KBR, INC. 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 2020 Annual Report on Form 10-K.
Overview
KBR, aDelaware corporation, delivers science, technology and engineering solutions to governments and companies around the world. Drawing from its rich 100-year history and 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: •Scientific research such as quantum science and computing; health and human performance; materials science; life science research; and earth sciences; •Defense systems engineering such as rapid prototyping; test and evaluation; aerospace acquisition support; systems and platform integration; and sustainment engineering; •Operational support such as space domain awareness; C4ISR; human spaceflight and satellite operations; integrated supply chain and logistics; and military aviation support; •Information operations such as cyber analytics and cybersecurity; data analytics; mission planning systems; virtual/augmented reality and technical training; and artificial intelligence and machine learning; and •Technology such as licensing of proprietary, sustainability-focused process technology; advisory services focused on energy transition; and digitally-enabled asset optimization solutions.
KBR's strategic growth vectors include:
•Defense modernization; •Space superiority; •Health and human performance; and •Sustainable technology. Key customers includeU.S. DoD agencies such as theU.S. Army ,U.S. Navy andU.S. Air 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 andNational Oceanic and Atmospheric Administration ; theU.K. Ministry of Defence ,London Metropolitan Police , otherU.K. Crown Services; theRoyal 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, 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 solutions enable clients to achieve a cleaner, greener, more energy efficient global future. OnOctober 1, 2020 , we acquired Centauri, a provider of high-end engineering and development solutions for critical, well-funded, national security missions associated with space, intelligence, cyber, and emerging technologies such as directed energy and missile defense. Additional information relating to the Centauri acquisition is described in Note 4 to our condensed consolidated financial statements.
Business Environment and Trends
Government Outlook
The fiscal 2021 and proposed fiscal 2022 spending budgets prioritize and furthers a national security strategy to confront near peer threats around the world, enhances theDoD's cybersecurity strategy and cyber warfare capabilities, increases the priority of military space superiority, directs innovation to meet long-range emerging threats, and continues the restoration of military readiness. The budget includes a number of measures to strengthen emerging technologies including cyber-science and 39 -------------------------------------------------------------------------------- technologies, artificial intelligence, directed energy, hypersonics, and biotechnologies. The proposed fiscal 2022 national security budget outlines spending of$753 billion , a 1.6% increase over the fiscal 2021 amounts, and includes$715 billion for theDepartment of Defense . The fiscal 2022 non-defense discretionary spending proposal includes a 16% increase in funding, including a 6.5% increase in funding for NASA to support the continuation of scientific research and exploration as well as increased funding across all agencies to tackle climate change. TheU.S. military announced a full withdrawal ofU.S. forces fromAfghanistan bySeptember 11, 2021 . We believe the overall impact will not be material to our financial results. Internationally, our Government Solutions work is performed primarily for theU.K. Ministry of Defence and theAustralian Department of Defence . TheU.K. government was committed to spend £188 billion on defense over the coming four years, an increase of £24 billion or 14%. Recognizing the importance of strong defense and the role theU.K. plays across the globe, theU.K. has prioritized investment in military research and investment in key areas to advance and develop capabilities around artificial intelligence, cyber security and space superiority. 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. 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, global expansion of the middle class, and acceleration of demand for energy transition and renewable energy sources for which momentum continues to build. Clients continue to prioritize investment in solutions to increase end-product flexibility and energy efficiency and to reduce their environmental footprint. As 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, sequestration and utilization; biofuels; and circular economy. Further, leading companies across the world are proactively evaluating clean energy alternatives, including hydrogen and green ammonia which complements KBR's proprietary process technology and capabilities.
Our Business
KBR's business is organized into two core and one non-core business segments as follows:
Core business segments • Government Solutions • Sustainable Technology Solutions Non-core business segment • Other
See additional information on our business segments, including detail with respect to changes to our reportable segments in Notes 1 and 2 to our condensed consolidated financial statements.
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Three months ended
The information below is an analysis of our consolidated results for the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 . See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments. Revenues Three Months Ended June 30, 2021 vs. 2020 Dollars in millions 2021 2020 $ % Revenues$ 1,536 $ 1,385 $ 151 11 % The increase in overall revenue was primarily driven by organic growth in our GS business segment, which was attributable to new program wins and on-contract expansion as well as our acquisition of Centauri inOctober 2020 , which contributed approximately$180 million this quarter. This growth was partially offset by a reduction in revenue to$305 million in our STS business segment, which is in line with management expectations following the company's exit from commoditized construction services in 2020. Gross Profit Three Months Ended June 30, 2021 vs. 2020 Dollars in millions 2021 2020 $ % Gross profit$ 207 $ 142 $ 65 46 % The increase in overall gross profit was primarily driven by improvements in our STS business segment due to improved execution and market recovery in 2021, expenses recognized in 2020 that did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters. Gross profits also increased in our GS business segment due to the acquisition of Centauri inOctober 2020 . The increase was partially offset by higher amortization of intangibles from the Centauri acquisition and lower construction work on the Aspire program in our GS business segment. Equity in Earnings (Losses) of Unconsolidated Affiliates
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Equity in earnings (losses) of unconsolidated
affiliates $ (186) $ 16 $ (202) (1,263) %
The overall decrease in equity in earnings (losses) of unconsolidated affiliates
was primarily driven by a non-cash charge in the amount of $193 million
associated with the Ichthys LNG project recognized in the current quarter in our
STS business segment.
Selling, General and Administrative Expenses
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Selling, general and administrative expenses
41 %
Selling, general and administrative expenses in the three months ended June 30,
2021 , was $30 million higher than the same period in 2020, which was primarily
driven by increased expenses attributable to the Centauri acquisition, increased
costs associated with the return to the office, increased travel beginning in
early 2021 compared to 2020 as well as other corporate initiatives.
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Acquisition and Integration Related Costs
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Acquisition and integration related costs $ (3) $
- $ 3 n/m
Acquisition and integration related costs in 2021 are primarily comprised of
costs associated with our acquisition of Centauri in
Goodwill Impairment, Restructuring Charges and Asset Impairments
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Goodwill impairment $ - $ (37) $ (37) n/m
Restructuring charges and asset impairments
57 n/m
In 2020, as a result of the economic and market volatility, management initiated a restructuring plan and we recognized goodwill impairments, restructuring charges, and assets impairments resulting from that plan.
Interest Expense Three Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Interest expense $ (23) $ (19) $ 4 21 %
The increase in interest expense was primarily driven by increased expense associated with borrowings to finance the acquisition of Centauri.
Other Non-operating (Loss) Income
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Other non-operating (loss) income $ 2 $ (2) $ 4 200 %
Other non-operating (loss) income includes interest income, foreign exchange gains and losses, and other non-operating income or expense items with the change primarily driven by foreign exchange gains and losses.
Provision for Income Taxes
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Income before provision for income taxes and
noncontrolling interests $ (109) $ (33) $ (76) 230 %
(Provision) for income taxes $ (40) $ (6) $ 34 567 %
The provision for income taxes for the three months ended June 30, 2021 reflects
a (37)% tax rate as compared to a (18)% tax rate for the three months ended June
30, 2020 . The effective tax rate of (37)% for the three months ended June 30,
2021 was primarily impacted by an equity adjustment on an LNG project and the
enactment of a tax rate change in the U.K. Excluding the tax impact of these
adjustments, our tax rate would be 25% for the three months ended June 30, 2021 .
The effective tax rate of (18)% for the three months ended June 30, 2020 was
primarily impacted by impairment and restructuring charges incurred during the
period. Excluding the tax impact of these adjustments, our rate would have been
27% for the three months ended June 30, 2020 . See Note 11 to our condensed
consolidated financial statements for further discussion on income taxes.
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Net Income Attributable to Noncontrolling
Interests
Three Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Net income attributable to noncontrolling
interests $ (3) $ - $ 3 n/m
The increase in net income attributable to noncontrolling interests was
primarily driven by income earned related to a
Results of Operations by Business Segment
Three Months Ended June 30,
Dollars in millions 2021 2020
Revenues
Government Solutions $ 1,231 $ 953
Sustainable Technology Solutions 305 432
Total revenues $ 1,536 $ 1,385
Gross profit
Government Solutions $ 130 $ 117
Sustainable Technology Solutions 77 25
Total gross profit $ 207 $ 142 Equity in earnings (losses) of unconsolidated affiliates Government Solutions
$ 8 $ 7
Sustainable Technology Solutions (194) 9
Total equity in earnings (losses) of unconsolidated affiliates $
(186)
Total selling, general and administrative expenses $
(103)
Acquisition and integration related costs $ (3) $ - Goodwill impairment $ -$ (37) Restructuring charges and asset impairments $ (2)$ (59) Gain on disposition of assets $ (1)$ (1) Total operating income $ (88)$ (12) 43
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Government Solutions
GS revenues increased by$278 million to$1,231 million in the second quarter of 2021, compared to$953 million in the second quarter of 2020. The increase was primarily driven by organic growth across each of our business units with Readiness & Sustainment posting 17% organic growth, International posting 11% organic growth, Science & Space posting 8% organic growth, Defense & Intel posting 4% organic growth, and the acquisition of Centauri inOctober 2020 , which contributed over$180 million during the quarter. These increases were partially offset by lower volume associated with the successful completion of non-recurring construction work on our Aspire program. GS gross profit increased by$13 million , or 11%, to$130 million in the second quarter of 2021 compared to$117 million in the second quarter of 2020. The increase was primarily driven by the growth discussed above, partially offset by the higher amortization of intangibles from the Centauri acquisition and wind down of construction work on the Aspire program.
GS equity in earnings of unconsolidated affiliates change remained flat at
Sustainable Technology Solutions
STS revenues decreased by
STS gross profit increased by$52 million , or 208% to$77 million in the second quarter of 2021 compared to$25 million in the second quarter of 2020. The increase was primarily driven by strong execution and market recovery in 2021, expenses recognized in 2020 but did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters. STS equity in earnings (losses) of unconsolidated affiliates decreased by$203 million , or 2256% to$194 million loss in the second quarter of 2021 compared to$9 million in the second quarter of 2020. The decrease was primarily driven by a non-cash charge in the amount of$193 million associated with theIchthys LNG project recognized in the current quarter.
Six months ended
The information below is an analysis of our consolidated results for the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 . See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments. Revenues Six Months Ended June 30, 2021 vs. 2020 Dollars in millions 2021 2020 $ % Revenues$ 2,997 $ 2,922 $ 75 3 % The increase in overall revenue was primarily driven by organic growth in our GS business segment, which was attributable to new program wins and on-contract expansion as well as our acquisition of Centauri inOctober 2020 . This growth was partially offset by a reduction in revenue to$602 million in our STS business segment, which is in line with management expectations following the company's exit from commoditized construction services in 2020. Gross Profit Six Months Ended June 30, 2021 vs. 2020 Dollars in millions 2021 2020 $ % Gross profit$ 375 $ 328 $ 47 14 % The increase in overall gross profit was primarily driven by improvements in our STS business segment due to improved execution and market recovery in 2021, expenses recognized in 2020 that did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters. Gross profits also increased in our GS business segment due to the acquisition of 44 --------------------------------------------------------------------------------
Centauri in
Equity in Earnings (Losses) of Unconsolidated Affiliates
Six Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Equity in earnings (losses) of unconsolidated
affiliates $ (174) $ 17 $ (191) n/m
The overall decrease in equity earnings (losses) was primarily driven by a
non-cash charge in the amount of
Selling, General and Administrative Expenses Six
Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Selling, general and administrative expenses
13 %
Selling, general and administrative expenses in the six months ended June 30,
2021 were $22 million higher than the same period in 2020, which was primarily
driven by increased expenses attributable to the Centauri acquisition, increased
costs associated with the return to the office, increased travel beginning in
early 2021 compared to 2020 as well as other corporate initiatives, partially
offset by cost reductions to right-size the cost base in line with the business
shift to exit non-strategic areas in our STS business segment.
Acquisition and Integration Related Costs
Six Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Acquisition and integration related costs
4 n/m
Acquisition and integration related costs in 2021 are primarily comprised of
costs associated with our acquisition of Centauri in
Goodwill Impairment, Restructuring Charges and Asset Impairments
Six Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Goodwill impairment $ - $ (99) $ 99 n/m
Restructuring charges and asset impairments
n/m
In 2020, as a result of the economic and market volatility, management initiated a restructuring plan and we recognized goodwill impairments, restructuring charges and asset impairments resulting from that plan.
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Interest Expense Six Months Ended June 30,
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Interest expense $ (45) $ (42) $ 3 7 %
The increase in interest expense was primarily driven by increased expense associated with borrowings to finance the acquisition of Centauri. Other Non-operating Income (loss)
Six Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Other non-operating income (loss) $ (1) $ 5 $ (6) (120) %
Other non-operating income includes interest income, foreign exchange gains and losses, and other non-operating income or expense items with the change primarily driven by foreign exchange gains and losses.
Provision for Income Taxes Six
Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Income (loss) before provision for income taxes
and noncontrolling interests $ (45) $ (118) $ 73 (62) %
(Provision) benefit for income taxes $ (56) $ (5) $ 51 n/m
The provision for income taxes for the six months ended June 30, 2021 reflects a
(124)% tax rate as compared to a (4)% tax rate for the six months ended June 30,
2020 . The effective tax rate of (124)% for the six months ended June 30, 2021
was primarily impacted by an equity adjustment on the LNG project and the
enactment of a tax rate change in the U.K. Excluding the tax impact of these
adjustments, our tax rate would be 25% for the six months ended June 30, 2021 .
The effective tax rate of (4)% for the six months ended June 30, 2020 was
primarily impacted by impairment and restructuring charges incurred during the
period. Excluding the tax impact of these adjustments, our tax rate would have
been 27% six months ended June 30, 2020 . See Note 11 to our condensed
consolidated financial statements for further discussion on income taxes.
Net Income Attributable to Noncontrolling
Interests
Six Months Ended
2021 vs. 2020
Dollars in millions 2021 2020 $ %
Net income attributable to noncontrolling
interests $ (4) $ (20) $ (16) n/m
The decrease in net income attributable to noncontrolling interests was
primarily driven by the resolution of a contingency on a completed LNG project
and liquidation of the joint venture in 2020, partially offset by income earned
related to a Middle East joint venture project in our STS business segment.
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--------------------------------------------------------------------------------Results of Operations by Business Segment
Six Months Ended June 30,
Dollars in millions 2021 2020
Revenues
Government Solutions $ 2,395 $ 1,935
Sustainable Technology Solutions 602 987
Total revenues $ 2,997 $ 2,922
Gross profit
Government Solutions $ 246 $ 246
Sustainable Technology Solutions 129 82
Total gross profit $ 375 $ 328 Equity in earnings (losses) of unconsolidated affiliates Government Solutions
$ 15 $ 12
Sustainable Technology Solutions (189) 5
Total equity in earnings (losses) of unconsolidated affiliates $
(174)
Total selling, general and administrative expenses $
(192)
Acquisition and integration related costs $ (4) $ - Goodwill impairment $ -$ (99) Restructuring charges and asset impairments $
(2)
(Loss) gain on disposition of assets $ (2)$ 18 Total operating income $ 1$ (81) 47
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Government Solutions
GS revenues increased by$460 million , or 24%, to$2.4 billion in the six months endedJune 30, 2021 , compared to$1,935 million in the six months endedJune 30, 2020 . The increase was primarily driven by organic growth across each of business each of our business units with Readiness & Sustainment posting 15% organic growth, Science & Space posting 6% organic growth, Defense & Intel posting 5% growth, International posting 1% growth, and the acquisition of Centauri inOctober 2020 , which contributed$313 million this year. These increases were partially offset by lower volume associated with the successful completion of non-recurring construction work on our Aspire program. GS gross profit decreased by$0 million , to$246 million in the six months endedJune 30, 2021 , compared to$246 million in the six months endedJune 30, 2020 , despite the increase in revenue growth of 24% year over year, which was primarily driven by an increase in gross profits from the acquisition of Centauri inOctober 2020 , partially offset by the higher amortization of intangibles from the Centauri acquisition and wind down of construction work on the Aspire program. GS equity in earnings of unconsolidated affiliates increased by$3 million to$15 million in the six months endedJune 30, 2021 , compared to$12 million in the six months endedJune 30, 2020 . The increase was primarily driven by better performance of joint ventures and increased work in our International business, partially offset by changes in project estimates in a domestic joint venture.
Sustainable Technology Solutions
STS revenues decreased by
STS gross profit increased by$47 million , or 57%, to$129 million in the six months endedJune 30, 2021 , compared to$82 million in the six months endedJune 30, 2020 . The increase was primarily driven by strong execution and market recovery in 2021, expenses recognized in 2020 but did not recur in 2021, and the net favorable resolution of and provisioning for legacy matters. STS equity in earnings of unconsolidated affiliates decreased by$194 million to$189 million loss in the six months endedJune 30, 2021 , compared to a$5 million in earnings in the six months endedJune 30, 2020 . The decrease was primarily driven by a non-cash charge in the amount of$193 million associated with theIchthys LNG project recognized in the current quarter.
Backlog of Unfilled Orders
Backlog generally represents the 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 unconsolidated joint ventures. We generally include total expected 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. 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 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. We define backlog, as it relates toU.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 GS 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. 48 -------------------------------------------------------------------------------- Within our GS business segment, we calculate estimated backlog for long-term contracts associated with theU.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. Because 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$2.8 billion atJune 30, 2021 , and$2.4 billion atDecember 31, 2020 . Our backlog included in the table below for projects related to consolidated joint ventures with noncontrolling interests includes 100% of the backlog associated with those joint ventures and totaled$46 million and$52 million atJune 30, 2021 andDecember 31, 2020 , respectively.
The following table summarizes our backlog by business segment as of
June 30, December 31,
Dollars in millions 2021 2020
Government Solutions $ 12,374 $ 12,661
Sustainable Technology Solutions 2,512 2,454
Total backlog $ 14,886 $ 15,115
We estimate that as of June 30, 2021 , 27% of our backlog will be executed within
one year. Of this amount, 83% will be recognized in revenues on our condensed
consolidated statement of operations and 17% will be recorded by our
unconsolidated joint ventures. As of June 30, 2021 , $118 million of our backlog
relates to active contracts that are in a loss position.
As of June 30, 2021 , 14% of our backlog was attributable to fixed-price
contracts, 47% was attributable to PFIs, 25% was attributable to
cost-reimbursable contracts, and 14% was attributable to time-and-materials
contracts. 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 June 30, 2021 , $9.4
billion of our GS backlog was currently funded by our customers.
As of
The difference between backlog of$14.9 billion and the remaining performance obligation as defined by ASC 606 of$11.5 billion is primarily due to our proportionate share of backlog related to unconsolidated joint ventures which is not included in our remaining performance obligation. See Note 3 to our condensed consolidated financial statements for discussion of the remaining performance obligation.
Transactions with Joint Ventures
We perform many of our projects through incorporated and unincorporated joint
ventures. In addition to participating as a joint venture partner, we often
provide engineering, procurement, construction, 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. We recognize the profit on our services
provided to joint ventures that we consolidate and joint ventures that we record
under the equity method of accounting primarily using the
percentage-of-completion method. See Note 8 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 6, 13 and 14 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.
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--------------------------------------------------------------------------------Liquidity and Capital Resources
Liquidity is provided by available cash and equivalents, cash generated from operations, our Senior Credit Facility and access to financial 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 the early phases of our larger fixed-price projects, technology projects, and those of our consolidated joint ventures in advance of incurring related costs. On 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. STS services projects generally 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 ability to maintain or increase 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 will be issued under our$1 billion Revolver under our Senior Credit Facility. Letters of credit may also be arranged with our banks on a bilateral, syndicated or other basis. As discussed in Note 10 "Debt and Other Credit Facilities" of our condensed consolidated financial statements, we amended our Senior Credit Facility onJuly 2, 2020 , to consist of a$1 billion revolving credit facility ("Revolver"), a$275 million Loan A, ("Term Loan A") of which a portion is denominated in Australian dollars, and a$520 million Term Loan B ("Term Loan B"), with an aggregate capacity of$1.795 billion . The Revolver and Term Loan A mature inFebruary 2025 and Term Loan B matures inFebruary 2027 . 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 ofJune 30, 2021 , we were in compliance with all financial covenants related to our debt agreements. Cash and equivalents totaled$483 million atJune 30, 2021 , and$436 million atDecember 31, 2020 , and consisted of the following: June 30, December 31, Dollars in millions 2021 2020 Domestic U.S. cash$ 95 $ 54 International cash 257 231 Joint venture and Aspire Defence project cash 131 151 Total$ 483 $ 436 Our cash balances are held in numerous accounts throughout the world to fund our global activities. Domestic cash relates to cash balances held byU.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. 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 ourU.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 ofU.S. tax but may incur withholding and/or state taxes. We consider our futureU.S. and non-U.S. cash needs as 1) our anticipated foreign working capital requirements, including funding of ourU.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 around the world, including whether foreign earnings are permanently reinvested. During the quarter ending March 31 2021, we changed our permanent reinvestment assertion on the unremitted earnings, as well as all current and future earnings in a wholly owned subsidiary inIndia . We determined that the past unremitted earnings of$30 million is available for future repatriation for deployment in theU.S. Accordingly, we have recorded the income tax expense expected with the future repatriation in Q1 2021. In addition in Q1 2021, we changed our permanent reinvestment assertion on all current and future earnings in our subsidiaries inSaudi Arabia . The income tax expense associated with the current and future earnings will be reflected in the interim and annual periods in which the earnings are generated. 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 50 --------------------------------------------------------------------------------
utilized for the corresponding joint venture projects.
As ofJune 30, 2021 , substantially all of our excess cash was held in commercial bank time deposits or interest bearing 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:
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