Good day and welcome to the KBR 2008 Third Quarter Earnings 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 and you will receive instructions at that time. For opening remarks and introductions, I would like to turn the call over to Mr. Rob Kukla, Director of Investor Relations. Please go ahead.

Thanks Teresa. Good morning and welcome to KBR third 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 third quarter results is also available on KBR's website. Joining me today are Bill Utt, 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 items. 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 - President and Chief Executive Officer: Thanks Rob and good morning everyone. I am very pleased with KBR's third quarter results. Consolidated KBR revenue for the third quarter of 2008 totaled $3 billion, up almost 39% from the $2.2 billion for the third quarter of 2007. Year-over-year improved quarterly revenue was obviously led by a 600% increase for services which accounts for the addition of BE&K into the KBR financials. Next was a 35% increase for Upstream, a 34% increase for Downstream and a 12% increase in G&I. Income from continuing operations for the third quarter of 2008 was $74…

Okay, thanks Bill. I'll begin by reviewing KBR's consolidated third quarter 2008 results which primarily focus on year-over-year comparisons. Our consolidated KBR revenue for the third quarter of 2008 totaled $3 billion compared to $2.2 billion in the third quarter of 2007. Consolidated operating income was $144 million in third quarter of 2008 compared to an income of $102 million in the third quarter of 2007. Operating income in the third quarter of 2008 included a $13 million partial reversal of the $40 million second quarter charge related to the Asko [ph] litigation. Operating income in the third quarter of 2007 included $18 million pretax gain on the sale of KBR's interest in the Brown & Root-Condor joint venture in Algeria and a $6 million gain related to a favorable settlement on a road project. And before discussing each business unit, I'd would like to explain the new reported business unit called Other, which you saw in this morning's press release and Form 10-Q and this new Other business unit represents BE&K's engineering and technical labor brokerage business, which is called Alstace [ph] which provides staffing for external projects. And we have not yet decided how it will be properly allocated to KBR's core business units. Upstream revenue was $550 million in the third quarter of 2008 up $143 million or 35% from the third quarter of 2007. Business unit income was $53 million at third quarter compared to $57 million reported in the third quarter of '07. Business unit income in the third quarter of '07 included and $18 million pretax gain on the sale of BRC. Partially offsetting the year-over-year decline were increases in the Skikda LNG project increased work scope on Gorgon LNG project. North rank and two off shore project in Australia, the Kashagan project in…

Thank you. [Operator Instructions]. And we will go first to Andy Kaplowitz.

Hi guys good morning. William P. "Bill" Utt - President and Chief Executive Officer: Good morning.

Last quarter you had mentioned a timing issue around an LNG $0.09 charge, and that Board was trying to review or the customers were which trying to view whether to accept charge to give the money back to you guys. Can you tell us where that stands now? William P. "Bill" Utt - President and Chief Executive Officer: Yes, we have continue to work with our customers on the change order. We continue remain very optimistic about our ultimate policy resolution of the change order. However, we have not been able to or the customers not been able to get their partnership board schedule or scheduled in that hawk board [ph] to consider this change order and we are advised that the next meeting for this partnership Board will be in December. So we are optimistic that from that meeting we will be able to conclude that change order.

Great, thanks. And for my follow up, BE&K, so you give the numbers in the queue and the only question I have for you there is that the margins look a little lower than I would have thought around 3%, in clean division overhead. And so just curious, is that sort of amortization of intangibles? Is that, can that margin improve overtime? Am I missing something? William P. "Bill" Utt - President and Chief Executive Officer: Within the BE&K business, we are obviously writing off intangibles and there is a certain balance that's being written off over a very short period of time which tends to depress margins. We are optimistic that, we can overtime through the amortization of these intangibles as well as bringing it more into a KBR framework, bring margins closer to what we're seeing.

Got you. Your main service margin is around 10%. Is that the ultimate goal for BE&K? William P. "Bill" Utt - President and Chief Executive Officer: I think that's hard to say, because the services business includes pipe fabrication and includes the returns on assets for the service vessels we have in Mexico which typically return margins greater than 10%. So the services margins are kind of billed by the asset base businesses. But where we can look at the hydrocarbon business just on the services like time basis, we should see a convergence. But I would not expect that we will be able to get it to 10% because that brings an asset... intense asset businesses that tend to pull that overall margin up.

Got you. Given the contract awards we have seen in BE&K it seems like... it doesn't seem like there is been much of a slowdown in that businesses but can you give us just a view on how that businesses has been faring over the last few months? William P. "Bill" Utt - President and Chief Executive Officer: It's mix because be in case in the lot of different businesses, yeah, we think the general construction market will remain strong but we keep an eye on what's happening in the U.S. markets because of the credit crisis that we have. We are obviously more comfortable today with the work we're doing for utilities that tend to have rate base recovery and due balance sheet financings. In the building group, there is segment of that business where they have done the construction management for developer finance facilities which is a part of that business not the major part and we seen that market reducing or contracts significantly because of the absence of financing now in that business we're still optimistic about their healthcare practice and their educational practice which appear to be a little bit less directly impacted by what's going on in the economy.

Okay, thank you very much, I'll get back in queue. William P. "Bill" Utt - President and Chief Executive Officer: Okay.

And we'll go next to Vance Edelson, Morgan Stanley.

Hi, thanks a lot. Could you let us know on the billboard hours for Ike, they got pushed back, is that work that's just lost or does it possibly now show up in the fourth quarter results?

Well, it's not lost work; it is work that we will eventually manifest itself into our P&L. We have a fixed capacity of people so, if we miss out on, for example, a 100,000 hours of work or a million hours of work, that work will be earned out at the end of the job and when we probably, we do not expect to see that return in the fourth quarter because people are otherwise busy doing the work that we got in the backlog for the fourth quarter. But it's ... it will occur over time its that just the disruption that we had of people not able to get into work, the offices being closed. We elected to pay people salaries during the time that they couldn't work around Ike and so that was the nature of the earnings impact that we saw from Ike and it's not a... it's not lost work its just will be recognized over the next series of quarters as we get caught up on these projects.

Okay, got it. And as a follow up and this is a more general question if for argument's sake, the U.S. pulled out of Iraq sooner rather than later, can you just give us a feel for what your responsibilities would be in kind of the scope and the duration of the work to get that done? William P. "Bill" Utt - President and Chief Executive Officer: Well, we reorganize that any decision of amount of people and the timing is really for government and we as a contract or we simply respond to it. Our sense is that there would be a short term increase in work as we do a lot of movements of people, equipment, provisions out of theater to other areas and get those to their respective storage locations. So there is also the expectation that we would have to recondition the equipments so it could be stored as well as return the existing camp sites to the condition that we found them. So our work would likely follow the troop strength but we would say initial blip and we would kind of trail the reduction in troops in terms of where we expect our billings would be.

Okay, its very helpful. Thanks.

Our next question is from Jamie Cook, Credit Suisse.

Hi, good morning. My first question Bill is sort of a longer term strategic question. Given what we're seeing in the energy markets as you think about KBR longer term. How important do you think it is to diversify out of the energy market, BE&K obviously was a nice sort acquisition that now looks much better than I guess, I originally thought it did, and so kudos to you. I mean how you think about that? And then my second question is, can just walk us through ... if we think about your business model which parts of the business do you view as sort of being more recurring versus... have a recurring earnings stream versus the more cyclical components. Is there any way we could think of a base earnings case for KBR? William P. "Bill" Utt - President and Chief Executive Officer: Okay. That's a very broad series of questions and let me just try to address bite-by-bite. I think that the first element you talked about diversifying out of energy and I would like to make some comments about our perspectives of the international hydrocarbon environment if we could.

That will be great. William P. "Bill" Utt - President and Chief Executive Officer: First of all, while the prices declined significantly from highs of around $150 a barrel to around $70 a barrel a day. Based on our discussions with our customers, their price tax have recently been in the $65 to $70 a barrel price range. So, just based on a change in oil price only, we're still at a point where our customers were making affirmative investment decisions for projects. The second point is that with the falling oil prices, we believe that this is going to drive a reduction in the cost to construct facilities. And, we're seeing lower cost in materials, lower cost in our commodities that we use; we're seeing a lower cost for equipment. And if you remember back in 2004-2005, people were justifying major capital projects at $30 a barrel, and in part because of the cost side was supportive of justifying projects at $35-$30 a barrel. So, today its $65-$70, and that was a customer price take based on the three months ago price supply chain for us, and we expect that our price of delivering the construction projects is going to follow us. So, we're still keeping in our minds a positive incentive for projects to go forward. The next aspect Jamie, is really yeah, and as we have looked at the last year, we haven't seen a lot of big awards and one of the theories that we talk about around here has been, that it has an inverted yield curve, where the short term price of oil has been above the long-term expected price that we estimate to be between $70 and $90 a barrel. And so, in the price visit $150, we could see why customers could…

All right.Thank you very much. I'll get back in queue. William P. "Bill" Utt - President and Chief Executive Officer: Okay.

And our next question from Barry Bannister, Stifel Nicolaus.

Hey, question I have is about LogCAP. Given this is a fairly politically charged season on the hill you usually get very, very strong positive feedback but in the press and in public it sometimes not. So is there a chance that the reason to legal issues regarding electrical work which we have done to DoD standards might cause some reduction in your fitness report that would affect the operating margins in subsequent quarters as it happened when you step down briefly. I believe two quarters ago in term of these LogCAP operating margin? William P. "Bill" Utt - President and Chief Executive Officer: Well we're continuing to work with our customers to contemplate how one transitions from a contingency type activity to a sustainment. And so we're working with them to look at the realities of an extended presence. And so we get back to allow the electrical issues. There is a lot of issues that I talked about that really don't involve KBR. And so, we have take a very thorough look at really where our exposures on those issues and we have made comments in the Q regarding the fact that we feel our liability is not present some of these cases. Regarding the award issues, we continue to establish objectives with our customer every quarter. We continue to get feedback and our achievement of those objectives relative to expectations. I think we're still on track along historical lines towards the performance of KBR against these objectives. We do get a lot of press being KBR; I guess the good news is that with everything going on in the capital markets, there hasn't been a lot of time people could spend looking at the contractors in Iraq. And, so it's been a fairly quite time for us which we appreciate the break. But in terms of our business, vis-à-vis the expectations of our customer, we believe that we continue to deliver a high level of performance that should at the end of the day manifest itself in terms of how we are scored on our award fee boards.

And then with respect to Afghanistan has that increased materially as a percentage of your task orders under LogCAP IV that you are working on. And then lastly, on LogCAP IV, could you give us some idea of this lumpiness that will be inherent in that where by the payments are I believe every six months not three months or something of that sort where your payments are stretched out and it might affect the timing of LogCAP IV earnings in fiscal '09. William P. "Bill" Utt - President and Chief Executive Officer: Yes, I will answer the easy question first. LogCAP IV will have lumpiness because the accounting rules which grandfather LogCAP III it will state that under LogCAP IV we cannot recognize award fee scores until they are actually awarded. So we will not be able to include the award fee scores as we have historically on LogCAP III. And obviously that factors into how we price our base fees and award fees on our task orders under our LogCAP IV. Regarding Afghanistan our work is remaining pretty constant and we're following the efforts of the troopers as they change their performance in theater and their location of performance.

And just housekeeping its not a question so much but your share count was less than the buy back; is that because it's an average and the end of quarter of shares was closer to 159?

It's a weight average share calculation for the quarter, so it's not the quarter end number that you saw there.

So you'll use 159 in '09?

Yes.

Okay, thank you William P. "Bill" Utt - President and Chief Executive Officer: Be a little higher by 160s, 161, 162, second quarter 8.4 of about 170s.

Yes, just got it. Thank you. Just got to take 8.4 off of it.

Yes. Just got it. Thank you.

We will go next to Dan Pickering, Tudor Pickering Co.

Good morning, guys. William P. "Bill" Utt - President and Chief Executive Officer: Good morning Dan.

Bill can you talk a little bit about... I'm just trying to gauge overall demand for E&C services in general and I guess the only line you had ask that question is sort of value of your big outstanding and how that's been trending over the last few months and how you expect that trend as we step through the next quarter or two given economic conditions? William P. "Bill" Utt - President and Chief Executive Officer: Thank you. I answered that question about a year ago, Dan and we went back and took a look at and thinking that given the uncertain times you come back to that, as we looked at the business proposals outstanding from January to the end of the second quarter, to the end of the third quarter. Our proposals outstanding volume has increased and we've seen really we haven't seen any material fall offs in any of our business units. We had a pretty good ramp up in our proposals at G&I, the proposal growth in Upstream is good. Downstream is essentially flat second quarter to third quarter services is down a little bit probably with some of the postponements we talked about, but the proposals outstanding are still pretty solid they have grown during the year, and how they go into the future? I think that Upstream that we see a solid business for the five reasons that I numerated under Jaime's question. G&I, we're starting to see some of the benefits of our efforts to diversify our offerings, take to get traction. Services business is pretty nimble and we'll continue to look at other opportunities where some of these other markets may be down, we still have a very small share of market, its very fragmented market and so I think we will reposition some sales efforts there and maintain a pretty good volume so, we are swimming in a sea of negativity, there is no doubt about it but as we look at just the actual numbers of our business, it looks pretty solid right now, from second quarter to third quarter, the proposes outstanding grew and so I was pleased with that figure.

That's encouraging. And as you look at that the geographic mix of that was there anything stood out to you in terms of where things geographically were strong than others? William P. "Bill" Utt - President and Chief Executive Officer: I'd say if you look across the proposals outstanding, the G&I and Upstream and even our Downstream business will be international. And those customers that we see, are balance sheet financers, integrated oil companies, international oil companies,national oil companies. Government and so the biggest part of our business where we have the greatest volume of proposals outstanding appear to be in the markets that have customers who are best able to weather the situation that we're in.

Okay. That's helpful. And then I guess I'm thinking here about pricing in general, we have got raw materials coming down that ought to make things more inexpensive I guess for the customer or projects, theoretically becoming cheaper. Do you view that overall given one of your mix of legacy projects and what you we will be doing going forward? Does that give you a margin expansion opportunity, does it shrink your margins a little bit or do you just... do you see the business are staying pretty stable in terms of how you think about bid margins? William P. "Bill" Utt - President and Chief Executive Officer: Dan, I look at the business, and we're still digesting through a lot of legacy contracts, and one of the... and second quarter we had a large amount of Escravos revenue that went through the books at zero margin and so that's been a drag. I would say that, the work that we are looking at respectively in the hydrocarbon side or typically at margins that are greater than the reported margins as we just digest our lower margin work. And so, I think there is your economic, I mean margin expansion just by that factor alone, just getting the bad work out and allowing good work to come in. And then, from our side, I think we continue to do a I think a very good job of identifying the risks and analyzing pricing omen, and that should allow us to have less volatility in our reported results in future periods. So, I think we still have some room to run just based on better operations of the business and the liquidation of lower margin inventory.

And Bill, I just wanted to clarify you said in Q2 you had a lot of Escravos revenue? William P. "Bill" Utt - President and Chief Executive Officer: Yes, I think Q2 was one of the contributors to the reduction in revenue. We had a big slug of Escravos come through that goes without the margin because of the conversion.

Right. And Q3, that was less significant? William P. "Bill" Utt - President and Chief Executive Officer: Yes.

Okay. Thank you.

We will go next Steven Fisher, UBS.

Hi, good morning. You mentioned the 40% target for a share of the LogCAP IV contract, I'm wondering if you can give some color as to how you get to that numbers, just based on assumption that you have the legacy contract and you should get more than your fair share, or are there certain types of projects that you feel you are more suited to? William P. "Bill" Utt - President and Chief Executive Officer: It's largely based on what you described, where the established contractor we know the Army best, we have got the very integrated relationship established and we think we will do better than one-third. And that's... you could look at it that depends on the packages of work that they put to bid and how they do it. I don't think they'll get it down to small chunks and may just be big chunks and I know that there is... because of our award and few scores, the customer is very happy with performance and yet we recognize that from a political sense it makes a lot of good sense to get some diversity in the theater. So, we think we do a good job and that we will do better than simply one over three.

Got it. And then you mentioned the infrastructure opportunities in the Middle-East and Asia. In the event that Yanbu or Ras Tanura are the next phase of those extends beyond 2009 in terms of starting up. Do you think those infrastructure opportunities could offset what you would have generated from those projects? William P. "Bill" Utt - President and Chief Executive Officer: I don't think so because Yanbu and Ras Tanura those are big elephants and you'd have to build a very significant scale of these other projects to overcome that. I think they could mitigate some of the impacts and I will also say that, as I talked about our proposals outstanding, important because I hope we don't when all the proposals outstanding because we don't have the resources to do all the work. And so we think that we have enough diversity of projects in our portfolio on hydrocarbon side, such that if one or two disappear or get delayed, we should be able to efficiently manage our labor pools and keep people working.

Okay, great. Thank you.

Hi, Teresa. Let's go ahead and do one more call please.

Wonderful. Our final question will be from John Rogers. Please go ahead. John B. Rogers - D.A. Davidson & Co.: Good morning. Bill, you talked about the activity in the international markets on the G&I side, the non-U.S. Government sponsored work, but bookings in that market have been fairly slow so far this year. Is there a series of project that will be going to be released that you're looking at? William P. "Bill" Utt - President and Chief Executive Officer: Well part of this is the programs and the customer behaviors and particularly in the Middle-East as they get a number of relationship they give you a small project and if you do a good job they give you another big one and we've seen some other service providers who are not in the E&C space but providing IT services that have got in. They got a couple of small contracts and the next thing they knew they had a series of very large contracts and a very significant volume. And we believe that we are in the phase of... from the marketing we're doing our initial work over there and we would expect a firm hold through that we should see a growth in the amount of awards we get from these customers as we establish our execution credibility with them on the present projects we are executing. John B. Rogers - D.A. Davidson & Co.: Okay. And that's something that we should expect to see in 2009 assuming no major unusual event. William P. "Bill" Utt - President and Chief Executive Officer: We would expect to see some come in 2009 again it will depend on how quickly the ramp up occurs and also on a relative basis how does that volume compared with the other projects that we're also pursuing. They may just get caught in the shadow and we may not talk much about it if we get several of these larger awards that we've been trying to position slower for sometime. John B. Rogers - D.A. Davidson & Co.: Okay. These are civil and commercial type projects as opposed to your... William P. "Bill" Utt - President and Chief Executive Officer: They are more civil engineering projects, yes. John B. Rogers - D.A. Davidson & Co.: Okay. And then just one other quick follow up, in terms of your G&A levels, they have been fairly stable off late. Is that a good run rate now that $55 million a quarter?

I think that what I expect going forward is something just show of the 60 million levels, we have looked at the longer run rate numbers. We will run about 54, 55 namely added BE&K and I think that we should be looking at something just show at 60. John B. Rogers - D.A. Davidson & Co.: Okay. Great, thank you very much.

And that does conclude our question-and-answer section today. At this time I'll turn the call back to management for closing remarks.

Great guys, thanks you all for joining today. And we look forward to talking with you all in next quarter.

That does conclude our conference. Thank you for participation. You may disconnect at this time. .