Good day and welcome to the KBR Third Quarter 2010 Earnings Call hosted by KBR. (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, William. Good morning, and welcome to KBR's Third 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 third 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 am pleased with KBR’s performance this quarter. As we have been discussing over the past year we are seeing KBR’s consolidated revenue decline primarily associated with the lowering volumes on the LogCAP III project. However, KBR’s consolidated business unit income is up 13% and operating income is up 24%. Both figures comparative of third quarter of last year, the earnings per diluted share of $0.62 for third quarter is up 38% compared to the prior year third quarter. 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 third quarter of 2009, job income backlog was up 1% relative to a 9% decrease in revenue backlog. Sequentially, KBR's job income backlog was up 1% despite a less than 1% decline in revenue backlog. During the third quarter a final settlement agreement was negotiated with one of our commercial agents who provided services to various Gas Monetization and oil and gas projects. The agent had confirmed their understanding up and compliance with KBR’s monitor approved policies on business conduct and represented that they had complied with anti-corruption laws as they relate to prior services provided to KBR. We executed a final settlement agreement with the agents in September 2010 which resulted a non-cash gain in the third quarter. Separately due to actions and inactions on part of the customer we identified increases in the forecasted cost to complete of an LNG project. The estimated cost increases included additional labor, equipment, sub-contractor bonding and other project cost. We are in a dialogue with our…

Thanks Bill. I will review KBR's consolidated third quarter 2010 results which primarily focuses on year-over-year comparisons. Consolidated KBR revenue totaled $2.5 billion in the third quarter of 2010, a $385 million or 14% decrease from the prior year third quarter which includes an expected decrease of $440 million for North American government defense compared to the prior year third quarter, substantially related to LogCAP III. Revenue in our international government and defense business unit increased 23%, down stream increased 15%. Technology increased 11%, gas monetization increased 9% and services increased 3%. Consolidated operating income was $163 million in the third quarter of 2010, compared to operating income of $131 million in the third quarter of 2009. Net income attributable to KBR for the third quarter of 2010 was $97 million or $0.62 per diluted share, compared to $73 million or $0.45 per dilated share for the prior year third quarter. Gas monetization revenue was $698 million in the third quarter of 2010, up $57 million or 9% from the third quarter of 2009. Gas Monetization job income was $59 million in the third quarter of 2010 compared to job income of $40 million in the third quarter of 2009. The increase in job income was also related to increased work on the Gorgon LNG Project, partially offset by lower activity on the Pearl GTL and Escravos GTL projects. The third quarter of 2010 included two non cash items; a gain related to final settlement with the commercial agent and a charge related to increased forecasted cost on an LNG project, both of which Bill discussed earlier. The net impact of these two items to Hydrocarbon's job income in the third quarter 2010 was negligible. In addition the third quarter of 2009 included approximately a $30 million charge on two…

Thanks Sue. I would like to provide KBR's outlook for our businesses. For KBR's global Hydrocarbons businesses we continue to see projects moving forward internationally, particularly in the Australia and Middle East markets. We continue to follow several projects in an active Australia LNG market as well a number of oil and gas projects in the Caspian, North Sea, West Africa and Asia Pacific regions. We also see downstream projects moving forward in the Middle East as well as in certain other African and Asian markets. This level of activity is supported by increased volumes of work at our technology business unit which in many respects continues to serve as a leading indicator of future downstream activity. Four our government and defense businesses KBR believes that with the achievement of the military personnel targets in Iraq, our work volume should be relatively stable though the middle of 2011 and possibly beyond. We are also seeing new opportunities for KBR's defense related service offerings with new customers including NATO and with Middle East customers to support their missions and recent hardware purchases. In our infrastructure and minerals business unit, we are seeing a resumption of capital spending in the mining industry. We are also seeing an increase in the level of bidding activity in the transportation sector in Australia and in the transportation and logistics markets in the Middle East. However we are now only just beginning to see evidence for an increase in activity at KBR's transportation operations in the Texas market. At our power and industrial business unit, in our industrial business, KBR continues to see a strong volume of early stage prospects and feeds and believes we are well positioned to continue with this work as our customers take investment decisions on these projects. In the power side of the business we expect to see an increase in the construction on new gas mark generation as a result of the continued low natural gas price environment which is displacing older coal fired generation and delaying plans for new nuclear power stations. In the utility market uncertainty surrounding future environmental regulation continues to slow the market for environmental controlled projects. In our services business we continue to see an increasing demand for small capital and maintenance projects and our customers appear more confident in considering larger construction projects. We are also seeing a continued stable demand for the services of KBR’s building group in its education and healthcare commercial markets. Also the bidding activity is also increasing in the Canadian oil sands market area. For KBR we are expecting the sales environment, for the services business group to be much improved in 2011 compared to 2010. Now we will take your questions and we ask that you please limit your comments for one question and one follow-up.

(Operator Instructions). We’ll take our first question from Steven Fisher, UBS.

Hi. Good morning.

2010 has certainly shaped up to be a great year for cash flow, so as you look at over the next few quarters. I am wondering what kind of tail winds and head winds you foresee and in others you mentioned the award fees and at some point there is PEMEX but what else could you have in there, is there any particular projects that will be major uses of cash?

No Steve as we look forward, what we are doing is we have proposed project is we are obviously trying to maintain a cash neutral posture on those. We have all of the businesses very closely watching the working capital requirement on existing projects and so the big items are really going to be looking out for advanced payments, looking for the EPC-1 payment and staying on top of the overall working capital.

Okay and I guess related to that and I think you have mentioned in the past about your interest in about doing further buybacks and what it would take to push you in that direction to execute another one. I mean do you have the PEMEX cash in hand?

I think Steve we continue to have an active discussion and dialogue with our board about how we look at the business. Yeah we do have the opportunity to deploy the cash in some ventures that we did, the Energo acquisition early this year and the technology venture with VP and we will continue to look at where we see opportunities to use and highest and best use of that cash over the short to medium term and obviously if we can identify opportunities where it makes sense to utilize that cash and really improve KBR then we will have further discussion on the buybacks.

Okay and then just the last question here, there was an absence of legal fees in this quarter. I think you mentioned the 9 million reduction. I am wondering how the process of resolving some of legacy disputes is evolving? Or how you see legal fees versus settlement cost playing out?

I think the process is a healthy process. We have -- we’ve continue to engage a dialogue this year with our customer. We’ve had some panels that have helped perhaps arbitrate the positions of KBR and the government on some of these matters. We actually have had some of your favorable outcomes that resulted in a lower net cost to us during the third quarter. We hope that we will see this panels continue going forward. I don’t know today if we’ve got a schedule for the fourth quarter. But certainly as these panels meet, we continue to gain confidence that the provisions we have on our books related to these matters is correct and our hope then will be able to continue to successfully manage this process well into 2011 and beyond until we get these issues resolved.

Okay, thank you.

And we will take our next question from Will Gabrielski, Gleacher.

Thank you. Good morning guys. A couple of things, if you would just -- can you, maybe rank order expectations of some of the LNG projects you are engaged with right now and kind of how you see that playing out over the next four to six quarters? Gleacher: Thank you. Good morning guys. A couple of things, if you would just -- can you, maybe rank order expectations of some of the LNG projects you are engaged with right now and kind of how you see that playing out over the next four to six quarters?

Probably not. I don’t think it’s wise for us to rank order. I mean, if you are talking about the timing of them, we could give comment based on what we know. The Pluto project is, it has been announced to the FID being delayed until second quarter, third quarter, middle of next year. Impacts, we have talked about, has been moved to FID to late 2011 timeframe. The others that are being talked about, I think, there is not much more we have in terms of better information of what that’s there in the press.

So, when you look at the Browse projects, do you expect that to be dual FEED between you and (inaudible) or is there any conversations you are having on that yet? Gleacher: So, when you look at the Browse projects, do you expect that to be dual FEED between you and (inaudible) or is there any conversations you are having on that yet?

Too early to tell. I think, they are still valuating some of the FEED proposals and when they let us know, I am sure that that will get out beyond just the various proposals.

Okay. I want a follow up. Just on the mining opportunity, you had a nice booking in the quarter. Could you just walk through your expectations for how do you think that can get for you? I mean, we saw Wily today with a pretty big CapEx number with their earnings release for 2011. I am just curious. How big can they get in and what impact that that have on your margin trying going forward within that segment? Gleacher: Okay. I want a follow up. Just on the mining opportunity, you had a nice booking in the quarter. Could you just walk through your expectations for how do you think that can get for you? I mean, we saw Wily today with a pretty big CapEx number with their earnings release for 2011. I am just curious. How big can they get in and what impact that that have on your margin trying going forward within that segment?

I don’t think we comment specifically on any segments. I would like to avoid just getting into that kind of microscopic guidance.

Okay. But in terms of the opportunities, I mean, there was a nice booking. But do you think there are several more or few more or any color on what your opportunities that looks like specifically? Gleacher: Okay. But in terms of the opportunities, I mean, there was a nice booking. But do you think there are several more or few more or any color on what your opportunities that looks like specifically?

Certainly, we believe we are more than a one-trip pony in that sector and hope will be able to be successful on other projects we are pursuing.

Thanks for the great color, Bill. I will talk to you soon. Gleacher: Thanks for the great color, Bill. I will talk to you soon.

Okay. Sorry to be black and white.

We will take our next question from Rob Norfleet, BB&T Capital Markets.

Good morning, nice quarter. Just a quick question. You had mentioned previously that you will be comfortable with increasing your exposure to fixed-price work going forward. I just want to get your thoughts and expectations. Do you think over the course of the next year, year-and-half that we will see some of the mix change in the backlog at the release of fixed-price work and how should we view that impact in margins? BB&T Capital Markets: Good morning, nice quarter. Just a quick question. You had mentioned previously that you will be comfortable with increasing your exposure to fixed-price work going forward. I just want to get your thoughts and expectations. Do you think over the course of the next year, year-and-half that we will see some of the mix change in the backlog at the release of fixed-price work and how should we view that impact in margins?

Our expectation, just talking with various customer groups out there, point us more internationally and probably more hydrocarbon is that the customers with whom we speak clearly see the reduction in volatility on pricing. We're not back and they don’t see us in the '07 to '09 timeframe where you had a lot of stress in the supply chain and a lot of changes in the underlying commodity prices for the equipment. And so they told us that it’s their desire to move towards a greater fixed price environment and what they've been doing in the last couple of years. So I would expect particularly on the international side that you would see across the board anybody involved in the hydrocarbons oil and gas factored to see an increasing amount of fixed price work reflecting the amount of what's being procured out there by the customers. From our standpoint, we are comfortable doing fixed price work. I think we do a good job of identifying risks and laying out the executions with a great deal of clarity. I’m comfortable seeing our fixed price component of work in that portfolio move up and hopefully we'll be able to see it and certainly as we look at the incremental risk that get into fixed price we would hope that margins could move up as well.

Okay. Great. And my follow-up question, just on the Gulf of Mexico, just trying to get some commentary from you. We've obviously seen Jack/St. Malo commission work continue to go forward in Bigfoot but again we're hearing from a lot of the ISC's that until they could really understand what their liability exposure is, they're having a difficult time actually going forward. What's kind of your thought and timing in terms of when we should actually see some of the projects move forward. BB&T Capital Markets: Okay. Great. And my follow-up question, just on the Gulf of Mexico, just trying to get some commentary from you. We've obviously seen Jack/St. Malo commission work continue to go forward in Bigfoot but again we're hearing from a lot of the ISC's that until they could really understand what their liability exposure is, they're having a difficult time actually going forward. What's kind of your thought and timing in terms of when we should actually see some of the projects move forward.

We are seeing the same factors you described. I think there is some uncertainty regarding limits of why a building and the amount of bonds people will be asked to put up on their future drillings. I think when we look at Jack/St. Malo and Bigfoot, those had already done their initial exploration and production work and so as they're moving in, I think in prior periods we had made some comments that the next phase of drilling on those projects was not expected until the 2012 timeframe. So those projects are moving forward. But we do see from our oil and gas teams that their customers are having difficulties moving their projects forward for those reasons. I think for us it effects us probably 18 to 30 months down the road because of the initially and till you work and as people develop their plans we're kind of a second order impact there. So we're watching where the rigs are going. And if the rigs are staying in the Gulf being idle, I think we'll see some subsequent slowness perhaps in that work but if the rigs start moving out to other areas then our geographic mix of work should follow where the rigs are. Okay.

And we'll move to our next question. Next question comes from Joe Ritchie, Goldman Sachs.

Good morning everyone.

Hey Joe.

My first question is -- really on that LNG write down that you gave us some brief details on, it looks like you took a $42 million charge this quarter in projects that's 71% complete. Can you provide any more details on the nature of the charge and I know its non cash now. Is it going to turn into a cash charge moving forward as you complete that project?

Joe on that questions it's an LNG project where the customer has seen a significant turnover in its senior management. We have seen other EMP companies as well as oil field service companies referenced the difficulty in doing work with this customer because of the change in personnel and some of the uncertainty surrounding the perhaps other consequences to other personnel, non-officers in that NOC. What we have found was that in our contract, we have obligations to enter the contract and our customer has obligations and our customer has largely been absent for the last several months in terms of performing it's obligations under the contract and that’s why we go back to the words actions or inactions by the customer and as we look at the effect on KBR from these inactions, they get a quarter sense. We forecasting now higher cost to complete and so we have spent some time trying to get our customer to engage with us and I am happy to say that we now have a sponsor meeting setup in November and then we will have some subsequent meetings after that. So the customer does appear to be engaging and we think the issues and some of the absence of decision making on the part of our customer can be resolved through these discussions and so we are optimistic that now that they have changed their leadership, the leadership is now engaging and the commitments that have been made by that company but we will get back and be able to get back on track on this project and we hope to be able to get back to the original schedules that we had on the project. So, it's just been a void that we have seen in dealing with the customer and we now appear to see the customer reengaging and participating and their obligations under that contract.

So, the 42 million and the charge that you are taking on liquidated damages provisions that are in the contract because the schedule is slipping and so if you actually get back on track and obviously this damage will go away.

Well it's not just liquidated damages if we are able to get back on track or get relief we could have to see some positive news on the liquidated damages. We also have mobilization cost, additional bonding cost outstanding that we had to put into our estimate and if some of these second order effects we also would hope to be able to in our best case mitigate through these discussions but the customer will have to recognize that they haven’t provided timely notices under this contract and will grant us the relief that we are seeking to get from them for their, as I said actions or inactions.

Okay great and I guess one follow up question for Sue – this year it looks like you are going to generate about $94 million or so in LogCAP fees at least you are having over the last two quarters. Help me understand how that delta between 2010 and 2011 given that some of your work is ramping down in that region and how should we expect let’s see this to come through in 2011.

Well I think as Bill pointed out in his prepared remarks the $34 million that we received at the end of the third quarter took us through February of 2010 and May of 2010 on Iraq and Afghanistan respectively. So, when we looked forward, there has now been another Award Fee Board that has met just recently. Our expectation is that we will receive the news from that probably early 2011. So, like we are in a fourth quarter impact as we look at that and then as we get more caught up and we are going to get into a more normalize schedule with the Award Fees but we are not predicting 2011. We are just taking the information and continuing the process, you know, the Award Fees as received. But that’s what the next several months looks like anyway.

We can follow up offline and then get some further detail but thank you for answering my question.

Sure.

(Operator Instructions) We will take our next question from Michael Dudas, Jefferies & Company. Michael Dudas - Jefferies & Company: Good morning everybody.

Hey Mike. Michael Dudas - Jefferies & Company: I was intrigued your comments about of being key service business seeing some better opportunities in the commercial, especially commercial side, maybe collaborate little bit. Are you seeing any indication that public or private customers or clients of KBR are starting to have some pent up demand looking to expand and invest in the country over the next couple of years?

We are seeing the activity coming out of mostly institutional players, I mean, hospitals, education facilities at universities and -- but we're also not seeing work coming out of the private developer community. So, we were drawing a big distinction between institutional spending on hospitals and educational facilities and we also do see some industrial facilities moving forward. We talk about the Boeing plant in Charleston previously but the private developer office buildings aren’t moving forward in general with services we are seeing our customers talk about certainly with greater confidence knowing larger projects and doing more than the small cap and maintenance projects. So, I think that’s going to pick up as we get into a level and that’s supporting a lot of our commentary both from the building group side as well as the North American construction side which is more industrial that we expect a much better environment in the U.S. on the construction side in ‘11 than we did in ‘10. Michael Dudas - Jefferies & Company: So like 5 million to 10 million prior just more like the 50 to 100, is that type of what the kind of shift you might be talking about?

I think we are seeing customers talk about the $100 million projects now and so it’s a relief for us because I believe KBR is a more differentiated service provider when we get to a $100 million or larger and I think that bodes well for the progress of our services group. I know they are very excited about this market returning. Michael Dudas - Jefferies & Company: I appreciate it. My follow up is as you look through the opportunities and the energy gas monetization on the gas side, how comfortable do you feel with the capacity for your company to do the work. Are you staffed well now? Do you think you are going to see opportunity to increase staffing? Is you capacity due to work comfortable right now? Does it need some attention? Thank you.

I would say the – this is a service business and our job to is to eat backlog. We have done a lot of engineering on Gorgon but that engineering is moving out of the London operating centers out to the high value centers that we have at various locations around the world. So, we are actually hoping we can sell some more front end work, both in the oil and gas side as well as the gas monetization side. Otherwise we'll be coming down staff wise and so we're pretty comfortable about our ability under our present staffing to sell more work and to -- and we factored that into our work plans but we do have capacity in '11 to undertake more work and we're going to see the growth in the offices on our high value centers in 2011 where in 2010 its been more the front end offices in Houston and in London. Michael Dudas - Jefferies & Company: Excellent, thank you very much.

And we'll take our next question from John Rogers, DA Davidson.

Hi, good morning

Good morning John.

Just if you could maybe elaborate a little bit further, you indicated that you're income within your backlog is up about 1% and that backlog -- I think I understand this correctly -- should be growing given your opportunities for bookings over near term. So as we roll out over the next number of months and quarters and years, did we see a real improvement in margins going forward?

I believe so. I think the real big drivers for us John are going to be working through Escravos, working through LogCAP, as LogCAP continues to decline our margins go up. The challenge for us is to maintain overall revenues where they are because the work we're replacing LogCAP backlog with is higher margin than what we're getting on LogCAP. The state of the project we took and that overall margin was probably below average because we've got such a large reimbursable component running through our books and as I've said previously we're happy to take on more work like that at the expense of our job income margin percentage but as long as its increasing our job income margin dollars and we'll try to be as transparent as we can as to the dollars instead of percentages of these project structures that we're motivated to growth the job income backlog because for that’s what pays the bills and if we've got to take lower margin, lower risk or no margin low risk like procurement on, we're happy to do that. So we're trying to drive and talk about the changing complexion of our backlog as we add the commentary about job income in addition to the revenues.

Okay. But it sounds as if we should see some -- I know you'll talk about '11 later but I mean some decent growth based on -- unless the project timing is a lot longer for some reason?

As in these one off typically large transactions we should see margins increasing and we believe that you certainly -- the more profitable backlog would be a contributor to that.

Okay. And then I guess one other question just for Sue, in terms of the tax rate, you mentioned 32% to 33% this year. Why was the tax rate so much lower? Is it just mix issue in the quarter and then its coming back up again?

No, I think as you think about it, in the fourth quarter of 2009 we talk about the execution of some tax strategies around our UK entities. We're seeing the benefit of those on -- and there was a benefit in the third quarter of 2010. In addition we took some actions with a couple of our foreign entities which benefited the tax in the third quarter. So, some of the discrete items as well as the tax planning strategies. So, what we are signaling to you is that as we look at the overall 2010 picture is that our effective tax rate has come down to the 32 to 33% type of range and that’s the expectation going forward.

No, I think as you think about it, in the fourth quarter of 2009 we talk about the execution of some tax strategies around our UK entities. We're seeing the benefit of those on -- and there was a benefit in the third quarter of 2010. In addition we took some actions with a couple of our foreign entities which benefited the tax in the third quarter. So, some of the discrete items as well as the tax planning strategies. So, what we are signaling to you is that as we look at the overall 2010 picture is that our effective tax rate has come down to the 32 to 33% type of range and that’s the expectation going forward.

That’s clear. Thank you very much. Great quarter.

Thank you.

And our final question comes from Jamie Cook, Credit Suisse.

Hi, good morning. Two quick questions, one back on Pluto again there was some news in the press on Pluto I there had been some escalated cost and I wonder how do you think about that and whether you think better positions you for winning Pluto II and also I guess on Pluto II there was some concern that might not move forward. So, what you are hearing from the customer on that front?

I think we read the same things about the cost on Pluto and yeah obviously it's hard for me to stay unbiased in that sense but we are still very excited about Pluto and then from our customer about the future of Pluto II. It has been shared with us as well as publicly that they are looking to round up the gas that could be used to support the execution of Pluto II and we haven’t heard anything that would deviate from the announcement that Don Maltby made several weeks ago about the delay into mid-year next year.

Okay I all set. Thanks. Great quarter.

Thanks Jamie. Thank you.

And we have no further questions at this time. I would like to turn it back over to our speakers for any closing comments.

Great. Thank you for joining us today on the third quarter call. We look forward to talking with you in February discussing the fourth quarter and full year 2010 results and as always I am available the rest of the day and tomorrow to answer any follow-up questions that you may have. Thanks.

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