哈里伯頓 (HAL) 2004 Q3 法說會逐字稿

Good day, everyone and welcome to today's Halliburton Company's third quarter 2004 results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Paul Koeller. Please go ahead, sir.

Thank you, Audra. Good morning and welcome to Halliburton's third quarter 2004 earnings release conference call.

Today's call is being Web cast and a replay will be available on our Web site for seven days. Joining me today are Dave Lesar, Chairman, President and Chief Executive Officer, Chris Gaut, Executive Vice President and Chief Financial Officer, John Gibson, Chief Executive Officer of Energy Services Group, Andy Lane, Chief Executive Officer of KBR, and Burt Cornelison, Executive Vice President and General Counsel.

On today's call, Dave will provide opening remarks. Chris will discuss our overall operating performance and financial position and update you on the progress of our asbestos settlement and a few other important matters for the Company.

Next, John and Andy will cover the business outlook and competitive position of the Energy Services Group and KBR respectively. Finally, Dave will provide a few concluding remarks before opening up the call for questions.

We will limit each caller to one question and one related follow-up in order to maximize participation in the time allowed.

I expect by now most of have you seen this morning's press release with our third quarter results. If you don't have a copy of our press release, you can obtain it from our Web site at www.Halliburton.com.

Before turning the call over to Dave, I would like to remind our audience that some of today's comments may include forward-looking statements reflecting the Company's view about future events and their potential impact on our performance. These matters involve risks and uncertainties that could impact the Company's operations and financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-KA for the year ended December 31, 2003, and Form 10-Q for the quarter ended June 30, 2004.

With that, I will now turn the call over to Dave Lesar. Dave?

Thank you, Paul. And good morning, everyone.

Overall, I am obviously very pleased with the progress that we've made as a Company in the third quarter. I'm especially pleased with our Energy Services Group and its operating performance during the quarter.

Previously announced May price increase within ESG is certainly taking hold within our customers. With increased activity, as reflected by the current rig count, our utilization of equipment is high, and pricing improvements have delivered record quarterly revenue, operating income, and margins.

Excluding the $40 million gain on the sale of the Surface Well Testing business, ESG had record revenue of $2.1 billion, up $204 million, or 11% sequentially. It had record operating income of $374 million, an increase of $103 million or 38% sequentially, and record operating margins at 17.7%, which is up 3.5 full percentage points or 25% sequentially.

And whatever we get from the October 15 price increases, of course, are still all ahead of us. Chris and John will provide further discussion of ESG in a few minutes.

At KBR, Andy Lane and his management team continue to take all of the right steps to turn the business of KBR into a profitable organization, including taking steps to complete troubled projects, the sales of Barracuda and the Belanak FPSO vessels this quarter. Andy has restructured the KBR organization to take costs out of the business.

We have resolved this quarter issues with a number of customers on a number of our major projects, and we began negotiating a major claim with a customer regarding the site relocation of a gas processing plant due to soil integrity issues. This was the major KBR charge for the quarter, and Andy will go into this in more detail in a few minutes.

I believe that all these steps will position KBR for a strong 2005. Chris and Andy will also give you an update on our activity in Iraq.

I would also note that we have made progress on a definitization progress, in process, and anticipate the first award fee board to be in November of this year.

We also ended the quarter with $3 billion in cash and a stronger liquidity position. The outlook for our business continues to improve particularly for Energy Services and the LNG businesses.

Customer spending in the third quarter continues to increase reflecting a stronger view that high commodity prices are sustainable over a longer-term. As our customers become more confident about the fundamentals underlying recent oil and gas prices, we anticipate further increases in spending in both the U.S. and internationally.

As an indication of the strength of our continuing ESG operations, I would point out to you that our 42 cents per diluted share income from continuing operations, included 7 cents in losses from KBR, as well as a 6 cent gain from the sale of our Surface Well Testing business. Clearly, an outstanding performance from our core ESG operations.

Now, for some more detail, I'll turn the call over to Chris.

Thanks, Dave and good morning.

My comments today will include updates on the Company and segment results. I will summarize the change in revenue, and then operating income for each of our five segments. I will then discuss our liquidity and other financial items, and in closing provide an update on our asbestos settlement.

Throughout this call, I will be comparing third quarter 2004 results from continuing operations sequentially to the second quarter 2004. Now, moving to our operating results.

Total Company revenues for the quarter were $4.8 billion. That's down 166 million from last quarter, due to somewhat lower activity on KBR's government services contracts, partially offset by strong demand for ESG services, particularly onshore North America.

International revenues were 75% of the total in the third quarter, compared to 76% in the second quarter. Operating income increased 368 million sequentially, primarily due to the improved operating performance of ESG in the third quarter, and the large charge in the second quarter on the Barracuda project.

Special items in our operating results for this quarter included a $40 million gain on the sale of ESG's Surface Well Testing operation, as well as an $18 million charge at KBR for restructuring and related costs.

Income from continuing operations was 186 million, or 42 cents per diluted share, that's including the 6 cent per share after-tax gain related to the sale of Surface Well Testing, and 3 cents per share after-tax charge at KBR for restructuring and related costs.

Now, let's review our operating results and first, I will review the segments within the Energy Services Group or ESG.

As Dave said, ESG revenue totaled $2.1 billion, which was up approximately 11% from the second quarter. This was an ESG record quarter for revenue, surpassing the previous high achieved in the third quarter of 2001.

ESG operating income totaled 414 million, an increase of 143 million compared to the second quarter, that's partly due to the $40 million gain on the sale of Surface Well Testing, improved pricing in the United States, increased United States and international rig counts, improved earnings in our Subsea 7 joint venture, and cost containment.

These improvements more than offset the $6 million operating income effect of hurricane Ivan and the $1 million effect of the strike in Norway.

Excluding the $40 million gain on the sale of Surface Well Testing, ESG operating income totaled $374 million, an increase of 103 million, or 38%, compared to the second quarter operating income of 271 million. A reconciliation of as-reported segment results to adjusted results is set forth in our earnings release in footnote table three.

ESG's operating margin in the third quarter, excluding the gain on the sale of Surface Well Testing, was 17.7%, the highest in the Company's history. In addition, when comparing this margin against our competitors, please keep in mind that our margins are more fully burdened with allocated G&A expenses which we believe depresses our margins by more than 100 basis points on a comparable basis.

Each of ESG's segments showed sequential improvement with increases in revenue and operating income. Results for the ESG segments are as follows.

The Production and Optimization segment had a very strong quarter. Segment revenue increased 89 million, or 11%, with most of the improvement in our Stimulation business.

Revenue from the Stimulation business was up 89 million, due to strong growth in land rig activity, and improved pricing in North America, and increased activity in the North Sea.

Revenue from completions and reservoir optimization services was down 15 million, primarily due to the sale of Surface Well Testing in August, 2004, lower sand control completions in Nigeria, and fewer completion product sales in the Middle East. These decreases were offset by increased perforating and completion and intervention services in the North Sea.

Our Subsea 7 joint venture recorded 12 million in equity income in the third quarter, compared to a 2 million equity loss in the second quarter. The improvement of Subsea 7 was due to higher vessel and ROV utilization in the North Sea during the third quarter.

Production Optimization operating income increased $101 million, due to the $40 million gain on the sale of Surface Well Testing, a $45 million increase in production enhancement operating income due to improved equipment and crew utilization, and pricing improvements in the United States as well as the $14 million increase in equity income from Subsea 7.

As we previously announced in August, we sold Surface Well Testing for approximately $129 million. In the third quarter, we recorded a $40 million gain on the sale. The gain affected operating income but did not affect revenue.

We continue to have involvement with portions of the former SWP operation in certain countries, and therefore have not recognized all of the gain from the sale as of September 30. We expect to recognize remaining gain during the fourth quarter of this year.

In the Fluid segment, third quarter revenue was up $64 million, compared to the second quarter, with increases in all geographic regions, and strong activity in Mexico, Canada, and the U.S. land.

Baroid revenue increased 27 million on improved activity in Mexico, Nigeria, Venezuela, and the United States land, partially offset by the effects of hurricane Ivan and the Gulf of Mexico.

Cementing revenue was up 36 million due to pricing and rig count improvements in North America, direct sales of cementing equipment in China and Russia, and increased activity in Latin America and Russia. The increases were slightly offset by the drilling slowdown in continental Europe and the strike in Norway.

Fluids segment operating income was up 36 million, with increases in each geographic region. At Baroid, operating income increased $15 million due primarily to higher activity in Canada, Venezuela, and Mexico and cost reduction efforts in the Gulf of Mexico, resulting in improved performance for the quarter.

Cementing operating income increased 21 million, primarily from higher rig activity and improved pricing in North America, improvements in Mexico, and the direct sales to China.

Revenue for the Drilling and Formation Evaluation segment increased 27 million, as a result of increased activity in Canada, U.S. land, Gulf of Mexico, and the North Sea.

Revenue from directional drilling and logging well drilling or LWD services increased $21 million due to increased activity in the U.S., the North Sea, and the seasonal increase in Canadian drilling activity following spring breakout. These were partially offset by decreased activity in Kazakhstan and Malaysia.

Logging revenue decreased $2 million sequentially, due to lower product sales into China, partially offset by increased U.S. land activity. Drill bit revenue was up $6 million, due to better pricing and increased activity in North America and direct sales to the Caspian.

Drilling and formation evaluation operating income was up $3 million, and margins remained above 13%, despite the impacts of hurricane Ivan and the strike in Norway, both areas which are heavy users of Sperry-Sun's tools and services.

Operating income from directional drilling and LWD services increased $3 million from the prior quarter, due primarily to improved margins on activity in the U.S., Canada, and the U.K. These increases were partially offset by lower performance in the Middle East Asia as a result of startup costs for new projects in Indonesia and the Caspian.

Logging operating income decreased $2 million sequentially, due to lower product sales to China and the impact of hurricane Ivan.

Security DBS drill bits operating income was up $2 million with improved performance in North America, as strong direct sales to the Caspian.

In a drill bit patent infringement case against a competitor, we received the United States District Court's judgment in the amount of $41 million in our favor during the third quarter. However, we will not record any gain arising from the lawsuit until final resolution.

Revenues in the Landmark and Other Energy Services segment increased 24 million, compared, this increase of 24 million was primarily due to increased activity on the integrated solutions projects in Mexico. Operating income increased $3 million, primarily due to higher equity earnings in our surface Subsea joint venture.

Landmark Graphics third quarter revenues increased by 3% on software sales in the United States and Brazil, and operating income was essentially flat for Landmark Graphics with the prior quarter, due to $3 million in severance and facility closure costs.

Now let's move to our engineering construction segment, KBR, and we're comparing still third quarter 2004 sequentially to the second quarter 2004.

KBR revenue totaled $2.7 billion. That's down 370 million from the prior quarter, primarily due to the completion of the government's services RIO 1 project and reduced activity on the LOGCAP III project in the Middle East. This was partially offset by higher revenue earned on projects in Africa.

We added $3.2 billion to KBR's backlog in the third quarter, which represented more than 100% of revenue for the quarter. Net of work off, KBR backlog at the end of September was $9.3 billion, that's up 500 billion from June 30, primarily due to the new LNG train award in Nigeria, and new operations and maintenance projects.

Of the total backlog, 5.3 billion is for the government and infrastructure projects and 4 billion is for energy and chemicals projects.

KBR's operating loss was $50 million, compared to a 277 million loss in the second quarter. The third quarter operating loss included 70 million of losses from three projects, a gas project in Algeria, the Belanak FPSO project, and a toll road project in the U.K.

There was also $18 million of charges related to the restructuring of KBR and severance costs. There was a $6 million charge to reflect the settlement with our customers of approximately $150 million in unapproved claims, liquidated damages and change orders on various projects. And we have lower income from government-related work in the Middle East due to the completion of the RIO 1 contract and higher indirect costs.

Included in the second quarter loss was the $310 million loss on the Barracuda project. As of September 30, the Barracuda-Caratinga project was 90% complete and we had about $432 million of cash yet to spend. Andy will discuss these projects further.

Iraq-related work for Halliburton as a whole resulted in approximately only $4 million in operating income, before corporate costs and taxes for the third quarter. On $1.4 billion of revenue, compared to 23 million in operating income for the second quarter on $1.7 billion of revenue.

The third quarter decrease in operating income was due to the lower activity on RIO and Well Cap III contracts which was a $9 million effect. And increased indirect expenses of about $8 million partially due to the installation of a new general accounting system in our government operations division.

Increased revenue on the PCO Oil contract in the third quarter partially offset the reduced revenue on RIO and LOGCAP III contracts. However, recent accounting rules require deferral of recognition of awards fees on this contract until award fees are actually finalized.

We expect Iraq-related activity to continue to contribute low margins until award fees on contracts are finalized sometime next year.

In addition to the $18 million charge in the third quarter for KBR restructuring-related costs, we expect another 10 to $12 million charge in the fourth quarter as we fully implement the new organization.

Now turning from segment operating results to other financial items, our general corporate expenses were 22 million in the third quarter, compared to 20 million in the second quarter, and we expect corporate expenses in the fourth quarter to continue in this range.

Our effective tax rate on continuing operations for the quarter was 37%, which is about the rate we expect for the fourth quarter as well.

Capital expenditures totaled 138 million for the third quarter, that's down 16 million sequentially. Capital spending for 2004 as a whole is expected to be approximately $575 million.

Depreciation expense was 118 million for the third quarter compared to 124 million in the prior quarter.

Now let's take a minute to update you on our debt and liquidity.

Total debt at September 30, 2004 was approximately 4 billion consistent with the previous quarter. We ended the third quarter with $3 billion in cash and equivalents, that's up from 2.2 billion at June 30.

Our working capital position on our government services work in Iraq was approximately $500 million at September 30. That's down from approximately $1.1 billion at June 30. So we have achieved a significant reduction in Iraq working capital that we expected.

Under KBR's agreement to sell specified United States government accounts receivable, approximately $200 million was outstanding at September 30. Subsequent to the third quarter, these receivables were collected, and the balance retired, and we are not currently selling further government receivables although the facility continues to be available to us.

As of September 30, 2004, the balance outstanding under our ESG accounts receivable securitization facility was about $256 million. In July, we entered into a new $500 million, 364-day revolving credit facility for general working capital purposes, with terms substantially similar to our existing $700 million revolving credit facility.

In September, we issued a letter of credit for 172 million, under the $700 million revolver to replace an expiring letter of credit for the Barracuda project, and this reduced our availability under the revolver to $528 million.

Our liquidity position is strong, and we believe it will be more than adequate to fund the asbestos and silica trusts and meet our general operating needs. In addition to the $3 billion of cash on hand, at September 30, we have a billion dollars of unused credit lines, the ability to sell additional accounts receivable, as well as an improved working capital position in Iraq.

With respect to our proposed asbestos settlement, on July 26 of this year, United States District Court affirmed the confirmation order. On August 3, certain insurance companies filed a motion to vacate the District Court's affirmation order in order to protect their appeal rights.

The insurance companies have agreed to dismiss their appeals once the previously announced agreements in principle are finalized and approved by the court. Once appeals to the District Court affirmation are exhausted, we would fund the trusts.

We are making progress on finalizing the insurance settlement agreements with the many insurance carriers. We want to ensure that Halliburton's interests are protected and our value is maximized so we are being deliberate in finalizing all of the documentation and we must work within the court's available calendar.

We are continuing to work towards funding before year-end. However, if there are any further delays, funding could slip into early 2005, if we are unable to finalize all agreements within the court's time frame.

In the third quarter of 2004, we recorded an after-tax charge of $230 million to discontinued operations, primarily for the increase in market value of the 59.5 million shares of Halliburton stock to be contributed to the asbestos trust as part of the asbestos liability settlement as well as related legal and court expenses.

We will record the issuance of a stock once our asbestos settlement receives final approval at the then current stock price. So the amount now being charged to earnings as the stock price increases will flow back into our stockholder's equity when the final settlement is achieved.

We intend to hold our 2004 fourth quarter earnings conference call on Friday, January 28, 2005 at 9:00 a.m. central time.

Now let me turn the call over to John Gibson for his remarks on the Energy Services environment and outlook. John?

Thanks, Chris. Good morning to everyone.

We had an excellent quarter for the Energy Service Group and in fact it was our best ever in terms of revenue, sequentially up 11% and surpassing our previous high for top-line performance with a $10 million improvement over Q3 '01. This has been achieved despite the divestment of a number of business and assets with revenue potential of some $200 million.

Revenues increased in all product segments, both sequentially and year-over-year. Overall, demand for oil and gas field services, has continued to be strong with operators gaining confidence in a significantly higher commodity trading range than we have seen.

Like the many in the industry, we see no major shift in the undersupply positions for oil and gas in the medium-term, and provided there is no addition of significant new capacity, it looks as though we'll have good market for oil field products and services. For the outlook for ESG remains strong.

Of course two major events in the last quarter dampened what could have been an even stronger quarter. Hurricane Ivan in the Gulf of Mexico where recovery is somewhat slower than expected, and a broad-based strike in Norway, which we have a little more optimism on at the moment, but together we estimate it depressed our revenues last quarter by about $18 million and our operating income by about $7 million.

Despite this, sequential results showed continued growth in the operating income of $103 million or 38%, excluding the gain on sale of Surface Well Testing, and on revenues which increased by 11%.

The foundation for our improvement was price book increases which were announced in May this year. While we have faced inflationary pressures in our cost base, we've worked diligently to minimize their impact and are maintaining a steady focus on our capital discipline in this robust market.

We're generating higher revenues than in 2001 with about one-third less of the capital spend. As you can see from these overall results, a significant portion of our price increase has fallen to the bottom line.

I would now like to give some highlights by segment and across our geography.

Very proud of our Production Optimization team. Our Production Optimization segment had an outstanding quarter with strong demand for stimulation services.

We're seeing a 51% incremental margin contribution in our production enhancement service line, where operating income this quarter was the highest ever.

Pricing increases in the U.S. are sticking. We anticipate further gains internationally as new contracts are awarded and existing contracts rebid.

Our one disappointment's been in our completion in reservoir optimization service line, which was affected more adversely by the storms in the Gulf of Mexico. We are pursuing growth in the business driven by increased development drilling and improved recovery activities.

Also very proud of the Fluids team. In Fluid, the turn-around story in Baroid continues and margins are up sequentially reaching double digits on revenues that were the highest ever.

We're continuing our systematic restructuring of Baroid to complement the outstanding performance of our cementing business. Overall in Fluids, revenues were up 12% sequentially, with operating income up 47%, and margins up 32%. Excellent results from the Fluids team.

The Drilling and Formation Evaluation segment showed both year-over-year and sequential improvements in revenue and earnings despite the negative impact of hurricane Ivan and a strike activity in the North Sea.

Our logging business continues to perform well. And following consolidation of facilities in the Woodlands earlier this year, our drill bit business continues to show improvement. Production levels for our PDC bits business hit record levels during the quarter.

Sperry-Sun showed good top-line growth than the previous quarter, as recently awarded contracts in Eurasia and the Far East began. Sperry also broadened its formation testing while drilling offering this quarter becoming first to market with a new configuration of its proprietary GeoTap technology to address customer needs for formation testing while drilling in larger hole sizes.

Again, the Drilling and Formation Evaluation team deserves a lot of credit this past quarter.

And finally, the Landmark and Other Energy Services segment. Landmark Graphics continues to show year-over-year growth and is a business that typically sees income rising toward year-end.

We have completed some major cost reduction exercises and have recently announced the closing and redeployment of resources from our Austin center. We continue to focus on cost improvement overall in ESG.

The third quarter margin improvement for major contract wins was partially offset by restructuring charges. Among these wins, we recently secured a major data management contract with PetroChina worth 32 million.

This deal provides PetroChina with fully integrated multi-tiered information management system that will support the full data life cycle of their oil and gas data. Importantly, this contract represents Landmark's successful and substantive entry into the $1.2 billion corporate data management market, on the back of a string of national data bank awards in Nigeria, Indonesia, and Kazakhstan.

This business is being won through the superior nature of our technical solutions. A factor further evidenced by Landmark's recent winning of the World Oil award for its GeoProbe seismic interpretation technology.

These examples provide clear evidence for the continued strength of our digital information consulting businesses, and the strength of our team in the Landmark business area.

For the geographies, let's look at North America. North America is performing strongly and we're encouraged with progress in most of the international regions.

In the Middle East, I'm very pleased with a series of wins with Petroleum Development Oman, where between 400 and 500 million of new contracts have been secured year-to-date, a clear indication of our commitment to this high activity market.

As a result, as the industry takes a view on the market attractiveness of Russia going forward, our strategy of selective profitable growth is providing the kind of foundation we seek.

In the offshore sector, we're optimistic about the market activity in the North Sea over the near-term and into 2005.

Further, in the Middle East, we see additional opportunities in Qatar as it continues its gas development and in Angola, we are seeing increased activity as well. I expect this to continue over the next few years. We are well positioned to capture these growth opportunities as they arrive.

Moreover, we have two additional points for optimism. The first is the continued growth in the revenue associated with new products, which now stands at 30-plus percent of our revenue base, and is actually approaching the natural limit of what you can do with new technology.

Our technical innovations are receiving worldwide recognition. Fast Test advanced testing service, a finalist in the 2004 World Oil New Horizons Idea category. And Depth Star, tubing, retrievable, subsurface safety valve is a finalist in the 2004 Energy Institute Innovation category are just two examples.

Further we've recently set performance records around the world, including performing the world's deepest frac pack treatment for a major operator in the Gulf of Mexico.

These recent successes and technology awards, we have received across all product lines. Our strong focus on securing our intellectual property and the growing need of customers for complex solutions and support of maximizing oil recoveries are indicators of potential premium returns available to a prudent service company.

Secondly, we recently announced an 11% price book increases for U.S. pumping surfaces effective this month. Based on our experience with our earlier increases, we would expect the benefits to start to accrue late this quarter, with full benefits likely to mature only in 2005.

We are committed to driving as much as these benefits to our bottom line through continued focus on our cost structure. However, we are beginning to see increased inflationary pressure on our direct costs.

To summarize, the third quarter, we are very pleased with the team and the exceptional strong bottom-line and top-line performance in all segments and most regions. Our successes this year are anchored in a strong North American market but are being felt globally within all segments and with most all of our traditional customers. We are grateful to all of our long-standing customers and those new customers that are turning to Halliburton as the company of choice, great job for the North American team.

And now, I'd like to turn it over to Andy for his discussion of KBR. Andy?

Thanks, John. Congratulations to ESG for an excellent quarter and good morning, everyone.

As we announced on September 23, we have restructured KBR into two divisions, an Energy and Chemicals division, and a Government and Infrastructure division. We have named the top management positions in our Company and we are continuing to implement and streamline the new organization below these top positions.

As with any major restructuring we have had to make tough decisions. However, as a result of these decisions, KBR will be better positioned for success.

We have reduced the corporate staff that reports directly to me in half from 12 senior executives to six. With an aim to flatten the entire organization, we have also reduced the number of Vice Presidents from 94 to 42.

We have also eliminated certain internal expenditures that were not yielding acceptable returns and we have refocused our research and development expenditures by strengthening our emphasis on LNG, and decreasing our expenditures in lower return areas. In short, we redesigned our cost structure so that the portfolio of projects that we are currently executing will yield profitability.

As Chris mentioned, we recorded restructuring-related costs totaling $18 million in the third quarter. And we will be near our guidance of $30 million once fourth quarter charges are included.

To date, we have identified well over $60 million in potential cost savings, and we continue to target over $80 million in annual cost savings, once our restructuring efforts are completed. We should benefit from the full impact of these savings in 2005.

Now I want to provide you with some details on our third quarter performance by division. First, I will discuss our Energy and Chemicals division.

As you may have read in the recent press release, we have reached a major milestone in our Barracuda-Caratinga project. The Barracuda FPSO set sail on October 13. First oil is expected in November.

We also continue to make progress on the Caratinga FPSO which is set to depart in December and begin oil production in January 2005. In October 2004, KBR and Petrobras entered into a non-binding agreement in principle which replaced the previous announced agreement in principle of April of 2004.

The October agreement settles various claims between the parties. It extends the project deadlines, it assigns performance of certain work under the original contract to Petrobras and would amend the existing agreements.

The discussion among all parties including the project lenders are under way, and negotiations are proceeding to reach a final agreement. The approval of the project lenders is required.

We also successfully completed construction and modular installation on the Belanak FPSO in Indonesia. The vessel set sail to the Belanak field on October 11, and first oil is expected before year-end.

We recorded $11 million loss in the third quarter due to equipment commissioning costs, and additional carryover scope.

We were successful in winning a sixth LNG train in Bonnie Island, Nigeria, which is scheduled to start up in the fourth quarter of 2007. This award also reflects our leadership in the LNG sector which is expected to grow significantly over the next decade. And we continue to perform very well on our LNG projects.

Apart from our LNG work, we reported a $48 million loss in the third quarter for a joint venture gas processing plant in Algeria. The loss was primarily the result of increased costs due to material changes, subcontractor costs, currency losses, and schedule changes.

After the construction started on this project, large underground caverns were discovered on the customer's selected site location and it was necessary to relocate the site of this plant due to the soil integrity problem. This resulted in a six-month delay in 2003.

Also, the project started as a duplicate design of a previously successful design and then the customer changed to a new design. KBR has the obligation to document our cost coverages, overages in this fixed price contract.

We are currently negotiating a change order related to this site relocation with our customer.

We worked to close out some older contract issues. In that regard, we reached agreement on claims and changed orders with our customers on a number of projects, reducing our exposure on claims, unapproved change orders, and liquidated damages of $150 million. These settlements resulted in a net $6 million charge in the third quarter.

Our backlog for the Energy and Chemicals division at the end of the third quarter was $4 billion.

Now I'll cover the events in the quarter for the Government and Infrastructure division.

Never before has any private contractor worked in as difficult and dangerous environment as Iraq. Unfortunately, the number of KBR employees and subcontractors killed in action has now increased to 54.

This loss deeply saddens all of us. We still have two missing in action since April, and remain very concerned. Our top priority remains protecting the safety and security of all of our personnel, while we fulfill our mission in Iraq.

We continue to work closely with our customers to negotiate final prices for the various task orders on the LOGCAP III contract. This process called definitization is required to determine a final price upon which award fee pools are established.

Once these award fee pools are established, our customer can grade our performance and finalize our award fees.

KBR and our customer have identified three senior management teams to facilitate these negotiations of the LOGCAP III task orders. These teams have successfully negotiated 30 task orders totaling over $500 million and setting the stage for negotiations of the larger Iraq task orders.

The first award fee evaluation board is planned to occur before year-end.

As an update to RIO award fees, we have submitted all ten task order proposals of which three have been definitized and the remaining seven are being audited by the DCAA. We expect the release of funds currently being withheld and award fee negotiations to begin once all task orders have been definitized.

Under the PCO Oil contract, the follow-on to RIO, funding is slightly over 430 million, as our customer plans future work. To support this planning we have been performing front-end engineering and preparing estimates necessary to commence work in the Southern oil fields of Iraq.

Our customer has indicated that it plans to begin awarding fully definitized task orders shortly. Based on prior experiences, I'm now insisting on fully definitized task orders before we proceed with any significant work scope.

We are nearing completion on a very complex toll road in the U.K., and have identified additional costs for utility rerouting, and communications, which resulted in an $11 million loss in the quarter.

In the U.K., DML has exceeded our projections for the third quarter, and has progressed on the full refit of the nuclear submarine HMS Vanguard.

With respect to new business, KBR was awarded the U.S. Navy's competitively bid construction capabilities contract called CONCAP. CONCAP supports the Navy's construction and emergency contingency activities overseas, and in the U.S., including port and facilities construction and disaster relief.

We expect to receive task orders totaling approximately $300 million over the term of the contract which includes one base year and four one-year options.

At the end of the third quarter, our backlog for the Government and Infrastructure division was $5.3 billion. The government has increased funding of our LOGCAP III contract by $1.3 billion, which brings the total contract funding now to $8.2 billion.

In closing, KBR's bottom-line results are not up to my expectations, which I am confident I can deliver. However, we remain committed to working through our remaining difficult projects and further improving our cost structure so that we can position the Company for profitability in 2005.

Now I'll turn the call over to Dave who will make some closing comments. Dave?

Thanks, Andy and Chris and John. I think that was a good summary of where we are in the quarter. Let me just highlight a few bullet points and then we'll open it up for questions.

Clearly, in the quarter, we made good progress in getting the asbestos resolution behind us, and on track for closure in the near future. Record quarterly revenues, operating income, and margins at ESG, the ESG U.S. price increases from October and the benefits of those still ahead of us, customer spending has continued to increase both domestically and international markets for our core energy-related businesses, working capital in Iraq continues to decrease. And all the right actions I think are being taken at KBR to restructure its business for a successful 2005.

Our hearts continue to grieve for the ones that we've lost in Iraq and our sympathy goes out to their family and loved ones. As Andy as told you, we continue to serve the U.S. military with the largest civilian work force ever assembled, and I'm extremely proud of the tenacity, courage, and sacrifice of all of our employees but especially those in Iraq and the Middle East. With that, lets open it up for questions and see what's on your mind.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question today, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one if you do have a question. We will go first to Ken Sill at CS First Boston.

Yeah, good morning, gentlemen. And I'll be the first of probably many to congratulate you particularly on the results at ESG. A couple of quick questions here. One, in Landmark, the margins disappointing. You guys said, and I missed the amount, there were some severance costs in Landmark for some facilities and head count reductions? Hello?

Yes, I was looking up all the numbers.

I'm sorry.

We had about $3 million in restructuring costs there. We closed the Austin facility where we had about 60 or so employees and we transferred some out. We eliminated some of the positions as well as part of the restructuring in order to reduce costs going forward. And so the margins were impacted by that restructuring charge.

Also a large impact on the margins for Landmark and Other is the integrated solutions projects that we have. To the extent that we have revenue that is not in one of our PSLs in other words where we're subcontracting services out at very, very low margins, that revenue and cost flows through Landmark and Other, so they have a fair amount of revenue at very low margins. And those IS projects and our own work, of course that goes into our Other segments.

But as I mentioned in my comments, Ken, the thing with Landmark that you have to look at is seasonality. And we're coming up on the hockey stick for Landmark, and the fourth quarter is typically the Landmark Graphics component of the Landmark division’s strongest quarter so we're putting a lot of pressure on them as we go into Q4 to deliver improved results.

Okay. That helps with that answer. And then in Drilling and Formation Evaluation, I guess the logging segment, you know, a couple million loss in revenue and it all dropped out of the bottom line, is that going to get a little bit better here as we move into Q4? Or is that just one that's, you know, one of the few that's kind of lagging here?

That was really due primarily to hurricane Ivan and our strength there in the Gulf of Mexico. The actual logging division, very proud of the results that they're delivering. Very strong part of our profitability in the DFE area. And had it not been for the loss in activity we'd have been fine there.

Okay. And then one of the comments Dave made and I'll let somebody else ask a question, you talked about the 11% price increase in pressure pump and you made a reference to more to come. What segments do you see the best potential for further price increases as you look out over the next couple of quarters?

Ken, the price increase of 11% took effect on October 15. And I'd appreciate it if you'd give us a little time to get that one worked through our customers before you pressure us into making any future announcements.

Well I was looking at, that was in pressure pumping, I was looking into some of the other product lines.

We continue to evaluate the opportunity to do that, and this coming January we've got a 5% price increase in the Landmark product lines and we're looking at it across the board, but we still are in evaluation. Baroid's also increasing as well.

Okay. Well, thanks.

Okay.

We'll go next to James Stone at UBS.

Hi, good morning, guys. I'll second Ken's thoughts on the quarter. Let me just touch base with you on the, what you saw in terms of ESG margins in the quarter which, you know, which were really spectacular and the incrementals were very good as well. I mean as you dig in, as you dig through the numbers, was there anything in those numbers that would lead you to believe that that's not a new sort of sustainable level of profitability for the ESG segment as we head into the fourth quarter and then, you know, into 2005? You know, was there anything other than that, like large shipments, you know, and perhaps a large tender order or something along those lines that might have positively impacted profitability above and beyond sort of a normal run rate for where we are in the cycle?

That's an excellent question. And it's one we started to just put in the comments.

Fundamentally, this was just a great blocking and tackling quarter where it's just a result of normal operations. There's nothing in those numbers other than just good performance, good service quality, a good pricing, good cost control, and a strong North American market. It's just a really fundamentally sound quarter.

And with a little bit of luck in Norway, and with them resolving the strike situation, and taking a look in the Gulf of Mexico, moving out of the storm season, we even see a little optimism for the quarters ahead.

And when you look at the geographic data, you'll see that the margins are up nicely across the geographic areas.

Okay. And then, just my second question is, you talked about the impact of inflation on costs starting to be a little bit more noticeable with your comments on pricing, what do you think the average rate of cost inflation that you're likely to bear say over the next 6 to 12 months is going to be? In ESG.

Well, we have two primary direct [inaudible]. Some of the consumables are, there's some inflation going on there but it's small. And labor costs are increasing as well. And so in the labor, non-labor area, we're going to incur some price increases. We believe that we have price increases on our services that actually provide us good strong incrementals. And you can look at our past price increase of 8% and see how much that we dropped through and see, I think, that we're out in front of those, but they are cutting into the total ability to realize the price increase.

Raw materials we are seeing increases there.

Consumables --

That's probably the most significant area. But as the market strengthens, we can expect that we'll get more pressure on the labor side in some other area.

We're working very hard on our supply chain management in order to be able to look at alternative suppliers for it so that we can keep those in line as best we can.

And does it sound like you'll be able to keep the cost creep to say 5% or less?

It's our goal to keep it to zero if possible, but I think you'll see us put a real effort on that and I don't know the exact number. I'd have to work on that and get back with you.

All right. Thank you.

We'll go next to James Wicklund of Banc of America Securities.

Good morning, guys. The Fluids business did a whole lot better sequentially than we had expected. John, can you attribute some specifics to that and how we can expect to see that grow over the next couple of quarters?

If you're talking about Baroid, Jim, it did better than you expected and what I expected, so I think we're in pretty good shape. I'm really proud of the team there and they had an exciting quarter, but they're blocking and tackling. Again, we're not doing anything fancy, it's just the fundamentals on pricing associated with the contracts. It's an improvement in service quality.

And logistics.

And the logistics. I mean we did have some costs associated with logistics that we've taken out of the system. We've actually reduced the number of products that we're selling in that division as well.

We're just getting more focused and I do believe that they're developing the ability to deliver consistent results on a quarter-to-quarter-to-quarter basis, and that's our goal there. It's not to have a big jump in a single quarter, but to deliver long-term consistent results, and I think they're on that path, Jim.

But you're going to forgive them for that having a big jump in the quarter, though, aren't you even though that wasn't the call?

Well, you always like them to jump in that direction.

In terms of incrementals, and I know this kind of follows on the previous question, but this is my follow-up. The incrementals in Production Optimization were huge but in Baroid, they were stunning as well. What kind of incremental margins can all those efficiencies you talk about continue to generate? And have we seen most of the, you know, the big jump up to a higher margin level or can you repeat those kind of incrementals?

Well, Jim, all we can do in order to stay the course and continue to improve is to manage our cost structure with diligence on an ongoing basis. We're really doing that going into '05, maintain the capital discipline that we've established here over the last couple of years, and manage our indirect costs, and we're really, I think, doing a good job of that and we've got organizational focus on it, and this success is going to let the organization know that it pays off to have this kind of diligence. I think we're basically in a cycle where the organization will see the benefit and then we'll get more benefit from them staying focused on it.

Considering we're all going to have to jack up your numbers as a result of all of this blocking and tackling, that's why all the questions. Good job, guys.

Thank you.

Next we will go to Scott Gill at Simmons and Company.

Yes, good morning, gentlemen. Andy, I guess the first question for you is we've got some, I guess, charges or, you know, costs associated with some of these projects here in the third quarter, Algeria, Indonesia, et cetera. Is this part of an effort to clean house or are these just kind of ongoing projects that are going to pop up from time to time?

Well, Scott, we're taking a hard look at all the projects, you know, what all the management changes we've made at KBR this last quarter, we went in, took a tough look at every project we had going, which ones had been around for several years, which ones we had not settled with our customers, and we had claims outstanding, and we went in and looked at each one of them individually, and have worked the tough ones and we continue to work through those projects.

I guess maybe as you look now into the fourth quarter, I mean is this kind of the brunt of it? Have we seen most of the kind of bad projects flow through or are there some other things here we should be anticipating in the fourth and first quarters?

To make the distinction, Scott, the Algeria, the toll road, Belanak, those were continuing operations.

Right.

During the third quarter. We also talked about clearing up some old contracts. Old contract issues and settling over $150 million of claims for within 4% of what we had booked and that effort, we're making good progress on that and we're going to be continuing to do that through year-end.

Okay. So again, like the project like in Algeria, those things are going to continue to pop up from time to time, correct?

Well, the Algeria gas processing plant, Scott, was a very unique project. You know, in all these projects, it's the customer's responsibility to ensure the site location they pick is, you know, proper for the construction work. And in this case, it wasn't.

Very unusual to start a project, have a six-month delay in the middle of the project causing delays and cost overruns and changes in the design. So we really view that as a one-off project.

We've had several very successful projects in Algeria, but this one has everything going wrong and so this is a fixed price contract and under that scenario the burden falls to KBR to document all those impacts of the costs and then recover those through the claim process which we are planning to do in a vigorous way.

Okay. And John, my follow-up question for you would be, looks like part of the Norwegian strike is over, at least impacting some drilling rigs, but apparently in the press today there's talk about the union strike against the service providers. Can you provide any, you know, commentary on the potential for that on your business going forward?

We're optimistic. It looks as though the government's beginning to take a part and it's very important to the Norwegian economy for them to get this back on track, so I would believe that they would get this settled in a reasonable period of time. And the impact of it to us, with the current strike situation, is a couple of million dollars in operating income over the course of the quarter, so we'll manage our way through it.

Okay. Thank you.

We'll move next to Dan Pickering of Pickering Energy Partners.

Good morning, guys. I wanted to follow-up just on the impacts of the pricing in the current quarter. How much, you obviously were seeing price benefits, but are we completely implemented worldwide on the April/May price increase, or do we expect to see continued gains there in fourth quarter?

Dan, I can describe it roughly for you. About two thirds of our contracts are existing contracts where the pricing was already negotiated. And we're benefiting from an increase in volume under those contracts where people are doing more services under the contract on more wells.

The remaining third of the business is where we're getting the pricing in and we have good penetration on that one-third of the business, particularly for cementing and stimulation to PE areas in North America.

And so I'd say about a third of the business is experiencing that price increase, about two-thirds on rolling contracts and as the contracts renew, you'll see us implement it in the go-forward contracts.

So theoretically this is an event that will continue to come into play as we move through 2005 as well?

Yes. In fact, for some people, if you can imagine, if you had a contract that's a couple of years old, you're going to end up at a point where you're negotiating and you'll have both an 8% and 11% take effect at the same time on a new contract.

Exactly. Okay. And Andy, I guess I just wanted to circle back on the ENC side of the business. I didn't feel like we got a solid answer in terms of whether or not the core business is profitable. I realize we're seeing these one-time contract hits in the third quarter, but help us understand, are we making any money in the core business?

Yes, Dan, and we, you know, we have booked what we needed to book on these projects, reviewing all of them in the third quarter. The core LNG business is making money. The core Government Service business is making money.

But as you know well, the real award will happen after we get to these award boards, which we have our first scheduled for Kuwait in November and then the rest of them will fall into next year, and that's really where we'll see more of the profit from all of our hard work there in Iraq.

But the core ENC business is doing good. The core offshore from our previous work on focusing offshore and onshore are both doing well. You know, we've suffered from a few offshore projects.

We had three FPSOs that were all fixed price, offshore contracts and we sailed two of those and the Caratinga one we will sail in December, so we're at the end of a story here where we're putting a lot of those problems behind us and the rest of the results of the business will show next year but it will be into the first quarter of next year.

Okay. So fourth quarter we should not expect to hear anything about a different project in Malaysia or, you know, in other words we've taken the big hits in the third quarter? The project review's completed. Everybody is kind of dialed down to the right number. And that's all reflected in third quarter?

Dan, you know, with percentage completion accounting, and our accounting policies, we need to look through the end of all these projects. We're always accounting for what we think is going to happen in the future through completion of construction. So as we said before, we can never say never. And we've taken our best view of these projects through the end of the quarter as Andy said.

Okay. And one last oil service question and I'll jump off here. With respect to the business exposed to the 11% price increase effective October, I just want to ballpark the math here. We're raising pumping services by roughly 11%, our math says that's about a $3 billion business of which a couple billion is in the U.S., and a big majority is onshore, and so is it fair to say that you've got somewhere between a billion and a half and 2 billion of revenues that will be exposed to this October price increase?

Even a lot of the U.S. business stands under contract.

It is.

So in fact, if you take a look at our overall pumping service business, at any one time, over 50% of it's under contract.

Okay.

We really do have a lot of large customers, and with those large customers, we negotiate long-term extended contracts, and so those will be rolling in at the natural rate at which they roll off, and we'll be putting those price increases in place.

Okay. That answers my question. Thank you.

We would like to remind everyone to please limit yourself to one question and one follow-up. We'll go next to Mike Urness with Merrill Lynch.

Yes, good morning, Mark Urness here, very good quarter. I wanted to ask one more question on the margins, obviously we're looking at very strong growth, 240 to 250 basis points of operating margin improvement in ESG the last two quarters, obviously we don't want to extrapolate that. Maybe I should ask Chris, what year-over-year in '05 versus '04 given the effect of the price increases and cost inflation, what type of a conservative assumption could we make where it would be reasonable in terms of year-over-year operating margin improvement?

You're asking us to project operating margin?

Well, I guess what I'm asking, Chris, is we've had 240 to 250 basis points the last two quarters, and I don't really want to use that in the next four quarters. I mean should we tone it down to 100 basis points a quarter, keep it flat, or you know, obviously pricing's going to have a positive effect?

Yes, you know, in the fourth quarter, there is some seasonality. We talked about some increases in costs. As we look through to 2005, in a strong market with the price increases that we have, we would certainly expect to see a further improvement.

But the rate of incremental margins that we have in the third quarter will obviously be extremely hard to sustain. We're seeing excellent improvement in a strong market with a strong market continuing, we'll continue to push prices, but in a cooperative manner with our customers.

But you know, extrapolating this kind of improvement gets to certainly unprecedented level of margins in the industry and I don't know that, you know, it's not going to be a straight line kind of thing. We're going to see revenue growth.

Well, our intent is to maintain sort of the established pricing leadership that we have in the service industry. But to do that, we require robust markets. So we're dependent on the commodity prices staying up, the global economy staying up. All of the general factors that you'd put in there. As long as the market continues to stay robust, we're going to be the pricing leader.

And we'll make reasonable expectations or reasonable estimates given the trends. Then John, one more question on the spending trends, I think one other oil service company yesterday indicated they see continued acceleration of growth into '05, and you know, perhaps double digit spending growth again next year. What are you seeing among your customers? I think today we saw BP announce another Cap Ex increase. What are you seeing among the major oils and the national oils and the larger independents in particular?

On the capital spend increases, I think it's mixed. I talked to some that want to maintain some fairly strong discipline in even their capital spending going into '05 with just moderate increases.

I seen some where the capital spend that they're announcing is primarily on the downstream side or the infrastructure side where they're talking about pipelines or LNG, et cetera. So modest increases on the upstream, with mixed, some not increasing at all, and sort of hedging here and sort of waiting to see how the pricing firms up throughout '05, so I'd say just modest increases in capital spending going into '05 on the balance.

Thank you.

We will go next to Geoff Kieburtz at Smith Barney.

Thanks. A question for Andy. I think to an earlier question, you sort of indicated that the core KBR is kind of returned to a normal level of profitability. Did I understand that correct?

Yes, Jeff, and I need to reconfirm what I said at the analyst investor conference. We still see next year, the guidance we gave, as 8 to 10 billion in revenue, and the 1 to 3% margins as what we will accomplish, and we feel good about the core business we have. We've got some project jobs that we have to put behind us but we feel good about the core of KBR.

Okay. And given all the charges, I guess my question really is, having now had at least a few weeks in the position, are you getting the sense that there is some, you know, sort of contracting methodology or discipline changes that need to be made at KBR?

We're putting a lot of that, and a lot of that had started before I arrived at KBR, but we're re-emphasizing the need, and it really is in a couple of areas. It's scoping the projects we go after, KBR has a tremendous capability, so we can go after almost any scale of project, and type of project we want, so we're really narrowing the scope of on the sales side of what we're going to go after as a Company, and I believe that's going to have a good impact on us, as we focus just on what we're really best at.

And we're working hard on pricing. We've elevated pricing reviewing on these projects. These are all two, three-year projects. So the implications on the pricing upfront is huge. So we've elevated pricing to the top level of the Company on all these major projects, we put that in place.

And then the other side of it is just execution. We're putting a lot more emphasis on the project management and that they're accountable for delivering to the schedule and to the costs we've signed up for.

So scoping and, you know, narrowing the scope on what we go after, doing a better job on pricing upfront and then execution on the project, I think it's not just one of those, but those three things we're really emphasizing throughout the new management group at KBR.

And that gets to you the 1 to 3% margin or does that get you to a higher level?

Well, we are shooting for, we're giving you the range and we're shooting, of course, for the high level. But a lot of that it depends on the status of the award fees, you know, with the base LOGCAP percentage at 1%, you know, the only way to, and that being a big majority of our revenue going into 2005, we have to be successful and we expect to be successful on the award fee reviews that we have next year that will get us to the high end of the range.

Okay. And if I could push it a little bit, just, Chris on your comments regarding the asbestos settlement, the negotiations with the insurance companies, it seemed that you were maybe a bit disappointed at the pace. Could you maybe elaborate on your comments?

Let me ask Burt Cornelison to address that question. He's living this every day.

Yes.

I don't know that we're disappointed at the pace. The difficulty that we have is everything does have to be approved by the Bankruptcy Court. The next available omnibus hearing is November 18.

We don't have, as we have said in the past, any substantive disagreements with any of the insurers, but because we are paying a very significant amount of money, and it is our goal to get complete peace out of this, we want to make sure that the indemnity language and the whole construct of the contracts achieves what we expect to achieve and what quite frankly you all expect us to achieve for what we're going through.

So it has been a deliberative pace, but at the same point in time, I don't think it's been significantly slower than we expect. And in any event, the next available date that we could even get these approved would be the 18th of November, and that's what we're all working very hard to achieve.

Are there any deadlines where you start to slide backwards, if you don't get these agreements done in time?

No.

Okay. Thank you.

Operator, I think we have time for one more caller.

Okay. And we'll take that question from Michael LaMotte at J.P. Morgan.

Barely under the wire. Thanks, guys. First of all, John, congratulations on the PDO contract and congratulations to Joe as well. They obviously are a very technology hungry operator. I was wondering if you could speak to perhaps what it is that, within the technology portfolio that attracted them to Halliburton for this contract and specifically any guidance on the kinds of work that you'll be doing for them?

Well, they very much -- I just got back from over there last week and they're very appreciative for the service quality that we bring, particularly around the pumping services and what we're most proud of in there is the fact that this will be the first time that a company I think in the long time has been renewed. Maybe even ever. Where you've extended a contract that you've had, and so this would be the first renewal.

They did that based on service quality, our commitment to their goals and more than just technology, they're focused on value-based contracting there so it's a real look at how we can impact their reserves, how we can improve their production, and how we can improve their costs. So it's a value-based decision.

As long as I'm talking, I'm going to jump one thing in here on Q4 just to keep everybody sort of on the oval, and that is remember that Q4 is impacted by the holiday season around the world. We do have Ramadan going on in our Islamic geographies as well as Thanksgiving and Christmas here in North America, and those do impact operational activities and do have an impact on the whole industry. Our relative performance should be good, but remember we're moving into the holiday season.

Okay. On the pricing gains internationally as you go to renegotiate these contracts, John, are they lumped into any particular quarter or do they roll pretty much throughout the year? I mean is Q1 for example, a big opportunity for contract rollover or is Q4 the time that you're doing it?

Very smooth. I mean we have, in fact, it wouldn't be predictable. Those contracts renew all during the year, and the negotiations sometimes extend, they'll give you an extension on the contracts for four to six months while you're renegotiating the next contract. So it's a very, fairly smooth and even contract distribution.

Okay. A couple of quick ones for Chris if I may. Tax law impact, Chris? Any thoughts there at this point?

On balance, there are some positives there. But in our case, the fact that we're going to have this very large NOL as a result of the asbestos settlement will defer the time when we can really recognize for accounting purposes those benefits.

Okay. And then quickly, a clarification on the reduction in working capital, Iraq-related working capital. How much of that was actually inflow collection as opposed to securitization?

Right. $600 million change, gross change, and we had $150 million increase in sales receivables.

Okay.

So $450 million inflow from collections and then the rest was the securitization. But as I said, we've collected those receivables now.

Okay.

Things are on track there.

Thanks so much and congratulations again on a good quarter.

Thank you, Michael.

Ladies and gentlemen, this concludes our third quarter earnings call. We want to thank you all for joining us. Have a good day.

And that ends today's call. Again, thank you for your participation.