KBR, Inc. (KBR) Q2 2010 Earnings Report, Transcript and Summary

Good day, and welcome to the KBR Second Quarter 2010 Earnings Call. [Operator Instructions] 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, Melissa. Good morning, and welcome to KBR's Second Quarter 2010 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 also available on KBR's website. Joining me today are Bill Utt, Chairman, President and Chief Executive Officer; and Sue Carter, our Senior Vice President and Chief Financial Officer. In today's call, Bill will provide opening remarks and business outlook. Sue 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, 2009, 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?

Thanks, Rob, and good morning, everyone. I would like to start today's call with our updated guidance for the full year 2010, which you saw in this morning's earnings press release. We have raised KBR's 2010 guidance range to $1.75 to $2 per diluted share from the earlier guidance of $1.50 to $1.80 per diluted share. The updated guidance takes into account the recently announced award fees for LogCAP III, which were not in the previous guidance, as well as a generally stronger performance in our operating businesses. Also, KBR anticipates that the 2010 LogCAP revenues will now be approximately 60% of the 2009 levels compared to approximately 50% reflected in the previous guidance. Sue will provide more detail on our updated guidance later in the call. Before making comments on KBR's discrete business units, I would like to discuss KBR's backlog. As we have discussed over the past several quarters and as highlighted during our Analyst and Investor Day at the end of June, we have been focused on creating a more profitable backlog. Compared to the second quarter of 2009, job income backlog was up 26% relative to a 1% increase in revenue backlog. Sequentially, KBR's job income backlog was flat despite a 7% decline in revenue backlog. For our Gas Monetization business unit, during the second quarter, KBR received change orders for the Yemen LNG project of approximately $43 million, resulting in an after-tax EPS contribution of $0.17 per diluted share. However, during the quarter, KBR also reviewed and assessed our reserve for subcontractor claims, which resulted in an increase in the amount of anticipated subcontractor claims on the Yemen project. That resulted in a net $7 million charge to KBR. For the Tangguh LNG project, the plan is fully operational and shipping LNG. We continue to maintain an ongoing dialogue with the customer to close out the project that conclude final project change orders, although the timing of receipt of these change orders remains uncertain at this time. The Gorgon LNG, Pearl GTL and Skikda LNG projects were positive contributors to this quarter's results. The Inpex Ichthys FEED and the Pluto FEED, as well as the Browse LNG basis of design projects, are proceeding as planned and also contributed nominally to the quarter's results. For our Oil & Gas business unit, we are continuing to work on a number of FEED projects that were awarded last year and expect these FEEDs to move into detailed design during 2010. Oil & Gas' revenue backlog was up 96% sequentially as we had a substantial work release on an ongoing oil project in the Caspian region. During the second quarter, the Oil & Gas business unit results were adversely impacted by charges related to legal costs in the ongoing legacy Barracuda-Caratinga arbitration in the amount of $4 million. For our Downstream business unit, the Yanbu Project has received final investment approval. Earlier this week, final EPC contracts were executed for several major construction packages on the Yanbu Project, and the second and final phase of this project has commenced. KBR will now begin to staff the EPC project offices, continue detailed design of procurement services on the interconnections and utilities packages and better define our anticipated construction management role over the coming quarters. Also, the Ras Tanura Integrated Project FEED continues to progress well. We continue to increase staff to meet FEED completion targets, with an expected completion in the third quarter of 2011. Also in Saudi Arabia, the Saudi Kayan ethylene project has commenced its performance testing and has produced ethylene during test production runs. The two refinery projects in Africa continue to move forward and negotiations continue for the first phases of the EPC end packages [ph](22:01) for the Lobito refinery project in Angola. Technology had a 48% sequential increase in backlog, representative of approximately $90 million in new awards during the second quarter, including two ammonia projects in South America, a refining project in Nigeria and an aniline project in China. We continue to be pleased with the continued high levels of growth we are seeing in our Technology business unit. Also, during the second quarter of 2010, KBR's Technology business unit formed a new joint venture, SK-KBR Technologies with South Korea-based SK Energy Company. Under this joint venture, SK-KBR is granted exclusive worldwide rights to market and license SK Energy's petrochemical and related process technologies. During the second quarter, we continued to add Hydrocarbon technical personnel for a total of 908 additional people in the first half of 2010, of which approximately 1/3 being hired are in the United States. As I stated in my shareholders' letter for the 2009 Annual Report, KBR thought it was possible to achieve staffing levels in 2010 in line with 2008 levels. With the additions in staff this quarter, we are about at our 2008 levels. For our North American Government and Defense business unit, we still see troop levels moving to the expected 50,000 headcount by the end of August of this year. Our personnel levels in Iraq have followed these troop declines. We expect that once we hit the 50,000 troop level at the end of August, our staffing should remain reasonably consistent through the end of 2011. Also, during the quarter, KBR received a $60 million award fee related to its LogCAP III work in Iraq, Afghanistan and Kuwait for several task orders over the period from May 1, 2008, through August 31, 2009. For this period, the Award Fee Determining Official rated KBR's performance as good, very good and excellent on multiple Award Fee pools. This award resulted in an increase in our after-tax income of approximately $39 million or $0.24 of earnings per diluted share. We also expect to be notified in the second half of 2010 of the results of the Award Fee Evaluations Board held in late June 2010 for the periods of performance from September 2009 through February 2010 on task orders in Iraq, and from September 2009 through May 2010 on task orders in Afghanistan. As you recall, last quarter, I discussed the impact of approximately $10 million related to legal fees and unallowable costs associated with our legacy LogCAP work. During the second quarter of 2010, we incurred an aggregate $10 million for additional legacy legal fees and unallowable cost. As we look out over the next two quarters, we expect these costs to continue but at a lower level. KBR was also awarded a task order under LogCAP IV to support U.S. Army and Navy missions at five sites in Bahrain. Under this task order, KBR will support nearly 1,400 personnel and provide camp construction facilities management, HAZMAT management, food service, fuel operations and other services. This contract is one-year based plus one option year valued at approximately $28 million. The International Government and Defense business unit continued to experience increasing services for the U.K. and NATO troops in Afghanistan. During the second quarter, the newly acquired three-year contract with NATO to provide operations and maintenance services ramped up. We did see several pending bids to the U.K. Ministry of Defense get delayed during the quarter, as the new conservative government is preparing its strategic defense review. We are presently forecasting a two- to three-month delay in new awards from the Ministry of Defense related to the preparation of the Strategic Defense Review document. Weaker infrastructure activity in the U.S., Australia and the U.K. from the global financial crisis continues to affect our Infrastructure and Minerals business unit. However, in the Middle East, Infrastructure activity is beginning to improve based on a stabilizing oil price and several new large projects for program management services now moving forward. From a Minerals and Mining perspective, we are similarly seeing a surge in activity as a result of the resolution of the Australia minerals tax, which is expected to stimulate increased capital spending in the Australia minerals sector, as the investor uncertainty related to the proposed minerals tax has been removed. The Power and Industrial business unit is seeing a pickup in early study and front-end work in the forest products market, which should ultimately lead to a series of larger project opportunities. We are extremely pleased with this volume increase as it has been three to four years since we've seen this level of activity. Our Services business unit continues to see an increasing volume of bid opportunities but, generally, for smaller-capital projects. However, we are also seeing our first series of large projects in excess of $100 million being bid, which continues to improve our outlook in the North American markets. Services was awarded several contracts during the quarter, including renovation, repair and construction projects by both the Atlanta Public Schools and the State Department of Missouri, a construction management services contract by DuPont for their Tedlar production facility in Ohio and multiple small construction contracts in Canada for mining customers. Also in Canada, we completed the Suncor spring Turnaround on time, under budget and with no injuries. As a result, we were awarded Suncor's fall Turnaround project, which was approximately double the size of our role on the spring Turnaround. The Building Group was awarded several contracts during the quarter, including an $87 million contract for the construction of the new Dental Sciences Building for the School of Dentistry for the University of North Carolina at Chapel Hill, a preconstruction Construction Services contract by Carolinas HealthCare System for a new medical center and a contract by DuPont for construction management of the initial phase of the company's suburban campus in Wilmington, Delaware. After Sue's comments, I will comment in more detail on the market outlook for our business before turning the call over to questions. Sue?

Thanks, Bill. I will review KBR's consolidated second quarter 2010 results, which primarily focused on year-over-year comparisons. Consolidated KBR revenue totaled $2.7 billion in the second quarter of 2010, a $430 million or 14% decrease from the prior year's second quarter, which includes an expected decrease of $468 million for North American Government and Defense compared to prior year's second quarter, substantially related to the LogCAP III contract. Revenue in our International Government and Defense business unit increased 54%, Technology increased 52%, Downstream increased 27% and Gas Monetization increased 4%. Consolidated operating income was $199 million in the second quarter of 2010 compared to operating income of $137 million in the second quarter of 2009. Net income attributable to KBR for the second quarter of 2010 was $106 million, or $0.66 per diluted share compared to $67 million or $0.42 per diluted share for the prior-year second quarter. Gas Monetization revenue was $708 million in the second quarter of 2010, up $29 million from the second quarter of 2009. Gas Monetization job income was $83 million in the second quarter of 2010 compared to job income of $50 million in the second quarter of 2009. The second quarter of 2010 included a positive net contribution of $36 million related to the receipt of expected change orders net of additional subcontractor claims costs on the Yemen LNG project. The increase in job income was also related to increased work on the Gorgon LNG Project, partially offset by lower activity on the Escravos GTL and Skikda LNG projects. Oil & Gas revenue was $104 million in the second quarter of 2010 compared to $107 million in the second quarter of 2009. Oil & Gas job income was $13 million in the second quarter of 2010 compared to job income of $26 million in the second quarter of 2009. The decrease is primarily due to various projects that were either completed in 2009 or nearing completion in the end of the second quarter of 2010. Partially offsetting these decreases was progress on new project awards, including the Chirag Oil project, Big Foot and other projects, as well as increased chargeability in Granherne. Job income in the second quarter of 2010 included approximately $4 million in legacy, legal and other costs associated with the Barracuda-Caratinga project arbitration. Downstream revenue was $157 million in the second quarter of 2010, up $33 million, or 27% compared to the second quarter of 2009. Downstream job income was $28 million in the second quarter of 2010 compared to job income of $20 million in the second quarter of 2009. The increase in job income was primarily related to the increased work on the Sonangol refinery project in Angola and the Ras Tanura integrated refinery and the Shaybah NGL projects in Saudi Arabia, partially offset by a charge of approximately $9 million related to a receivables reserve adjustment. Job income in the second quarter of 2009 was impacted by $7 million in additional costs related to the commissioning and start-up of the EBIC ammonia project. Technology revenue was $35 million in the second quarter of 2010, up $12 million or 52% compared to the second quarter of 2009. Job income was $17 million in the second quarter of 2010 compared to $11 million in the second quarter of 2009. The increase in job income was primarily due to a new grassroots ammonia and urea project in Turkmenistan, a new project in China and two new ammonia projects in India. North American Government and Defense revenue in the second quarter of 2010 was $926 million compared to $1.4 billion for the prior year's second quarter. Job income was $92 million in the second quarter of 2010 compared to $69 million in the second quarter of 2009. Job income in the second quarter of 2010 included $60 million related to the LogCAP III award fees. Impacting the second quarter of 2010 compared to the second quarter of 2009 was lower volumes on LogCAP III in Iraq and Afghanistan and approximately $10 million in legal fees and unallowable costs related to legacy matters incurred in the second quarter of 2010. In addition, the second quarter of 2009 included approximately $18 million in accrued LogCAP III award fees compared to no award fees accrued for work performed during the second quarter of 2010. International Government and Defense revenue in the second quarter of 2010 was $103 million compared to $67 million for the second quarter of 2009. Job income was $22 million in the second quarter of 2010 compared to $21 million in the second quarter of 2009. The increase in job income was primarily related to increased construction margins on the Allenby & Connaught project and higher volumes on the CONLOG and other U.K. Ministry of Defense projects. Partially offsetting this increase was the completion of Tier 3 Basra project in Iraq. Infrastructure and Minerals revenue in the second quarter of 2010 was $64 million compared to $86 million for the prior year's second quarter. Job income was $15 million in the second quarter of 2010 compared to $20 million in the second quarter of 2009. The decrease in job income was related to lower activity on several water projects and a minerals project in Australia. Power and Industrial revenue in the second quarter of 2010 was $104 million compared to $111 million for the prior year's second quarter. Job income was $15 million in the second quarter of 2010 compared to $11 million in the second quarter of 2009, a 36% increase. The increase in job income was primarily related to a new waste-to-energy project in Florida and change orders on a completed power project in Georgia. Services revenue was $452 million in the second quarter of 2010 compared to $498 million in the second quarter of 2009. Job income was $43 million compared to $41 million for the prior year second quarter. The increase in job income was driven by increased activity on the Scotford Upgrader project in Canada, the Hunt refining project in Alabama, a bio energy construction project in Virginia and DuPont maintenance projects, which was largely offset by completed projects in 2009. Also for Services, I'd like to point out that the decline in revenue compared to slightly higher job income is primarily related to two new large projects in the Building Group accounted for using the equity method of accounting. Ventures job income in the second quarter of 2009 was $8 million, up $6 million compared to the second quarter of 2009, primarily related to higher ammonia sales on the EBIC project, which in the second quarter of 2009 was still in the testing and commissioning phase, and the accounting consolidation of a heavy equipment transport project for the U.K. military, effective January 1 of 2010. Now let's review other financial items. General and administrative expenses for the second quarter of 2010 were $55 million, up $1 million from the second quarter of 2009. Sequentially, the corporate G&A was up $6 million, primarily related to costs associated with our new ERP system. For the full year 2010, our current estimates for corporate G&A expenses remain in the $230 million range, driven by expenses related to enhancing our IT systems, including the new ERP system. Year-to-date 2010 G&A expenses, excluding the ERP costs, are favorable compared to 2009 by approximately $5 million. KBR is actively controlling costs to offset general wage adjustments and support other costs associated with our ERP initiative. Our effective tax rate in the second quarter 2010 was 36%. The full year 2010 effective tax rate guidance remains approximately 35%. I would like to discuss KBR's backlog in a bit more detail, building on Bill's earlier comments. The backlog as of June 30, 2010 was $12.4 billion, as expected, up 1% from a year ago, June 30, and down 7% compared to the sequential quarter. Contributing to the $919 million sequential backlog decline was Gas Monetization, which declined $592 million from normal project work-off; and North American Government and Defense, which declined $306 million primarily due to reduced LogCAP backlog. Overall, the backlog portfolio mix at the end of the second quarter was 79% cost reimbursable and 21% fixed-price, approximately the same mix we reported from the sequential quarter. Next, I'll discuss our liquidity and balance sheet. Total cash provided by operating activities for the first six months of 2010 was $432 million, primarily related to collections in the Gas Monetization and the North American Government and Defense businesses. As of the end of 2010, our balance sheet remained strong, with cash and cash equivalents of $1.2 billion, which, net of $267 million of cash associated with our consolidated joint ventures, was approximately $968 million. During the second quarter of 2010, we returned cash to shareholders with approximately $62 million of share repurchases and paid $8 million in quarterly dividends. In the cash flow statements for the first six months of 2010, you will see $58 million in the cash flows from financing activities related to this repurchase. The difference is related to the actual settlement of the purchases. Also, for the first six months of 2010, we have returned $74 million to shareholders, invested $19 million in capital and funded $16 million in acquisitions. Before turning the call over to Bill, I would like to recap a few of the financial items in the quarter. When comparing the second quarters of 2010 and 2009, there was interest expense related to amortization of refinancing fees, funding fees and the upsizing of the KBR credit facility. In addition, we had interest expense due to the consolidation related to Fasttrax Limited. We now expect capital expenditures to be in the $70 million to $80 million range for the full year 2010. In addition, we have committed to $19 million of capital expenditures related to Oracle software purchases, which will be paid over the next few years. Lastly, as Bill mentioned at the beginning of the prepared remarks, KBR's updated full year 2010 earnings guidance is $1.75 per share to $2 per diluted share. Our revised guidance range includes regionally announced award fees on our LogCAP work, which were now not in the previous guidance; estimated 2010 LogCAP revenues of approximately 60% of the 2009 levels, up from the original estimate of approximately 50%; and other discreet items that could occur. And now I'll turn the call back over to Bill for his final remarks.

Thanks, Sue. I would like to provide KBR's outlook for our businesses. For KBR's Global Hydrocarbons businesses, we are seeing projects continue to move forward internationally. We continue to follow several projects in an active Australia LNG market, as well as a number of offshore project in the Caspian, North Sea, West Africa and Asia-Pacific regions. As evidenced by the recent approvals to begin EPC activities on the Yanbu Project, we are also seeing Downstream projects continue to move forward in the Middle East as well as in certain other areas in Africa and Asia. This continued level of activity is supported by the increased volumes of work at our Technology business unit, which in many respects is a leading indicator of future Downstream activity. Closer to home, in the Gulf of Mexico, we are seeing new drilling projects experience delays related to the uncertainty surrounding the drilling of new deepwater wells. These delays are not expected to impact KBR over the near term, but we could see some impacts to our business over the next 18 to 24 months. These impacts could be minimized if the present fleet of drilling vessels in the Gulf of Mexico are repositioned elsewhere in the world. In this case, our offshore Oil & Gas business would simply follow where the drilling activities take place. For our Government and Defense businesses, KBR envisions a slightly declining level of work in Iraq and Afghanistan, but once the military personnel targets are met in September, we feel our volume of work thereafter should be relatively constant through the end of 2011. In our Infrastructure and Minerals business unit, with the Australian minerals tax issues apparently settled in Australia, we expect to see a resumption of capital spending in the mining industry. We are also seeing an increase in the level of bidding activity in the Transportation and Logistics sectors in Australia and in the Middle East. However, we have not yet seen a similar pickup in volume at KBR's Transportation operations in the Texas market. Additionally, KBR's Water, Wastewater and Facilities Management-related activities in Australia have not picked up to the degree that we've seen in the Transportation sector. As an indication of the overall pickup in activity, our Infrastructure and Minerals proposal volume is up nicely from the first quarter. In our Power and Industrial business unit, demand growth for new electric-generating capacity has not yet returned due to the impacts from the recent financial crisis. In the utility market, uncertainty over future environmental regulation has depressed the market for environmental control projects and may delay currently planned environmental projects into the first or second quarter of 2011. However, this is not the case in the Industrial sector where we are currently seeing good volumes of environmental project work. Also on the Industrial front, KBR is seeing a strong volume of early-stage prospects, perhaps the best we've seen in three to four years. These projects are typically early-stage FEEDs, or design developments, and in the smaller $20 million to $60 million cost range. Overall, we have experienced a significant increase our proposal volume in our Power and Industrial business unit since the end of the first quarter. In our Services business, we continue to a see strong demand for small-capital and maintenance projects. We are also seeing a pickup in demand for the services of KBR's Building Group and its education and healthcare commercial markets. We are only now beginning to see a return in the North American construction markets of larger projects in excess of $100 million. We are presently forecasting that the level of recovery we had predicted at the end of 2009 will now occur in late 2010 or early 2011, approximately six to nine months later than we had initially projected. But we are heartened that the general recovery in North America is starting to take place. For KBR, we are expecting the sales environment for the second half of 2010 to be much improved from the first six months of this year. Now we'll take your questions. We asked that you please limit your comments to one question and one follow-up.

[Operator Instructions] Our first question will come from Vance Edelson with Morgan Stanley.

Bill, could you just share with us your assumptions around energy commodity prices over the next 12 months? What's baked into your outlook? And how should we think about the upside or the downside potential if a year from now, we're looking at, for example, oil prices that are either $10 higher or $10 lower?

Our internal views are that we have an equilibrium right now, and we like where the pricing is, so when we’ve talked to our customers, they like where the pricing is. And we believe that a plus or minus $10 swing is not going to materially impact the volume of projects moving forward. What I do worry about, and we don't see it just yet, but there is the prospect of returning to what we call the inverted yield curve that we saw in 2008, early 2009, where you had $150 near-term cost of oil, and certainly my, pricing of EPC services reflected that. And when you had a long-term equilibrium price or earn-out of $90 a barrel, we saw a lot of projects getting deferred. But given where we are today and thinking about a plus or minus 10% swing, we don't see that really impacting the volume of projects or work that we see out there for the foreseeable future.

Okay, got it. And just as my follow-up, what would you say accounts for the stronger-than-expected LogCAP revenues? I may have missed it, but is it more that LogCAP III is winding down slower or LogCAP IV is picking up faster? And given the stronger LogCAP revenues expected this year, any changes to when LogCAP III is expected to wind down? Is that still the end of 2011?

We're expecting higher LogCAP-related work, largely because we have been successful in retaining more of the LogCAP work than what we had anticipated. We had, I guess, envisioned 35%, 40% of the overall LogCAP work in Iraq at the time. We were doing about 80% or 90% of our work in Iraq, and we’ve retained all of that now. Even if you factor in the falloff in revenues because of the troop withdrawals, we're still looking at more work than we had envisioned, giving us a stronger performance. I do believe that the troop counts have declined. Our volumes of people have declined as well. But I also think we're hitting an asymptote on the amount of further withdrawals that we're seeing in the space. Right now, we have 75,000, plus or minus, troops over there. They're going down to 50,000. Our volumes have fallen off essentially proportional to that, but we’re also thinking that we'll see some opportunities to pick up work from other providers in Iraq as a diseconomy of scale will take place and the military will move more work over to us there. LogCAP III we think will continue as long as they have bases and personnel in Iraq. We’re certainly doing a different part of the work under LogCAP IV, the logistics, the transportation mission, postal service. So as long as the U.S. will be in Iraq, we’ll still be supporting the military there. We also are bidding packages in Afghanistan outside of LogCAP. There is a number of programs both with the U.S. Department of Defense as well as the Ministry of Defense and NATO that we’re seeing work coming out and believe we'll be ultimately successful in continuing to maintain a presence in Afghanistan, although not as part of the LogCAP Mission.

Okay. That’s very helpful.

Our next question will come from Barry Bannister from Stifel Nicolaus. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Just to clarify, the Yemen receivable was received, and it contributed $0.17, but you netted it against some current contractor costs. And so you really got about $0.14 of EPS per share, right?

That is correct. Yes. Barry Bannister - Stifel, Nicolaus & Co., Inc.: And then you said that $968 million of the cash was not tied up in the business. I believe you said that. But there would be working capital as you move into the field and receive some new awards. Is that how I should interpret that?

Well, I guess the way I would look at it is you take the balance sheet cash, you take out the $267 million as you indicated that is cash that is allocated to be used in those JVs, and then the remainder, as you said, is the operating cash for the rest of the business. And in the past, we've stated that obviously, there's $200 million, $300 million of operating cash that is needed to run the business on a day-to-day basis, and then you have the remainder of cash available. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Okay. Then lastly, you bought back 2.8 million shares, but share count didn’t decline at all. Was that a timing issue or what?

It is. That's actually a very good question. Our share repurchase began in June of 2010, so the diluted shares is a weighted average calculation. And since we bought ratably over the month of June, the impact was relatively small. And there actually was an impact if you have the full share count number, but it is due to the timing of that. And what I would expect is that, given those 2.8 million shares that we bought, that you will see the big impact in the third and the fourth quarter of this year. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Should I subtract 2.8 million to get the 1.1 million July?

No. What I would do is, as we indicated during our Analyst Day, I would stay with sort of a $156 million to $158 million share count for the year.

But as far starting July 1, you have to take 2.8 off. We’ve been buying throughout July under a 10b-5, and we expect that as we get through September, we'll see continued buying that will get us on a weighted-average basis for the quarter to where Sue’s numbers are. Barry Bannister - Stifel, Nicolaus & Co., Inc.: And $156 million to $158 million is the ultimate goal of the share count?

Well, that's the direction that we’ve given you guys for what we would use for modeling purposes.

That’s for the year.

For the year.

The share repurchase program, Barry, is for 10 million shares. We do expect at some point in time to complete that. We continue to work to take that down. And with that repurchase plus our ongoing programs to sweep excess shares that are vesting in incentive compensation programs, that once this is complete, the go-forward run rate will be at 150 million shares. But it won't be reflected all in the numbers you'll see in 2010. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Great.

[Operator Instructions] And our next question will come from Andy Kaplowitz from Barclays Capital.

So Bill, you had what I thought was a good quarter in the downstream business even with the charge. You had a nice ramp-up in revenue, and the EBIT went up also pretty significantly. But that’s at the charge, I’ve got a very good result. And you mentioned both in the remarks and in the queue how EBITDA was ramping up a bit. How do we think about the future of that segment? Should we think about a continuing ramp-up? Are margins getting better in that segment? And would you think about that going forward? How do we think about it?

When I think about downstream, Andy, I'm thinking that you look at what we saw. We did see some limited ramp-up in the Yanbu as we prepared for the final investment decision that has taken place. We did see increased personnel on Ras Tanura for the FEED, and we expect to see some more increase in the future as we continue through to late 2011 to complete that FEED. We also are working on a number of things related to Lobito. We’re obviously involved in the FEED. We’re also involved in the early-stage site mobilization, coordinating some initial site preparation activities. And we're also dealing with an early release on some of the design for the EPCM contract. My expectation is that we will continue to see a ramp-up of volumes within the downstream side. And the real question that we have to think about, I think from a dollar standpoint, and we'll continue to be moving upwards, but as we look at the context of this project with Sonangol we're talking about, there could be a large degree of procurement that goes on, where we’re getting paid a margin to do the procurement. It will run through our books with a very small margin, so that while the dollars are going up in downstream, the margins could be coming down as we embark on a structure that's not too dissimilar from the Skikda Project. It’s just a matter of how we’re valuing the services we provide and managing the risks attendant to executing an EPCM project.

That’s helpful. Could I ask you about Gorgon as well? Where are we on staff levels of Gorgon? When do we expect maximum staff levels there?

We’re approaching the maximum staff levels on Gorgon. We’re seeing, now, some work move from the front end offices in London to some of the other resource centers at KBR. We think we’ll be, for the next 12 months or so, right around this peak where we are now before we begin ramping down, probably in the early part of 2012. But from an engineering and procurement side, that's all peaking. But we also have the construction management side now ramping up. People are being relocated to the field. We’re handling the equipment and materials that are coming in for quarantine in Australia, and we've got beds on Barrow Island. I think we’ve got a couple hundred beds there now. We're going to triple that the next couple of months. So the site activities are only now starting to ramp up. But the engineering is approaching its peak and probably will be around this level for the next 15 months or so.

But the total contribution to your P&L should be better in 2011 than 2010, is that fair?

Yes, it should be, because we were ramping up during 2010. And we had the award in September. We got off to a fast start on some procurement placements, but that was services. But we clearly, as we've been adding to our headcount, a lot of that has been Gorgon people that we brought in to deal with that bow wave, and '11 should be a better year -- will be a better year for us than 2010 on Gorgon.

Our next question will come from John Rogers with D.A. Davidson. John Rogers - D.A. Davidson & Co.: Where are you in terms of just the cash collections from PEMEX?

On the PEMEX, we have filed suit in New York to affirm the arbitration judgment, which is presently with the judge. From our perspective, based on the advice I received from our counsel, and internally and externally, we think it's a pretty straightforward affirmation of that award. PEMEX has made a couple of efforts to try to maybe go sideways on it down to Mexico without success to date. But we believe that getting the New York judge to affirm would certainly give us the opportunity to proceed on collection against PEMEX assets, and we feel very good about our ability to collect it. Obviously, the timing does have some efforts, but the opportunity to collect $350 million plus some accrued interest keeps us very focused on that every day. John Rogers - D.A. Davidson & Co.: Okay. But, I mean, we should see something this year? I mean, or legal action by you?

Legal action is already. . . John Rogers - D.A. Davidson & Co.: I mean, in terms of claims in the U.S.?

If one believes in the swift justice delivered by our judicial system, yes. It is with the judge now. It appears from my reading and the reading of our counsel that it's a very binary, straightforward decision he takes, and I would be surprised if it does not get ruled on this year. I think it's fairly simple. But then I also don't control the court docket in New York City. John Rogers - D.A. Davidson & Co.: Fair enough.

Our next question will come from Steven Fisher from UBS.

As you move to the detailed design phase in the upstream business, is it fair to assume that the detailed design contracts to be anywhere from maybe 2x to 4x the size of the FEED work you're doing so that you can start to see some more noticeable awards in that segment?

I think, yes, the detailed design elements in the Lobito refinery are certainly much larger than the FEED work we've done to date. But I would also say that as we look at the EPCM project, the overall impact to our backlog would also include procurement that we run through our books as well as the construction management of that project. So just addressing your question within the detailed design, yes, it'll be much larger than the FEED contract, and the overall Lobito is simply more than the detailed design as well.

Sorry, I was asking about the Oil & Gas upstream business.

Oh, the Oil & Gas upstream. When we look at some of these speeds, yes, they should be 3x to 4x, just for the engineering-only projects.

Okay. And I forget, are those going through a competitive process? Or is that sort of an automatic move for you guys, from FEED into the detailed design?

Assuming we do a good job, we view it as a natural evolution from FEED to detailed design.

And then just on the corporate cost, is the ramp-up in the back half of the year, is that expected to be ratable over the next two quarters? Or is it more like a fourth quarter event?

No. I would say that it's pretty ratable over the quarters. What you're seeing is that we're getting into the various phases of our ERP system project. And as I said during the prepared remarks, we've kept a pretty tight lid on expenses while we sorted out what 2010 was going to look like in the first half. So that spending is ratable.

Okay.

[Operator Instructions] And our next question will come from Joe Ritchie from Goldman Sachs.

My first question’s really on your Gas Monetization business and the margins we saw come through there this quarter. If you back out the $29 million adjustment that you made this quarter and take a look at revenue, it was up sequentially. And you had Gorgon coming through at a higher-revenue pace and you had a slowdown in Escravos this quarter. So I'm kind of wondering why the margins actually aren't a little bit higher, because it seems like the recurring margins in that business trended down this quarter versus last quarter.

A little bit of it gets back to how we're booking running through Escravos. Escravos volumes were slightly down from last year. They were down about 6%. Skikda volumes were down a little bit. But the other projects are kind of a mix and match. You have some FEEDs going through there. I think what we saw was some of the impact on the Gorgon project, where if you look at the base fees we’re getting, they’re probably a little bit lower. They are lower than what we’re booking on a normal project. But the incentive fees that we have when we look at where we are on the job and the amounts that we could and, actually, reasonably expect to earn relate it to the schedule and cost of that. They’re much more back-end loaded. So we're expecting that over time, Gorgon will be a solid contributor consistent with our market margins. In fact, if we do a good job, they’ll be in excess of the market margins. But right now, as we’re in the early phase of engineering, a lot of those incentives aren't measurable right now because they're very weighted to the ultimate schedule. They're weighted to the final costs, and those will be more back-end loaded in Gorgon's life cycle.

Okay. So we can, then, expect, I guess, the margins to continue to come through at these levels and not see a big pick-up in margins until we get substantially complete with that project?

Well, with respect to Gorgon, yes. We are getting some level of bonuses going forward. But we are seeing a consistency in Escravos that’ll probably go on at present levels for another 18 to 21 months. Skikda, we're into construction. That's a lower-margin project, but we're also expecting to see those volumes to be steady from a construction labor standpoint for the next probably 12 to 15 months. But things are moving, and we're not seeing big increases in projects, project volumes, and our backlog have lower margins. In fact, they should be declining relative to what we're seeing.

Okay, great. And then my one follow-up question is on Yanbu. Now that most of the contracts have been awarded and you’re continuing to expect it to do work as a construction manager on that project, are we expected, then, to see additional releases in the third quarter or fourth quarter this year with respect to that project?

Yes, there will be additional releases. The work we do for Aramco, both in Yanbu and on Ras Tanura, are work releases, and we'll see a steady three-month-ahead release on our activities. We expect that we will be very busy as KBR over the next four years, but we won't see any kind of needlepoint increase in our backlog. Rather, it will be every three months, we’ll add a little bit of backlog based on releases from Aramco.

Okay, great.

And we have no further questions at this time, and I'll turn it back over to our speakers for any additional or closing remarks.

Thank you for joining us today. As always, if you have any follow-up questions, I will be available the rest of the day and look forward to talking with you next quarter. Thank you.

That does conclude our conference for today. Thank you for your participation.