Good day everyone, and welcome to the 2008 Second Quarter Earnings Conference Call Hosted by KBR. This call is being recorded. As a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question-and-answer session, immediately following prepared remarks. You will receive instructions at that time.And now for opening remarks and introductions, I'd like to turn the call over to Mr. Rob Kukla, Director of Investor Relations. Please go ahead, sir.

Thank you, Stephanie. Good morning and welcome to KBR second quarter 2008 earnings conference call. Today's call is also being webcast, and a replay will be available on KBR's website for seven days. The press release announcing the second quarter results is available on KBR's website. We have tentatively scheduled our 2008 third quarter earnings conference call for Friday, October 31,t 2008.Joining me today are Bill Utt, our Chairman, President and Chief Executive Officer; and Kevin DeNicola, Senior Vice President and Chief Financial Officer. In today's call, Bill will provide opening remarks and business outlook. Kevin will address KBR's operating performance, financial position, backlog and other financial matters. We will welcome questions after we complete our prepared remarks.Before turning the call over to Bill, I would like to remind our audience that today's comments may include forward-looking statements, reflecting KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in KBR's Form 10-K for the year-ended December 31, 2007, KBR's quarterly reports on Forms 10-Q and KBR's current reports on Form 8-K.Now, I'll turn the call over to Bill Utt. Bill? William P. "Bill" Utt: Thanks Rob, and good morning everyone. Let me begin this morning by welcoming Kevin to our KBR earnings call. As CFO at Lyondell Chemicals for six years, Kevin brings to KBR both a demonstrated financial and operating experience. Also while at Lyondell, Kevin served as both Vice President of Corporate Development and Investor Relations, which complements nicely with the talent of KBR's management team. I am extremely pleased that Kevin is on Board. With the addition of Kevin to KBR's management team, I am pleased with…

Okay, thanks Bill. I'll begin by reviewing KBR's consolidated second quarter of 2008 results, which primarily focuses on year-over-year comparisons.Our consolidated KBR revenue for the second quarter of 2008 totaled $2.7 billion as compared to $2.2 billion in the second quarter of 2007. Consolidated operating income was $90 million in the second quarter of 2008 compared to income of $65 million in the second quarter of 2007. As I discussed earlier, operating income in the second quarter of 2008 included a charge related to an unfavorable jury verdict of approximately $40 million for litigation, with one of our subcontractors for work performed on the LogCAP III contract getting back to 2003, and also a $24 million charge related to timing issues related to client approval of the settlement on one L&G project. Operating income in the second quarter of 2007 included $24 million charge, related to Skopje Embassy project in Macedonia.Upstream revenue was $699 million in the second quarter of 2008, up $214 million or 44% in the second quarter of 2007. Business unit income was $39 million of second quarter of 2008 compared to $47 million reported in the second quarter of 2007. Business unit income in the second quarter of 2008 included a $24 million reduction in estimated profits one LNG project which Bill addressed in detail earlier. Partially offsetting the year-over-year decline were increases the Skikda LNG project, the Pearl GTL project, increased work scope on the Gorgon L&G and North Ranking 2 offshore project in Australia.Our government infrastructure revenue in the second quarter of 2008 was $1.7 billion compared to $1.5 billion for the prior year second quarter. Business unit income with $63 million in the second quarter of 2008 which included the $40 million charge related to 2003 LogCAP III subcontract and $3 million charge…

[Operator Instructions]. We take the question from Barry Bannister with Stifel Nicolaus.

Hi guys. Question, I notice this that you had a working capital build in the quarter and in particular, there were a couple of items that rose more than others. Could you talk about the working capital build and the cause of that on a sequential basis?

Yes, I think... it's Kevin, we try to address some of that in the remarks. Again, there was a little shift in a LogCAP III billing that was came across the quarter, that's about half of the number, really 150 million of it there and some of it just timing on some other things there. But overall, it's not really a significant change.

I thought there was a bigger change in advanced billings and uncompleted contracts?

There was a change and yes that's what we said. That was taking down some of that cash as well, right for the specific project. I think those are the two things that really answer the question of what changed in working capital there.

Alright, and you didn't mentioned very much about Yanbu or Aramco-Dow in the projects discussion. What's sort of move forward are they having in relation to the kind of movement you are seeing at Gorgon? William P. "Bill" Utt: Well, we are still seeing a number of those project offer us work releases under the contracts we have signed and they have contributed to the continuing performance of the downstream business as well as the increase in backlog of the downstream business units. So while we don't talk about in the context of an announcement, we do roll those work releases into the backlog as we receive them.

But there's been have no FID on Yanbu and Dow-Aramco. You're still just doing the project management and you haven't received any sort of larger awards. Have you? William P. "Bill" Utt: No I think both projects are looking at 2009 FID and I certainly would refer those questions to the sponsors, because we are dealing with you know what we read in the first largely in terms of their FIDs.

Thanks Bill.

And your next question is from Jamie Cook with Credit Suisse.

Hi good morning. My first question, thanks for the additional info on BE&K; just a question. You said that our net income was $34.5 million, I just want to make sure that that's a clean number. So when I just think about modeling purposes going forward or just try to model for myself for 2009 and then can you give an operating profit number.

Well Jamie the 34.5 number I quoted was the net income from continuing operations which did eliminate one timers that plus and minus that they saw during their fiscal year. So it is a clean number in our world. Now we did also give the equivalent of our job, income of $180 million which is, which I think addresses what you are looking. Because if we try to make it consistent with KBR.

Okay, sorry that's helpful. And then just a one other quick follow-up question, if you back out litigation in the G&I segment, your margins would have been, I think about 6% which is higher, I guess than I thought they would be trending. Was anything unusual in there. How should we look at the margins in that segment going forward?

You are speaking specifically to G&I?

Yes, just in the quarter, if you back out the litigation, it looks like, the margins would have been about 6%.

Yes, when we look at the G&I backlog at the end of the quarter compared to end of the prior quarter, while the revenue backlog went down, we are seeing the mix of work change and we are seeing particularly on our international work in Australia, in the Middle East, in the UK; higher marginal work being added in the portfolio which is we saw a resulting increase in our backlog job income percentage quarter-over-quarter.

Alright and then a last question Kevin, do you care to give any initial observations since you have been at KBR, I think six weeks or so?

It's been a... it's a steep-learning curve. It's just kind of any new company like that and in a business that, well I had some experience with a different things that using these E&C as a client and having had the experience of being on the other side. So, I can tell you, it's been very interesting, it's been very active so.

Thanks, I will get back in queue.

[Operator Instructions] We will go next to Steven Fisher with UBS.

Hi, good morning. On the $24 million LNG charge, can you just talk about what type of costs caused the increase there? Was it materials, wages or productivity? William P. "Bill" Utt: We were looking at client... excuse me, subcontractor incentives to put some more people on, to drive the project harder than what we were seeing in the field, and that that also the performance we saw had given rise to longer time. We weren't saying necessarily the productivity for a number of reasons in the field that we had looked out, and so even in discussing the issues and the causes of that with our customer. They agreed that there would be reasonable for us be compensated for the increased costs and the increased time that, would be required to complete the project. So it was subcontractor, construction costs as well as a component related to time extension.

And I know you do, projects in various parts of the world, but is there any sense of that, could be a similar issue on your other L&G legacy projects right now?. William P. "Bill" Utt: No I think it's a isolated case, we do monitor these things very closely. We are much obviously it's a year on Skikda we have taken some steps on recent projects to develop a perhaps a slightly different risk allocation between KBR and the clients on the those matters given where we are on the market. But we don't see this having you any knock-on impact to our other lump some turnkey projects in our portfolio.

And when do you expect to finalize the change order? William P. "Bill" Utt: Fundamentally we ran out of time. We have a settlement that's been initialed between our sales and the customer and that just has taken us more time to present the change order to Board of the customer, which as I mentioned was comprised of several international companies and you getting them of the background not only for what our change but also for what we understand our other matters outside the EPC contract. So, we have thought we had hoped, we had planned on hopefully getting this done this quarter. We were unsuccessful but we do view this is being likely. I have also done our checks with our partners and we are of the same view that this will get taking care over the normal course of business.

Okay great and then lastly I know you have mentioned in terms of awards the Canadian project million backlogs. Do you have the Papua New Guinea L&G fees in your Q2 backlog? William P. "Bill" Utt: No we have not announced any awards there related to that project.

Okay thanks.

And our next question from Andy Kaplowitz with Lehman Brothers.

Good morning guys. William P. "Bill" Utt: Good morning Andy.

Bill you talked about last quarter that you saw pretty good about several projects of going into 2Q and then beyond. I'm just wondering sort of what's going on with those projects. I mean you thought obviously Nigeria buying Train 7, but besides that are there still several sort of medium toward sized projects that are after that you could before Ras Tanura comps and before Yanbu comps and where are they? William P. "Bill" Utt: Well we have seen, we talked about those two projects specifically for '09. I think we have also commented previously that Gorgon is also going to be an '09 FID. But we are still seeing good work flow through on those. There are also some other LNG projects that we... some we talked about and some we are following very closely that have move forward, some we are dealing with. Obviously the very volatile nature of the cost side of the industry that we are seeing and digesting that, others are working on siding issues.So those are all you are very good prospects for us and we're still you are feeling very positive about where we stand. It's perhaps a little bit of a low going on there right now as people recalibrate based on the commodity prices both on their... what they are selling in terms of crude oil and natural gas and the escalations that we're seeing. But we're still not changed in our outlook and optimism regarding the up, the ability to get a couple of these projects signed up in the next year. And we would like to get them signed up sooner obviously, but we think they are out there and we think our positioning is very strong.

That's fair and Bill, when you are talking about obviously this situation with Jerry came up, pretty unexpectedly; is there anything else out there that we need to we just sort to keep our eye on, and given quarter we can have another charge-related some unfavorable jury verdict to the government says i.e. you did this wrong. Is anything out there that we need to focus on? William P. "Bill" Utt: Andy, I would say first of all, I was trying to be very explicit for why we believe the jury award is just wrong. And I think we have given some good reasons why we don't think ultimately that that award will stand. Now if we can remove for the time being in my comment, the specter of a completely wrong jury award I will tell you that there are other items out there that we certainly have disclosed in our filings that we have taken provisions that we have looked at those internal counsel, outside counsel our auditors and we believe we are properly provisioned in those amounts. So, we don't see anything in the normal course of business with respect to normal evolutions of juries and matters like that that we should be concerned about. Clearly this one coming up as it did on July 23rd, it didn't gave us a lot of time to really develop our thinking on and theories of how we would talk to the judge about certifying the award, the field process and the possible recovery this to our customer. I think we are okay in terms of these other matters, particularly related G&I. But your timing and the out come of jury stuff we will have to deal with.

Okay great. Just one more quickie. You have a signed, it seems like you have a signed agreement of some sort with your customers on that $24 million change order. I know you are waiting for the board of that customer, but I am not exactly sure how the accounting works. Why do you need to take a charges, there is a very likelihood that you would get the money? William P. "Bill" Utt: well I.... Andy there is, there are various specific provisions, within U.S GAAP giving raise to the recognition of change order, and these very honestly are different standards and exist under IFRS, the International Financial Reporting Standards. We follow U.S GAAP, we are very systematic in our view and discipline and looking at the change orders and we came to the conclusion that technically, why it is likely and why we do ultimately expect to get that change order executed, that we could not take credit for that this quarter based on our strict interpretation of U.S GAAP and that's why we have made such a very specific and precise disclosure in both our release and our call, regarding that new liens.

Okay. Thank you.

[Operator Instructions]. We will take our next question from Dan Pickering of Tudor Pickering Holt.

Good morning Bill and Kevin. Back to BE&K for a second, could you talk a little bit about where you see the organic growth prospects for the next year or so. You outlined kind of the numbers for the year ended March of '08. But is this a growth business and any of the mix changing such that the margins would look much different over the next year than they have been over the past year? William P. "Bill" Utt: Dan, we think the business is a good business and that certainly over the near term we want BE&K to continue doing what it's doing in the manner that they have done it, they performed in their business. I think we commented in May, when we announced kind of what the expected financial impact of BE&K would be for us over the next two and half years and we haven't done enough work or seen results to make any kind of change in what we previously disclosed.We do see, as we look at that the business, a real good opportunity to even double the size of their engineering offices. And as you know with major operations in Huston, and London these are very competitive engineering markets and for us to be able to at the very confident, capable, experienced people in Birmingham, Alabama, Riley, North Carolina and Wilmington, Delaware just to pick up three. That we think the talent can allow for an expansion and possible doubling of these offices over time. And that the markets are not nearly as comparative what we see in Huston and London. And that's somewhat an aspirational statement, we still have to go out and get... and grow the offices but we feel that there is a great opportunity for us to significantly increase our engineering capabilities, particularly on the hydrocarbon side with the acquisition of BE&K in the platform it provides us for future growth.

Okay, I guess from a reporting perspective is BE&K going to show up in a number of different divisions and how are you going to help us kind of track the progress going forward, is it just going to be sort of rolled in with all the other segments. William P. "Bill" Utt: We are working on that right now, our initial desire is to look at our services business, where most of the BE&K will reside and attempt to present that consistent with some of our other large business units in a manner that does give you some granularity there

Okay that will be helpful. So I apologize for sort of beating the dead horses here, but if I was going to and make the assumptions that BE&K was from the mix perspective at least mutual as we step forward over to next year, I would then think about the cost saving that you outlined at the... I think it's a $13 million range on an annualized basis that sort of helps me drive down towards what I think the bottom-line impact should be, is that the right way as sort of do the math Bill? William P. "Bill" Utt: Dan, when we put in context, we made the disclosures in May, we had done so based on our expectations of the future businesses BE&K at the time, the expected level of cost savings that we were expecting to achieve and I think I commented that we have better than that. And then we have also were looking at the expected intangible amortization associated with the acquisition and were wrestling all those things through. But largely the cost savings are embedded or some degree the cost savings are embedded in what our comments were back in May.

Okay last question then would be back to do LNG charge. Has the company ever been in the situation where you have reached an agreement like to reach at this point I understand not agreed to by the Board yet of the other side. But have you ever been in the situation where it is been agreed to at be at this level and then not actually been approved? William P. "Bill" Utt: We are all looking around the room we are shaking our heads now. We can't recall any instance where we have had the changed order reversed as you've described.

Okay great looks like third quarter would catch that back up. Thank you.

We will go next to John Rogers of the D A Davidson.

Hi good morning. William P. "Bill" Utt: Good morning John.

Bill just follow some couple of question ago you talked about some of the optimism for the project going forward could you run through again just the end markets in particular I mean you talked about NLNG with the other areas your looking at as well. William P. "Bill" Utt: Well since I've already commented NLNG we'll move to offshore which is the other half of our upstream business and we are looking at our prospect list and our growth plans in terms of staffing for our offshore business its we think we can get a series of awards over the next year that will be we really increase our penetration, our performance in the offshore business. So we see a lot of opportunities there. we have a number of opportunities in the downstream side of our business that we are looking at and we are actually trying to take some of those projects that are on prospects list and really focus on a lesser number to drive the quality and the projects and their expected impact to KBR in a much more positive passion. So we are seeing both of those two areas look very promising.We are certainly seeing a continued deal flow, or project flow coming out of the BE&K organization. One of the things I had some ways with the transition from announcement to closing was with their sales guys continue to sell and certainly by our early measure there are projects in the pipeline that we think could result and then continuing to give us opportunities to grow our business. So, those are the three biggest drivers we have that I comment on; offshore, downstream and services.

Okay and the $2 billion in backlog of the ENK?

Yes, I think it was $2.01 billion.

Is the mix there between cost plus and fixed price contracts similar to your split?

Yes I think we have commented that it on May that it was about identical to ours so they are about 75-25 reimbursable to fixed price.

And with project that you are looking at going forward, any reason to think that mix is going to change either for the legacy KBR, --

We don't, yes I haven't seen an update to understand if it's going to change and we haven't given any instructions to change it. I would imagine that if it has a right with that type of mix that will continue to stay generally in those, in that balance.

why are you not seeing any changes in the market I would suggest that change.

No we are still looking at the other customers, and there markets that should give, give us a similar composition of project type.

Right. Thank you.

[Operator Instructions]. We will go next to Joseph Ritchie with Goldman Sachs.

Good morning everyone. William P. "Bill" Utt: Good morning.

A quick question on Boney Island Train setting. You have mentioned that the project is delayed beyond you expectations and that's based on events outside of EPC. Can you talk a little bit more of that to specifically and when is the timing now for that project to get awarded and is there a possibility that the project never gets award? William P. "Bill" Utt: We have obviously we are all aware of what's going on in Nigeria. It's still a very difficult place to do business and so there are elements we believe that are within the broader Train 7 project and perhaps even outside the Train 7 project for customers that have delayed this. We think fundamentally that the Train 7 project is a standalone project that will be executed on its merits. When this will happen we can't comment specifically given all the external factors that are involved. But from what we have seen and what we believe it's a very good project that will ultimately get built when it is... when our customers determine when it's appropriate to build it.

Okay, great, thanks for that color and then on BE&K when I take a look at the breakdown that you gave earlier, your backlog. Primarily most of that businesses is construction and given that your non-residence construction and in the U.S. is starting to show some signs of slowing down. I was just wondering what your thoughts were in terms of the growth trajectory of some of those segments? William P. "Bill" Utt: Well the buildings group's largest element is healthcare and we haven't seen and we are talking to the management this week about their markets and the conditions. They believe that the healthcare and the educational market will be... will remain very strong and so, we are very optimistic about the continued performance of the building group with those two markets. In terms of the other construction business, we have seen the volumes that certainly in the proposals that are being submitted that we haven't seen a slowdown, they do some projects in the chemical and petrochemical side that are traditional KBR markets. We are seeing good activity in the power segment that BE&K has developed a very good track record on it. We are hoping that we will be able to continue to be an active participant in the construction of power projects. So, we feel pretty good at this stage and we are certainly we are mindful of what's happening in the U.S. domestic market, but the positioning of the BE&K businesses and the resulting activity that we see to-date, looks pretty good.

Hey great. Thanks for taking my question.

Hey Stephanie looks, we have time for one more question please.

We'll take a follow up from the Barry Bannister from Stifel Nicolaus.

Guys, last quarter you said that Skopje was going to be audit to what you had already purchase, because you bided on a template and it looks like it had to be customized. It only moved forward 5% in the quarter, can you give us an update on the procurement risk and also the local labor risk of why is it a small movement? William P. "Bill" Utt: Of the $3 million charge we took about half of that was related to the visa issues encountered of getting our construction forces on sight, and that contributed to the lower expected progress that we achieved during the quarter. The other half was largely represented by your expediting and freight as well as additional project management costs with respect to the inventories it was a less an $0.5 million type of adjustment within $3 million.

Okay and then, on BE&K, the gross margin is about 9.5 which is about average for an engineer. But, it's 1.8 in a net margin which is very low. Would you talk about the G&A level in the company as well the tax rate that they were employing.

I am, yes I am not prepared to talk about their tax. I don't really have that. We can certainly get back to you with analysis that we know. But certainly the cost that we took at closing and that we expect to achieve sitting four weeks after we closed the transaction of $13 million a year, our evidence to the G&A as part of the broader KBR platform, we are going to achieve, and we don't need that level of G&A. We are hopeful that as time goes on would be able to identify further synergies or opportunities to reduce cost and increase efficiency but, certainly with respect to what we were targeting, in terms of getting the transaction approved, signed up and announced, we have exceeded our expectations at $13 million a year.

Okay and then just a housekeeping; if you do receive back the $0.09 a share from Tangguh when the Board meets, could you press release that? William P. "Bill" Utt: we have not disclosed the project where the $0.09 occurred and I am, I don't know that we will or not because the we'll have to look at the materiality of it.

Okay and then am I correct in saying that your earnings before the charges was really $0.47 I believe most investors start with 46 with the paragraph with press release left out I believe left out the Skopje Embassy, which was penny? William P. "Bill" Utt: That's correct. We certainly, when we look at the quarter, we thought we had a very good quarter at KBR. The underlying business are continuing to show improvement, they are continuing to perform. You can look at what we've said on revenues and job incomes, any of the progress we've made on reducing overheads, the labor absorptions or the efficiency of the business is very strong and at we peel back and think about the quarter, yes we are some what disappointed by these one-off items one of which was July 23rd which was unfortunate. But as we look at this, we feel very confident that we did have a strong performance and in terms how we talk about the quarter at KBR, we considered the $0.46, $0.47 quarter.

Thanks a lot. William P. "Bill" Utt: Thank you.

That's it Stephanie.

Thank you. That will conclude our teleconference. Thank you all for your participation and have a great day.