total amount of debt consolidated
 
 
 
 
101 
 
 
 
 
 
 
 
 
 
Current non-recourse project finance debt of a variable interest entity
 
 
 
 
 
 
 
 
 
 
 
 
Noncurrent non-recourse project-finance debt of a variable interest entity
 
 
 
 
93 
 
 
 
 
 
 
 
 
Interest rate on Class A 3.5% Index Linked Bonds
 
 
 
 
3.5 
 
 
 
 
 
 
 
 
3.5 
Class A 3.5% Index Linked Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
56.0 
Interest rate on Class B 5.9% Fixed Rate Bonds
 
 
 
 
5.9 
 
 
 
 
 
 
 
 
5.9 
Class B 5.9% Fixed Rate Bonds
 
 
 
 
 
 
 
 
 
 
 
 
 
16.7 
Date of first required payment of non-recourse Class A and Class B bonds
 
 
 
 
 
 
 
 
 
 
 
March 2005 
 
 
Maturity date of non-recourse Class A and Class B bonds
 
 
12/31/2021 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Minimum
 
 
 
 
11.25 
 
 
 
 
 
 
 
 
 
Debt Instrument, Interest Rate, Stated Percentage Rate Range, Maximum
 
 
 
 
16 
 
 
 
 
 
 
 
 
 
Maturity date of subordinated notes payable
2025 
 
 
 
 
 
 
 
 
 
 
 
 
 
Date of first required payment of subordinated notes payable
 
 
 
 
 
 
 
 
 
March 2006 
 
 
 
 
Debt instrument annual payments for both classes of bonds and subordinated debt for the remainder of 2010
 
 
 
 
 
 
 
 
 
 
 
 
 
3.0 
Debt instrument annual payments for both classes of bonds and subordinated debt for 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
6.0 
Debt instrument annual payments for both classes of bonds and subordinated debt for 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
6.0 
Debt instrument annual payments for both classes of bonds and subordinated debt after 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
67.0 
Consolidated current assets increase upon consolidation of the joint venture
 
 
 
 
26 
 
 
 
 
 
 
 
 
 
Consolidated noncurrent assets increase upon consolidation of the joint venture
 
 
 
 
89 
 
 
 
 
 
 
 
 
 
Consolidated current liabilities increase upon consolidation of the joint venture
 
 
 
 
10 
 
 
 
 
 
 
 
 
 
Consolidated noncurrent liabilities increase upon consolidation of the joint venture
 
 
 
 
112 
 
 
 
 
 
 
 
 
 
Assets collateralizing the Joint Venture's senior bonds, cash and equivalents
 
 
 
 
20 
 
 
 
 
 
 
 
 
 
Assets collateralizing the Joint Venture's senior bonds, property, plant and equipment
 
 
 
 
80 
 
 
 
 
 
 
 
 
Assets collateralizing the Joint Venture's senior bonds, accumulated depreciation of related property, plant and equipment
 
 
 
 
35 
 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | U.K. Road Projects
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
2,500% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
2,500% 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
1,500 
 
1,700 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
1,500 
 
1,600 
 
 
 
 
 
 
Maximum exposure to loss
 
 
 
 
 
31 
 
 
 
 
 
 
 
 
Number of joint ventures
 
 
 
 
 
four 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | Fermoy Road Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
2,500% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
2,500% 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
226 
 
271 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
252 
 
295 
 
 
 
 
 
 
Maximum exposure to loss
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | Allenby & Connaught Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
2,900 
 
3,000 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
2,900 
 
3,000 
 
 
 
 
 
 
Maximum exposure to loss
 
 
 
 
 
68 
 
 
 
 
 
 
 
 
Amount of assets associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
Amount of liabilities associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
27 
 
 
 
 
 
 
 
 
Difference between our recorded liabilities and aggregate maximum exposure to loss
 
 
 
 
 
41 
 
 
 
 
 
 
 
 
Term of contracted services portion of project
 
 
 
 
 
35 years 
 
 
 
 
 
 
 
 
Term of construction portion of project
 
 
 
 
 
nine years 
 
 
 
 
 
 
 
 
Remaining commitment to fund subordinated debt to the project in the future
 
 
 
 
 
44 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | Aspire Defense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
4,500% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
4,500% 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | Construction and related support services joint ventures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
Number of joint ventures
 
 
 
 
 
two 
 
 
 
 
 
 
 
 
Amount of letter of credit supporting construction portion
 
 
 
 
 
89 
 
 
 
 
 
 
 
 
Amount of surety bonds supporting construction portion
 
 
 
 
 
15 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | EBIC Ammonia Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ownership percentage the enterprise has in a development company that has a minority interest in a VIE
 
 
 
 
 
65 
 
 
 
 
 
 
 
 
Development company's ownership interest in a company that consolidates a VIE
 
 
 
 
 
25 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
618 
 
598 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
467 
 
489 
 
 
 
 
 
 
Maximum exposure to loss
 
 
 
 
 
52 
 
 
 
 
 
 
 
 
Amount of assets associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
50 
 
 
 
 
 
 
 
 
Amount of liabilities associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
10 
 
 
 
 
 
 
 
 
Difference between our recorded liabilities and aggregate maximum exposure to loss
 
 
 
 
 
42 
 
 
 
 
 
 
 
 
Variable Interest Entity, Not Primary Beneficiary [Member] | Other LNG Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The enterprise's equity ownership percentage range of joint ventures related to LNG projects that are unconsolidated VIE's
 
 
 
 
 
33% to 50% 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
306 
 
410 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
285 
 
467 
 
 
 
 
 
 
Maximum exposure to loss
 
 
 
 
 
31 
 
 
 
 
 
 
 
 
Amount of assets associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
30 
 
 
 
 
 
 
 
 
Amount of liabilities associated with our investment in a project on a unconsolidated VIE that is reported within our condensed consolidated balance sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of joint ventures
 
 
 
 
 
two 
 
 
 
 
 
 
 
 
Variable Interest Entity, Primary Beneficiary [Member] | Fasttrax Limited Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
100 
 
117 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
102 
 
124 
 
 
 
 
 
 
Number of heavy equipment transporters created to provide to the United Kingdom Ministry of Defense
 
 
 
 
 
92 
 
 
 
 
 
 
 
 
The tonnage of a Challenger II tank that each HET transporter is capable of carrying
 
 
 
 
 
72 
 
 
 
 
 
 
 
 
Variable Interest Entity, Primary Beneficiary [Member] | Escravos GTL Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
331 
 
387 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
428 
 
482 
 
 
 
 
 
 
Total cash for joint venture in consolidated VIE
 
 
 
 
 
95 
 
128 
 
 
 
 
 
 
Variable Interest Entity, Primary Beneficiary [Member] | Pearl GTL Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
5,000% 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
172 
 
157 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
158 
 
138 
 
 
 
 
 
 
Expected completion date of project
 
 
 
2011 
 
 
 
 
 
 
 
 
 
 
Variable Interest Entity, Primary Beneficiary [Member] | Gorgon LNG Project
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
3,000% 
 
 
 
 
 
 
 
 
Equity Method Investment, Ownership Percentage
 
 
 
 
 
3,000% 
 
 
 
 
 
 
 
 
Total assets
 
 
 
 
 
173 
 
109 
 
 
 
 
 
 
Total liabilities
 
 
 
 
 
$ 184 
 
$ 109 
 
 
 
 
 
 
Retirement Plans (Details)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
3 Months Ended
Jun. 30, 2010
Plan Contributions:
 
 
 
 
 
Defined Benefit Plan, Contribution by Employer - International Plans
 
$ 6 
 
 
 
Expected Defined Benefit Plan, Estimated Employer Contributions in Current Fiscal Year - International Plans
 
15 
 
 
 
Defined Benefit Plan, Contribution by Employer - Domestic Plans
 
 
 
 
Expected Defined Benefit Plan, Estimated Employer Contributions in Current Fiscal Year - Domestic Plans
 
 
 
 
Total future contributions agreed to be made over the next 10 years beginning in 2010
 
 
 
 
34.0 
Annual contribution to an international plan - year 1 through year 3
 
 
 
 
5.5 
Annual contribution to an international plan - year 4 through year 10
 
 
 
 
2.5 
United States
 
 
 
 
 
Components of net periodic benefit cost:
 
 
 
 
 
Service cost
 
Interest cost
 
Expected return on plan assets
(1)
(2)
(1)
(2)
 
Recognized actuarial loss
 
Curtailment
 
 
 
Net periodic benefit cost (benefit)
 
International
 
 
 
 
 
Components of net periodic benefit cost:
 
 
 
 
 
Service cost
 
Interest cost
22 
44 
19 
37 
 
Expected return on plan assets
(23)
(46)
(19)
(40)
 
Recognized actuarial loss
 
Curtailment
 
 
(4)
 
Net periodic benefit cost (benefit)
$ 4 
$ 8 
$ 3 
$ 1 
 
Acquisitions (Details) (USD $)
In Millions
6 Months Ended
Jun. 30, 2010
Apr. 5, 2010
Energo Engineering
 
 
Business Acquisition Description Of Acquired Entity
 
Date of business acquisition
 
April 5, 2010 
Percentage of ownership acquired
 
10,000% 
Cash paid in the acquisition of an entity
 
$ 16 
Escrowed holdback amount related to the acquisition of an entity
 
Amount of goodwill recognized as a result of the acquisition
 
Amount of intangible assets recognized as a result of the acquisition
$ 3 
 
Houston based Energo Engineering ("Energo") provides Integrity Management (IM) and advanced structural engineering services to the offshore oil and gas industry. Energo will be integrated into the enterprise's Hydrocarbons segment, which will enable that business to expand its capabilities worldwide as well as support FEED and detailed design projects.
Document Information
6 Months Ended
Jun. 30, 2010
Document Information [Text Block]
 
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
06/30/2010 
Entity Information (USD $)
Jul. 28, 2010
6 Months Ended
Jun. 30, 2010
Jun. 30, 2009
Entity [Text Block]
 
 
 
Entity Registrant Name
 
KBR, INC. 
 
Entity Central Index Key
 
0001357615 
 
Current Fiscal Year End Date
 
12/31 
 
Entity Well-known Seasoned Issuer
 
Yes 
 
Entity Voluntary Filers
 
No 
 
Entity Current Reporting Status
 
Yes 
 
Entity Filer Category
 
Large Accelerated Filer 
 
Entity Public Float
 
 
$ 2,947,702,000 
Entity Common Stock, Shares Outstanding
156,272,078 
 
 
Document Fiscal Year Focus
 
2010 
 
Document Fiscal Period Focus
 
Q2