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 2019 Annual
Report on Form 10-K.

Overview



KBR, a Delaware corporation, is a global provider of differentiated,
professional services and technologies delivered across a wide government,
defense and industrial base. Drawing from its rich 100-year history and culture
of innovation and mission focus, KBR combines technical, scientific and
engineering expertise and intellectual property with our full life cycle
capabilities in its service offerings to clients. Our capabilities and offerings
include the following:

• Scientific research, such as quantum science and computing; health and

human performance; life science research; and earth sciences;

• Engineering services, such as systems and sustainment engineering;


          systems and platform integration; test and evaluation; aerospace
          acquisition support; and rapid prototyping;


•         Operations, such as command, control and communications; human
          spaceflight and satellite operations; integrated supply chain and
          logistics; technical training; and military aviation support;


•         Information operations, such as data analytics; mission planning
          systems; and artificial intelligence and machine learning; and


•         Technology, such as licensing of proprietary industrial process
          technology; advisory services focused on energy transition; and
          digitally-enabled asset optimization solutions.



KBR has completed a strategic transformation to be a provider of high-end,
digitally-enabled solutions and technologies across defense, space, intelligence
and industrial markets.  Our people combine deep
mission understanding, technical expertise and an operational focus to
deliver solutions to our clients.  KBR's operating model has shifted toward
agile, technology-driven, solutions-oriented delivery and away from higher risk,
increasingly commoditized markets. Our focus continues to be to move upmarket
into differentiated areas that we believe will provide attractive
returns and consistent growth.

Our key areas of strategic focus include:
• Defense modernization;


• Space superiority;

• Health and human performance; and




• Sustainable technology.



KBR delivers a wide range of professional services across defense, space and
other government agencies spanning program management and consulting, mission
planning, operational and platform support, research and development, test and
evaluation, training, and logistics and facilities management. These services
are provided primarily to government agencies in the U.S., U.K., Australia and
other select countries under long-term programs with technical, scientific or
mission-specific differentiation. Customers include U.S. DoD agencies such as
the Missile Defense Agency, U.S. Army, U.S. Navy and U.S. Air Force; U.S.
civilian agencies such as NASA, U.S. Geological Survey and National Oceanic and
Atmospheric Administration; the U.K. Ministry of Defence, London Metropolitan
Police, U.K. Army, other U.K. Crown Services; and the Royal Australian Air
Force, Navy and Army.

Consistent with our corporate focus towards sustainability, KBR continues to
develop and prioritize investment in process technologies that enable clients to
produce cleaner, safer, and more sustainable outputs and also do so with
improved economic outcomes. We provide high-end advisory solutions centered
around energy transition, license process technologies, provide basic
engineering and design services, sell proprietary equipment and catalysts, and
provide asset optimization and remote facility operations monitoring.  Customers
include national governments, industrial companies, and oil and gas companies.
Areas of long-term strategic focus include sustainable technology solutions,
energy transition and technology-led asset optimization.


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Business Environment and Trends

Government Outlook



While funded through a continuing resolution that are subject to periodic
congressional budget approvals, the U.S. defense and national security strategy
continues to prioritize the restoration of military readiness, furthers
investment to confront near peer and other threats around the world, enhances
the DoD's cybersecurity and cyber warfare capabilities, funds the U.S. Space
Force under the U.S. Air Force, and directs innovation to meet long-range
emerging threats. The strategy includes a number of measures to strengthen
emerging technologies, including cyber-science and technologies, artificial
intelligence, directed energy, hypersonics, and emerging biotechnologies.

Internationally, our Government Solutions work is performed primarily for the
U.K. MoD and the Australian Department of Defence. A significant majority of our
work in the U.K. is contracted through long-term privately financed initiatives
("PFIs") that are expected to provide stable, predictable earnings and cash flow
over the program life, with our largest PFI extending through 2041. The
Australian government continues to increase defense spending, with particular
focus on enhancing regional security, building defense capabilities,
strengthening cyber defenses and promoting broader economic stability.

With defense and civil budget spending driven in part by political instability,
military conflicts, aging platforms and infrastructure and the need for
technology upgrades, we expect continued opportunities to provide solutions and
technologies to mission critical work aligned with our customers' priorities.

Industrial Outlook



Long-range industrial 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 and investment
continue, even amidst COVID-19, as clients advance important objectives around
decarbonization and climate change. Demand for our solutions and services is
highly correlated to the level of capital and operating expenditures of our
customers and prevailing market conditions.  Clients continue to prioritize
investment in solutions to increase end-product flexibility and energy
efficiency and reduce their environmental footprint.

Our Business

Overall, we believe we have a balanced portfolio of global professional services and technologies across a wide government, defense and industrial base. Our business is organized into three core and two non-core business segments as follows:



Core business segments

• Government Solutions
• Technology Solutions
• Energy Solutions

Non-core business segments

• Non-strategic Business
• 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.



The Company has initiated a strategic transition from its current three-core
business segment model to a two-core business segment model comprised
of Government Solutions and Technology Solutions. This transition will occur
over the remainder of 2020.  The core component of the new Technology Solutions
segment will be the Company's proprietary process technologies.  It will
also include the Company's advisory practice focused on energy transition and
net-zero carbon ambitions as well as the technology-led industrial solutions
focused on innovative digital operations and maintenance solutions and advanced
remote operations capabilities to improve throughput, reliability
and environmental sustainability.



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Three months ended September 30, 2020 compared to the three months ended September 30, 2019

The information below is an analysis of our consolidated results for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. See Results of Operations by Business Segment below for additional information describing the performance of each of our reportable segments.



Revenues                     Three Months Ended September 30,
                                                       2020 vs. 2019
Dollars in millions        2020             2019         $          %
Revenues            $    1,379            $ 1,425    $   (46 )    (3 )%



The overall revenue decrease was primarily due to decisions to exit
non-strategic areas in our ES business segment and lower volume in our TS
business segment due to timing and mix of project deliveries. These decreases
were partially offset by significant increases in project volume in our space
and defense systems engineering business areas within the GS business segment.

Gross Profit                       Three Months Ended September 30,
                                                                 2020 vs. 2019
Dollars in millions             2020                 2019           $            %
Gross profit        $       172                     $ 168    $     4            2 %


The overall gross profit increase was primarily due to favorable changes in estimates on projects within the GS business segment. These increases were partially offset by lower revenue volume in our ES business segment.



Equity in Earnings of Unconsolidated
Affiliates                                            Three Months Ended September 30,
                                                                               2020 vs. 2019
Dollars in millions                           2020            2019             $             %
Equity in earnings of unconsolidated
affiliates                                $        13     $        9     $         4           44 %



The increase in equity in earnings of unconsolidated affiliates was primarily
driven by higher earnings from a U.K. joint venture and foreign exchange effects
in a project joint venture offset by reduced activity from an industrial
services joint venture.

Selling, General and Administrative Expenses                 Three Months Ended September 30,
                                                                                        2020 vs. 2019
Dollars in millions                              2020             2019                 $                %

Selling, general and administrative expenses $ (89 ) $ (74 )

    $         15               20 %



Selling, general and administrative expenses in the three months ended
September 30, 2020 was $15 million higher than the same period in 2019
principally as a result of a favorable cost variance recorded in our U.S.
government contracting business in the three months ended September 30, 2019
driven by lower than expected bid and proposal and information technology costs
and a larger allocation base than expected due to higher volume. Our current
estimate of selling, general and administrative expenses and the relative cost
bases for 2020 remains materially unchanged.

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Acquisition and Integration Related Costs                Three Months Ended September 30,
                                                                                    2020 vs. 2019
Dollars in millions                             2020               2019              $            %

Acquisition and integration related costs $ (2 ) $ -

$ 2 n/m

The increase in acquisition and integration related costs was comprised of acquisition costs associated with the Company's acquisition of Centauri on October 1, 2020. The Company anticipates incurring additional integration related costs related to its acquisition of Centauri over the next twelve months.



Goodwill Impairment, Restructuring Charges
and Asset Impairments                                  Three Months Ended September 30,
                                                                                 2020 vs. 2019
Dollars in millions                            2020             2019             $             %
Goodwill impairment                        $        -       $        -     $        -            n/m
Restructuring charges and asset
impairments                                $       (1 )     $        -     $       (1 )          n/m


See Note 7 "Restructuring Charges and Asset Impairments" and Note 8 "Goodwill and Goodwill Impairments" in the footnotes to our accompanying condensed consolidated financial statements.



Interest Expense            Three Months Ended September 30,
                                                    2020 vs. 2019
Dollars in millions    2020           2019            $         %

Interest expense $ (18 ) $ (25 ) $ (7 ) (28 )%

The decrease in interest expense was primarily due to lower outstanding borrowings under our Senior Credit Facility during the three months ended September 30, 2020 as compared to the same period in 2019 and lower weighted-average interest rates as a result of the refinancing of our Senior Credit Facility in February 2020. See Note 11 to our condensed consolidated financial statements for further discussion.



Other Non-operating (Loss) Income             Three Months Ended September 30,
                                                                          2020 vs. 2019
Dollars in millions                  2020               2019                $          %
Other non-operating (loss) income $    (4 )     $   3                   $   

(7 ) 233 %





Other non-operating (loss) income includes interest income, foreign exchange
gains and losses, and other non-operating income or expense items. The increase
in loss in the third quarter of 2020 was primarily due to unfavorable foreign
exchange rate effects on certain U.S. Dollar cash positions held
internationally.


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Provision for Income Taxes                             Three Months Ended September 30,
                                                                                 2020 vs. 2019
Dollars in millions                           2020             2019             $              %
Income before provision for income taxes
and noncontrolling interests              $       71       $       82      $      (11 )        (13 )%
(Provision) for income taxes              $      (19 )     $      (24 )    $       (5 )        (21 )%



The provision for income taxes for the three months ended September 30, 2020
reflects a 27% tax rate as compared to a 30% tax rate for the three months ended
September 30, 2019, both of which were primarily impacted by the rate
differential on our foreign earnings including equity in losses, of certain
unconsolidated affiliates for which any tax effects are not reflected in the
provision for income taxes because they are reflected on a net basis in equity
in earnings of unconsolidated affiliates. See Note 12 to our condensed
consolidated financial statements for further discussion on income taxes.



Results of Operations by Business Segment


                                                                Three Months Ended September 30,
Dollars in millions                                                2020                   2019
Revenues
Government Solutions                                        $           980         $           978
Technology Solutions                                                     71                      96
Energy Solutions                                                        327                     351
Subtotal                                                              1,378                   1,425
Non-strategic Business                                                    1                       -
Total revenues                                              $         1,379         $         1,425

Gross profit
Government Solutions                                        $           129         $           110
Technology Solutions                                                     30                      30
Energy Solutions                                                         15                      21
Subtotal                                                                174                     161
Non-strategic Business                                                   (2 )                     7
Total gross profit                                          $           172         $           168

Equity in earnings of unconsolidated affiliates
Government Solutions                                        $             9         $             7
Energy Solutions                                                          4                       2
Total equity in earnings of unconsolidated affiliates       $            13         $             9

Total selling, general and administrative expenses          $           (89 )       $           (74 )

Acquisition and integration related costs                   $            (2 )       $             -

Restructuring charges and asset impairments                 $            (1 )       $             -

Gain on disposition of assets                               $             -         $             1

Total operating income                                      $            93         $           104



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Government Solutions



GS revenues increased by $2 million to $980 million in the third quarter of
2020, compared to $978 million in the third quarter of 2019. This slight
increase was primarily driven by growth in the space and engineering businesses,
ramp-up of LogCAP V Northern Command scope of work, higher volumes on projects
in Australia as well as the SMA acquisition in March 2020. These increases were
substantially offset by the completion of disaster recovery services provided to
the U.S. Air Force in 2019, lower work volume on the LogCAP IV scope of work
primarily in the Middle East, and the reduction in revenue related to the
construction component of the Aspire Defence project in the U.K. which is
nearing completion.

GS gross profit increased by $19 million, or 17%, to $129 million in the third
quarter of 2020 compared to $110 million in the third quarter of 2019. The
increase is primarily driven by growth in the space and engineering businesses
and the non-recurrence of a contingency release on a project in the Middle East
in 2019.

GS equity in earnings of unconsolidated affiliates increased by $2 million, or
29%, to $9 million in the third quarter of 2020 compared to $7 million in the
third quarter of 2019. The increase is primarily associated with higher earnings
from a U.K. project joint venture.

Technology Solutions



TS revenues decreased by $25 million, or 26%, to $71 million in the third
quarter of 2020 compared to $96 million in the third quarter of 2019, primarily
driven by higher volumes of proprietary equipment and catalyst sales in 2019 as
compared to 2020.

TS gross profit remained consistent at $30 million for the third quarter of 2020
and 2019, primarily due to favorable mix of higher margin license revenue and
lower overhead spend in 2020.

Energy Solutions

ES revenues decreased by $24 million, or 7%, to $327 million in the third quarter of 2020, compared to $351 million in the third quarter of 2019. The decrease was largely attributable to the completion or near completion of projects and lower volumes primarily attributable to the downturn in the energy market caused by COVID-19 and ensuing portfolio shaping decisions.



ES gross profit decreased by $6 million, or 29%, to $15 million in the third
quarter of 2020 as compared to $21 million in the second quarter of 2019 due to
reduced volume and an unfavorable mix of lower margin projects primarily in
North America.

ES equity in earnings of unconsolidated affiliates increased by $2 million, or
100%, to $4 million in the third quarter of 2020, compared to earnings of $2
million in the third quarter of 2019. This increase was primarily due to foreign
exchange effects in project joint ventures.

Non-strategic Business

Non-strategic Business revenues were $1 million in the third quarter of 2020, compared to none for the third quarter of 2019, primarily associated with close-out activities on completed projects as we exit the related businesses.



Non-strategic Business incurred a gross loss of $2 million in the third quarter
of 2020, compared to $7 million gross profit in the third quarter of 2019. All
Non-strategic Business projects are substantially complete as of September 30,
2020. We continue to finalize project close-out activities and negotiate the
settlement of claims and various other matters associated with these projects.

Changes in Estimates

Information relating to our changes in estimates is discussed in Note 1 "Basis of Presentation" to our condensed consolidated financial statements.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019



The information below is an analysis of our consolidated results for the nine
months ended September 30, 2020, compared to the nine months ended September 30,
2019. See Results of Operations by Business Segment below for additional
information describing the performance of each of our reportable segments.

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Revenues                         Nine Months Ended September 30,
                                                            2020 vs. 2019
Dollars in millions          2020              2019            $            %
Revenues            $     4,301              $ 4,187    $     114          3 %



The increase in consolidated revenues was primarily driven by ramp-up in
projects within the U.S. in our ES business segment. This was partially offset
by lower volume in our GS business segment pertaining to our contingency
logistics business and a construction component of the Aspire Defence project in
the U.K. which nears completion, and lower volume in our TS business segment due
to timing and mix of project deliveries.

Gross Profit                      Nine Months Ended September 30,
                                                              2020 vs. 2019
Dollars in millions           2020               2019            $            %
Gross profit        $     500                   $ 483    $      17           4 %



The increase in gross profit is principally driven by the GS business segment
primarily due to favorable changes in estimates on projects and improvements in
margin on the Aspire Defence project in the U.K. These increases were offset by
an unfavorable project mix in our ES business segment. We also incurred higher
costs in our Non-Strategic business segment in 2019 related to project close-out
activities.

Equity in Earnings of Unconsolidated
Affiliates                                             Nine Months Ended September 30,
                                                                               2020 vs. 2019
Dollars in millions                           2020            2019             $             %
Equity in earnings of unconsolidated
affiliates                                $        30     $       24     $         6           25 %


Equity earnings increased primarily due to the non-recurrence of an accrued loss associated with an equity method investment in Latin America in 2019. These increases were partially offset by the completion of a North Sea project in 2019.



Selling, General and Administrative Expenses               Nine Months Ended September 30,
                                                                                    2020 vs. 2019
Dollars in millions                              2020             2019              $             %

Selling, general and administrative expenses $ (259 ) $ (242 )

   $        17            7 %



Selling, general and administrative expenses in the nine months ended
September 30, 2020 was $17 million higher than the same period in 2019
principally as a result of a favorable cost variance recorded in our U.S.
government contracting business in the nine months ended September 30, 2019
driven by lower than expected bid and proposal and information technology costs
and a larger allocation base than expected due to higher volume. Our current
estimate of selling, general and administrative expenses and the relative cost
bases for 2020 remains materially unchanged.

Acquisition and Integration Related Costs                 Nine Months Ended September 30,
                                                                                      2020 vs. 2019
Dollars in millions                            2020                2019               $             %

Acquisition and integration related costs $ (2 ) $ (2 )

     $         -            - %



Acquisition and integration related costs for the nine months ended September
30, 2020 are comprised of acquisition costs associated with our acquisition of
Centauri on October 1, 2020. We expect to incur integration costs related to the
acquisition of Centauri over the next twelve months. Acquisition and integration
costs for the nine months ended September 30, 2019 are comprised of integration
costs related to our acquisition of SGT. The integration of SGT was completed in
early 2019.


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Goodwill Impairment, Restructuring Charges
and Asset Impairments                                  Nine Months Ended September 30,
                                                                                2020 vs. 2019
Dollars in millions                            2020             2019            $            %
Goodwill impairment                        $      (99 )     $        -     $      (99 )        n/m
Restructuring charges and asset
impairments                                $     (176 )     $        -     $     (176 )        n/m



As a result of the economic and market volatility as well as management's
decision to discontinue pursuing certain projects within our ES business
segment, we recognized goodwill impairments totaling $99 million associated with
a reporting unit in our ES segment during the nine months ended September 30,
2020. In addition, management initiated a restructuring plan during the first
quarter of 2020 and as a result, we recognized restructuring charges and asset
impairments for the nine months ended September 30, 2020 totaling $176 million.
See Note 7 "Restructuring Charges and Asset Impairments" and Note 8 "Goodwill
and Goodwill Impairments" in the footnotes to our accompanying condensed
consolidated financial statements.

Interest Expense           Nine Months Ended September 30,
                                                  2020 vs. 2019
Dollars in millions    2020           2019          $         %

Interest expense $ (60 ) $ (76 ) $ (16 ) (21 )%





The decrease in interest expense was primarily due to lower outstanding
borrowings under our Senior Credit Facility during the nine months ended
September 30, 2020 as compared to the same period in 2019 and lower
weighted-average interest rates as a result of the refinancing of our Senior
Credit Facility in February 2020. See Note 11 "Debt and Other Credit Facilities"
to our condensed consolidated financial statements for further discussion.

Other Non-operating Income Nine Months Ended September 30,


                                                             2020 vs. 2019
Dollars in millions                2020            2019        $         %
Other non-operating income $   1                  $  10    $   (9 )    (90 

)%





Other non-operating income includes interest income, foreign exchange gains and
losses, and other non-operating income or expense items. The decrease in income
for the nine months ended September 30, 2020, was primarily due to less
favorable foreign exchange rate effects on certain U.S. Dollar cash positions
held internationally.

Provision for Income Taxes                             Nine Months Ended September 30,
                                                                                2020 vs. 2019
Dollars in millions                           2020             2019            $             %
(Loss) income before provision for income
taxes and noncontrolling interests        $      (47 )     $      208     $    (255 )       (123 )%
Provision for income taxes                $      (24 )     $      (58 )   $     (34 )        (59 )%



The provision for income taxes for the nine months ended September 30, 2020,
reflects a (51)% tax rate as compared to a 28% tax rate for the nine months
ended September 30, 2019. The difference between the effective tax rate of (51)%
for the nine months ended September 30, 2020 and the statutory rate was caused
by goodwill and asset impairment charges incurred during the period. Excluding
the impact of the certain goodwill and asset impairments, our tax rate was 27%
for the nine months ended September 30, 2020. The effective tax rate of 28% for
the nine months ended September 30, 2019 was primarily impacted by the rate
differential on our foreign earnings and equity in losses, of certain
unconsolidated affiliates for which any tax effects are not reflected in the
provision for income taxes because they are reflected on a net basis in equity
in earnings unconsolidated affiliates. See Note 12 to our condensed consolidated
financial statements for further discussion on income taxes.


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Net Income Attributable to Noncontrolling
Interests                                               Nine Months Ended September 30,
                                                                                  2020 vs. 2019
Dollars in millions                            2020             2019               $            %
Net income attributable to noncontrolling
interests                                  $      (20 )     $       (6 )     $        14          n/m


The increase in net income attributable to noncontrolling interests was associated with variable consideration resulting from the resolution of a contingency on a completed LNG project and liquidation of the associated joint venture.

Results of Operations by Business Segment



                                                                 Nine Months Ended September 30,
Dollars in millions                                                2020                   2019
Revenues
Government Solutions                                        $         2,860         $         2,986
Technology Solutions                                                    232                     281
Energy Solutions                                                      1,205                     919
Subtotal                                                              4,297                   4,186
Non-strategic Business                                                    4                       1
Total revenues                                              $         4,301         $         4,187

Gross profit (loss)
Government Solutions                                        $           370         $           312
Technology Solutions                                                     82                      83
Energy Solutions                                                         55                      81
Subtotal                                                                507                     476
Non-strategic Business                                                   (7 )                     7
Total gross profit                                          $           500         $           483

Equity in earnings of unconsolidated affiliates
Government Solutions                                        $            21         $            21
Energy Solutions                                                          9                      16
Subtotal                                                                 30                      37
Non-strategic Business                                                    -                     (13 )
Total equity in earnings of unconsolidated affiliates       $            30         $            24

Total selling, general and administrative expenses $ (259 ) $ (242 )



Acquisition and integration related costs                   $            (2 )       $            (2 )

Goodwill impairment                                         $           (99 )       $             -

Restructuring charges and asset impairments                 $          (176 )       $             -

Gain on disposition of assets                               $            18         $            11

Total operating income                                      $            12         $           274



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Government Solutions



GS revenues decreased by $126 million, or 4%, to $2.9 billion in the nine months
ended September 30, 2020, compared to $3.0 billion in the nine months ended
September 30, 2019. This decrease was primarily driven by the completion of
disaster recovery services provided to the U.S. Air Force in 2019, lower work
volume on the LogCAP IV project primarily in the Middle East and the reduction
in revenues on the construction component of the Aspire Defence project in the
U.K. which is nearing completion. These decreases were partially offset by
growth of human performance and behavioral health services provided to the U.S.
Special Operations Command and services provided to NASA, increased engineering
services on various other U.S. government programs such as LogCAP V Northern
Command, a new award from the U.K. MoD in late 2019 for the provision of
services in the Middle East, and overall growth of our Australian business
including the acquisition of SMA in March 2020.

GS gross profit increased by $58 million, or 19%, to $370 million in the nine
months ended September 30, 2020, compared to $312 million in the nine months
ended September 30, 2019. The increase was driven by improved profitability on
the Aspire project as uncertainties associated with index-based price
adjustments dissipate, and volume growth on the newly awarded LogCAP V Northern
Command project. These increases were offset by lower work volume on the LogCAP
IV project primarily in the Middle East, and completion of disaster recovery
services provided to the U.S. Air Force in 2019.

GS equity in earnings of unconsolidated affiliates remained consistent at $21 million in the nine months ended September 30, 2020 and 2019.

Technology Solutions



TS revenues decreased by $49 million, or 17%, to $232 million in the nine months
ended September 30, 2020, compared to $281 million in the nine months ended
September 30, 2019, primarily driven by higher mix of license revenue in 2020
compared to 2019.

TS gross profit decreased by $1 million, or 1%, to $82 million in the nine
months ended September 30, 2020, compared to $83 million in the nine months
ended September 30, 2019, primarily due to higher mix of license revenue offset
by one-time settlements in the first half of 2020 and lower overall overhead
spend.

Energy Solutions

ES revenues increased by $286 million, or 31%, to $1.2 billion in the nine
months ended September 30, 2020, compared to $919 million in the nine months
ended September 30, 2019. The increase was largely attributable to new awards
and the ramp-up of existing projects along the U.S. Gulf Coast and Mexico.

ES gross profit decreased by $26 million, or 32%, to $55 million in the nine
months ended September 30, 2020, compared to $81 million in the nine months
ended September 30, 2019. This decrease was due to an unfavorable project mix in
2020 primarily in the U.S., reductions in project services provided to a joint
venture in the Asia and the non-recurrence of a favorable close-out of an EPC
project in the U.S. in 2019. These decreases were partially offset by higher
volume and a favorable change in variable consideration resulting from
resolution of a contingency on a completed LNG project during the first quarter
of 2020.

ES equity in earnings of unconsolidated affiliates decreased by $7 million to $9
million in the nine months ended September 30, 2020, compared to earnings of $16
million in the nine months ended September 30, 2019. This decrease was primarily
due to the completion of a North Sea project in 2019 and lower earnings from an
industrial services joint venture in the U.S.

Non-strategic Business



Non-strategic Business earned revenues of $4 million in the nine months ended
September 30, 2020, compared to $1 million earned in the nine months ended
September 30, 2019, primarily associated with close-out activities on completed
projects as we exit the related businesses.

Non-strategic Business incurred a gross loss of $7 million in the nine months
ended September 30, 2020 due to a settlement resolution and legal costs related
to project close-out activities compared to $7 million gross profit for the nine
months ended September 30, 2019. All Non-strategic Business projects are
substantially complete as of September 30, 2020. We continue to finalize project
close-out activities and negotiate the settlement of claims and various other
matters associated with these projects.


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Non-strategic Business earned no equity in earnings of unconsolidated affiliates
for the nine months ended September 30, 2020 compared to a loss of $13 million
for the nine months ended September 30, 2019 due to recognition of an accrued
loss associated with an equity method investment in Latin America in 2019.

Changes in Estimates



Information relating to our changes in estimates is discussed in Note 1 "Basis
of Presentation" to our condensed consolidated financial statements. See Note 6
"Unapproved Change Orders, and Claims, Against Clients and Estimated Recoveries
of Claims Against Suppliers and Subcontractors" to our condensed consolidated
financial statements for more information on the Ichthys LNG project.

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 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 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.

Within our GS 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. 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 $2.5
billion at September 30, 2020, and $2.6 billion at December 31, 2019. 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 $53 million and $78 million at September
30, 2020 and December 31, 2019, respectively.


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The following table summarizes our backlog by business segment as of September 30, 2020 and December 31, 2019, respectively:

September 30,      December 31,

Dollars in millions          2020              2019
Government Solutions   $        10,868    $       10,960
Technology Solutions               582               579
Energy Solutions                 1,345             3,097
Subtotal                        12,795            14,636
Non-strategic Business               -                 -
Total backlog          $        12,795    $       14,636



Backlog for the ES business segment decreased approximately $1.8 billion during
the nine months ended September 30, 2020 and was primarily due to management's
decision to discontinue pursuing certain projects totaling approximating $1.2
billion. The remaining decrease was due to workoff, net of new awards during the
period. For further discussion, see Notes 1 and 7 to our condensed consolidated
financial statements.

We estimate that as of September 30, 2020, 31% of our backlog will be executed
within one year. Of this amount, 87% will be recognized in revenues on our
condensed consolidated statement of operations and 13% will be recorded by our
unconsolidated joint ventures. As of September 30, 2020, $68 million of our
backlog relates to active contracts that are in a loss position.

As of September 30, 2020, 10% of our backlog was attributable to fixed-price
contracts, 53% was attributable to PFIs and 37% was attributable to
cost-reimbursable contracts. For contracts that contain both fixed-price and
cost-reimbursable components, we classify the individual components as either
fixed-price or cost-reimbursable according to the composition of the contract;
however, for smaller contracts, we characterize the entire contract based on the
predominant component. As of September 30, 2020, $8.9 billion of our GS backlog
was currently funded by our customers.

As of September 30, 2020, we had approximately $3.0 billion of priced option periods for U.S. government contracts that are not included in the backlog amounts presented above.



The difference between backlog of $12.8 billion and the remaining performance
obligation as defined by ASC 606 of $9.9 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 9 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 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.
ES 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 11 "Debt and Other Credit Facilities" of our condensed
consolidated financial statements, we amended our Senior Credit Facility on
February 7, 2020, reducing the applicable margins and commitment fees associated
with the various borrowings under the facility. Additionally, the amendment
extended maturity dates with respect to the Revolver, PLOC and Term Loan A to
February 2025 and Term Loan B to February 2027. On July 2, 2020, we amended our
Senior Credit Facility to convert the $500 million capacity formerly available
under our PLOC to our Revolver, thereby increasing our Revolver capacity from
$500 million to $1 billion. On September 14, 2020, we further amended our Senior
Credit Facility to modify the definition and calculation of Consolidated EBITDA
(as defined therein) to provide for more flexibility in permitting pro forma
cost reductions resulting from certain corporate transactions. The aggregate
amount under our Senior Credit Facility remains $1.795 billion and all other
terms and conditions remain unchanged. 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 September 30, 2020, we were in compliance with all
financial covenants related to our debt agreements.
Cash and equivalents totaled $949 million at September 30, 2020, and $712
million at December 31, 2019, and consisted of the following:
                                               September 30,      December 31,
Dollars in millions                                 2020              2019
Domestic U.S. cash                            $           566    $         207
International cash                                        199              245
Joint venture and Aspire Defence project cash             184              260
Total                                         $           949    $         712



Our cash balances are held in numerous accounts throughout the world to fund our
global activities. 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.

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 U.S.
and 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 around the world,
including whether foreign earnings are permanently reinvested.

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
projects.


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As of September 30, 2020, 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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