Good day, and welcome to the 2007 Third Quarter EarningsCall hosted by KBR. This call is being recorded. As a reminder, your lines willbe in a listen-only mode for the duration of the call. There will be aquestion-and-answer session immediately following prepared remarks. You willreceive instructions at that time. For the opening remarks and introduction Iwould like to turn the call over to Mr. Rob Kukla, Director of InvestorRelations. Please go ahead, sir.

Thank you, Sherry. Good morning, and welcome to the KBRthird quarter 2007 earnings conference call. Today's call is being webcast anda replay will be available on KBR's website for seven days. The press releaseannouncing the third quarter results is available on KBR's website. We havetentatively scheduled our 2007 fourth quarter earnings conference call forTuesday, February 26, 2008. Joining me today are Bill Utt, Chairman, President and ChiefExecutive Officer, and Cedric Burgher, our Senior Vice President and ChiefFinancial Officer. In today's call, Bill will provide opening remarks andbusiness outlook. Cedric will address KBR’s operating performance, financialposition, backlog and other financial items. We will open questions after wecomplete our prepared remarks. Before turning the call over to Bill, I would like to remindour audience that today’s comments may include forward-looking statementsreflecting KBR’s views about future events and their potential impact onperformance. These matters involve risks and uncertainties that could impact operationsand financial results, and cause our actual results to differ from ourforward-looking statements. These risks are discussed in KBR's Form 10-K for the yearended December 31, 2006, the final prospectus for the exchange offer datedMarch 27th, 2007, KBR’s quarterly reports on Forms 10-Q and 10-QAand KBR’s current reports on Form 8-K. Now I'll turn the call over to Bill Utt. Bill?

Thanks, Rob, and good morning, everyone. Shortly after Ibecame CEO in early 2006 KBR made changes at the corporate level with thecreation of the Business Development Oversight Group, the Project ManagementOversight and Controls Group, and the EPC Services Organization. Over the pastyear, we took a long look at the market opportunities available to KBR. Our customerrelationships and our efficiency of project execution at the divisional levels,and decided to restructure the business into six business units: Downstreamgovernment infrastructure, services, technology, upstream and ventures. Our new KBR organization, now based on six discretereporting units, creates better transparency of our operations and increasesthe focus by our management teams on their markets, customer relationships andon their projects. This improved transparency and focus will provide ourcustomers with an improved KBR experience in the form of better performance byKBR on our project and services offerings. This new structure will also provide increased transparencyin the KBR's businesses, both financially and operationally to externalstakeholders, investors and analysts. We intend to begin reporting based onthese new segments in the near future. So, with this new organization in place, I believe KBR willbe far better positioned for a very strong level of future growth and improvedfinancial performance, by delivering a more focused management approach to ouremployees, customers and market segments. In the third quarter of 2007, we completed the sale about ofour Algerian based joint venture Brown & Root Condor. As demonstrated byKBR' recent success in acquiring the Skikda LNG project, we determined it wasno longer critical to maintain a joint venture ownership position in thisAlgerian based engineering firm. The disposition of this non-core asset is a continuation ofKBR's strategy to focus on, and grow, our core service and technology base businesses.And we are pleased to have sold this venture to our other shareholder of BRC. In our call last…

Thanks, Bill. I will begin with reviewing KBR's consolidatedthird quarter results, which primarily focus on year-over-year comparisons. Consolidated KBR revenue for the third quarter of 2007totaled $2.2 billion, which is relatively flat compared to the third quarter of2006. Consolidated operating income was $102 million in the third quarter of2007 compared to an income of $66 million in the third quarter of 2006. Operating income in the third quarter of 2007 includedpositive contributions from certain gas monetization projects and from our rockrelated work. In addition, we recognized an $18 million pre-tax gain on thesale of our interest in the Brown & Root-Condor (BRC) joint venture in Algeria.Operating income during the third quarter of 2006 included a $32 millionimpairment charge related to our equity investments in the Alice Springs to Darwin railroad project in Australia. Energy and Chemicals revenue for the third quarter of 2007was $613 million compared to $602 million for the third quarter of 2006.Operating income in the third quarter of ’07 was $46 million, flat compared tothe prior year of third quarter. Contributing positively to our third quarterof 2007 results were the EBIC ammonia project in Egypt,the Pearl Gas to Liquids projects in Qatar,the Yanbu export refinery in Saudi Arabia, and our large LNG projects. In the supplemental information given in today’s pressrelease, the E&C gas monetization operating loss for the third quarter of2007 was $13 million. The job income for this segment was $22 million, whichwas offset by a $35 million divisional and general and administrative expenseallocation. Since the allocation is based on revenue, the overhead allocationwas heavily weighted towards gas monetization. Remember that Escravos gas-to-liquids project in Nigeriais a significant revenue contributor as it is a consolidated 50:50 jointventure, and it has a very little operating income impact. Now, let’s talk about the Government InfrastructureDivision. Third quarter…

Thanks, Cedric. There are a number of positives thatoccurred during the quarter that exemplifies the continued progress, KBR hasmade as a company this year. Our backlog continues to strengthen with solid qualityprojects being added. Overall backlog was up 25% over the last quarter, withAMC backlog up 56%. We have some strategic awards in the quarter, which allowsto build upon our capabilities in the upstream markets with onshore andoffshore developments skills and our sub-sea expertise. From an emerging markets perspective the coal, gasificationproject in Floridais a prime example of how KBR technology will enable us to capture expandedfuture services opportunities. While we continued to make tangible progress at KBR in anumbers of fronts, over the near term KBR will continue to work through severallegacy issues that remain a drag on our operating performance. At theconversion of the Escravos project at the end of the second quarter, we moved asignificant risk in our portfolio. We continue to execute this project at cost. Looking forward, KBR anticipates it may begin earning some nominalproject incentives, beginning in the third quarter of 2008. Also, KBR continuesto execute the Skopje Embassy Project in Macedonia within the provisionsestablished in the second quarter. Overtime these non-contributing projects, as well as our strategicinvestment in our coal gasification technology will be replaced by moreprofitable projects and this will have a positive impact on KBR's operatingmargins. Although there is much work to be done within theorganization, I'm pleased we have the restructuring of our operationaldivisions is progressing to allow us greater focus on our customers and theprojects we execute on their behalf. I believe this new organization as well asthe continuing improvements in KBR project execution overtime will position usfor growth and benefit our employees and shareholders. Now we’ll take your questions. We asked that you pleaselimit your comments to one question and one follow-up. Thank you.

Thank you. The question-and-answer session will be conductedelectronically today. (Operator Instructions) We will take our first questionfrom John Rogers. John Rogers - D.A.Davidson & Co.: Good morning,

Good morning John Rogers - D.A.Davidson & Co.: Bill you mentioned that Bonny Islandin the Australian LNG project's possibilities out in to 2008. I was wonderingif you could talk a little bit about other bidding opportunities, particularlythat you see coming up over the next couple of quarters over here.

Well, we're also looking at other projects beyond Bonny Islandand the Gorgon project. Currently a couple of projects where we are presentlyproviding services is Tangguh and [Damy] that we are also - we are examiningwhat are the opportunities for expansion. And certainly as the incumbent ofthese very successful projects we feel we're well positioned for future work. There are also some other projects that have been that are-- in my earlier discussions in the South-East Asia market, the Australiamarket that we're interested in, we're trying to position ourselves in the somestudies and some pre FEED work for those, but we're optimistic and that overtime this projects could move forward and then we believe our position will becompetitive across those projects as well. John Rogers - D.A.Davidson & Co.: In terms of Gorgon and Bonny Island,are they comparable to the Algerian in scope and total size.

Well they are not. The Algerian project while its $4.5million tones per year is clearly -- we also has a big fractionation plantthere and so you get a lot of liquids coming off that plant. And the Bonnyisland project is, if you look at Train 7 and the possibility that they wouldgo to a Train 8, these are very large Trains certainly much larger than whatwe're looking at on [Skeet] I think there are 7.5 million ton trains each. Obviously, the Gorgon project could be as many three trainsand the sub final sizing is being determined. So, these looked to be in a morestandard LNG plants with may be a little bit less liquids than you see we aregoing see at the Skikda plant. John Rogers - D.A.Davidson & Co.: Okay, thank you.

We will take our next question from Barry Bannister.

To clean up on what the prior analyst had asked. What youwere talking about much larger trains at Bonny 7 and on Gorgon in cumulativeamounts. So, even though there is less liquid, these are much larger in millionton per annum are they are not?

Well, that's correct, in aggregate they are.

Okay. What are you seeing in terms of the pricingenvironment for work? Is it increasing, the same or in terms of competition,particularly with competition out of Asia for some of the gas monetization iscoming down a bit right now?

Well, I am interpreting your question to go towardscompetition, as opposed to supply chain cost volatility. So I will try to focuson the first a little bit more. The project there, particularly Train 7, if youjust look at the size of those projects and the possibility of doing two trainsand even some of the earlier announcements, the capital cost of these projectsover the last two or three years have grown at a much faster rate than thebalance sheets within the industry. And so, as on train, as we have on Trains 1through Train 6 at Bonny, we are pursuing this with our consortia of threeother parties that allows us to share risks more efficiently and better managethe balance sheet commitments. And so by putting the consortia together we'vecreated an environment where we have a much more stable project execution. We also own the project in Australia. We are in a partnershipthere with JGC, and again it's driven by risk sharing. We also look at thebusiness, and I think there is some segmentation going on regardingtechnologies that are being offered by certain of our competitors and on someplans that exclusive technology play may preclude them from participating. Also, others are more focused on EPCM projects as opposed toEPC, and so you are seeing, maybe at a second level of segmentation of thecompetition, and clearly KBR continues to remain interested in doing EPC work,and with the controls that we put on in our business, with our businessdevelopment oversight process that we think we are going to do a much betterjob in terms of continuing to do a best-in-class risk awareness andidentification of risk and pricing of risk. So, yeah, I think that the market is becoming a little morecompetitive, but as against we look out at the market there is sure a lot ofprojects being talked about and it doesn't appear to be that we will besuffering from lack of work with respect to LNG overtime. Now, clearly we haveto get some of these awards going forward for us to be able to get thephenomenon of several projects moving forward, but certainly the fundamentalsof the market appear to drive a continuing increase in gas demand on a globalbasis. Very quickly on the supply chain side, we see continued price increasesthat do not appear to be as volatile as they had been over the last two orthree years. Certainly, as we look at these prices and the volatilitysurrounding these prices, it is impacting our commercial offerings to our clients,and certainly as we saw with the Skikda project where we thought it was ourclient determined that it was less costly for them to take that risk and forKBR to underwrite that risk. We are seeing that move through the industry in alittle more thoughtful fashion because of all of our collective experiences onvolatilities.

Okay. Then the run rate on gas monetization revenues,Cedric, do you have any idea when we could perhaps get back above 300 in termsof Skikda ramping up? And how much is Escravos was in the quarter as well?

Clearly the Skikda is continuingto build some of the things going on a gas monetization for the quarter, ofcourse, you look at that table with -- it’s a supplemental table we give you onour [M&A] and as well as the earnings release. There is some movement here bothin revenue and I think I will try to explain for you. Certainly, we allocate overheadbased on revenue, and as I mentioned, Escravos has a 50:50 project, gets twicethe revenue versus our share at basically no margin. So that's a big driver forrevenue, as well as, lower job income or lower margins, if you will. We alsohad train six in Nigerianearing completion which produced lower revenue and lower operating income thisquarter versus last quarter. That would be probably the biggest driver. Therewere a lot of other little movements, some completed work on very small studiesand jobs in the gas monetization area that we hope will lead to more work infuture, but at this point was less of a benefit this quarter versus lastquarter.

I think as we look forward, we still see increasing staffthat we are putting under the Pearl project that will have a positive impact onrevenue, Skikda's going to ramp up. Tangguhwe are pretty much into the field right now on that. So the revenues wehave will continue through. So right as we finish the construction of thatproject, Yemenis in its transition into the field. We saw some engineering that we werewrapping up with the late stages of the engineering but that’s another thing tothe field. EBIC ammonia is pretty much in the field right now. So, thebig drivers I think on a revenue basis is clearly going to be Skikda becausewe’ll be running through a lot of the cost through our P&L but also, wehave an added benefit on Pearl.

Thank you.

(Operator Instructions). We’ll take our next question from Andy Kaplowitz.

Good morning guys. Could you talk a little bit more aboutrefinery and petrochemical work that you could get ahead? I know there are somebig projects out there possible. So maybe any more color you could give us onthat area will be helpful.

I would say, Andy that we continue to, we have a lot ofpeople who invested in the field who work for the Yanbu refinery project. And Iam confident that that will continue in the next year and as that project getssanctioned, we think in the late first half of next year, we could see thatproject ramp up for us in terms of additional revenues. The Ras Tanura project is ramping up for us. We are still inthe early innings of the FEED phase there, but that project is going to haveeventually a lot of work coming out of it and we're optimistic that we cancontinue as the project management contractor and also get some awards relatedo the integration of the services, much like what we're doing on the very largePearl project. We do see a lot of activity in the Middle East that we'repositioning ourselves for that will come to tender in the '08 timeframe and welike what we're seeing there in terms of opportunity sets and the volume ofopportunities. We're even looking at some projects that we’ve been involvedwith for several years in Africa that appeared to be moving forward to from aFEED phase and into an EPC phase and we're optimistic that what we see just inthe Middle East and Africa is very strong.We've continued to deliver some other work within the U.S. and see that marketexpanding a little bit more as they deal with some expansions as well as thelittle bit of technological obsolesce of the plants. Even with the recent disclosures by the Alberta governmentin Canada related to the tax regime there, we think a lot of in our discussionswith our customers, they have already factored a lot of that into their plansand we still see at today's prices with this new oil regime, a continuingopportunity for us to build that type of business in Canada and we just saywe've seen a very strong business overall and we think we be able to continueto make announcements and receive material awards, that will have a verypositive effect on our income statements in 2008 and beyond.

Great. That's helpful. Cedric, the minority interest expenseline bounces around a bit. It was a little bit more negative than I thought inthe quarter, and I am just trying to figure out what it is, is it Escravos oris it something else?

Yeah, which expense line, the G&A or --

The minority interest.

The minority interest, yeah, I am sorry. I think a piece ofthat was the FX loss that was on the 50:50 Escravos project; it was comingback. So, that's a piece. That was about $3 million.

If you take ten out, that negative $10 million, is that agood run rate to use going forward, or is there, you know, I thought that is alittle less than that in each quarter?

Well, one of the big pieces there, would be as we lookforward is in MWKL, our 55% venture with JDC, which has been experiencing anincrease in work activity quarter-over-quarter for some time now. And we wouldhope that would continue. So you could see that minority interest, that allthings being equal, that would drive an increase in future minority interest.

Okay. I understand. Thank you.

We will move now to Al Kabili.

Hi. Good morning, guys.

Good morning.

I just wanted to clarify on the gas monetization businessand the operating income. So, we have got some profitable projects in Yemen,and you have got zero margin Escravos. So, I mean, are you saying then thatwith the profitable projects and the zero-margin Escravos that once you applyoverhead to all, that brings you down to negative?

Yes, and we give you in the Q a footnote that gives youexactly what the job income was. It’s $22 million for the quarter, so you cansee the overhead amount and it does that. But the phenomenon on Escravos isbecause it is a high revenue project, as it’s consolidated, it attracts a lotof corporate overheads. So, if you were to pull Escravos out of that segmentline, you’d see a much better result because Escravos comes in negative. It’s40% to 45% of our Q3 revenue.

Couple of other pieces just, if you look a little moregranularly quarter-to-quarter, second quarter to this quarter, last quarteryou’ll recall we had a $3 million benefit through the conversion of theEscravos that we didn’t experience this quarter. And that was a one-timeconversion experience, $3 million. We also had a few other pieces, I mentioned, the Nigeria Train 6 is nearingcompletion, and so it was a much bigger contributor last quarter versus thisquarter. We had slightly lower work on Pro this quarter. We don’t think that,as Bill mentioned, we are putting more people on that job, so that should turn. And then there were some other pieces. There was one otherproject close out, which was a negative $2 million comparison to last quarter.So, it was a number of puts and takes, but you can see exactly what theoverhead line is if you look at the foot note in the Q, this quarter as well aslast quarter.

And I guess, can Skikda ramp up fast enough near term toreverse this loss in gas monetization or is this something that it’s a slowramp up, so we could see a drag here for a couple of quarters.

Well, I think we’ve got to try to step back and separate outthe method by which we allocate the overhead, which is revenue based. As Cedricpointed out, it was plus 22 before the overhead allocation in that we've tominus 13, so we had a $35 million allocation of overhead there. But itssomething that as Skikda ramp up that too will attract overhead charges. So itwill be very important for us to keep an eye on the footnotes. So you can seethe -- what we hope would be a ramp up in the margins before the overhead. So that the revenues aren’t attracting a continuingincreasing proportion of the overall SG&A in the Company.

Okay. And then we can just switch over to LOGCAP III alittle bit. It, given the changes in award incentives, when that potentiallyreset to a more normalized level or how long this can drag on at these lowermargins?

Well as long as LogCAP III is essentially a call option forup to 10 years in total length by the government on our services. So LogCAP IIIin and itself, we're locked in as long as we continue to perform under LogCAPIII to the margins that we see. As we get into the LogCAP IV whenever that transition willoccur, we all have the opportunities to bid pieces of work. And there arelimits on what we can bid but they are certainly fair in excess above whatwe're realizing now. And the army will rely on the competitive markets,determine the economic value or profits from that work through competitivebiding. So any kind of material change that we see in margins, it will onlycome with LogCAP IV. Now, the other thing we look at here is you have 100% of theLogCAP work at our present margins, and how will that compare to what will beless than the 100%, which we expect to get under LogCAP IV, but at a highermargin. So, there is two degrees of freedom, one is volume, the other one isunit margin.

I will just add to that, we mentioned the $3 million impactof the award fee accrual being reduced from 84% to 80%. Also if you look inthat footnote to that table, because the revenue actually increased modestly,but it did increase sequentially, it attracted a higher overhead allocation aswell, based on the revenue allocation we use.

Right. And is there any chance for that award fee to comeback up? When is your next change here? What score fell? When is your nextchange to get that boosted up and get these award fees?

Well, it's on every task order. They are typically every sixmonths award fee board.

Okay. And then a final follow-up is, any talks of extensionsbeyond on LogCAP III, beyond what you have already indicated, given thisprotracted dispute on the LogCAP IV award?

We’ll continue to provide those services so long there is aneed for those services and there is not a LogCAP IV award. It's anybody guessat this point.

Okay. Thank you.

Our next question comes from MichaelDudas MichaelDudas - Bear, Stearns & Company: Good morning, gentlemen.

Good morning.

Yes, I am happy to discuss that. When we talk about sweatequity you really have to go back and look at the rules under which the cleancoal programs exist, and because this project is integrated gas supply combinedproject it’s benefited by contribution from the Department of Energy to helpdemonstrate this technology. Certainly, all providers of services cannotrecognize any profits on that project. And because this is a government auditedcontract we have elected, for the sake of our sanity, in many respects, to havethis contract executed under our government and infrastructure division, whichis complying with government contracting. And so, the very, very low overhead that we cover under thework with the government is the only recovery above our salaries that we haveon this project and that applies to the FEED work and the early stage EPC workthat we’re performing on that project, and as we continue to perform services,any services for that we provide for procurement or construction management,their further engineering will also attract a very low overhead rate. So,really our sweat equity is the opportunity cost we have of doing a $300 millionto $400 million EPC project at cost compared to what we could get on the openmarket in a -- with respect to doing other work for other customers. So that’s our investment; it is forgone opportunity, and aswe described in our prepared comments, this does have an adverse impact on ourunit margins. But, it is something that when we have looked at the technology,and we have looked at the opportunity and discussed it with our board we werevery excited about the prospect of being able to be a first demonstrator of asuccessful gasification technology, and some of the drivers, that really makethis exciting for us, so that it is air blown, it does not require an oxygenplant like many of the other competing technologies. And on a pilot plants demonstration has proven tosuccessfully convert low-grade coal such as lignite or sub-bituminous coal intogas giving at a much wider fuel spectrum to gasify coals, and also some othercompeting technology. So, we are making a near-term investment in terms offoregone opportunity on our people, but we believe that long-term will be verybeneficial to us, as we can then take that project not only to other powerapplications, but also into our legacy hydrocarbon and syn gas operations. MichaelDudas - Bear, Stearns & Company: I appreciate the detail. Just an idea on, internally is itthree, four years before you think you can take this success and market it, or-- I have hit some milestones sooner that will allow you to take advantage ofthe market, which many of these pretty competitive versus the PC and IGCC Worldetcetera given with regulators who want to pay it and allowed to pass through?

I think we are looking at 2010 commercial operation. As, wemove forward, and we look at this, I think, in terms of doing other dropping agasifier in the front of the 250,000 megawatts of combined cycle plants thatwere built in the US in the last seven years, that's probably going to be outthere, you know, ten, but as we look at the technology, we continue to have avery active program at our pilot plant down in Wilsonville, Alabama. I wouldlike to see us move forward and do some ventures with our more traditionalcustomers, certainly on a much smaller scale, but use those opportunities totry to demonstrate this back in our, perhaps downstream businesses where we canreplace some natural gas with gas derived from coal as a feedstock. MichaelDudas - Bear, Stearns & Company: Appreciate that, but one follow-up. As we get to year end'07, can you help us with where do you think you'll be relative to professionaland field staff at KBR? How successful you think you’ve been in '07 attractingand retaining talent? What kind of turnover you'll see? And you feel that youhave the resources to meet if you get some fortunate wins in the next 12 monthsto work off those businesses?

We have been, you know, at the first level. We have beensuccessful in growing our headcount to be able to execute the work and I amspeaking more of the engineering talent. But below that we've probably had morepeople leave in terms of the churn in the industry, particularly some of thebackend departments that are more commodity driven, in terms of their offeringand while we've lost some, we've gained them back equally. I believe we had done a good job in preserving the projectmanagement process engineering capabilities in the company and are looking tocontinue to grow and enhance those. And certainly we have work coming off. Youknow we've moved out of engineering on EBIC and in the near term we will out ofengineering on Tanghhu and Yemen and so we are creating additional engineeringcapacity to undertake this work which we really want to put those people towork on projects that you know will be accretive to our P&L. In terms of field services and construction, we arecertainly able to attract folks particularly in the Gulf Coastregion as we begin re-ramping up our construction activities. There are lots ofpeople out there who have had a great affinity towards the legacy organizationand then we brought back a lot of our veterans to an alumni to feed this work. We also have the added prospect of being able to look at ourpersonnel over in Iraqand LogCAP project and eventually as that business shrinks and certainly evenat a steady state we have new people going in and existing people coming outwho've done their rotation in theatre. That we have a very large labor staffthat we have access to with which to put the work on construction projects andmany of these people have been with KBR for a couple of years. Some of them arewith us for a long time, but they are clearly as they come out theatre areinterested in remaining part of our organization and we think that's a hiddenresource that we hope to exploit on our construction and operating servicesbusiness to be able to meet our human resource requirements. MichaelDudas - Bear, Stearns & Company: Very well, thank you very much.

We move now to Jamie Cook.

Hi. Good morning. Just a build on the last question I justfelt that you gave a good overview what you are seeing internally in yourcompany in terms of capacity strength, where you could add more people. Iguess, can you just talk about on broader basis what you seeing in the market?Are you seeing your competition having to turn down or walk away from projectcities and think that you are better positioned competitively in terms ofresources?

I don't think, Jamie, we have to look at where we are in thelife cycle of projects and I cannot tell you with any degree of precision whereour competitors are with respect to their life-cycle projects. But as mycomment, as I made my comments earlier, we do have projects coming off thatcreate new opportunities for us to redeploy the people. I would also tell youthat why we’ve had a probably an okay sale through this year, I wouldn’tdescribe it in any terms closed to being an exceptional sales year. So, and I see our sales teams having made some transitionswith the organization both in terms of our business development oversightprocesses, as well as, our new line management organization. So, I am veryoptimistic that with this additional capacity and with some of the issues thatwe’re putting behind us organizationally at KBR that we will be able to dobetter in terms of our sales for next year than we have done this year, andthat is certainly my expectation.

All right. I then just have a follow-up, can you just talkabout on the cash flow side, we’ve been waiting for decision and what you’regoing to do with your free cash flow. Anything you want to update us on thatfront, and then, can you just talk more broadly on -- we keep hearing about youguys getting more deeper into the offshore infrastructure business, how do youwant to -- how do you do that? Is it acquisition, is it organically, if youcould just elaborate on that?

, : On the offshore side, Jamie, we clearly have a historicaland legacy expertise in that market. Our Leatherhead operation is one of thestrongest in the industry. It’s our hope, we can do a lot of that organically,but it will take some time for us to get back into this. We're going to be verysystematic and diligent. That goes towards any efforts we're going to look atregarding the fabrication side, as well as, any acquisitions we may make. It's,you know, for us we see a great opportunity set out there and what we want todo is create for our company the broadest possible resource base where we cantake the project to have the highest value to KBR and apply our human andfinancial resources against those projects we choose. So, we clearly see a lotof money being spent offshore, we think that it's an attractive place to be,but we are going to look at that as a compliment to how do we build value atKBR, and we are optimistic that there will be more opportunities set, wouldopen up for us because of that expansion, and we are not going to do so in anyway that is not going to create shareholder value. On the offshore side, Jamie, we clearly have a historicaland legacy expertise in that market. Our Leatherhead operation is one of thestrongest in the industry. It’s our hope, we can do a lot of that organically,but it will take some time for us to get back into this. We're going to be verysystematic and diligent. That goes towards any efforts we're going to look atregarding the fabrication side, as well as, any acquisitions we may make. It's,you know, for us we see a great opportunity set out there and what we want todo is create for our company the broadest possible resource base where we cantake the project to have the highest value to KBR and apply our human andfinancial resources against those projects we choose. So, we clearly see a lotof money being spent offshore, we think that it's an attractive place to be,but we are going to look at that as a compliment to how do we build value atKBR, and we are optimistic that there will be more opportunities set, wouldopen up for us because of that expansion, and we are not going to do so in anyway that is not going to create shareholder value.

All right and then just last Cedric, I must say I missed itin your prepared comments, did you re-affirm your’08 guidance?

No, we did not. We had said last quarter that we would givean update at the end of the year when we conclude our planning process for '08,and we are still in the middle of that.

All right, great. Thanks. I'll get back, thank you.

Okay.

Our next question comes from Brad Handler.

Thanks, good morning.

Good morning.

Could we please just spend a little time on the otherE&C, I guess the margins, second quarter running in a mid 13% range. Iguess it sounds like that's benefiting a little bit from G&A allocation Isuppose. But, can you help us think a little bit about whether that's -- we seea couple of quarters in row, we start thinking about the trend, that’s how wethink. How sustainable is it, maybe how sensitive is it to technology? Licensefees, I know you're going to change around how you report this soon, but justfor the time being if you could speak to that?

Yes, couple of things. One, we certainly have to takeaccount for the BRC gain of $18 million. That shows up in that, this quarter.That's obviously not expected to reoccur. There is a movement, I think wehighlighted some of the big projects there, certainly Ras Tanura, Yambu, EBICall show up in there and those are good performing projects that we expect tocontinue to improve. We also report our MMM venture there. That is not aconsolidated, so it has a much higher margin because of the equity methodaccounting but it's also a very high performing asset, the two vessels that weused with [PMAX] and those are continuing to perform well and we think thetrend will continue there. So, and then we highlighted I think some other opportunitieswe're looking at in a robust market, both in the Middle East and Africa fordownstream and refining opportunities.

Very helpful Cedric, thanks. And just as a follow-up I threwa line at you there. In terms of the licensing aspect itself, is that ameaningful portion of what we're looking at and how regular if you will isthat?

Well, we look at our licenses, we should be able to dodozens a year. In terms of licensing, last year we had a very successful yearlicensing our ROSE technology. If we look at our project lifecycles, we hadmaterial ammonia business. ROSE is getting up the curve; SUPERFLEX is nowstarting up. From my side and part of why we want to go to technologies is,it's an important part of our business. It is a business that we think we'll beable to grow and you'll be able to judge for yourself when we disclose thoseresults. How meaningful or how material it will be. But certainly from ourinterest we are looking to grow that technology portfolio and by putting outthere its -- we really putting pressure on ourselves to grow that business. Andit’s a high margin business as Cedric said and certainly was very positive thisyear because there was a 30% improved performance relative to the secondquarter.

Fair enough. Okay guys thanks.

And Sherry, this will be our last question. So we will takeone more, thank you.

We will go now to Dan Pickering Dan Pickering - TudorPickering & Company: In under the bell.

Congratulations. Dan Pickering - TudorPickering & Company: Yeah thanks. Bill, you may have mentioned several -- obviously we've got severalprojects that are coming through relatively low margins. Could you and Cedrickind of help quantify in both energy and chemicals, and G&I? Kind of howmuch is the revenue that we saw books was carrying, lower or no margins just tohelp us understand the margins of the remainder of the business?

Yeah I think, we covered some of the causes, I don’t knowCedric do you have..?

Just kind of scanning that in the page, we don’t have thesum definitely, but let me do it and obviously I wanted to it on the call, asopposed to not having an option doing it any other time. It’s going to be, I amin a guess, couple of $100 million, a quarter of round numbers for the year. Itwill be under that but, call it 150 or so. Dan Pickering - TudorPickering & Company: And that’s in both segments combined or just energy andchemicals?

That’s all of energy and chemicals. I did, of course, LOGCAPwe talked about being a low margin. That is just completely…..

…copious as in G&I.

As copious in G&I. Dan Pickering - TudorPickering & Company: As well as the, I guess, as well as the Orlando project?

The Orlandoproject? Yeah. That would be reported in G&I.

Yeah. Orlandois pretty low number at this point. Dan Pickering - TudorPickering & Company: Okay.

But that will ramp up -- that’s $300 million to $400 millionand as that ramps up to pull engineering will become a material component ofrevenues that we will not attract. I think that’s going to have a normalS-curve there? Really the early stages of detailed engineering and so when wethink about FEED as complete, we are at that early stage, and there should beramping up significantly, certainly in “08. [Scopia], while it has a largefinancial impact, even with the adjusted cost budget, it’s still a plus $100million. So and we’re in the field there -- So, that’s going to have acontinuing impact for us for the next four, five quarters. Escravos, the movingpart there is cost to continue to escalate, the good news is the cost, youknow, that escalation no longer has an impact on us. Dan Pickering - TudorPickering & Company: Right.

,:

I now have a little more time to do my math. Thank you,Bill, about a $150 million including this [Scopi] excluding LOGCAP, but if youlook at kind of a low-margin projects, we've talked about virtually all ofthem, but it's about a $150 million in the third quarter of ’07. Dan Pickering - TudorPickering & Company: Okay. It sounds like that number is going to be stable inG&I and ramping up a little bit in energy and chemicals.

Should be ramping up in G&I, is that clean coal project. Dan Pickering - TudorPickering & Company: All right.

Is going to go with it. Dan Pickering - TudorPickering & Company: Yes, okay. Thank you. And then, though I think I have askedyou this in the past, but I couldn’t find them in my notes the answer, so I amgoing to come back to it. Can you give us just a ball mark in the energy andchemicals, sort of, where your dollar amount of active sort of bids outstandingwill be today and where was it six months ago?

I would say that our bids six months ago, which would put usback into April are probably about where they were now. When we were in Aprilin my recollection, we are still in pursuit of all the coal, which did not. Butas I intuitively and subjectively look at the pipeline today, we do have a lotof bids outstanding. And we expect -- I don’t like our position on some ofthose because they are few of them are our sole source negotiations, but we gotto get them in the boat and some of the projects are with customers that werewe kind of got our arms around, but we don't quite have in the boat yet. But Ithink we'll be successful there so from our bids outstanding standpoint I thinkit's about the same. But we got to remember that you look at buying $10 billionor coal bid out there in April that is no longer a little longer -- that we areno longer accounting in the current bids outstanding Dan Pickering - TudorPickering & Company: Okay, So if you lost one project and still then with anumber of others.

Yeah. Dan Pickering - TudorPickering & Company: Okay, and last question, rather. I am sorry I got to ask onemore, which is back to the gas Monetization business. I understand you've beenmoney at the gross profit level and then the allocations are getting it, againlots of moving pieces, which you described very well but if we boil that down overthe next couple of quarters, are we going to get back to the point where we'reactually booking operating profit there or is it going to take a little whilelonger than the next quarter or two?

Is that in the G&A? Dan Pickering - TudorPickering & Company: Correct, I mean as a kind of reported operating incomenumber.

Well, I mean that’s is going to vary a lot of things Dan. Ithink that obviously how we continue on LogCAP's is going to have a big impactbecause that draws a lot of overhead in some of the other projects that wehave. Will we see a similar increase in revenues? I would anticipate, Dan, thatat some point, I really believe that will see some good results this quarterand into '08 and our construction activities that will generate a lot ofrevenue growth for the company and that will pull away from the gasmonetization. Some of that overhead. Dan Pickering - TudorPickering & Company: Fine.

But we are also hopeful that as we conclude some of theprojects and close them out, we'll be able to close them out favorably. And so,within gas monetization we hope we can build the profitability and as we buildthe rest of business, it will attract away from the gas monetization side, someof the overhead allocation.

Just to add a little bit. In terms of big projects to watchobviously Escravos is a low margin is the big revenue low margin. But you have Pearl as we mentionedpotentially increasing. While we are coming off a Train 6 in Nigeria, we are hoping and lookingforward to Train 7 as well as the Gorgon. And so those will be the big projectsto watch for us, in the gas monetization area specifically that could lead toincreased profitability. Dan Pickering - TudorPickering & Company: Great thank you, guys.

And thank you

All right.

Thanks for the call and we look forward to next call.

Thank you. This does concludes today's presentation you maydisconnect at this time.