Good day, everyone, and welcome to the KBR 2011 Earnings Guidance Conference Call hosted by KBR. This call is being recorded. And as a reminder, your lines will be in a listen-only mode for the duration of the call. There will be a question-and-answer session immediately following prepared remarks. You will receive instructions at that time. For opening remarks and introductions, I would like to turn the call over to Mr. Rob Kukla, Director of Investor Relations. Please go ahead, sir.

Thank you, Paula. Good morning and welcome to today’s conference call to discuss KBR’s 2011 earnings per share guidance as well as KBR’s two recently announced acquisitions, the Roberts & Schaefer Company and MWKL. Today’s call is also being webcast and a replay will be available on KBR’s Web site for seven days. Joining me today are Bill Utt, Chairman, President and Chief Executive Officer, and Sue Carter, Executive Vice President and Chief Financial Officer. 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 Forms 8-K. I’ll now turn the call over to Mr. Bill Utt. Bill?

Thanks, Rob, and good morning, everyone. It is good to be with you this morning to discuss KBR’s 2011 earnings guidance, as well as our two recent acquisitions; the Roberts & Schaefer Company and MWKL. As we see our markets and opportunities today, we expect KBR’s full year 2011 earnings per diluted share to be in the range of $2.05 to $2.30. This includes the Roberts & Schaefer and the reduced minority interest for MWKL. Sue will provide further details in her comments. Now, let me discuss the two recently announced acquisitions. First, KBR closed and press released the Roberts & Schaefer Company acquisition on December 21st 2010. Roberts & Schaefer, a Chicago-based company, is a global leader in engineering, procurement and construction services for bulk material handling and processing systems. The company provides services and associated processing infrastructure to customers in the mining and minerals, power, industrial, refining, aggregates, precious and base metals industries. The purchase price was $280 million, plus preliminary net working capital of $12 million with final adjustment after closing. In addition to its Chicago headquarters, Roberts & Schaefer has major operations located in Salt Lake City; Brisbane, Australia; Gliwice, Poland; Jakarta, Indonesia; and Ahmedabad, India. The Roberts & Schaefer business also includes Soros, a provider of material handling solutions for port and marine applications, and Separator, providing services to coal, minerals and power markets in Eastern Europe. The Roberts & Schaefer acquisition brings to KBR the following It expands KBR’s existing EPCM capabilities in the minerals market, which at the time of the transaction were largely in the Australian market. To new geographies and customers as well as to provide a broader services offering built around acquired bulk material handling capabilities of Roberts & Schaefer. Roberts & Schaefer also strengthens KBR’s existing port and marine…

Thanks, Bill. Before discussing the details around our full year 2011 guidance as well as expectations of the key drivers and assumptions, I’d like to briefly comment on 2010. Although we are still early in the process of closing the financial books for 2010, we believe we will be at the top or above the top end of the previous full year 2010 guidance range of $1.75 to $2. KBR’s full year 2011 earnings per diluted share guidance is $2.05 to $2.30, which includes $0.11 for Roberts & Schaefer and $0.06 for MWKL. Looking out into 2011 for the LogCAP project in Iraq, KBR is assuming the 50,000 troop levels until the back half of 2011 with a substantial ramp down in troop levels by the end of 2011. From a revenue perspective, we anticipate the full year 2011 LogCAP revenues to be approximately $1.6 billion to $1.8 billion. This is of course our best estimate based on the information we have today from our customer. We expect the operating effective tax rate to be approximately 32% with diluted shares outstanding to be approximately 150 million shares to 151 million shares. For the Roberts & Schaefer acquisition, since the firm was not a publicly traded company, any historical financial information has not been formally audited, so we will not provide historical revenue. However, in conjunction with the strengthening mining and minerals markets, we have included a revenue contribution from Roberts & Schaefer of approximately $300 million in 2011, which represents projects currently under contract or with a high probability of award. Historically, Roberts & Schaefer was a U.S. focused company. In 2009, approximately 70% of its revenue came from the United States. We anticipate growth for international projects and geographies from known opportunities and the experienced international capabilities and global…

(Operator instructions) And our first question will come from Andy Kaplowitz with Barclays Capital.

Hi, this is actually Quo Sho [ph] in place of Andy. Good morning, Bill and Sue.

Good morning.

Good morning.

Can you tell us what kind of risks are structured in the MWKL deal? I mean you have indemnification clauses for FCPA from Halliburton on your original stake. Do you have a similar clause with JGC?

Well, I think the indemnification from Halliburton goes towards any financial penalties associated with the SFO investigation, and as Sue commented, we’ve already factored that into the purchase price with JGC subject to a true-up.

Okay. You don’t anticipate any further continue to see it?

We don’t anticipate any leakages from SFO into the KBR financial statements.

Maybe just one follow-up, what’s the split of EPC versus material handling at Roberts & Schaefer. Is your strategy on R&S to bring KBR’s capabilities to win more EPC work or to add R&S’s material handling KBR’s to your existing EPC work like Hope Downs?

Roberts & Schaefer’s primary businesses are material handling in the general sense. You obviously have Soros and Separator with their businesses. We see opportunities to leverage in some of KBR’s existing skill sets. We have for instance, engineering, that we could bring and Roberts & Schaefer does a pretty good amount of subcontracting of a detailed engineering on their projects. They also subcontract the construction. And so as we look at the integration of Roberts & Schaefer into KBR, we do have the capability of providing engineering bodies, as well as do the construction of these facilities in a way that allows us to deliver a fully integrated EPC project through Roberts & Schaefer, allowing KBR to capture all the margin on the EPC offering, whereas previously, Roberts & Schaefer has subbed out lot of detailed design and the construction of their facilities.

Got it. I’ll get back in queue. Thanks.

Thank you.

And our next question will come from Steven Fisher with UBS.

Hi, good morning.

Hi, Steve.

Can you just talk about what’s your SG&A assumptions are for 2011? And then related to that looking back at 2010, you had some reduction in SG&A from your initial guidance as the year progressed would you see any similar opportunities for that in 2011?

I think in SG&A, Steve, the one area that we are facing is we do have some overlap in terms of occupancy cost in our Houston operations. As we announced a year ago, we did take a significant amount of space in downtown Houston at the 500 Jefferson and 601 Jefferson, which allowed us then to transition people out of our Clinton Drive facility into the downtown location and we expect to realize some synergies there. But, 2011 is the Europe transition where I’ve got Clinton Drive open. I’ve got the financial burdens of the Tower and we’re probably going to see by our rough estimate about a $10 million impact on SG&A this year related to having two facilities open, which we hope to dramatically reduce that next year after all the people have been moved out of Clinton Drive.

Can you give us a dollar estimate of what you think the year is going to look like?

We’re not anticipating material changes in SG&A from ‘10 to ‘11. You’re going to have some wage inflation. But, really the big one-time drivers are going to be that $10 million real estate costs we’re going to absorb during this year.

Okay, great, thanks a lot.

And our next question will come from Jamie Cook with Credit Suisse.

Hi. Two questions, one on Roberts & Schaefer. How should we think about normalized operating margins in this business or is there any room for improvement? And then I guess my next question is we’ve been hearing from some of the other E&C companies, like Fluor and Foster, seems more optimistic since the third quarter in terms of what they are seeing in terms of projects moving forward. We saw Santos move forward. I think this morning and Fluor got that. They are talking about higher bid and proposal activity, margins have bottomed. I’m just wondering if you could give your broader comment on the market after Roberts & Schaefer.

Yes, Jamie, on the Roberts & Schaefer, I think we see our biggest opportunity to drive an increased amount of Roberts & Schaefer’s work internationally. So, we’re focused more on a volume variance as opposed to a margin variance.

Is there any difference in margins on the opportunities overseas versus U.S. or would they be comparable?

It’s too premature for us to comment on that. We think there is with our international project delivery infrastructure that we ought to be able to grow that business on the top line with just more volume. As we’re able to capture greater degree of integration of KBR Engineering or KBR Construction with the Roberts & Schaefer project opportunities, we think that’s going to give us more dollars, per dollar or more dollars of overall job income at KBR per dollar of revenue at Roberts & Schaefer. So, those are the two areas we’re focused on and if we can drive higher unit margins at the overall EPC level that would be good upside for us. Regarding our outlook on the market, we do see things moving forward. I think it’s pretty transparent what’s happening in Australia regarding projects moving forward and I am very comfortable with the positions that KBR has taken there. And one of the subtleties from our comments is, we talked about different partnership models in LNG and evolving our thinking on who do we partner with on some of these big projects. And so we’ve been looking in Australia with where we see some of the construction labor risk and a lot of the infrastructure that needs to be built that, maybe it makes more sense for us to partner with large civil contractors, where in the past, we’ve partnered with other firms. I think we’re also looking at that evolving business model to take advantage of the work that we see coming out in the Middle East and Africa over the coming period, but net-net, we do see projects moving forward. We are optimistic that we’ll see a much better award base in 2011 compared to 2010 and so the general sentiment that you’ve picked up from others in the space we are similarly sharing that at a high level.

And are you seeing any change in the competitive dynamics in terms of bidding projects and do you feel like for the industry margins have bottomed or capacity has tightened to some degree or are we not there yet?

We’re seeing capacity tightening. We know last year there was a significant move by the Koreans to get projects and I think we’ve in the past referred to it as a Korean stimulus plan. What we thought at the time was that the amount of work that the Koreans sold may have exceeded their engineering capabilities and we’re seeing that manifested as we look around the industry where some folks are out there doing subcontract engineering services for these contractors. And so as you just look at the balance of work and where people’s backlogs are, I think the backlog situation today internationally is a lot more stable than it was a year ago. And I say that principally with respect to a lot of the fabricators in Korea that are doing EPC work now. We’ve seen an increase in the orders for ships, new built ships, we’ve seen certainly from our standpoint the procurement on Gorgon has been placed. They’ve won EPC work. So I think some of the gaps in their backlogs, particularly, in Korea have improved since last year, and we think it will lead to certainly a more balanced or more stable or more sustainable pricing environment for projects this year.

Great, thank you very much and congratulations.

Thank you.

And moving on, we’ll go to Will Gabrielski with Gleacher.

Thanks. Good morning, guys. Just on R&S, you gave a GAAP accretion number. I’m wondering if you could talk a little bit about what the backlog additions will be for that, what the duration of that backlog is and maybe how much non-cash is moving into that GAAP number and what we could expect in maybe in 2011 or 2012 once that starts to wind down?

Great question, but really beyond the guidance that we gave on our backlog, Will, I’m sorry.

No problem. It’s just starting to sound like the Q3 earnings call when you shot me down.

That’s okay.

An earn-out associated with that as well?

No.

Okay. My last question. Margins in your oil and gas business, hydrocarbons business, if you start to think about Skikda and Escravos eventually winding down and look at what you’re booking today, what’s your assumption in there for 2011 and maybe what are you expecting? Obviously, you’re bullish on MWKL, booking some LNG work, and you clearly have a good FEED pipeline, where could we see that trends look like over the next two years or so based on what you’ve done internally to improve your cost structure?

Well, I think that we’ve commented previously that when we look at, at least our gas monetization backlog excluding Escravos, excluding Skikda, that’s probably in the mid-teens in terms of per job margin performance, and we expect that we’ll be able to, on a reported basis for gas, move up to that mid-teens level as the impact of those two projects falls off over-time. Now, in saying that, I do reserve the right as I often times say to do another Skikda project, because while it does have low job income margins, it has very attractive overall levels of job income for KBR relative to the risk that we’ve taken on that project. But ignoring the fact we might do another Skikda type project, our margin should continue to trend up to the mid-teens with the expiration of Escravos and Skikda.

Okay. You guys notified on (inaudible). I heard an award with (inaudible) just don’t know who’s won that project?

I don’t know that we’ve commented on it. I’d ask you to talk to Apache and the owners on that.

Absolutely. Thank you very much.

Okay.

And next, we’ll go to Tahira Afzal with KeyBanc

Good morning, gentlemen and congratulations on a good guidance for 2011 and preliminary performance of 2010.

Thank you.

Just a couple of questions. Number one, if I look at your guidance outside of R&S and MWKL, could you talk a bit about the drivers on the upper end versus the lower end as in what the risk size be going into 2011?

We really just don’t get into that level of detail. At a high level, selling more work earlier for us will allow us to get more volume through the shop, but it’s going to be really macro fundamentals like that, that we think will drive us to the higher end.

Got it. So there seems to be less execution risk on margin variability built into that guidance, would that be correct?

I think as we look at our business, looking backwards, I think the teams here at KBR have done a great job of running their businesses more efficiently, more transparently and with a higher degree of discipline. I think as you look back, over time we’ve been able to reduce, but not eliminate the number of surprises we have and the nature of the surprises is tending to maybe be a little more positive than it has been in the past. But overall, we’re still focused very much on execution and I would hope that we would be able to continue and sustain the good project execution that we had in 2010 into 2011.

Got it. Okay. One last question and that will be it from me. So I’m saying Engineering won the first large EPCM project in North America and I have met up with them a couple of months back. As you know, they have office in Houston. Seems like they are taking a much more aggressive view in terms of penetrating what was really core U.S. markets like North America. Any comments on whether you’re seeing them in some of your businesses in the North America side or whether you continue to see them largely in the markets on the international side?

Really don’t have any comments as to where we see them. The North American market is a very open and transparent market and we prepare to compete with any and all players, domestic and internationally on those. Certainly, Samsung gets a greater publicity of some of the projects they are bidding overseas but as North America, I’m sure there are others who are talking about coming into the market. That’s a reality we face every day.

Got it, okay, thank you very much, Bill and Sue.

Thank you.

Thank you.

And moving on, we’ll go to John Rogers with D.A. Davidson.

Hi, good morning.

Hey, John.

Just following up on the comments relative to the LogCAP work in 2011, can you give us an idea of what 2010 ended up looking like and any comments relative at least to the two major segments in terms of granularity into 2011?

Well, I think we’ll have probably some better data for you at the end of February when we’re able to announce the 2010 results. I think it’s premature to talk about any of our businesses in any real detail today. That would include any backlog we have as well as outlook beyond what we’ve already commented on. So, I think we’re still watching what’s happening. It’s kind of a long live LogCAP in a lot of respects, as we’ve been perhaps pleasantly surprised that the legs that LogCAP continues to have.

Okay. One other quick question, I guess for Sue or Bill. Is there any significant amortization of goodwill or anything relative to Roberts & Schaefer that we should be thinking about that runs off?

No. We’ll do as Bill talked about, John in our February call and provide some more color. We’re putting the finishing touches on all of the purchase accounting, but my expectation is no.

Okay, great, thank you.

And next, we’ll go to Robert Connors with Stifel Nicolaus.

Good morning, guys. How are you?

Fine. How are you?

Doing well. Just real quick, is Tangguh built into any of the numbers? And then also on your LogCAP award fees now that it seems like we’re sort of catching up, are we sort of normalizing and able to see with more clarity some of the award fees going forward in 2011 on those?

I think on the LogCAP award fees we’re back on track. The challenge that you all would have modeling is some of these contracts as we’ve extended them or rebid them have a different margin composition for us and I think LogCAP IV is of a fixed fee variety at present and there is a different award fee arrangement on LogCAP III and certainly we have some continuing discussions with our customer for the LogCAP III work, after the spring in terms of what will that contract look like as we really get into what is expected to be the phase down. So, I think we are in a much more stable position vis-à-vis award fees. I think we’re in a more stable position vis-à-vis the job income for KBR coming out of LogCAP because in the portfolio we’re a little bit more balanced towards fixed fee as opposed to award fees, and that’s about as far as I can comment given some of the uncertainties that we’re facing and forecasting for ‘11 relative to where we sit today.

Okay. And then just on the Tangguh receivable?

I think that’s just normal business is how we’re looking at Tangguh.

So, it’s not built into the 2011 numbers or…?

I just won’t comment on any specific line item in our guidance.

Okay. I understand. And then also on the gas monetization and particularly within hydrocarbons, is that sort of shifts a little bit more towards a little bit more fixed price, and fixed price bids tend to take a little bit more time and longer to process and more costly, could we see just a slight uptick in that divisional overhead or are we going to be at these about low 2% levels of revenue?

I’d say we anticipated in 2010 a higher degree of bidding and it was some fixed price in there. I’m not seeing much change that I’m hearing from our teams in their business development budgets because of the expected bidding environment going forward. We did review their overhead budgets. They looked at where the prospects are and we don’t see any kind of what I would term step function change in the overhead rates in our hydrocarbon divisions.

Okay, thank you.

And moving on, we’ll next go to Vance Edelson with Morgan Stanley.

Hi, thanks for taking the question. Bill, how do you feel about the price you settled on for Roberts & Schaefer? Would it be fair to say the timing was good overall because the business has been slow over the past couple of years with better times ahead, or did you have to pay up at all for the brighter outlook?

We’re a fairly disciplined group here. We look at all of our acquisitions against our cost of capital. We look at all the acquisitions against what other factors are such as share buybacks. We thought it was a fairly priced acquisition for the business that we bought. But, we also see some real opportunities for KBR as I’ve talked about to take the business more internationally than it’s been to-date. I think we said 70% domestic at the time of acquisition, and also the opportunity to stack margins. So, we are very pleased with what we bought. We’ve got some teams obviously assigned to deliver those synergies both in terms of the geographic growth internationally as well as the various efficiencies or synergies we see with our existing businesses. We’re working hard to make those happen even faster than we model them.

That’s fair. And perhaps for Sue is a quick follow-up. Is there anything in the 2011 guidance for legal settlements related to legacy allegations, or would that be a potential negative impact that you’ll just adjust the EPS for as it comes. I guess as a part of the same question, is there any embedded assumption for share buybacks?

Well, as we look at 2011 again the granularity we’re giving is basically the earnings per share level and the acquisition side, but as we go through the year and as we get to more experience on all of that you could continue to talk about the legal fees and the other pieces that go along with some of the legacy work and then as you think about shares and all of that I did give you the 150 million shares to 151 million shares as our projection for 2011, so that should give you a good look at where we are.

Okay, great, thanks for taking the questions.

(Operator instructions) Next, we’ll go to Joe Ritchie with Goldman Sachs.

Good morning, everyone.

Hey, Joe.

Just a quick follow-up on the LogCAP fees, in 2010 thus far, you put about $94 million in fees. I’m just wondering what your expectation if you can provide some kind of range for 2011 and what’s embedded in the guidance that would be helpful?

Joe, I think that’s more detail than we’re comfortable giving. I would go back and say we do have LogCAP IV on 100% fixed fee basis. So, as that continues there’ll be no award fees there, but then the uncertainty of what the fee income is very, very limited. And then on LogCAP III, lot of it depends on the evolution of the business. And I think as we look back at the LogCAP performance in 2010 and we net out the tale of the award fees that were related to award fees in prior periods, 2009 for example, that we think we’ll be very comfortable with being able to achieve that kind of net run rate in ‘11 that we saw in ‘10 when you do that kind of adjustment.

I guess maybe asking it just slightly differently, is it fair to assume, I know the Award Fee Board met in October and also that I think most of the revenue that’s coming through right now from that business is coming through on LogCAP III, is it fair to assume then that you still expect it to receive a portion of 2010 and 2011 and you’ll continue to accrue in 2011 based on the work you’re doing on LogCAP III?

Second question first. We’re not accruing anything at present. We’re recognizing it upon award and yes, some of the award fees will, in 2011, will reflect performance in 2010. I think some of our prior comments or announcements have disclosed what the time windows prior awards would have been, so you can look at those. I don’t remember them off the top of my head, but we will have a little bit of carry forward in ‘11 from 2010 on award fees. Similarly, at the end of the year, we may have award fees from the 2011 period that may not get paid till the conclusion of the year. That remains to be seen based on how the next iteration of margins on the residual LogCAP work is negotiated.

Okay, great. I guess one last question on R&S. Thanks for providing the revenue contribution for this year. Given the end market that it serves is it fair to assume, obviously, you’re to get more history with this business, but would it surprise you if you see double-digit growth in that business in 2012? Thank you.

We’re hoping that we can get there. Certainly, we have our expectations of being able to grow this business over time, and our plans are to grow this business. And we think there is opportunity out there in the world in areas where KBR is present today, where we don’t provide the skills of Roberts & Schaefer to those markets. Similarly, we also have skills available in KBR to allow us to provide a seamless EPC on the markets where Roberts & Schaefer is today. We do have plans to grow that business and our general strategy is try to get long commodities, and this is a good way for us to demonstrate that more directly in the mineral sector as well as the other material handling sides in the power and industrial markets.

Okay, great, thanks so much.

And there are no further questions in the queue at this time. I’d like to turn it back to the presenters for any additional or closing comments.

Thank you very much for joining us today. As always, I will be available the rest of the day to take any follow-up questions that you may have. Thanks for joining us. Thanks.

That does conclude today’s conference. We’d like to thank you all for your participation.