WE DELIVER WE 2009 Annual Report WE DELIVER I 2009 KBR AnnuAl RepoRt www.kbr.com I 713-753-2000 I Houston, Texas 77002 Texas Houston, I 601 Jefferson Street 601 Jefferson t Board of Directors (back row, from left to right) Lester L. Lyles – Audit Committee; Health, Safety and Environment Committee John R. Huff – Compensation Committee; Nominating and Corporate Governance Committee Jeffrey E. Curtiss – Audit Committee (Chair); Health, Safety and Environment Committee Richard J. Slater – Health, Safety and Environment Committee (Chair); Nominating and Corporate Governance Committee (front row, from left to right) Loren K. Carroll – Audit Committee; Compensation Committee (Chair) William P. Utt – Chairman W. Frank Blount – Nominating and Corporate Governance Committee (Chair); Compensation Committee Business Group Officers Corporate Officers Hydrocarbons: tim Challand – President, Technology Mitch Dauzat – President, Gas Monetization Roy oelking – President, Oil & Gas John Quinn – President, Downstream Infrastructure, Government, and Power: Bill Bodie – President, North America Government & Defense Colin elliott – President, Infrastructure & Minerals Andrew pringle – President, International Government & Defence 2009 KBR Awards William P. Utt Klaudia J. Brace tom Vaughn – President, Power & Industrial Chairman of the Senior Vice President, KBR Honored with Construction Users Roundtable KBR Ranked #19 in the Houston Chronicle’s Services: Board, President, and Administration Chief Executive Officer Workforce Development Award Top 100 Companies luther Cochrane – Senior Vice President and Chairman, Building Group Brian Cole – Vice President, Canada Operations Darrell Hargrave – Senior Vice President, Industrial Services KBR Awarded Safety Excellence Awards KBR Ranked as Sixth Largest Healthcare Randy Walker – Senior Vice President, U.S. Construction Builder in the U.S. Jim parson – Vice President, International Construction KBR Named to Fortune’s Top 500 U.S. Corporations KBR subsidiary, BE&K, Ranked #1 by Business Alabama magazine Shareholder Information KBR Ranks Twelfth in the Houston Business Journal’s (Won for 2008, announced in 2009) Shares Listed Listing of “Largest Business Sector Employers” in new York Stock exchange Harris County KBR Achieves Top Key Supplier Designation from Symbol: KBR British Ministry of Defence Dennis L. Calton Susan K. Carter KBR’s Southern Company Generation Plant wins Transfer Agent and Registrar Executive Vice Senior Vice President ABC Excellence Award DeWALT Honors KBR with Logo on NASCAR #17 American Stock transfer & trust Company President, Operations and Chief Financial 6201 15th Avenue Officer Brooklyn, new York 11219 KBR Subsidiary M.W. Kellogg Awarded RoSPA Order Engineering Excellence Awards and Certificates of Recognition (800) 937-544 of Distinction in U.K. from the Engineers Australia Organisation [email protected] KBR Services Projects Recognized at National Safety Conference KBR Legal Team Awarded Best Corporate Counsel Award To Contact Investor Relations Shareholders may call the Company at 1-886-380-7721 or 713-753-5082 or KBR Ranked #6 on Washington technology’s Top KBR Named One of Alberta’s Top Employers contact us via email at [email protected] Contractors List Soldiers’ Angels Receives $10,000 Grant from KBR the Ceo and CFo certifications required by Section 302 of the Sarbanes-oxley KBR’s Building Group Makes National Spotlight for Act of 2002 have been filed as exhibits to KBR’s Form 10-K. our Annual Ceo Certification for fiscal year 2009 was submitted to the nYSe timely and without Andrew D. Farley Thomas Mumford its Sustainable Design KBR Recognized by the Restore America’s Estuaries Organization qualification. Senior Vice President Senior Vice President, and General Counsel Commercial results under the most difficult of A New Era for KBR conditions. We saw the seeds of economic recovery begin to take root in the second half of 2009, Doing Things Right Every Time when we began to reverse the relatively modest We are committed, as a board and as reductions we had made in our employee a management team, to a culture of population. We fully expect to continue to compliance and transparency that fosters grow during 2010 to the employee count William P. Utt the highest standards of business conduct. we had at year-end 2008, arguably one of Chairman, We have worked for five years to undo the President and the best times in recent history for our Chief Executive harm that was caused many years ago by company. We are having a great deal of Officer people who did not share our values and success in attracting remarkably talented are no longer associated with the company. people who want to be part of the “go to” In 2009, we reached settlements with the contractor for the world’s largest, most Department of Justice and the Securities complex and most critical projects. and Exchange Commission related to To My Fellow Shareholders: allegations of misconduct prior to June I am very optimistic about our future for of 2004. The financial impact of the settle- many reasons. With one of the strongest KBR showed remarkable resilience and ments was modest, as the bulk of penalties balance sheets in the industry and a strength in a year that tested the mettle will be paid by KBR’s former parent recently renewed three-year credit facility, of even the most successful and best- company pursuant to indemnities under we have the financial resources to capitalize established companies. We grew revenue our 2006 separation agreement. as markets recover. Secondly, we are by 5 percent, produced solid financial structured for growth. Our newly created results, won significant new project awards While we are glad to close this chapter business units are well positioned across and expansions that increased backlog and put these issues behind us, we deeply a variety of government, defense and across many of our businesses, and regret the impact to our shareholders and infrastructure market sectors to focus on continued positioning the company employees, and we pledge to prevent a offsetting the income effects of the for growth in attractive new arenas. recurrence. We continue to impress upon inevitable decline in contractor support of every employee, all across the world, that the wars in Iraq and Afghanistan. We also However, I believe the true measure of to work for KBR is to do things the right are working, in all of our businesses, to build success is in the value we create for our way – every time. Whether the issue is on our early wins of front-end engineering shareholders. During 2009, KBR’s stock business ethics, safety, environmental pro- contracts to capture a bigger role as projects price rose 25 percent, and we returned $63 tection, or compliance with laws, regula- move to the execution phase. million of cash to shareholders through tions and policies, our organization has no dividend payments and share repurchases. place for bad behavior and no tolerance for Finally, we are entering a new decade that deviations from our core values. is, in many respects, a new era for KBR. Earnings and Backlog Remain Strong We have worked through virtually all of our Despite a difficult market environment, “Breaking and Building” for Growth legacy issues and many of our lower margin income from continuing operations, net Three years ago, KBR became a stand- or loss making projects. We now have of tax was $364 million in 2009, up slightly alone company with a clean slate on which an attractive portfolio of businesses and from $356 million in the previous year. to plan our future. At that time, we had opportunities that were chosen by the Revenue grew to $12.1 billion in 2009 from two major business units primarily focused current leadership team to advance the $11.6 billion the previous year. We remain on LogCAP work and liquefied natural strategy we developed when KBR became focused on excellence in risk awareness gas. An analysis of our strengths revealed an independent company. We look forward and management as the road to stable, attractive legacy businesses that could be with great enthusiasm to a new era of creat- predictable earnings and growth. reenergized, plus promising new market ing value for our shareholders, customers opportunities where we could leverage our and employees. A five percent increase in backlog during core capabilities. the fourth quarter drove year-end backlog Very truly yours, to $14.1 billion, flat with the year-end 2008 We embarked on a “break and build” level. Healthy growth in many areas of strategy, creating additional business units our business offset the expected decline in that could focus very closely on their LogCAP work and contributed to the customers and develop new markets. substantial progress we made toward The reorganization of our diverse William P. Utt increasing the profitability of our backlog. Government & Infrastructure activities Chairman, President and While revenue backlog remained flat, job during 2009 into four distinct segments Chief Executive Officer income backlog grew 21 percent during 2009. completed our framework for the future. February 2010 We now have ten market-facing business I believe our solid performance is a tribute units supported by a corporate organization to a sound business model skillfully executed that is built for scale. We combine an by the world’s finest workforce. We greatly unparalleled capacity to deploy skills and appreciate the dedication and “can do” resources across all of our businesses with attitude of our employees,