KBR

Introduction The purpose of MD&A is to disclose material changes in our financial condition since the most recent fiscal year-end and results of operations during the current fiscal period as compared to the corresponding period of the preceding fiscal year. The MD&A should be read in conjunction with the condensed consolidated financial statements, accompanying notes and our 2025 Annual Report on Form 10-K. HomeSafe, a joint venture with Tier One Relocation, informed us on June 18, 2025, that U.S. Transportation Command unexpectedly terminated HomeSafe's role in the Global Household Goods Contract. KBR owns a 72% interest in HomeSafe. As of July 3, 2026 all of HomeSafe operations, including run-off operations, have ceased. The financial results and financial position of HomeSafe are presented as discontinued operations in the condensed consolidated statements of operations, condensed consolidated balance sheets and condensed consolidated statements of cash flows for all periods presented. See Note 17. "Discontinued Operations" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. Unless otherwise indicated, any reference to statements of operations items in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" refers to results from continuing operations. Overview KBR, Inc., a Delaware corporation ("KBR"), delivers science, technology, engineering and logistics support solutions to governments and companies around the world. Drawing from its culture of innovation and mission focus, KBR creates sustainable value by combining deep domain expertise with its full-life cycle capabilities to help clients meet their most pressing challenges. Our capabilities and offerings include the following: •Leading national security and defense systems engineering; rapid prototyping; test and evaluation; aerospace acquisition support; data analytics and systems and platform integration; and sustainment engineering; •Operational expertise in areas such as space domain awareness; C5ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support; •Advanced digital, artificial intelligence, machine learning and information operations solutions in areas such as cyber analytics and cybersecurity; space and air dominance; connected battlespace; national security intelligence; data analytics; mission planning systems; virtual/augmented reality and technical training; and artificial intelligence and machine learning; •Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences; •Engineering and project management solutions to advance energy security, sustainable decarbonization; energy transition and asset optimization; proprietary, sustainability-focused process licensing; energy transition and security advisory services; and digitally-enabled asset optimization solutions; and •Professional advisory services across the defense, renewable energy and critical infrastructure sectors. KBR's strategic growth vectors include: •Defense modernization; •National security space superiority; •Health and human performance; •Sustainable energy and industrial technology; •High-end defense engineering; •Energy security and energy transition; and •Digital asset modernization and optimization. Key customers include U.S. DoW agencies such as the U.S. Army, Navy, Air Force, Space Force, Missile Defense Agency, National Geospatial-Intelligence Agency, National Reconnaissance Office and other intelligence agencies; U.S. civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and Atmospheric Administration; the U.K. MoD and other U.K. Crown Services; the Royal Australian Air Force, Navy and Army; other national governments; and a wide range of commercial and industrial companies. Our deployment priorities are to fund organic growth, maintain responsible leverage, maintain an attractive dividend, make strategic, accretive acquisitions and repurchase shares. Our acquisition thesis is centered around moving upmarket, 31 expanding capabilities and broadening customer sets across strategic growth vectors. KBR also develops and prioritizes investment in technologies that are disruptive, innovative and sustainability- and safety-focused. These technologies and engineering solutions enable clients to achieve a safer, more secure and more sustainable global future. Business Environment and Trends Mission Technology Outlook On February 3, 2026, the Consolidated Appropriations Act of 2026 was passed, which finalized defense appropriations for fiscal year 2026. This legislation provides for $839 billion in discretionary defense spending. In December 2025, the National Defense Authorization Act ("NDAA") was signed into law. The NDAA authorizes programs, projects and policies to be carried out with funds appropriated by Congress as part of the annual budgetary process. The NDAA supports up to approximately $901 billion in fiscal year 2026 funding for national defense. Additionally, the approved fiscal year 2026 budget for NASA is $24 billion. Current and future funding requirements related to the ongoing conflict in the Middle East have impacted our customers' budgets and spending priorities. On April 3, 2026, the Administration provided a proposed fiscal 2027 budget for the U.S. Government which includes approximately $2.2 trillion in base discretionary spending, $1.5 trillion related to defense spending and $0.7 trillion for non-defense spending. The proposed defense spending is 44% higher than the enacted fiscal 2026 defense spending when including mandatory funding. We anticipate the federal budget will continue to be subject to debate and compromise shaped by, among other things, the Administration and Congress, efficiency initiatives, the global security environment, inflationary pressures including tariffs and macroeconomic conditions. Thus far, the Administration's directives have resulted in federal government staff reductions and hiring freezes and may result in delays in contract awards. On April 30, 2026, the Administration issued an executive order directing comprehensive reviews of all private-sector contracts to monitor cost efficiency and ensure policy alignment. This order could affect future contract funding with our U.S. government customers. Thus far, we have not seen a material impact on our results of operations, financial condition or cash flows and continue to monitor the impact of the order. Internationally, our government work is performed primarily for the U.K. MoD and the Australian Department of Defence. In June 2025, leaders of the North Atlantic Treaty Organization ("NATO") agreed to invest 5% of their countries' gross domestic product ("GDP") on defense and security-related spending by 2035. In June 2026, the U.K. Ministry of Defence published its 2026 Defence Investment Plan, reaffirming the U.K.’s planned commitment to NATO defense and security-related spending initiatives. Additionally, the new Prime Minister in the U.K., appointed in July 2026, has signaled his commitment to strengthening the U.K.’s defense capabilities. The Australian government continues to invest in defense spending, with particular focus on enhancing regional security, modernizing defense capabilities, strengthening cyber defenses and promoting broader economic stability. In April 2026, the Australian Minister for Defence announced that the Australian defense budget will increase to 3.00% of GDP by 2033. A shift in funding priorities in the U.S. government or internationally could have material impacts on defense spending broadly and our programs. With defense and civil budgets driven in part by political instability, military conflicts, aging platforms and infrastructure and the need for technology advances, we expect continued opportunities to provide solutions and technologies to mission critical work aligned with our customers’ and our nation’s critical priorities. Sustainable Technology Outlook Long-range commercial market fundamentals are supported by global population growth, expanding global development and an acceleration of demand for energy transition, renewable energy sources and climate related solutions. The globe is in search of the solution to the energy trilemma, the balance between energy affordability, ensuring energy security and achieving environmental sustainability. The global energy shortage experienced in recent years and geopolitical disruptions of energy flows from key producing regions further highlighted the need for affordable and reliable fuel sources, supporting continued strong structural demand growth. Energy security concerns have been heightened in response to various conflicts around the world, which has caused countries to evaluate their investment strategy in energy markets. Countries are pursuing increases to their investments in diverse geographical areas and energy sources to ensure grid stability. As the global focus on energy security intensifies and companies continue to commit to near-term carbon neutrality and longer-range net-zero carbon emissions, we expect spending to continue in areas such as decarbonization; carbon capture, utilization and sequestration; biofuels; and circular economy. Clients are prioritizing their efforts to solve the energy trilemma by investing in digital solutions to optimize operations, increase end-product flexibility and energy efficiency and reduce 32 unplanned downtime. Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia, which complements KBR's proprietary process technologies, solutions and capabilities. We expect energy security and energy transition to continue to be areas of priority and investment as many countries, including the U.S., look to boost their economies and invest in a more secure future. While we have not had any material impact to our cost structure or ability to operate, we are monitoring the evolving macroeconomic environment due to ongoing tariffs and the Middle East conflicts including how those tariffs, any inflationary pressure and supply chain disruptions may impact investment decisions from our core client base. Our Business KBR's business is organized into two core and one non-core business segments as follows: Core business segments • Mission Technology Solutions • Sustainable Technology Solutions Non-core business segment • Corporate See additional information on our business segments in Note 2. "Business Segment Information" to our condensed consolidated financial statements. Mission Technology Solutions Spin-off In September 2025, we announced our intention to spin off our Mission Technology Solutions business into a separate, U.S. publicly-traded company. The Planned Spin-Off is intended to be tax-free to us and our shareholders for U.S. federal income tax purposes and targeting completion on January 4, 2027, which is the first business day of fiscal 2027. The spin-off will be subject to final approval by our Board of Directors and other customary conditions, including receipt of a favorable opinion of legal counsel and/or a private letter ruling from the U.S. Internal Revenue Service with respect to the tax treatment of the transaction for U.S. federal income tax purposes, the effectiveness of a registration statement on Form 10 filed with the SEC, satisfactory completion of financing and other regulatory approvals. Because the intended transaction is a spin-off, the Mission Technology Solutions business is not classified as held for sale and is reported as continuing operations. 33 Results of Operations Three months ended July 3, 2026 compared to the three months ended July 4, 2025 The information below is an analysis of our consolidated results for the three months ended July 3, 2026, compared to the three months ended July 4, 2025. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments. Three months ended Change July 3, July 4, 2026 vs. 2025 2026 2025 $ % Dollars in millions Revenues $ 1,984 $ 1,952 $ 32 2 % Cost of revenues (1,691) (1,662) 29 2 % Gross profit 293 290 3 1 % Equity in earnings of unconsolidated affiliates 52 51 1 2 % Selling, general and administrative expenses (143) (146) (3) (2) % Spin-off costs and other charges (31) — (31) n/m Other operating income (expense) 1 (1) 2 n/m Operating income 172 194 (22) (11) % Interest expense (35) (41) (6) (15) % Other non-operating expense (2) (8) (6) (75) % Income from continuing operations before income taxes 135 145 (10) (7) % Provision for income taxes (38) (39) (1) (3) % Net income from continuing operations 97 106 (9) (8) % Net income (loss) from discontinued operations, net of tax 2 (48) 50 n/m Net income 99 58 41 71 % Less: Net income attributable to noncontrolling interests included in continuing operations 2 1 1 100 % Less: Net income (loss) attributable to noncontrolling interests included in discontinued operations 1 (16) 17 n/m Net income attributable to KBR $ 96 $ 73 $ 23 32 % n/m - not meaningful Revenues. The increase in revenue of $32 million, or 2%, to $1,984 million for the three months ended July 3, 2026, compared to $1,952 million for the three months ended July 4, 2025 is primarily due to increases from engineering and professional services within our STS segment, offset by reduced contingent activity within the European command in our MTS segment. Gross profit. Gross profit was materially consistent, increasing by $3 million, or 1%, in line with revenues discussed above. Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates were materially consistent for each of the three months ended July 3, 2026 and July 4, 2025, increasing by $1 million, or 2%, to $52 million in earnings for the three months ended July 3, 2026, compared to $51 million in earnings for the three months ended July 4, 2025. Selling, general and administrative expenses. Selling, general and administrative expenses were materially consistent for each of the three months ended July 3, 2026 and July 4, 2025, decreasing by $3 million, or 2%, to $143 million for the three months ended July 3, 2026, compared to $146 million for the three months ended July 4, 2025. Spin-off costs and other charges. Spin-off costs and other charges were $31 million for the three months ended July 3, 2026, due to costs associated with the Planned Spin-Off and lease right-of-use asset impairment charges associated with the Planned Spin-Off. See Note 18. "Spin-off" to our condensed consolidated financial statements for further discussion on the Planned Spin-Off. 34 Interest expense. The decrease in interest expense was primarily driven by lower average outstanding debt principal from the three months ended July 4, 2025 to the three months ended July 3, 2026. Provision for income taxes. The provision for income taxes for income from continuing operations for the three months ended July 3, 2026 and July 4, 2025 reflects a 28% tax rate and 27% tax rate, respectively. The effective tax rate of 28% for the three months ended July 3, 2026, as compared to the U.S. statutory rate of 21%, was affected by the rate differential on our foreign earnings, the impact of state and local taxes in the U.S and discrete activity for the quarter. The effective tax rate of 27% for the three months ended July 4, 2025, as compared to the U.S. statutory rate of 21%, was primarily affected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S. See Note 9. "Income Taxes" to our condensed consolidated financial statements for further discussion on income taxes. Net income (loss) from discontinued operations, net of tax. Net income (loss) from discontinued operations, net of tax, was $2 million and $(48) million during the three months ended July 3, 2026 and July 4, 2025, respectively, due to the disposal of HomeSafe during the three months ended July 4, 2025. Net income (loss) attributable to noncontrolling interests included in discontinued operations. Net income (loss) attributable to noncontrolling interests included in discontinued operations was $1 million and $(16) million during the three months ended July 3, 2026 and July 4, 2025, respectively, due to the disposal of HomeSafe during the three months ended July 4, 2025. 35 Results of Operations by Business Segment Three months ended Change July 3, July 4, 2026 vs. 2025 Dollars in millions 2026 2025 $ % Revenues: Mission Technology Solutions $ 1,308 $ 1,336 $ (28) (2) % Sustainable Technology Solutions 676 616 60 10 % Total revenues $ 1,984 $ 1,952 $ 32 2 % Operating income (loss): Mission Technology Solutions $ 116 $ 108 $ 8 7 % Sustainable Technology Solutions 103 125 (22) (18) % Corporate (47) (39) 8 21 % Total operating income (loss) $ 172 $ 194 $ (22) (11) % Mission Technology Solutions MTS revenues decreased by $28 million, or 2%, to $1,308 million for the three months ended July 3, 2026 compared to $1,336 million for the three months ended July 4, 2025. The decrease in revenue is primarily due to reduced contingent activity within the European command. MTS operating income increased by $8 million, or 7%, to $116 million for the three months ended July 3, 2026 compared to $108 million for the three months ended July 4, 2025. The increase in operating income was primarily driven by changes in our services mix, offset by costs associated with the Planned Spin-Off and lease right-of-use asset impairment charges associated with the Planned Spin-Off. Sustainable Technology Solutions STS revenues increased by $60 million, or 10%, to $676 million in the three months ended July 3, 2026 compared to $616 million in the three months ended July 4, 2025. The increase in revenue is primarily driven by increased revenues from engineering and professional services. STS operating income decreased by $22 million, or 18%, to $103 million in the three months ended July 3, 2026 compared to $125 million in the three months ended July 4, 2025. The decrease was primarily due to changes in licensing mix. Corporate Corporate operating loss increased by $8 million, or 21%, to $47 million in the three months ended July 3, 2026 compared to $39 million in the three months ended July 4, 2025. The increase in operating loss was primarily driven by costs associated with the Planned Spin-Off and lease right-of-use asset impairment charges associated with the Planned Spin-Off. 36 Results of Operations Six months ended July 3, 2026 compared to the six months ended July 4, 2025 The information below is an analysis of our consolidated results for the six months ended July 3, 2026 compared to the six months ended July 4, 2025. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments. Six months ended Change July 3, July 4, 2026 vs. 2025 2026 2025 $ % Dollars in millions Revenues $ 3,907 $ 3,970 $ (63) (2) % Cost of revenues (3,349) (3,380) (31) (1) % Gross profit 558 590 (32) (5) % Equity in earnings of unconsolidated affiliates 103 93 10 11 % Selling, general and administrative expenses (262) (286) (24) (8) % Spin-off costs and other charges (46) — (46) n/m Other operating expense (1) (1) — — % Operating income 352 396 (44) (11) % Interest expense (72) (82) (10) (12) % Other non-operating expense (2) (5) (3) (60) % Income from continuing operations before income taxes 278 309 (31) (10) % Provision for income taxes (78) (82) (4) (5) % Net income from continuing operations 200 227 (27) (12) % Net loss from discontinued operations, net of tax — (54) 54 100 % Net income 200 173 27 16 % Less: Net income attributable to noncontrolling interests included in continuing operations 2 2 — — % Less: Net loss attributable to noncontrolling interests included in discontinued operations — (18) 18 100 % Net income attributable to KBR $ 198 $ 189 $ 9 5 % n/m - not meaningful Revenues. The decrease in overall revenue of $63 million, or 2%, to $3,907 million for the six months ended July 3, 2026 from $3,970 million for the six months ended July 4, 2025 is primarily due to reduced contingent activity within the European command in our MTS segment, offset by increased revenues from engineering and professional services in our STS segment. Gross profit. The decrease in overall gross profit of $32 million, or 5%, was primarily driven by items decreasing revenues discussed above and changes in licensing mix within our STS segment offset by changes in our services mix within our MTS segment. Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates increased by $10 million, or 11%, to $103 million in earnings for the six months ended July 3, 2026, compared to $93 million in earnings for the six months ended July 4, 2025. The increase is primarily attributed to equity in earnings from services on an LNG project within our STS segment. Selling, general and administrative expenses. Selling, general and administrative expenses in the six months ended July 3, 2026 were $24 million lower, an 8% decrease compared to the six months ended July 4, 2025, which was primarily driven by a favorable closeout in the first quarter of 2026. Spin-off costs and other charges. Spin-off costs and other charges were $46 million for the six months ended July 3, 2026, due to costs associated with the Planned Spin-Off and lease right-of-use asset impairment charges associated with the Planned Spin-Off. See Note 18. "Spin-off" to our condensed consolidated financial statements for further discussion on the Planned Spin-Off. 37 Interest expense. The decrease in interest expense was primarily driven by lower average outstanding debt principal from the six months ended July 4, 2025 to the six months ended July 3, 2026. Provision for income taxes. The provision for income taxes for income from continuing operations for the six months ended July 3, 2026 and July 4, 2025 reflects a 28% tax rate and a 27% tax rate, respectively. The effective tax rate of 28% for the six months ended July 3, 2026, as compared to the U.S. statutory rate of 21%, was affected by the rate differential on our foreign earnings, the impact of state and local taxes in the U.S. and discrete activity for the year. The effective tax rate of 27% for the six months ended July 4, 2025, as compared to the U.S. statutory rate of 21%, was primarily affected by the rate differential on our foreign earnings and the impact of state and local taxes in the U.S. See Note 9. "Income Taxes" to our condensed consolidated financial statements for further discussion on income taxes. Net loss from discontinued operations, net of tax. Net loss from discontinued operations, net of tax, was $54 million during the six months ended July 4, 2025 due to the disposal of HomeSafe. Net loss attributable to noncontrolling interests included in discontinued operations. Net loss attributable to noncontrolling interests included in discontinued operations was $18 million during the six months ended July 4, 2025 due to the disposal of HomeSafe. 38 Results of Operations by Business Segment Six months ended Change July 3, July 4, 2026 vs. 2025 Dollars in millions 2026 2025 $ % Revenues: Mission Technology Solutions $ 2,604 $ 2,717 $ (113) (4) % Sustainable Technology Solutions 1,303 1,253 50 4 % Total revenues $ 3,907 $ 3,970 $ (63) (2) % Operating income (loss): Mission Technology Solutions $ 227 $ 221 $ 6 3 % Sustainable Technology Solutions 216 252 (36) (14) % Corporate (91) (77) 14 18 % Total operating income (loss) $ 352 $ 396 $ (44) (11) % Mission Technology Solutions MTS revenues decreased by $113 million, or 4%, to $2,604 million for the six months ended July 3, 2026, compared to $2,717 million for the six months ended July 4, 2025. The decrease in revenue is primarily due to reduced contingent activity within the European command in our MTS segment. MTS operating income increased by $6 million, or 3%, to $227 million for the six months ended July 3, 2026, compared to $221 million for the six months ended July 4, 2025. The increase in operating income was primarily driven by changes in our services mix, offset by the item discussed above, costs associated with the Planned Spin-Off and lease right-of-use asset impairment charges associated with the Planned Spin-Off. Sustainable Technology Solutions STS revenues increased by $50 million, or 4%, to $1,303 million for the six months ended July 3, 2026, compared to $1,253 million for the six months ended July 4, 2025. The increase in revenue is primarily driven by increased revenues from engineering and professional services. STS operating income decreased by $36 million, or 14%, to $216 million for the six months ended July 3, 2026, compared to $252 million for the six months ended July 4, 2025. The decrease in operating income is primarily due to changes in licensing mix, offset by a favorable closeout in the six months ended July 3, 2026. Corporate Corporate operating loss increased by $14 million, or 18%, to $91 million for the six months ended July 3, 2026, compared to $77 million for the six months ended July 4, 2025. The increase in operating loss was primarily driven by costs associated with the Planned Spin-Off and lease right-of-use asset impairment charges associated with the Planned Spin-Off. Backlog of Unfilled Orders Backlog represents the estimated dollar amount of revenues we expect to realize in the future as a result of performing work on contracts and our pro-rata share of work to be performed by our unconsolidated joint ventures. We include total estimated revenues in backlog when a contract is awarded under a legally binding agreement. In many instances, arrangements included in backlog are complex, nonrepetitive and may fluctuate over the contract period due to the release of contracted work in phases by the customer. Additionally, nearly all contracts allow customers to terminate the agreement at any time for convenience, and from time to time customers may dispute or try to renegotiate existing contracts. These and other factors may result in delays or changes in our recognition of revenue from our backlog versus amounts we book as backlog. Certain contracts provide maximum dollar limits, with actual authorization to perform work under the contract agreed upon on a periodic basis with the customer. In these arrangements, only the amounts authorized and probable are included in backlog. For projects where we act solely in a project management capacity, we only include the expected value of our services in backlog. 39 We define backlog, as it relates to U.S. government contracts, as our estimate of the remaining future revenue from existing signed contracts over the remaining base contract performance period (including customer approved option periods) for which work scope and price have been agreed with the customer. We define funded backlog as the portion of backlog for which funding currently is appropriated, less the amount of revenue we have previously recognized. We define unfunded backlog as the total backlog less the funded backlog. Our MTS backlog does not include any estimate of future potential delivery orders that might be awarded under our government-wide acquisition contracts, agency-specific indefinite delivery/indefinite quantity contracts or other multiple-award contract vehicles, nor does it include option periods that have not been exercised by the customer. Within our MTS business segment, we calculate estimated backlog for long-term contracts associated with the U.K. government's PFIs based on the aggregate amount that our client would contractually be obligated to pay us over the life of the project. We update our estimates of the future work to be executed under these contracts on a quarterly basis and adjust backlog, if necessary. We have included in the table below our proportionate share of unconsolidated joint ventures' estimated backlog. As these projects are accounted for under the equity method, only our share of future earnings from these projects will be recorded in our results of operations. Our proportionate share of backlog for projects related to unconsolidated joint ventures totaled $3.3 billion and $2.8 billion at July 3, 2026 and January 2, 2026, respectively. The following table summarizes our backlog by business segment as of July 3, 2026, and January 2, 2026, respectively: Dollars in millions July 3, 2026 January 2, 2026 Mission Technology Solutions $ 12,282 $ 12,552 Sustainable Technology Solutions 5,523 4,312 Total backlog $ 17,805 $ 16,864 Award options 5,192 6,347 Total backlog and options $ 22,997 $ 23,211 We estimate that as of July 3, 2026, 38% of our backlog will be executed within one year. Of this amount, we estimate that 81% will be recognized in revenues on our condensed consolidated statements of operations and 19% will be recorded by our unconsolidated joint ventures. As of July 3, 2026, $64 million of our backlog relates to active contracts that are in a loss position. As of July 3, 2026, 15% of our backlog was attributable to fixed-price contracts, 37% was attributable to PFIs, 22% was attributable to cost-reimbursable contracts and 26% was attributable to time-and-materials contracts. PFI arrangements are predominantly fixed‑price in nature, and therefore the PFI portion of backlog primarily reflects fixed‑price contractual structures. For contracts that contain fixed-price, cost-reimbursable and time-and-materials components, we classify the individual components as either fixed-price, cost-reimbursable or time-and-materials according to the composition of the contract; however, for smaller contracts, we characterize the entire contract based on the predominant component. As of July 3, 2026, $8.8 billion of our MTS backlog was currently funded by our customers. Excluding PFIs, 39% of our MTS backlog is currently funded by our customers. As of July 3, 2026, we had approximately $5.2 billion of priced option periods not yet exercised by the customer for U.S. government contracts that are not included in the backlog amounts presented above. The difference between backlog of $17.8 billion and the remaining performance obligations as defined by ASC Topic 606, Revenue from Contracts with Customers, of $13.7 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligations. See Note 3. "Revenue" to our condensed consolidated financial statements for discussion of the remaining performance obligations. 40 Transactions with Joint Ventures We form incorporated and unincorporated joint ventures to execute certain projects. In addition to participating as a joint venture partner, we often provide engineering, procurement, construction management, operations or maintenance services to the joint venture as a subcontractor. Where we provide services to a joint venture that we control and therefore consolidate for financial reporting purposes, we eliminate intercompany revenues and expenses on such transactions. In situations where we account for our interest in the joint venture under the equity method of accounting, we do not eliminate any portion of our subcontractor revenues or expenses, however, we recognize profit on our subcontractor scope of work up to but not in excess of the joint venture's percent complete on its scope of work. We recognize revenue over time on our services provided to joint ventures that we consolidate and our services provided to joint ventures that we record under the equity method of accounting. See Note 6. "Equity Method Investments and Variable Interest Entities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. The information discussed therein is incorporated by reference into this Part I, Item 2. Legal Proceedings Information relating to various commitments and contingencies is described in Notes 5. "Unapproved Change Orders and Claims Against Clients", 10. "Commitments and Contingencies" and 11. "U.S. Government Matters" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2. Liquidity and Capital Resources Liquidity is provided by available cash and cash equivalents, cash generated from operations, our Senior Credit Facility (as defined below), sale or divestiture of assets and access to capital markets. Our operating cash flow can vary significantly from year to year and is affected by the mix, terms, timing and stage of completion of our projects. We often receive cash in advance on certain of our sustainable technology projects. On time-and-material and cost reimbursable contracts, we may utilize cash on hand or availability under our Senior Credit Facility to satisfy any periodic operating cash requirements for working capital, as we incur costs and subsequently invoice our customers. Certain STS services projects may require us to provide credit support for our performance obligations to our customers in the form of letters of credit, surety bonds or guarantees. Our ability to obtain new project awards in the future may be dependent on our letter of credit and surety bonding capacity, which may be further dependent on the timely release of existing letters of credit and surety bonds. As the need for credit support arises, letters of credit may be issued under the Revolver (as defined below) or with lending counterparties on a bilateral, syndicated or other basis. We believe that existing cash balances, internally generated cash flows, availability under our Senior Credit Facility and other lines of credit are sufficient to support our business operations for the next 12 months. As of July 3, 2026, we are in compliance with all financial covenants related to our debt agreements. Cash and cash equivalents totaled $312 million at July 3, 2026, and $500 million at January 2, 2026, and consisted of the following: July 3, January 2, Dollars in millions 2026 2026 Domestic U.S. cash $ 75 $ 210 International cash 177 238 Joint venture and Aspire Defence project cash 60 52 Total $ 312 $ 500 Our cash balances are held in numerous accounts throughout the world to fund our global activities, including acquisitions, joint ventures and other business partnerships. Domestic cash relates to cash balances held by U.S. entities and is largely used to support project activities of those businesses as well as general corporate needs such as the payment of dividends to shareholders, repayment of debt and potential repurchases of our outstanding common stock. Additionally, domestic cash and cash equivalents includes $10 million and $15 million held by our wholly owned captive insurance company as of July 3, 2026 and January 2, 2026, respectively, which is generally not available to KBR to support its other operations. 41 Our international cash balances may be available for general corporate purposes but are subject to local restrictions, such as capital adequacy requirements and maintaining sufficient cash balances to support our U.K. pension plan and other obligations incurred in the normal course of business by those foreign entities. Repatriations of our undistributed foreign earnings are generally free of U.S. tax but may incur withholding and/or state taxes. We consider our future non-U.S. cash needs as 1) our anticipated foreign working capital requirements, including funding of our U.K. pension plan, 2) the expected growth opportunities across all geographical markets and 3) our plans to invest in strategic growth opportunities, which may include acquisitions, joint ventures and other business partnerships around the world, including whether foreign earnings are permanently reinvested. If management were to completely remove the indefinite investment assertion on all foreign subsidiaries, the exposure to local withholding taxes would be less than $10 million. Joint venture cash and Aspire Defence project cash balances reflect the amounts held by joint venture entities that we consolidate for financial reporting purposes. These amounts are limited to those entities' activities and are not readily available for general corporate purposes; however, portions of such amounts may become available to us in the future should there be a distribution of dividends to the joint venture partners. We expect that the majority of the joint venture cash balances will be utilized for the corresponding joint venture purposes or for paying dividends. As of July 3, 2026, substantially all of our excess cash was held in interest bearing operating accounts or short-term investment accounts with the primary objectives of preserving capital and maintaining liquidity. Cash Flows The following table summarizes our cash flows for the periods indicated: Six months ended Dollars in millions July 3, 2026 July 4, 2025 Cash flows provided by operating activities - continuing operations $ 160 $ 308 Cash flows used in investing activities - continuing operations (216) (24) Cash flows used in financing activities - continuing operations (128) (219) Total cash flows from discontinued operations (2) (31) Effect of exchange rate changes on cash (4) 20 Increase (decrease) in cash and cash equivalents $ (190) $ 54 Operating Activities - continuing operations. Cash provided by operations totaled $160 million and $308 million for the six months ended July 3, 2026 and July 4, 2025, respectively, as compared to net income from continuing operations of $200 million and $227 million for the six months ended July 3, 2026 and July 4, 2025, respectively. Cash flows from operating activities result primarily from earnings and are affected by changes in operating assets and liabilities, which consist primarily of working capital balances for projects. Working capital levels vary from year to year and are primarily affected by our volume of work. These levels are also impacted by the mix, stage of completion and commercial terms of projects. Working capital requirements also vary by project depending on the type of client and location throughout the world. During the six months ended July 3, 2026, cash flows decreased primarily due to the resolution of an outstanding unapproved change order within our Mission Technology Solutions segment in the six months ended July 4, 2025 that did not recur in the six months ended July 3, 2026 and decreases in distributions of earnings from unconsolidated affiliates. These decreases were offset by changes in the primary components of our working capital. The primary components of our working capital accounts are accounts receivable, contract assets, accounts payable and contract liabilities. These components are impacted by the size and changes in the mix of our cost-reimbursable and time-and-materials projects versus fixed price projects, and as a result, fluctuations in these components are not uncommon in our business. Investing Activities - continuing operations. Cash used in investing activities totaled $216 million for the six months ended July 3, 2026 primarily due to an investment within the BRIS joint venture for $115 million associated with BRIS closing on an agreement to acquire a welding and turnaround services provider. Additionally, we had purchases of available-for-sale debt securities of $49 million, purchases of other investments of $13 million and capital expenditures of $28 million. See Note 6. "Equity Method Investments and Variable Interest Entities" to our condensed consolidated financial statements for further discussion on the investment in equity method investment to BRIS and Note 15. "Fair Value of Financial Instruments and Risk Management" to our condensed consolidated financial statements for further discussion on the available-for-sale debt securities. Cash used in investing activities totaled $24 million for the six months ended July 4, 2025, primarily due to $16 million of capital expenditures and $11 million related to the acquisition of Infrastar Limited. This was offset by a return of equity method investment of $3 million associated with a joint venture in our STS segment. 42 Financing Activities - continuing operations. Cash used in financing activities totaled $128 million for the six months ended July 3, 2026. The primary uses of cash in financing activities were $161 million in payments on the Revolver, $20 million in payments on our Term Loan A, $5 million in payments on our Term Loan B, $42 million of dividend payments to common shareholders, $25 million for the repurchase of common stock under our share repurchase program and $4 million for the repurchase of common stock under our "withhold to cover" program. These decreases were offset by $141 million in borrowings on our Revolver. Cash used in financing activities totaled $219 million for the six months ended July 4, 2025. The primary uses of cash in financing activities were $323 million in payments on the Revolver, $13 million in payments on our Term Loan A, $5 million in payments on our Term Loan B, $198 million for the repurchase of common stock under our share repurchase program, $6 million for the repurchase of common stock under our "withhold to cover" program and $41 million of dividend payments to common shareholders. These decreases were offset by $373 million in borrowings on our Revolver. Cash flows from discontinued operations. Cash flows from discontinued operations are associated with the disposal of HomeSafe. Cash used in operations totaled $2 million and $27 million for the six months ended July 3, 2026 and July 4, 2025, respectively. Changes in HomeSafe's working capital accounts were the primary components of operating cash flows for the six months July 4, 2025. Cash used in investing activities totaled $12 million for the six months ended July 4, 2025 which is related to capital expenditures. Cash provided by financing activities totaled $8 million for the six months ended July 4, 2025 due to investments from the noncontrolling interest partner. See Note 17. "Discontinued Operations" to our condensed consolidated financial statements for additional information. Future sources of cash. We believe that future sources of cash include cash flows from operations (including accounts receivable monetization arrangements), cash derived from working capital management and cash borrowings under the Senior Credit Facility. Future uses of cash. We believe that future uses of cash include working capital requirements, joint venture capital calls, capital expenditures, dividends, pension funding obligations, repayments of borrowings, share repurchases, legal settlements of any currently outstanding legal matter or any future legal proceeding and strategic investments including acquisitions, joint ventures and other business partnerships. Our capital expenditures will be focused primarily on facilities and equipment to support our businesses. In addition, we will use cash to make payments under leases and various other obligations, including potential litigation payments, as they arise. We anticipate that, in connection with and prior to the completion of the Planned Spin-Off, the Mission Technology Solutions business will make a cash distribution to KBR using proceeds received from its anticipated financing transactions to be undertaken as part of its transition to an independent, publicly traded company. We intend to use the cash distributed to KBR by the Mission Technology Solutions business to reduce our level of indebtedness. Other factors potentially affecting liquidity Ichthys LNG Project. As part of the settlement agreement between JKC and Ichthys LNG, Pty, Ltd (collectively, “the Parties”) in October 2021, KBR’s letters of credit were reduced to $82 million from $164 million. Additionally, as part of this settlement agreement, the Parties agreed to consult in good faith and to cooperate to seek maximum recovery from the insurance policies and paint manufacturer for the deterioration of paint and insulation on certain exterior areas of the plant. The Parties agreed to collectively pursue claims against the paint manufacturer and JKC has assigned claims under the insurance policy regarding the paint and insulation matters to the client. The parties have agreed that if, at the date of final resolution of the above proceedings and claims with respect to the paint and insulation matters, the recovered amount from the paint manufacturer and insurance claim is less than the stipulated ceiling amount in the settlement agreement, JKC will pay the client the difference between the stipulated ceiling amount and the recovered amount. JKC has provided for and continues to maintain a provision for this contingent liability. U.K. pension obligation. We have recognized on our condensed consolidated balance sheets a funding surplus of $107 million (calculated as the difference between the fair value of plan assets and the projected benefit obligations as of July 3, 2026) for our frozen U.K. defined benefit pension plan. The funding requirements for our U.K. pension plan are determined based on the U.K. Pensions Act 1995. Annual minimum funding requirements are based on a binding agreement with the Trustee of the U.K. pension plan that is negotiated on a triennial basis. This schedule of contributions will be reviewed by the Trustee and KBR no later than 15 months after the effective date of each actuarial valuation, due every three years. In 2024, the Trustee of the U.K. defined benefit pension plan commenced the triennial actuarial valuation of the plan which was finalized during the year ended January 2, 2026. At this time, we do not anticipate contributing additional funding to this plan at least 43 until the next triennial valuation occurs. In the future, pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan asset return performance and other factors. A significant increase in our funding requirements for the U.K. pension plan could result in a material adverse impact on our financial position. Sales of Receivables. From time to time, we sell certain receivables to unrelated third-party financial institutions under various accounts receivable monetization programs. One such program is with MUFG under a Master Accounts Receivable Purchase Agreement, which provides the sale to MUFG of certain of our designated eligible receivables, with a significant portion of such receivables being owed by the U.S. government. We plan to continue to utilize these programs to ensure we have flexibility to meet our capital needs. Refer to Note 15. "Fair Value of Financial Instruments and Risk Management" to our condensed consolidated financial statements for further discussion on our sales of receivables. Credit Agreement and Senior Credit Facility Information relating to our Senior Credit Facility is described in Note 8. "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2. Senior Notes Information relating to our Senior Notes is described in Note 8. "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the information discussed therein is incorporated by reference into this Part I, Item 2. Off-Balance Sheet Arrangements Letters of credit, surety bonds and guarantees. In the ordinary course of business, we may enter into various arrangements providing financial or performance assurance to customers on behalf of certain consolidated and unconsolidated subsidiaries, joint ventures and other jointly executed contracts. Such off-balance sheet arrangements include letters of credit, surety bonds and corporate guarantees to support the creditworthiness or project execution commitments of these entities and typically have various expiration dates ranging from mechanical completion of the project being constructed to a period beyond completion in certain circumstances such as for warranties. We may also guarantee that a project, once completed, will achieve specified performance standards. If the project subsequently fails to meet guaranteed performance standards, we may incur additional costs, pay liquidated damages or be held responsible for the costs incurred by the client to achieve the required performance standards. The potential amount of future payments that we could be required to make under an outstanding performance arrangement is typically the remaining estimated cost of work to be performed by or on behalf of third parties. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed under the contract. For fixed-price contracts, the performance guarantee amount is the cost to complete the contracted work, less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete the project. If costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, subcontractors or vendors for claims. In our joint venture arrangements, the liability of each partner is usually joint and several. This means that each joint venture partner may become liable for the entire risk of performance guarantees provided by each partner to the customer. Typically, each joint venture partner indemnifies the other partners for any liabilities incurred in excess of the liabilities the other party is obligated to bear under the respective joint venture agreement. We are unable to estimate the maximum potential amount of future payments that we could be required to make under outstanding performance guarantees related to joint venture projects due to a number of factors, including but not limited to, the nature and extent of any contractual defaults by our joint venture partners, resource availability, potential performance delays caused by the defaults, the location of the projects and the terms of the related contracts. See “Item 1A. Risk Factors” contained in Part I of our 2025 Annual Report on Form 10-K for information regarding our fixed-price contracts and operations through joint ventures and partnerships. In certain limited circumstances, we enter into financial guarantees in the ordinary course of business, with financial institutions and other credit grantors, which generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation. We account for both financial and performance guarantees at fair value at issuance in accordance with ASC Subtopic 460-10, Guarantees, and, as of July 3, 2026, we had no material guarantees of the work or obligations of third parties recorded. As of July 3, 2026, we had a $1 billion committed line of credit on the Revolver under our Senior Credit Facility and $491 million of bilateral and uncommitted lines of credit. As of July 3, 2026, with respect to our Revolver, we had $375 million 44 of outstanding borrowings. We also have $18 million of outstanding letters of credit on our Senior Credit Facility. With respect to our $491 million of bilateral and uncommitted lines of credit, we utilized $290 million for letters of credit as of July 3, 2026. The total remaining capacity of these committed and uncommitted lines of credit was approximately $808 million as of July 3, 2026, all of which can be used toward issuing letters of credit. Information relating to our letters of credit is described in Note 8. "Debt and Other Credit Facilities" to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and the information discussed therein is incorporated by reference into this Part I, Item 2. Other than discussed in this Quarterly Report on Form 10-Q, we have not engaged in any material off-balance sheet financing arrangements through special purpose entities. Critical Accounting Policies and Estimates There have been no material changes to our discussion of critical accounting policies and estimates from those set forth in our 2025 Annual Report on Form 10-K, for the year ended January 2, 2026, which discussion is incorporated herein by reference.