KBR, INC., 8-K filed on 10/30/2018
Current report filing
v3.10.0.1
Document And Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2017
Jan. 31, 2018
Jun. 30, 2017
Document and Entity Information [Abstract]      
Document Type 8-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2017    
Entity Registrant Name KBR, INC.    
Entity Central Index Key 0001357615    
Current Fiscal Year End Date --12-31    
Entity Current Reporting Status Yes    
Entity Public Float     $ 2.1
Entity Common Stock, Shares Outstanding   140,268,352  
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Trading Symbol KBR    
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]      
Revenues $ 4,171 $ 4,268 $ 5,096
Cost of revenues (3,829) (4,156) (4,771)
Gross profit 342 112 325
Equity in earnings of unconsolidated affiliates 72 91 149
General and administrative expenses (147) (143) (155)
Impairment of goodwill 0 0  
Asset impairment and restructuring charges (6) (39) (70)
Gain on disposition of assets 5 7 61
Operating income 266 28 310
Interest expense (21) (13) (11)
Other non-operating income 4 18 13
Income before income taxes and noncontrolling interests 249 33 312
Benefit (provision) for income taxes 193 (84) (86)
Net income (loss) 442 (51) 226
Net income attributable to noncontrolling interests (8) (10) (23)
Net income (loss) attributable to KBR $ 434 $ (61) $ 203
Net income (loss) attributable to KBR per share:      
Basic (usd per share) $ 3.06 $ (0.43) $ 1.40
Diluted (usd per share) $ 3.06 $ (0.43) $ 1.40
Basic weighted average common shares outstanding (shares) 141 142 144
Diluted weighted average common shares outstanding (shares) 141 142 144
Cash dividends declared per share (usd per share) $ 0.32 $ 0.32 $ 0.32
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Consolidated Statements Of Comprehensive Income (Loss) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ 442 $ (51) $ 226
Foreign currency translation adjustments:      
Foreign currency translation adjustments, net of tax 3 7 (68)
Reclassification adjustment included in net income 0 0 4
Foreign currency translation adjustments, net of tax of $6, $(3) and $(3) 3 7 (64)
Pension and post-retirement benefits, net of tax:      
Actuarial gains (losses), net of tax 100 (249) 71
Reclassification adjustment included in net income 25 24 39
Pension and post-retirement benefits, net of taxes of $(27), $45, and $(22) 125 (225) 110
Changes in fair value of derivatives:      
Changes in fair value of derivatives, net of tax 1 0 0
Reclassification adjustment included in net income (1) (1) 1
Changes in fair value of derivatives, net of taxes of $0, $0 and $0 0 (1) 1
Other comprehensive income (loss), net of tax 128 (219) 47
Comprehensive income (loss) 570 (270) 273
Less: Comprehensive income attributable to noncontrolling interests (7) (10) (25)
Comprehensive income (loss) attributable to KBR $ 563 $ (280) $ 248
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Consolidated Statements Of Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]      
CTA, taxes $ 6 $ (3) $ (3)
Pension liability adjustment, taxes (27) 45 (22)
Net unrealized gain (loss) on derivatives, tax $ 0 $ 0 $ 0
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2017
Dec. 31, 2016
Current assets:    
Cash and equivalents $ 439 $ 536
Accounts receivable, net of allowance for doubtful accounts of $12 and $14 510 592
Costs and estimated earnings in excess of billings on uncompleted contracts (CIE) 383 416
Claims receivable 0 400
Other current assets 93 103
Total current assets 1,425 2,047
Claims and accounts receivable 101 131
Property, plant, and equipment, net of accumulated depreciation of $329 and $324 (including net PPE of $34 and $36 owned by a variable interest entity) 130 145
Goodwill 968 959
Intangible assets, net of accumulated amortization of $122 and $100 239 248
Equity in and advances to unconsolidated affiliates 387 369
Deferred income taxes 300 118
Other assets 124 127
Total assets 3,674 4,144
Current liabilities:    
Accounts payable 350 535
Billings in excess of costs and estimated earnings on uncompleted contracts (BIE) 368 552
Accrued salaries, wages and benefits 186 171
Nonrecourse project debt 10 9
Other current liabilities 157 292
Total current liabilities 1,071 1,559
Pension obligations 391 526
Employee compensation and benefits 118 113
Income tax payable 85 78
Deferred income taxes 18 149
Nonrecourse project debt 28 34
Revolving credit agreement 470 650
Deferred income from unconsolidated affiliates 101 90
Other liabilities 171 200
Total liabilities 2,453 3,399
KBR shareholders’ equity:    
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 0 shares issued and outstanding 0 0
Common stock, $0.001 par value, 300,000,000 shares authorized, 176,638,882 and 175,913,310 shares issued, and 140,166,589 and 142,803,782 shares outstanding 0 0
Paid-in capital in excess of par (PIC) 2,091 2,088
Accumulated other comprehensive loss (AOCL) (921) (1,050)
Retained earnings 877 488
Treasury stock, 36,472,293 shares and 33,109,528 shares, at cost (818) (769)
Total KBR shareholders’ equity 1,229 757
Noncontrolling interests (8) (12)
Total shareholders’ equity 1,221 745
Total liabilities and shareholders’ equity $ 3,674 $ 4,144
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Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2017
Dec. 31, 2016
Receivables:    
Allowance for doubtful accounts $ 12 $ 14
Property, plant, and equipment:    
Accumulated depreciation 329 324
PP&E owned by a VIE, net 34 36
Accumulated amortization $ 122 $ 100
KBR shareholders’ equity:    
Preferred stock, par value (usd per share) $ 0.001 $ 0.001
Preferred stock, shares authorized (shares) 50,000,000 50,000,000
Preferred stock, shares issued (shares) 0 0
Preferred stock, shares outstanding (shares) 0 0
Common stock, par value (usd per share) $ 0.001 $ 0.001
Common stock, shares authorized (shares) 300,000,000 300,000,000
Common stock, shares issued (shares) 176,638,882 175,913,310
Common stock, shares outstanding (shares) 140,166,589 142,803,782
Treasury stock (shares) 36,472,293 33,109,528
v3.10.0.1
Consolidated Statements Of Shareholders' Equity
$ in Millions
USD ($)
Beginning Balance at Dec. 31, 2014 $ 935
Increase (Decrease) in Stockholders' Equity [Roll Forward]  
Acquisition of noncontrolling interest (40)
Share-based compensation 18
Common stock issued upon exercise of stock options 1
Dividends declared to shareholders (47)
Repurchases of common stock (62)
Issuance of employee stock purchase plan (ESPP) shares 5
Distributions to noncontrolling interests (28)
Other noncontrolling interests activity (3)
Comprehensive income (loss) 273
Ending Balance at Dec. 31, 2015 1,052
Increase (Decrease) in Stockholders' Equity [Roll Forward]  
Share-based compensation 18
Common stock issued upon exercise of stock options 1
Tax benefit decrease related to share-based plans 1
Dividends declared to shareholders (46)
Repurchases of common stock (4)
Issuance of employee stock purchase plan (ESPP) shares 3
Distributions to noncontrolling interests (9)
Comprehensive income (loss) (270)
Ending Balance at Dec. 31, 2016 745
Increase (Decrease) in Stockholders' Equity [Roll Forward]  
Acquisition of noncontrolling interest (8)
Share-based compensation 12
Dividends declared to shareholders (45)
Repurchases of common stock (53)
Issuance of employee stock purchase plan (ESPP) shares 3
Investments by noncontrolling interests 1
Distributions to noncontrolling interests (4)
Comprehensive income (loss) 570
Ending Balance at Dec. 31, 2017 $ 1,221
v3.10.0.1
Consolidated Statements Of Cash Flows
$ in Millions
12 Months Ended
Dec. 31, 2017
USD ($)
Dec. 31, 2016
USD ($)
Dec. 31, 2015
USD ($)
Cash flows from operating activities:      
Net income (loss) $ 442 $ (51) $ 226
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 48 45 39
Equity in earnings of unconsolidated affiliates (72) (91) (149)
Deferred income tax (benefit) expense (322) 18 14
Gain on disposition of assets (5) (7) (61)
Asset impairment 0 16 31
Other 29 3 21
Changes in operating assets and liabilities, net of acquired businesses:      
Accounts receivable, net of allowance for doubtful accounts 92 121 41
Costs and estimated earnings in excess of billings on uncompleted contracts 40 8 224
Claims receivable 400 0 0
Accounts payable (193) (6) (274)
Billings in excess of costs and estimated earnings on uncompleted contracts (198) 33 (2)
Accrued salaries, wages and benefits 14 (50) (8)
Reserve for loss on uncompleted contracts (48) (5) (94)
Payments from (advances to) unconsolidated affiliates, net 11 (1) 10
Distributions of earnings from unconsolidated affiliates 62 56 92
Income taxes payable 0 (52) 26
Pension funding (37) (41) (48)
Retainage payable (16) (2) (2)
Subcontractor advances 0 8 (12)
Net settlement of derivative contracts 3 (9) (44)
Other assets and liabilities (57) 68 17
Total cash flows provided by operating activities 193 61 47
Cash flows from investing activities:      
Purchases of property, plant and equipment (8) (11) (10)
Payments for investments in equity method joint ventures 0 (61) (19)
Proceeds from sale of assets or investments 2 2 130
Acquisitions of businesses, net of cash acquired (4) (911) 0
Payments for (Proceeds from) Other Investing Activities (2) 0 0
Total cash flows (used in) provided by investing activities (12) (981) 101
Cash flows from investing activities:      
Payments to reacquire common stock (53) (4) (62)
Acquisition of noncontrolling interest 0 0 (40)
Investments from noncontrolling interests 1 0 0
Distributions to noncontrolling interests (4) (9) (28)
Payments of dividends to shareholders (45) (46) (47)
Net proceeds from issuance of common stock 0 0 1
Excess tax benefits from share-based compensation 0 1 0
Borrowings on revolving credit agreement 0 700 0
Payments on revolving credit agreement (180) (50) 0
Payments on short-term and long-term borrowings (9) (9) (11)
Other 0 1 (5)
Total cash flows (used in) provided by financing activities (290) 584 (192)
Effect of exchange rate changes on cash 12 (11) (43)
Decrease in cash and equivalents (97) (347) (87)
Cash and equivalents at beginning of period 536 883 970
Cash and equivalents at end of period 439 536 883
Supplemental disclosure of cash flows information:      
Cash paid for interest 21 12 10
Cash paid for income taxes (net of refunds) 144 49 66
Noncash financing activities      
Dividends declared $ 11 $ 12 $ 12
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Description Of Company And Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
Description of Company and Significant Accounting Policies
Description of Company and Significant Accounting Policies

KBR, Inc., a Delaware corporation, was formed on March 21, 2006 and is headquartered in Houston, Texas. KBR, Inc. and its wholly owned and majority-owned subsidiaries (collectively referred to herein as "KBR", "the Company", "we", "us" or "our") is a global provider of differentiated, professional services and technologies across the asset and program life-cycle within the government services and hydrocarbons industries. Our capabilities include research and development, feasibility and solutions development, specialized technical consulting, systems integration, engineering and design service, process technologies, program management, construction services, commissioning and startup services, highly specialized mission and logistics support solutions, and asset operations and maintenance services and other support services to a diverse customer base, including government and military organizations of the U.S., U.K. and Australia and a wide range of customers across the hydrocarbons value chain.

Principles of Consolidation

Our consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of KBR and our wholly owned and majority-owned subsidiaries and VIEs of which we are the primary beneficiary. We account for investments over which we have significant influence but not a controlling financial interest using the equity method of accounting. See Note 12 to our consolidated financial statements for further discussion on our equity investments and VIEs. The cost method is used when we do not have the ability to exert significant influence. All material intercompany balances and transactions are eliminated in consolidation.

Certain prior year amounts have been reclassified to conform to the current year presentation on the consolidated statements of operations, consolidated balance sheets and the consolidated statements of cash flows.

We have evaluated all events and transactions occurring after the balance sheet date but before the financial statements were issued and have included the appropriate disclosures. See Note 3 to our consolidated financial statements for subsequent events related to our acquisition of Stinger Ghaffarian Technologies, Inc. and Note 7 for the events related to our Aspire Defence project.

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas requiring significant estimates and assumptions by our management include the following:

project revenues, costs and profits on engineering and construction contracts, including recognition of estimated losses on uncompleted contracts
project revenues, award fees, costs and profits on government services contracts
provisions for uncollectible receivables and client claims and recoveries of costs from subcontractors, vendors and others
provisions for income taxes and related valuation allowances and tax uncertainties
recoverability of goodwill
recoverability of other intangibles and long-lived assets and related estimated lives
recoverability of equity method and cost method investments
valuation of pension obligations and pension assets
accruals for estimated liabilities, including litigation accruals
consolidation of VIEs
valuation of share-based compensation
valuation of assets and liabilities acquired in business combinations

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


Cash and Equivalents

We consider highly liquid investments with an original maturity of three months or less to be cash equivalents. See Note 4 to our consolidated financial statements for our discussion on cash and equivalents.

Revenue Recognition

Government Contracts

Certain services provided to the United States ("U.S.") government are performed on cost-reimbursable contracts. Generally, these contracts may contain base fees (a fixed profit percentage applied to our estimates of costs to complete the work) and award fees (a variable profit percentage applied to definitized costs, which is subject to our customer's discretion and tied to specific performance measures defined in the contract, such as adherence to schedule, health and safety, quality of work, responsiveness, cost performance and business management).

Revenues are recognized at the time services are performed, and such revenues include base fees, actual direct project costs incurred and an allocation of indirect costs. Indirect costs are applied using rates approved by our government customers. The general, administrative and overhead cost reimbursement rates are estimated periodically in accordance with government contract accounting regulations and may change based on actual costs incurred or based upon the volume of work performed. Award fees are recognized when such fees are probable and estimable. Estimates of the total fee to be earned are made based on contract provisions, prior experience with similar contracts or clients and management’s evaluation of the performance on such contracts. Revenues are reduced for our estimate of costs that either are in dispute with our customer or have been identified as potentially unallowable pursuant to the terms of the contract or the federal acquisition regulations.

Engineering and Construction Contracts

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

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

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

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

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

When estimating the amount of total gross profit or loss on a contract, we include unapproved change orders or claims to our clients as adjustments to revenues. We include claims to vendors, subcontractors and others as adjustments to total estimated costs. If we have a reasonable legal basis and collectability of amounts are probable, claims against vendors, subcontractors and others are recorded up to the extent of the lesser of the amounts management expects to recover or to costs incurred and include no profit until such time as they are finalized and approved. See Note 7 to our consolidated financial statements for our discussion on unapproved change orders and claims.

Services Contracts

Revenues for our services contracts are recorded as the services are rendered and the amounts are deemed realized or realizable and earned. Revenues are recognized when persuasive evidence of a customer arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed and determinable, and collection of revenues is reasonably assured. Revenues associated with incentive fees for these contracts are recognized when earned.

Gross Profit

Gross profit represents revenues less the cost of revenues, which includes business segment overhead costs directly attributable to execution of contracts by the business segment.

Contract Costs

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

General and Administrative Expenses

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

Accounts Receivable

Accounts receivable are recorded at the invoiced amount based on contracted prices. Amounts collected on accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows.

We establish an allowance for doubtful accounts based on the assessment of the clients’ willingness and ability to pay. In addition to such allowances, there are often items in dispute or being negotiated that may require us to make an estimate as to the ultimate outcome. Past due receivable balances are written off when our internal collection efforts have been unsuccessful in collecting the amounts due. See Note 5 to our consolidated financial statements for our discussion on accounts receivable.

Retainage, included in accounts receivable, represents amounts withheld from billings by our clients pursuant to provisions in the contracts and may not be paid to us until the completion of specific tasks or the completion of the project and, in some instances, for even longer periods. Retainage may also be subject to restrictive conditions such as performance guarantees. Our retainage receivable excludes amounts withheld by the U.S. government on certain contracts. See Notes 8 and 16 to our consolidated financial statements for our discussion on U.S. government receivables.

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

Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of accounting. Costs and estimated earnings in excess of billings on uncompleted contracts ("CIE") represent the excess of contract costs and profits recognized to date using the percentage-of-completion method over billings to date on certain contracts. Billings in excess of costs and estimated earnings on uncompleted contracts ("BIE") represents the excess of billings to date over the amount of contract costs and profits recognized to date using the percentage-of-completion method on certain contracts. For service-type contracts, revenues recognized in excess of amounts billed to the customer are recorded in CIE and amounts billed to the customer in excess of revenues recognized to date are recorded in BIE. With the exception of claims and change orders that we are in the process of negotiating with customers, unbilled receivables are usually billed during normal billing processes following achievement of the contractual requirements. We anticipate that substantially all incurred costs associated with unbilled receivables as of December 31, 2017 will be billed and collected in 2018. See Note 6 to our consolidated financial statements for our discussion on CIE and BIE.

Property, Plant and Equipment

Property, plant and equipment are reported at cost less accumulated depreciation except for those assets that have been written down to their fair values due to impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. The cost of property, plant and equipment sold or otherwise disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operating income for the respective period. Depreciation is generally provided on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized using the straight-line method over the shorter of the useful life of the improvement or the lease term. See Note 9 to our consolidated financial statements for our discussion on property, plant and equipment.    
Goodwill and Intangible Assets
Goodwill is an asset representing the excess cost over the fair market value of net assets acquired in business combinations. In accordance with ASC 350 - Intangibles - Goodwill and Other, goodwill is not amortized but is tested annually for impairment or on an interim basis when indicators of potential impairment exist. Goodwill is tested for impairment at the reporting unit level. Our reporting units are our operating segments or components of operating segments where discrete financial information is available and segment management regularly reviews the operating results. For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on the current reporting structure. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is not considered impaired. If the carrying value of a reporting unit exceeds its fair value, a second step of the goodwill impairment test is performed to measure the amount of goodwill impairment. The second step compares the implied fair value of the reporting unit goodwill to the carrying value of the reporting unit goodwill. We determine the implied fair value of the goodwill in the same manner as determining the amount of goodwill to be recognized in a business combination. We completed our annual goodwill impairment test in the fourth quarter of 2017 and determined that none of the goodwill was impaired. See Note 10 to our consolidated financial statements for reported goodwill in each of our segments.
We had intangible assets with a carrying value of $239 million and $248 million as of December 31, 2017 and 2016, respectively. Intangible assets with indefinite lives are not amortized but are subject to annual impairment tests or on an interim basis when indicators of potential impairment exist. An intangible asset with an indefinite life is impaired if its carrying value exceeds its fair value. As of December 31, 2017, none of our intangible assets with indefinite lives were impaired. Intangible assets with finite lives are amortized on a straight-line basis over the useful life of those assets, ranging from 1 year to 25 years. See Note 10 to our consolidated financial statements for further discussion of our intangible assets.

Investments

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

Equity in earnings of unconsolidated affiliates, in the consolidated statements of operations, reflects our proportionate share of the investee's net income, including any associated affiliate taxes. Our proportionate share of the investee’s other comprehensive income (loss), net of income taxes, is recorded in the consolidated statements of shareholders’ equity and consolidated statements of comprehensive income (loss). In general, the equity investment in our unconsolidated affiliates is equal to our current equity investment plus those entities' undistributed earnings.
    
We evaluate our equity method investments for impairment at least annually or whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of an investment may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, management compares the estimated fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and management considers the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the financial statements as an impairment. See Note 12 to our consolidated financial statements for our discussion on equity method investments.

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

Variable Interest Entities

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

We assess all newly created entities and those with which we become involved to determine whether such entities are VIEs and, if so, whether or not we are their primary beneficiary. Most of the entities we assess are incorporated or unincorporated joint ventures formed by us and our partner(s) for the purpose of executing a project or program for a customer and are generally dissolved upon completion of the project or program. Many of our long-term energy-related construction projects 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 ("PFIs"), generally require the partners to invest equity and take an ownership position in an entity that manages and operates an asset after construction is complete.

As required by ASC 810 - Consolidation, we perform a qualitative assessment to determine whether we are the primary beneficiary once an entity is identified as a VIE. Thereafter, we continue to re-evaluate whether we are the primary beneficiary of the VIE in accordance with ASC 810 - Consolidation. A qualitative assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities. These include the terms of the contracts entered into by the entity, ownership interests issued by the entity and how they were marketed and the parties involved in the design of the entity. We then identify all of the variable interests held by parties involved with the VIE including, among other things, equity investments, subordinated debt financing, letters of credit, financial and performance guarantees and contracted service providers. Once we identify the variable interests, we determine those activities which are most significant to the economic performance of the entity and which variable interest holder has the power to direct those activities. Though infrequent, some of our assessments reveal no primary beneficiary because the power to direct the most significant activities that impact the economic performance is held equally by two or more variable interest holders who are required to provide their consent prior to the execution of their decisions. Most of the VIEs with which we are involved have relatively few variable interests and are primarily related to our equity investment, significant service contracts and other subordinated financial support. See Note 12 to our consolidated financial statements for our discussion on variable interest entities.

In February 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. This ASU amended the consolidation guidance for VIEs as well as general partners’ investments in limited partnerships and modified the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. The amendments were effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. On January 1, 2016, we adopted ASU 2015-02. The adoption of this update did not have a material impact on our consolidated financial statements.

Acquisitions

We account for business combinations using the acquisition method of accounting in accordance with ASC 805 - Business Combinations, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. We conduct external and internal valuations of certain acquired assets and liabilities for inclusion in our balance sheet as of the date of acquisition. Initial purchase price allocations are subject to revisions within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

Deconsolidation of a Subsidiary

We account for a gain or loss on deconsolidation of a subsidiary or derecognition of a group of assets in accordance with ASC 810-10-40-5. We measure the gain or loss as the difference between (a) the aggregate of all the following: (1) the fair value of any consideration received (2) the fair value of any retained noncontrolling investment in the former subsidiary or group of assets at the date the subsidiary is deconsolidated or the group of assets is derecognized and (3) the carrying amount of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive income attributable to the noncontrolling interest) at the date the subsidiary is deconsolidated and (b) the carrying amount of the former subsidiary’s assets and liabilities or the carrying amount of the group of assets.

Pensions

We account for our defined benefit pension plans in accordance with ASC 715 - Compensation - Retirement Benefits, which requires an employer to:

recognize on its balance sheet the funded status (measured as the difference between the fair value of plan assets and the benefit obligation) of the pension plan;
recognize, through comprehensive income, certain changes in the funded status of a defined benefit plan in the year in which the changes occur;
measure plan assets and benefit obligations as of the end of the employer’s fiscal year; and
disclose additional information.

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

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

Unrecognized actuarial gains and losses are generally recognized using the corridor method over a period of approximately 25 years, which represents a reasonable systematic method for amortizing gains and losses for the employee group. Our unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes in the obligations and the difference between expected returns and actual returns on plan assets. The difference between actual and expected returns is deferred as an unrecognized actuarial gain or loss on our consolidated statement of comprehensive income (loss) and is recognized as a decrease or an increase in future pension expense.

Income Taxes

We recognize the amount of taxes payable or refundable for the year and deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will not be realized. See Note 15 to our consolidated financial statements for our discussion on income taxes.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. A current tax asset or liability is recognized for the estimated taxes refundable or payable on tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. A valuation allowance is provided for deferred tax assets if it is more-likely-than-not that these items will not be realized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies in making this assessment. Additionally, we use forecasts of certain tax elements such as taxable income and foreign tax credit utilization in making this assessment of realization. Given the inherent uncertainty involved with the use of such estimates and assumptions, there can be significant variation between estimated and actual results.
 
We have operations in numerous countries other than the United States. Consequently, we are subject to the jurisdiction of a significant number of taxing authorities. The income earned in these various jurisdictions is taxed on differing bases, including income actually earned, income deemed earned and revenue-based tax withholding. The final determination of our tax liabilities involves the interpretation of local tax laws, tax treaties and related authorities in each jurisdiction. Changes in the operating environment, including changes in tax law and currency/repatriation controls, could impact the determination of our tax liabilities for a tax year.
 
We recognize the effect of income tax positions only if it is more-likely-than-not that those positions will be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records potential interest and penalties related to unrecognized tax benefits in income tax expense.
 
Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined by tax authorities in the normal course of business. These examinations may result in assessments of additional taxes, which we work to resolve with the tax authorities and through the judicial process. Predicting the outcome of disputed assessments involves some uncertainty. Factors such as the availability of settlement procedures, willingness of tax authorities to negotiate and the operation and impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence the ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates to determine the most likely outcome and provide taxes, interest and penalties as needed based on this outcome.

Derivative Instruments

We enter into derivative financial transactions to hedge existing or forecasted exposures to changing foreign currency exchange rates. We do not enter into derivative transactions for speculative or trading purposes. We recognize all derivatives at fair value on the balance sheet. Derivatives that are not designated as hedges in accordance with ASC 815 - Derivatives and Hedging, are adjusted to fair value and such changes are reflected in the results of operations. If the derivative is designated as a cash flow hedge under ASC 815, changes in the fair value of derivatives are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a designated hedge's change in fair value is recognized in earnings. See Note 23 to our consolidated financial statements for our discussion on derivative instruments.

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

Concentration of Credit Risk

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

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

We have revenues and receivables from transactions with an external customer that amounts to 10% or more of our revenues (which are generally not collateralized). We generated significant revenues from transactions with the U.S. government within our GS business segment and within our HS business segment from the Chevron Corporation ("Chevron"), primarily from a major liquefied natural gas ("LNG") project in Australia which is substantially complete. No other customers represented 10% or more of consolidated revenues in any of the periods presented.

The following tables present summarized data related to our transactions with the U.S. government and Chevron.
Revenues from major customers:
 
 
 
 
 
 
Years ended December 31,
Dollars in millions
2017
 
2016
 
2015
U.S. government
$
1,914

 
$
1,090

 
$
378

Chevron
$
56

 
$
105

 
$
523

Percentages of revenues and accounts receivable from major customers:
 
 
 
 
 
 
Years ended December 31,

2017
 
2016
 
2015
U.S. government revenues percentage
46
%
 
26
%
 
7
%
U.S. government receivables percentage
32
%
 
27
%
 
4
%
Chevron revenues percentage
1
%
 
2
%
 
10
%
Chevron receivables percentage
1
%
 
1
%
 
5
%


Noncontrolling interest

Noncontrolling interests represent the equity investments of the minority owners in our joint ventures and other subsidiary entities that we consolidate in our financial statements.

Foreign currency

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

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

Share-based compensation

We account for share-based payments, including grants of employee stock options, restricted stock-based awards and performance cash units, in accordance with ASC 718 - Compensation-Stock Compensation, which requires that all share-based payments (to the extent that they are compensatory) be recognized as an expense in our consolidated statements of operations based on their fair values on the award date and the estimated number of shares we ultimately expect to vest. We recognize share-based compensation expense on a straight-line basis over the service period of the award, which is no greater than 5 years. See Note 21 to our consolidated financial statements for our discussion on share-based compensation and incentive plans.

Commitments and Contingencies

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

Additional Balance Sheet Information

The components of "Other current assets" on our consolidated balance sheets as of December 31, 2017 and 2016 are presented below: 
 
December 31,
Dollars in millions
2017
 
2016
Prepaid expenses
53

 
56

Value-added tax receivable
11

 
17

Other miscellaneous assets
29

 
30

Total other current assets
$
93

 
$
103



The components of "Other current liabilities" on our consolidated balance sheets as of December 31, 2017 and 2016 are presented below:
 
December 31,
Dollars in millions
2017
 
2016
Reserve for estimated losses on uncompleted contracts (a)
$
15

 
$
63

Retainage payable
30

 
47

Income taxes payable
17

 
55

Restructuring reserves
9

 
30

Taxes payable not based on income
11

 
14

Value-added tax payable
13

 
16

Insurance payable
9

 
14

Dividend payable
11

 
12

Other miscellaneous liabilities
42

 
41

Total other current liabilities
$
157

 
$
292

 
(a)
See Note 2 to our consolidated financial statements for further discussion on significant reserves for estimated losses on uncompleted contracts.

Other Liabilities

Included in "Other liabilities" on our consolidated balance sheets as of December 31, 2017 and 2016 is noncurrent deferred rent of $99 million and $103 million, respectively. Also included in "Other liabilities" is a payable to our former parent of $5 million and $19 million as of December 31, 2017 and 2016, respectively. See Note 15 to our consolidated financial statements for further discussion regarding amounts payable to our former parent.
v3.10.0.1
Business Segment Information
12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Business Segment Information
Business Segment Information

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

We are organized into three core business segments and two non-core business segments. Our three core business segments focus on our core strengths in technical services relating to government services, technology and consulting, and engineering and construction. Our two non-core business segments are our Non-strategic Business segment, which includes businesses we intend to exit upon completion of existing contracts because they are no longer a part of our future strategic focus, and "Other", which includes our corporate expenses and general and administrative expenses not allocated to the other business segments. Each business segment reflects a reportable segment led by a separate business segment president who reports directly to our chief operating decision maker ("CODM").  Our business segments are described below.

Government Services ("GS"). Our GS business segment provides full life-cycle support solutions to defense, space, aviation and other programs and missions for military and other government agencies in the U.S., U.K. and Australia. As program management integrator, KBR covers the full spectrum of defense, space, aviation and other government programs and missions from research and development; through systems engineering, test and evaluation, systems integration and program management; to operations support, maintenance and field logistics. Our acquisitions in 2016, as described in Note 3 to our consolidated financial statements, have been combined with our existing U.S. operations within this business segment and operate under the single "KBRwyle" brand.
Technology. Our Technology business segment combines KBR's proprietary technologies, equipment and catalyst supply and associated knowledge-based services into a global business for refining, petrochemicals, inorganic and specialty chemicals as well as gasification, syngas, ammonia, nitric acid and fertilizers. From early planning through scope definition, advanced technologies and project lifecycle support, KBR's Technology segment works closely with customers to provide the optimal approach to maximize their return on investment.
Hydrocarbons Services ("HS"). Our HS business segment provides comprehensive project and program delivery capability globally. Our key capabilities leverage our operational and technical excellence as a global provider of EPC for onshore oil and gas; LNG/GTL; oil refining; petrochemicals; chemicals; fertilizers; offshore oil and gas (shallow-water, deep-water and subsea); floating solutions (FPUs, FPSO, FLNG & FSRU) ; maintenance services (via the “Brown & Root Industrial Services” brand); and consulting services provided under our three specialist consulting brands, Granherne, Energo and GVA.
Non-strategic Business. Our Non-strategic Business segment represents the operations or activities which we intend to exit upon completion of existing contracts. This segment also included businesses we exited upon sale to third parties during 2015. All Non-Strategic Business projects are substantially complete as of December 31, 2017. We continue to finalize project close-out activities and negotiate the settlement of claims and various other matters associated with these projects.
Other. Our Other business segment includes our corporate expenses and general and administrative expenses not allocated to the business segments above and would include any future activities that do not individually meet the criteria for segment presentation.
Reportable segment performance is evaluated by our CODM using gross profit (loss) and equity in earnings of unconsolidated affiliates, which is defined as business segment revenues less the cost of revenues, and includes overhead directly attributable to the business segment.

The following table presents revenues, gross profit (loss), equity in earnings of unconsolidated affiliates, impairment of goodwill, asset impairment and restructuring charges, capital expenditures and depreciation and amortization by reporting segment.
Operations by Reportable Segment
 
Years ended December 31,
Dollars in millions
2017
 
2016
 
2015
Revenues:
 
 
 
 
 
Government Services
$
2,193

 
$
1,359

 
$
663

Technology
269

 
309

 
266

Hydrocarbons Services
1,671

 
2,390

 
3,512

Other

 

 

Subtotal
4,133

 
4,058

 
4,441

Non-strategic Business
38

 
210

 
655

Total
$
4,171

 
$
4,268

 
$
5,096

Gross profit (loss):
 
 
 
 
 
Government Services
$
155

 
$
137

 
$
(3
)
Technology
76

 
80

 
73

Hydrocarbons Services
111

 

 
228

Other

 

 

Subtotal
342

 
217

 
298

Non-strategic Business

 
(105
)
 
27

Total
$
342

 
$
112

 
$
325

Equity in earnings of unconsolidated affiliates:
 
 
 
 
 
Government Services
$
43

 
$
39

 
$
45

Technology

 

 

Hydrocarbons Services
29

 
52

 
104

Other

 

 

Subtotal
72

 
91

 
149

Non-strategic Business

 

 

Total
$
72

 
$
91

 
$
149

Asset impairment and restructuring charges (Note 11):
 
 
 
 
 
Government Services
$

 
$
(1
)
 
$

Technology

 

 
(1
)
Hydrocarbons Services
(6
)
 
(31
)
 
(43
)
Other

 
(7
)
 
(22
)
Subtotal
(6
)
 
(39
)
 
(66
)
Non-strategic Business

 

 
(4
)
Total
$
(6
)
 
$
(39
)
 
$
(70
)
Segment operating income (loss):
 
 
 
 
 
Government Services
$
173

 
$
152

 
$
37

Technology
73

 
74

 
66

Hydrocarbons Services
113

 
(4
)
 
291

Other
(93
)
 
(93
)
 
(140
)
Subtotal
266

 
129

 
254

Non-strategic Business

 
(101
)
 
56

Total
$
266

 
$
28

 
$
310

 
Years ended December 31,
Dollars in millions
2017
 
2016
 
2015
Capital expenditures:
 
 
 
 
 
Government Services
$
4

 
$
2

 
$

Technology

 

 

Hydrocarbons Services
2

 
5

 
6

Other
2

 
4

 
4

Subtotal
8

 
11

 
10

Non-strategic Business

 

 

Total
$
8

 
$
11

 
$
10

Depreciation and amortization:
 
 
 
 
 
Government Services
$
27

 
$
16

 
$
6

Technology
3

 
3

 
1

Hydrocarbons Services
10

 
16

 
18

Other
8

 
10

 
14

Subtotal
48

 
45

 
39

Non-strategic Business

 

 

Total
$
48

 
$
45

 
$
39



Prior Period Adjustments
During the second quarter of 2017, we corrected cumulative errors resulting in an increase to "Equity in earnings of unconsolidated affiliates" and "Net income attributable to KBR" within our consolidated statements of operations of $9 million and $11 million, respectively. The errors in equity in earnings of unconsolidated affiliates primarily related to our accounting for derivatives in one of our unconsolidated VIEs in our GS segment from the first quarter of 2016 through the first quarter of 2017.
During the fourth quarter of 2016, we corrected a cumulative error related to contract cost estimates on an LNG project in Australia within our HS business segment. The cumulative error occurred throughout the period beginning in 2009 and through the third quarter of 2016 and resulted in a $13 million reduction to revenues and gross profit on our consolidated statements of operations and a decrease to "CIE" on our consolidated balance sheets during the fourth quarter of 2016.
During the second quarter of 2015, we corrected a cumulative error related to transactions between unconsolidated affiliates associated with our Mexican offshore maintenance joint venture within our HS business segment. The cumulative error occurred throughout the period beginning in 2007 and through the first quarter of 2015 and resulted in a $15 million increase to "equity in earnings of unconsolidated affiliates" on our consolidated statements of operations and an increase to "equity in and advances to unconsolidated affiliates" on our consolidated balance sheets during the second quarter of 2015.
We evaluated these cumulative errors on both a quantitative and qualitative basis under the guidance of ASC 250 - Accounting Changes and Error Corrections. We determined that the cumulative impact of the errors described above did not affect the trend of net income, cash flows or liquidity and therefore did not have a material impact to previously issued financial statements. Additionally, we determined that the cumulative impact of the errors did not have a material impact to our consolidated financial statements for the fiscal year ended December 31, 2017.
Changes in Project-related Estimates

There are many factors that may affect the accuracy of our cost estimates and ultimately our future profitability. These include, but are not limited to, the availability and costs of resources (such as labor, materials and equipment), productivity and weather, and for unit rate and construction service contracts, the availability and detail of customer supplied engineering drawings. With a portfolio of more than one thousand contracts, we generally realize both lower and higher than expected margins on projects in any given period. We recognize revisions of revenues and costs in the period in which the revisions are known. This may result in the recognition of costs before the recognition of related revenue recovery, if any.

Changes in project-related estimates by business segment, which significantly impacted operating income during the periods presented, are as follows:

Government Services

There were no significant changes in project-related estimates during the year ended December 31, 2017 within our GS business segment.

During the year ended December 31, 2016, revenues, gross profit, and segment operating income included a favorable change in estimate of $33 million as a result of reaching a settlement with the U.S. government for reimbursement of previously expensed legal fees associated with the sodium dichromate litigation. See Note 16 to our consolidated financial statements for information related to the settlement with the U.S. government. Additionally in 2016, we recognized a $15 million favorable change to gross profit related to the approval of a change order on a road construction project in the Middle East. The change order resulted in an extension of the contract terms and increased the total contract value.

Hydrocarbons Services

During the year ended December 31, 2017, the PEMEX and PEP arbitration was settled (see Note 17 to our consolidated financial statements) which resulted in additional revenues and gross profit of $35 million during the year ended December 31, 2017.

We recognized changes to equity earnings as a result of various changes to estimates on the Ichthys LNG Project during the year ended December 31, 2017. See Notes 7 and 18 for a discussion of the matters impacting this project.

We recognized unfavorable changes in estimates of losses of $114 million and $27 million in 2016 and 2015 respectively, on an EPC ammonia project in the U.S. primarily due to unforeseen costs related to the mechanical failure of a vendor supplied compressor and pumps that occurred during commissioning as well as various mechanical issues encountered during start-up. These issues delayed completion of the project to October 2016, which resulted in increased costs and the recognition of contractual liquidated damages due to the client. Included in the reserve for estimated losses on uncompleted contracts, which is a component of "Other current liabilities" on our consolidated financial statements, is $1 million and $3 million as of December 31, 2017 and 2016, respectively, related to this project. The project completed performance testing and in October 2016, care, custody and control of the plant were transferred to the customer. Our estimates of revenues and costs at completion have been, and may continue to be, impacted by remaining punch list items and warranty obligations. Our estimated loss at completion as of December 31, 2017 represents our best estimate based on current information. Actual results could differ from the estimates we have used to account for this project as of December 31, 2017.

During the year ended December 31, 2016, we recognized unfavorable changes in estimated losses of $112 million on a downstream EPC project in the U.S. resulting from significant weather delays and forecast construction productivity rates less than previously expected. These issues have delayed completion until 2018, which resulted in additional estimated costs to complete, which led to the loss described above. The EPC project is 89% complete as of December 31, 2017. Included in the reserve for estimated losses on uncompleted contracts, which is a component of "Other current liabilities" on our consolidated financial statements, is $9 million and $35 million as of December 31, 2017 and 2016, respectively, related to this project. Our estimated loss at completion represents our best estimate based on current information. Actual results could differ from the estimates we have used to account for this project as of December 31, 2017.

During the years ended December 31, 2016 and 2015, revenues, gross profit, and segment operating income include $64 million and $17 million, respectively, resulting from favorable changes in estimates to complete due to settlements on close out of a LNG project in Africa.

We recognized favorable changes in our estimates of losses of $21 million in 2015 on seven Canadian pipe fabrication and module assembly projects. The favorable changes to our estimate of losses on these projects in 2015 were primarily due to negotiated settlements with clients. All of these projects were completed in 2015.
Non-strategic Business

There were no significant changes in project-related estimates during the year ended December 31, 2017 within our Non-strategic Business segment.

We recognized unfavorable changes in estimates of losses on a power project of $117 million and $33 million in 2016 and 2015, respectively, primarily due to increases in forecasted costs to complete the project driven by subcontractor cost increases from poor subcontractor productivity, resulting schedule delays and changes in the project execution strategy. The project has completed performance testing and in April 2017, care, custody and control of the project were transferred to the customer. Included in the reserve for estimated losses on uncompleted contracts is $2 million and $14 million as of December 31, 2017 and 2016, respectively, related to this project.

During the year ended December 31, 2015, we recognized additional gross profit of $57 million related to favorable settlements and cost savings associated with the completion of a power project in the U.S. This power project was completed in 2015.

Balance Sheet Information by Reportable Segment

Within KBR, not all assets are associated with specific business segments. Those assets specific to business segments include receivables, inventories, certain identified property, plant and equipment, equity in and advances to related companies and goodwill. The remaining assets, such as cash and the remaining property, plant and equipment, are considered to be shared among the business segments and are therefore reported in "Other."
 
December 31,
Dollars in millions
2017
 
2016
Total assets:
 
 
 
Government Services
$
1,600

 
$
1,646

Technology
210

 
162

Hydrocarbons Services
1,065

 
1,657

Other
792

 
666

Subtotal
3,667

 
4,131

Non-strategic Business
7

 
13

Total
$
3,674

 
$
4,144

Goodwill (Note 10):
 
 
 
Government Services
$
679

 
$
674

Technology
51

 
48

Hydrocarbons Services
238

 
237

Other

 

Subtotal
968

 
959

Non-strategic Business

 

Total
$
968

 
$
959

Equity in and advances to related companies (Note 12):
 
 
 
Government Services
$
41

 
$
37

Technology

 

Hydrocarbons Services
346

 
332

Other

 

Subtotal
387

 
369

Non-strategic Business

 

Total
$
387

 
$
369



Selected Geographic Information

Revenues by country are determined based on the location of services provided. Long-lived assets by country are determined based on the location of tangible assets.
 
Years ended December 31,
Dollars in millions
2017
 
2016
 
2015
Revenues:
 
 
 
 
 
United States
$
1,986

 
$
2,111

 
$
2,212

Middle East
911

 
849

 
786

Europe
480

 
498

 
495

Australia
334

 
376

 
836

Canada
224

 
145

 
185

Africa
46

 
111

 
164

Other Countries
190

 
178

 
418

Total
$
4,171

 
$
4,268

 
$
5,096

 
 
December 31,
Dollars in millions
2017
 
2016
Property, plant & equipment, net:
 
 
 
United States
$
60

 
$
70

United Kingdom
52

 
35

Other
18

 
40

Total
$
130

 
$
145

v3.10.0.1
Acquisitions and Dispositions
12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
Acquisitions and Dispositions
Acquisitions and Dispositions

Sigma Bravo Pty Ltd Acquisition

On November 20, 2017, we acquired 100% of the outstanding common    shares of Sigma Bravo Pty Ltd ("Sigma Bravo"). Sigma Bravo provides software development, training, information management and technical support services as well as operational support to the Australian Defence Force.

The aggregate purchase price of the acquisition was $9 million. We recognized goodwill of $1 million arising from the acquisition, which relates primarily to customer relationships and future growth opportunities to expand services provided to the Australian Defence Force. None of the goodwill is deductible for income tax purposes. The final settlement of the working capital adjustment is expected in the first half of 2018. Accordingly, adjustments to the initial purchase accounting for the acquired net assets will likely be completed during the first half of 2018. This acquisition is reported within our Government Services business segment.

Honeywell Technology Solutions Inc. Acquisition

On September 16, 2016, we acquired 100% of the outstanding common stock of Honeywell Technology Solutions Inc. ("HTSI") from Honeywell International Inc. HTSI provides an array of mission-critical services and customized solutions throughout the world, primarily to U.S. government agencies. This acquisition provides KBR with complete life-cycle service capabilities, including high-end technical engineering and mission support, cyber security and logistics and equipment maintenance within our GS business segment.

The aggregate consideration paid for the acquisition was $300 million, less $20 million of initial working capital adjustments for net cash consideration of $280 million, all of which was funded by an advance on our Credit Agreement (as defined in Note 14 to our consolidated financial statements).

We initially recognized goodwill of $131 million arising from the acquisition, which relates primarily to growth opportunities based on a broader service offering of the combined operations, including HTSI's specialized technical services and KBR's logistical expertise as well as expected cost synergies. Approximately $117 million of the goodwill is deductible for income tax purposes. During the year ended December 31, 2017, we recorded an increase to goodwill of approximately $3 million primarily associated with final working capital settlement and the finalization of various immaterial contingencies. This acquisition is reported within our GS business segment.

Wyle Inc. ("Wyle") Acquisition

On July 1, 2016, we acquired 100% of the equity interests of Wyle from its shareholders, including Court Square Capital Partners and certain officers of Wyle, pursuant to an agreement and plan of merger. Wyle delivers an array of custom solutions for customers in the U.S. Department of Defense, NASA and other federal agencies. Wyle's expertise includes systems and sustainment engineering, program and acquisition management, life science research, space medical operations, information technology and the testing and evaluation of aircraft, advanced systems and networks. The acquisition combines KBR's strengths in international, large-scale government logistics and support operations with Wyle's specialized technical services, largely focused in the contiguous U.S.

The aggregate consideration paid for the acquisition was $600 million, including repayment of outstanding balances under Wyle's credit facility and other transaction expenses, plus $23 million of purchase price adjustments, which resulted in net cash consideration of $623 million. We funded the total cash paid with a $400 million advance on our Credit Agreement and available cash on-hand. See Note 14 to our consolidated financial statements for information related to our Credit Agreement.

We initially recognized goodwill of $483 million arising from the acquisition, which relates primarily to growth opportunities based on a broader service offering of the combined operations, including Wyle's differentiated technical capabilities and KBR's international program management and logistics expertise. Additionally, goodwill relates to the existence of Wyle's skilled employee base and other expected synergies of the combined operations. Approximately $107 million of the goodwill is deductible for income tax purposes. During the year ended December 31, 2017, we recorded an increase to goodwill of approximately $1 million primarily associated with final working capital settlement and the finalization of various immaterial contingencies. This acquisition is reported within our GS business segment.

The following supplemental pro forma consolidated results of operations assume that HTSI and Wyle had been acquired as of January 1, 2015. The supplemental pro forma financial information was prepared based on the historical financial information of HTSI and Wyle and has been adjusted to give effect to pro forma adjustments that are directly attributable to the transaction. The pro forma amounts reflect certain adjustments to amortization expense and interest expense associated with the portion of the purchase price funded by a $700 million advance on our Credit Agreement, and also reflect adjustments to the 2016 results to exclude acquisition related costs as they are nonrecurring and are directly attributable to the transaction.

The supplemental pro forma financial information presented below does not include any anticipated cost savings or expected realization of other synergies associated with the transaction. Accordingly, this supplemental pro forma financial information is presented for informational purposes only and is not necessarily indicative of what the actual results of operations of the combined company would have been had the acquisition occurred on January 1, 2015, nor is it indicative of future results of operations.

 
Years ended December 31,
Dollars in millions, except per share data
2016
 
2015
 
(Unaudited)
Revenue
5,129

 
6,599

Net income (loss) attributable to KBR
(23
)
 
248

Diluted earnings per share
(0.16
)
 
1.72



Chematur Subsidiaries Acquisition

On January 11, 2016, we acquired 100% of the outstanding common stock of three subsidiaries of Connell Chemical Industry LLC (through its subsidiary, Chematur Technologies AB): Plinke GmbH ("Plinke"), Weatherly Inc., ("Weatherly") and Chematur Ecoplanning Oy ("Ecoplanning"). Plinke specializes in proprietary technology and specialist equipment for the purification and concentration of inorganic acids used or produced in hydrocarbon processing facilities. Weatherly provides nitric acid and ammonium nitrate proprietary technologies and services to the fertilizer market. Ecoplanning offers proprietary evaporation and crystallization technologies and specialist equipment for weak acid and base solutions. As a result of this acquisition, we can expand our technology and consulting solutions into new markets while leveraging KBR's global sales and EPC capabilities.

The aggregate consideration paid for the acquisition was $25 million, less $2 million of acquired cash and other adjustments resulting in net cash consideration of $23 million. The consideration paid included an escrow of $5 million that secures the indemnification obligations of the seller and other contingent obligations related to the operation of the business. The escrow was settled in 2017 with $4 million released to KBR and $1 million to the seller. The release to KBR was in excess of the assumed recovery, which resulted in $2 million of gross profit for the Technology business segment during the year ended December 31, 2017.

We recognized goodwill of $24 million arising from the acquisition, which relates primarily to future growth opportunities to extend the acquired technologies outside North America to new customers and in revamping units of the existing customer base globally. None of the goodwill is deductible for income tax purposes. This acquisition is reported within our Technology business segment.

Stinger Ghaffarian Technologies

In February 2018, we entered into a definitive agreement to acquire 100% of the outstanding stock of Stinger Ghaffarian Technologies ("SGT"), a leading provider of high-value engineering, mission operations, scientific and IT software solution in the government services market. SGT has approximately 2,500 employees and is headquartered in Greenbelt, MD. The estimated purchase price is $355 million and the transaction is expected to close in the first half of 2018. The acquisition will become a KBRwyle company and expands our Government Services business in the U.S.

Dispositions

In December 2015, we finalized the sale of our Infrastructure Americas business to Stantec Consulting Services Inc. for net cash proceeds, including working capital adjustments, of $18 million. The sale of this business within our Non-strategic Business segment is consistent with our restructuring plans announced in December 2014. The disposition resulted in a pretax gain of $7 million and is subject to finalization of certain indemnification claims. The gain on this transaction is included under "Gain on disposition of assets" on our consolidated statements of operations.

In June 2015, we sold our Building Group subsidiary to a subsidiary of Pernix Group, Inc., for net cash proceeds, including working capital adjustments, of $23 million. The sale of the Building Group within our Non-strategic Business segment is consistent with our restructuring plans announced in December 2014. The disposition resulted in a pre-tax gain of $28 million and is included under "gain on disposition of assets" on our consolidated statements of operations.
v3.10.0.1
Cash and Equivalents
12 Months Ended
Dec. 31, 2017
Cash and Cash Equivalents [Abstract]  
Cash and Equivalents
Cash and Equivalents

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

The components of our cash and equivalents balance are as follows:
 
December 31, 2017
Dollars in millions
International (a)
 
Domestic (b)
 
Total
Operating cash and equivalents
$
112

 
$
124

 
$
236

Short-term investments (c)
82

 
60

 
142

Cash and equivalents held in joint ventures
59

 
2

 
61

Total
$
253

 
$
186

 
$
439


 
December 31, 2016
Dollars in millions
International (a)
 
Domestic (b)
 
Total
Operating cash and equivalents
$
163

 
$
242

 
$
405

Short-term investments (c)
68

 
7

 
75

Cash and equivalents held in joint ventures
50

 
6

 
56

Total
$
281

 
$
255

 
$
536

 
(a)
Includes deposits held in non-U.S. operating accounts
(b)
Includes U.S. dollar and foreign currency deposits held in operating accounts that constitute onshore cash for tax purposes but may reside either in the U.S. or in a foreign country
(c)
Includes time deposits, money market funds, and other highly liquid short-term investments.
v3.10.0.1
Accounts Receivable
12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
Accounts Receivable
Accounts Receivable
    
The components of our accounts receivable, net of allowance for doubtful accounts are as follows:
 
December 31, 2017
Dollars in millions
Retainage
 
Trade & Other
 
Total
Government Services
$
6

 
$
189

 
$
195

Technology

 
72

 
72

Hydrocarbons Services
53

 
186

 
239

Other

 

 

Subtotal
59

 
447

 
506

Non-strategic Business
4

 

 
4

Total
$
63

 
$
447

 
$
510


 
December 31, 2016
Dollars in millions
Retainage
 
Trade & Other
 
Total
Government Services
$
6

 
$
190

 
$
196

Technology

 
47

 
47

Hydrocarbons Services
53

 
281

 
334

Other

 
3

 
3

Subtotal
59

 
521

 
580

Non-strategic Business
5

 
7

 
12

Total
$
64

 
$
528

 
$
592

v3.10.0.1
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
12 Months Ended
Dec. 31, 2017
Contractors [Abstract]  
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts
Our CIE balances by business segment are as follows:
 
December 31,
Dollars in millions
2017
 
2016
Government Services
$
274

 
$
271

Technology
39

 
27

Hydrocarbons Services
70

 
118

Subtotal
383

 
416

Non-strategic Business

 

Total
$
383

 
$
416


Our BIE balances by business segment are as follows:
 
December 31,
Dollars in millions
2017
 
2016
Government Services
$
85

 
$
76

Technology
61

 
61

Hydrocarbons Services
214

 
388

Subtotal
360

 
525

Non-strategic Business
8

 
27

Total
$
368

 
$
552

v3.10.0.1
Claims and Accounts Receivable
12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
Claims Receivable
Claims and Accounts Receivable

Our claims and accounts receivable balance not expected to be collected within the next 12 months was $101 million and $131 million as of December 31, 2017 and 2016, respectively. Claims and accounts receivable primarily reflects claims filed with the U.S. government related to payments not yet received for costs incurred under various U.S. government contracts within our GS business segment. These claims relate to disputed costs or contracts where our costs have exceeded the U.S. government's funded value on the task order.  Included in the amount is $79 million and $83 million as of December 31, 2017 and 2016, related to Form 1s issued by the U.S. government questioning or objecting to costs billed to them. See Note 16 of our consolidated financial statements for additional discussions. The amount also includes $22 million and $48 million as of December 31, 2017 and 2016, respectively, related to contracts where our costs have exceeded the U.S. government's funded values on the underlying task orders or task orders where the U.S. government has not authorized us to bill. We believe the remaining disputed costs will be resolved in our favor, at which time the U.S. government will be required to obligate funds from appropriations for the year in which resolutions occurs.
v3.10.0.1
Unapproved Change Orders and Claims
12 Months Ended
Dec. 31, 2017
Contractors [Abstract]  
Unapproved Claims and Change Orders
Unapproved Change Orders, Claims and Estimated Recoveries of Claims Against Suppliers and Subcontractors

The amounts of unapproved change orders, claims and estimated recoveries of claims against suppliers and subcontractors included in determining the profit or loss on contracts are as follows:
Dollars in millions
2017
 
2016
Amounts included in project estimates-at-completion at January 1,
$
294

 
$
104

Additions
647

 
241

Approved change orders
(17
)
 
(51
)
Amounts included in project estimates-at-completion at December 31,
$
924

 
$
294

Amounts recorded in revenues on a percentage-of-completion basis at December 31,
$
826

 
$
241



As of December 31, 2017 and 2016, most of the change orders, customer claims and estimated recoveries of claims against suppliers and subcontractors above relate to our proportionate share of unapproved change orders and claims associated with our 30% ownership interest in the JKC JV ("JKC"), which has contracted to perform the engineering, procurement, supply, construction and commissioning of onshore LNG facilities for a client in Darwin, Australia (Ichthys LNG Project). The contract between JKC and its client is a hybrid contract containing both cost-reimbursable and fixed-price (including unit-rate) scopes. Our proportionate share of unapproved change orders, claims and estimated recoveries of claims against suppliers and subcontractors on the project increased by $630 million and $199 million for the years ended December 31, 2017 and 2016.

The additional costs associated with these change orders, customer claims and estimated recoveries of claims against suppliers and subcontractors have been included in determining profit at completion and have resulted in a reduction to our percentage of completion progress for the year ended December 31, 2017. Estimated recoveries associated with the additional change orders, customer claims, and claims against suppliers and subcontractors, which are less than the estimated additional costs, have also been included in determining estimated profit at completion. Further, there are additional claims we believe that we or our joint venture is entitled to recover from our client related to additional project costs which have been excluded from estimated revenues and profit at completion as appropriate under U.S. GAAP.

It is anticipated that these commercial matters may not be resolved in the near term. Our current estimates for the above unapproved change orders, customer claims and estimated recoveries of claims against suppliers and subcontractors may prove inaccurate and could result in significant changes to the estimated revenue, costs and profits at completion on the underlying projects. Significant contingencies related to the Ichthys LNG Project are discussed further in Note 18 to our consolidated financial statements.

Liquidated damages

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

In addition to the accrued liquidated damages, it is possible that liquidated damages related to several projects totaling $9 million at December 31, 2017 and $8 million at December 31, 2016 could be incurred if the projects are completed as currently forecasted. However, based upon our evaluation of our performance, we have concluded these liquidated damages are not probable and therefore, they have not been recognized.
v3.10.0.1
Property, Plant And Equipment
12 Months Ended
Dec. 31, 2017
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
Property, Plant and Equipment

The components of our property, plant and equipment balance are as follows:
  
Estimated
Useful
Lives in Years
 
December 31,
Dollars in millions
 
2017
 
2016
Land
N/A
 
$
7

 
$
7

Buildings and property improvements
1 - 35
 
118

 
124

Equipment and other
1 - 25
 
334

 
338

Total
 
 
459

 
469

Less accumulated depreciation
 
 
(329
)
 
(324
)
Net property, plant and equipment
 
 
$
130

 
$
145



See Note 11 to our consolidated financial statements for discussion on asset impairment.

In the fourth quarter of 2015, we closed on the sale of our office facility located in Greenford, U.K. for approximately $33 million in net cash proceeds. The sale resulted in a pre-tax gain of $23 million on disposition of assets on our consolidated statements of operations. We also closed on the sale of our office facility located in Birmingham, Alabama for approximately $6 million in net cash proceeds. The gain on these transactions is included under "Gain on disposition of assets" on our consolidated statements of operations.

Depreciation expense was $27 million, $31 million and $35 million for the years ended December 31, 2017, 2016 and 2015, respectively.
v3.10.0.1
Goodwill And Intangible Assets
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets
Goodwill and Intangible Assets

Goodwill

The table below summarizes changes in the carrying amount of goodwill by business segment.
Dollars in millions
Government Services
 
Technology
 
Hydrocarbons Services
 
Other
 
Subtotal
 
Non-strategic Business
 
Total
Balance as of January 1, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross goodwill
$
60

 
$
25

 
$
532