KBR Inc (KBR) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Halliburton and KBR 2006 fourth quarter conference call. [OPERATOR INSTRUCTIONS] I would now like to introduce your host for today's conference, Ms. Evelyn Angelle, Vice President, Investor Relations. Ma'am, you may begin.

Thank you, Matt. Good morning and welcome to the joint Halliburton KBR fourth quarter 2006 earnings conference call. Since we're doing a combined call today, our prepared remarks will be a little longer than usual, but we've allowed plenty of time for questions. Today's call is being webcast and a replay will be available on both Halliburton and KBR's websites for seven days. A podcast download will also be available. The press releases announcing the fourth quarter results are available on the Halliburton KBR website. Joining me today are Dave Lesar, Halliburton's CEO, Chris Gaut, Halliburton's CFO, Andy Lane, Halliburton's COO, Bill Utt, KBR's President and CEO, and Cedric Burgher, KBR's CFO. In today's call Dave will provide opening remarks, Chris will discuss our overall operating performance and financial position, followed by Andy, who will review the ESG regions and our business outlook. Bill and Cedric will address KBR operations and financial questions. We will welcome questions on both companies after we complete our prepared remarks.

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 Halliburton's and 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 Halliburton's Form 10-K for the year ended December 31, 2005, Halliburton's Form 10-Q for the quarter ended September 30, 2006, and recent Halliburton current reports on form 8-K. Risks specific to KBR are discussed in the final prospectus for its initial public offering dated November 15, 2006. In addition, please refer to the table in the Halliburton press release that reconciles as reported results to adjusted results for any non-GAAP disclosures. Certain historical numbers related to KBR referenced in this call differ slightly from numbers set forth in KBR's earnings release issued this morning. These differences generally relate to consolidating and eliminating entries at the Halliburton level and some minor prior period adjustments that KBR reflected in their separate financial statements during their IPO process. Now I'll turn the call over to Dave Lesar. Dave.

Thank you, Evelyn, and good morning, everyone. I want to focus my comments today on North America, the KBR separation, and progress toward the growth goals we set out in our 2006 analyst meeting. But first I'd like to begin with a few highlights of our outstanding results in 2006. With all of the noise that is out there today around gas prices in North America, it's very easy to forget what an excellent year we had in accomplishing our goals, especially growing our eastern hemisphere business. Some of the highlights of the year were our ESG revenue grew year-over-year 28%. Each division in ESG had record revenue, operating income, and operating income margin in 2006. Our profitability also reached record levels. Our operating income margins were over 26% for ESG and incremental margins were in excess of 38%. Operating income grew over 48% in 2006, driven by a very balanced contribution from all of our product lines. As I mentioned earlier, our focus on the eastern hemisphere of ESG and its growth is reflected in our numbers. Revenue grew to nearly $5 billion, representing a 27% increase over 2005.

And operating income in the eastern hemisphere grew 49% from 2005, resulting in an operating income margins in excess of 20%. On a sequential basis, our fourth quarter eastern hemisphere revenue grew by 13% and operating income grew by 27%. About half of that operating income increase was attributal to the fourth quarter gain on the sale of our liftboat operations. Our eastern hemisphere contributed 41% of total ESG revenues in the fourth quarter. These results reflect the successful execution of our eastern hemisphere growth strategy, not just in revenue growth, but market share gains in key countries. Also with a strong focus on targeting areas of geographic expansion that result in attractive returns on our assets and resources. Our performance in Latin America was another bright area for us in 2006, where our margins improved from just over 14% in 2005 to over 19% in 2006. In addition, our balance sheet has never been stronger. We ended the year with $4.4 billion in cash, up nearly $2 billion since the beginning of the year.

That cash sets us up for strong growth in 2007, with a 40% increase in our capital expenditure budget, a 34% increase in our technology budget and enough cash to pursue strategic acquisition. It will also allow us to continue our aggressive stock repurchase program. We refrain from purchasing shares during major transactions, such as the KBR IPO in the fourth quarter. But once we have completed the separation of KBR, you will see us back in the market aggressively buying our shares. We currently have approximately $1.7 billion left on our share purchase authorization. And at year-end, we had a negative debt to capital ratio. Now let me turn to what remains foremost, I believe, on many of your minds and that's our outlook on the very important North American market. First, the Canadian market has softened significantly. That had a negative impact on our fourth quarter earnings for Sperry, which has a strong drilling position in Canada and, of course, for our pressure pumping operations.

Our fourth quarter revenue in Canada dropped 16% on a sequential basis and our operating income even more. We certainly got hammered in this market in the fourth quarter. If the slow down in activity in Canada continues, we'll adjust our allocation of capital in that market as necessary. Turning to the U.S., we lost several workdays in December due to the blizzards in the Rockies where a high concentration of our pumping fleet resides, as access to our customers' worksites were delayed. During and after the storms, our customers focussed on getting their drilling and production sites opened up first. That delayed them opening up the sites which were due to be fracted by us. Compounding this was the fact that the weather delays came around the holidays and in some cases our customers just shut frac work down for the balance of the year. For example, in Brighton, Colorado, where we have four frac fleets and a large number of cementing units, we did essentially no work for the last week of the year. Because of this, the effect of weather and holidays had a much larger impact on our pumping business than it did on our drilling-related businesses.

On a broader scale, even though our pumping units were fully committed during the month, in December, we lost more than 10% of our premium frac workdays in the Rocky Mountains in the mid continent. This is the equivalent of all of our frac fleets in those areas sitting idle on workdays, incurring all of the costs, but no revenues. Therefore, it was really a weather-related not a demand related impact. We continue to see strong demand for our services in the U.S. as we look into 2007. We do see some continued weather related delays in January, as ice storms hit the mid continent and parts of Texas and continued snowstorms in the Rockies. The good thing is that this work is not going away, it will only be deferred into later parts of this year. But overall, our customers have given us strong indications that demand for our services will remain high in 2007.

Currently, rig counts are rising, our equipment utilization rates are high, and our backlog remains strong. We continue to watch the market, of course, very carefully and are in a position to react quickly to ensure capital resources continue to be deployed in the most optimal manner. We also recognize that the volatility of the price of natural gas impacts our customers' activities. Although many of our customers have favorable hedging programs in place. We believe that any weather-related impact on the price of natural gas will be short lived and if this situation occurs will be self-correcting as activities would slow temporarily, allowing gas inventories to normalize. In the event that some of our current customers experience a decline in activity, we believe that our personnel and equipment will remain highly utilized, as we can expand our customer base by redeploying equipment to more active areas.

In looking at some of our most recent contract wins with major customers in the U.S., we have been awarded in excess of $200 million in incremental work above and over the amount of work that we've performed for them in 2006. And pricing continues to improve. We also continue to experience strong demand for our services in the eastern hemisphere and would consider moving equipment to markets outside of the U.S. if necessary. On pricing, we negotiate pricing throughout the year, either through call out work or when contracts roll over. Call out work continues to be favorably impacted by our July, 2006 price book increases. Even in the midst of the gas price uncertainty, our recent contract negotiations have resulted in good price increases. And I emphasize increases. Although, of course, they're not as high as we've seen in the previous two years. We will continue to focus on pricing, including negotiating lower discounts. And we believe we can increase pricing in excess of the inflationary costs we expect to incur in 2007.

Because of this, we do not expect our U.S. margins to decline in 2007. Now, I'd like to take this time to emphasize the performance measures we set out for ourselves last June during investor day. We said we intended to grow revenue over the course of the next three years at a compound rate of at least 20%. Our ESG revenues grew 28% from 2005 to 2006. We said we would double operating income and EPS within three years. In 2006, we increased our operating income by 48% from the prior year. And we wanted to post industry-leading margins, already over 26% in 2006, and high returns on equity. You can expect a lot of this growth to come from the eastern hemisphere. For example, contract wins in the middle east will likely make this one of our fastest growing markets. In Russia, we are continuing to broaden our service offerings, as western technology continues to be adopted at a strong rate, such as for our directional drilling suite of tools. And we're currently working on a number of acquisitions, having announced one earlier this week and more should close in the next few months.

Now, let me turn to KBR for a few minutes. Our recent IPO of approximately 19% of KBR was very successful. The shares were highly oversubscribed and KBR's stock price performed favorably. We are now working toward the final separation of KBR, which we expect to complete no later than the end of April. Now, we can do the transaction in one of two ways. We could spin off the remaining KBR shares to Halliburton shareholders in the form of a dividend, or we could conduct an exchange offer in which Halliburton shareholders have the opportunity to trade Halliburton shares for KBR shares. This is commonly called a split-off. We believe a split-off transaction has advantages, given the current stock price relationship. First, it would allow us to effectively repurchase Halliburton shares using KBR shares as a currency. Since the KBR shares are currently trading at a higher earnings multiple than Halliburton shares, this transaction would be accretive to Halliburton's EPS if the exchange offer were to be fully subscribed.

Second, the exchange offer would give Halliburton shareholders the ability to allocate their holdings between Halliburton and KBR on a tax-free basis. This could alleviate some of the potential market volatility for KBR's shares that might come about in a straight spinoff transaction. But no decision has been made at this point. Spin-offs have advantages as well and any decision that we make will require careful study, an assessment of market conditions at the time and getting board approval. We expect our board to act on this by the end of February. For various legal reasons, we do not expect to be commenting on this again until we are ready to proceed with the separation, which as I said earlier, we expect to complete by the end of April. Now let me turn the call over to Chris for some further details.

Thanks, Dave, and good morning. I will discuss our fourth quarter results compared sequentially to the third quarter. Halliburton Company revenue in the fourth quarter was $6 billion, that's up 3% from last quarter. ESG revenue was up 117 million or 3% sequentially. I would highlight that ESG's non-North America operations showed an 11% revenue increase, with each division contributing to that increase. KBR revenue increased $69 million, reflecting an increase in gas monetization work and a slight decrease in Iraq related operations. ESG operating income increased 53 million to $959 million, which included a $48 million gain on the sale of our non-core self-elevating boat operations. Excluding the gain on the liftboat transactions, ESG operating margin was 26% in the fourth quarter. Also included in ESG operating income in the fourth quarter was approximately $38 million in business interruption insurance proceeds related to the 2005 hurricanes in the Gulf of Mexico.

KBR reported operating income of $121 million with an operating margin of 4.8%. Income from continuing operations in the fourth quarter includes $5 million in minority interest related to the 19% of KBR held by outside investors since the IPO in late November. The first quarter of 2007 will include the full impact of KBR's minority interest on Halliburton's income statement, by the way. Now, let me highlight the ESG segment results. Production optimization operating income increased $37 million or 9%. Included in fourth quarter results are the gains from the sales of the lifeboats, production enhancement operating income was negatively impacted by the U.S. weather stipulations on land usage as well as the holidays. And there was the significant slow down in Canada. However, the eastern hemisphere was strong for production enhancement led by high activity in Asia, the North Sea and the southern Persian Gulf area. Completion tools operating income increased significantly, reflecting strengths in international demand.

Fluid systems operating income was relatively flat over the previous quarter. This division benefited from most of the hurricane insurance proceeds during the fourth quarter. Cementing services operating income decreased sequentially, particularly from the lower activity in the U.S. land, partially offset by increased activity in Africa. Baroid mix of sales, particularly in west Africa, was less favorable in the fourth quarter than in the third quarter. Drilling information evaluation operating income for the fourth quarter of 2006 was $230 million, that's up 1% from the third quarter, while posting an operating income margin of 26.2%. Sperry's operating income was negatively impacted by lower activity in Canada and a less favorable mix in Asia Pacific and the North Sea. This was partially offset by Sperry's strong performance in Africa and the middle east. The operating income of Security DBS, our drill bits operation, increased sequentially benefiting from improved fixed cutter and roller cone bit sales in Europe, Africa, and Latin America. Wireline and perforating's operating income was up due to improvements in Latin America and in parts of Asia Pacific.

Moving to our Digital and Consulting Solutions segment, operating income improved 24% from the third quarter of 2006, due primarily to Landmark's strong year-end software sales activity and growth in consulting services. The fourth quarter is always the strongest for Landmark's type of business. Bill will discuss the results for our two KBR divisions. So looking ahead, I would like to provide some guidance on certain 2007 Halliburton financial items post KBR separation. The tax rate for Halliburton should be in the 35% range in 2007. Since almost all of the third party debt remains at the Halliburton level, interest expense should be unchanged, exclusive of debt retirements. And minority interest should be in the $5 million range on a quarterly basis, again that's excluding KBR. We are performing an analysis of the types of costs that we classify as corporate costs post KBR separation.

Without KBR in the consolidated Halliburton results, we expect to change the classification of certain stewardship costs that have historically been allocated among the segments. This will also provide better comparability in our results with our competitors. We'll give you an update on that next quarter. Capital expenditures totalled $272 million during the fourth quarter and 891 million for the full-year. We expect our 2007 capital spending to be about $1.3 billion, of which 1.2 billion relates to ESG. Our technology spend at ESG totalled 262 million during 2006 and we expect that to increase to approximately $350 million in 2007. As Dave mentioned, our cash and short-term investments exceeds our debt, yielding a negative net debt to capital ratio. Andy?

Thanks, Chris. Good morning, everyone. I'll address regional results and our outlook. First I'd like to highlight the success of the execution of our eastern hemisphere growth strategy, having achieved revenue growth of 27% year-over-year. Our approached targets, both traditional markets such as the North Sea and emerging markets for us such as Southeast Asia and northern Africa. We are beginning to see the benefits of our recent investment in capital, most notably in Sperry rotary steerable tools and wireline units. Our continued commitment to investments in infrastructure, capital, and technology are the cornerstones of our eastern hemisphere growth strategy. As you know, many new rigs are being constructed for offshore application. Our cementing group has been working closely with rig manufacturers and contractors so that Halliburton's cementing units are installed in the hull of these rigs. We've had good success recently, which positions Halliburton favorably to perform cementing service throughout the life of these new rigs.

In 2006, Halliburton's cementing units were installed on over 40% of the new offshore rigs, and so far we've already been awarded cementing installations on 47% of the rigs planned to be delivered in 2007. Our Europe/ Africa/CIS region is a market that shows good growth potential, despite some constraints in the North Sea due to rig availability. Our focus on northern Africa, in particular Libya, should result in strong growth in 2007, both in revenue and profitability. In Russia, our focus now is shifting to diversify our product and service offering. Up until recently, we've been primarily deploying pressure pumping equipment into that market. In addition to the recent significant Rosneft pressure pumping award, yesterday we announced a large multi-year new contract with TNK-BP in Russia, which will utilize our cementing, Baroid, Sperry, and drill bit products and services. Our customer has particular interest in using our unique technologies, such as Sperry's Easy Pilot and Security DBS' energy balance roller cone bit..

We have also established drilling efficiency records in our Shell/Salym project in Russia. And we recently introduced pinpoint stimulation technology for the first time in Russia. In the fourth quarter our Europe/Africa/CIS region showed 113 million, or 16% increase in revenue from last quarter. And as Chris mentioned, we sold our Nigeria and our UK based lifeboat operations in two separate transactions during the fourth quarter. Going forward, we'll have approximately 40 to 50 million less in revenue annually as a result of these dispositions. The disposition of these non-core operations allows us to focus on developing higher growth businesses. In Africa, our completion tools, cementing, and Sperry drilling service product line benefit from the higher rig activity and increased demand for our premium service, such as Geo-Pilot, GeoTap and high-end completion tools. Baroid's results in Norway during the fourth quarter reflected the large, new multi-year contract we were awarded in June from Statoil. Completion tools resulted in Europe reflected -- results in Europe reflected strong sales in the UK and high demand for our intelligent well completions through WellDynamics.

The middle east Asia region is another high-growth area for 2007. Our already large footprint in Saudi Arabia will continue to expand, as work on the Khurais field ramps up. And our work in the UAE is already increasing from the significant contract win we announced related to pressure pumping and completion tool services. Our middle east Asia region fourth quarter revenue grew 48 million compared to last quarter, led by higher activity in Saudi Arabia, particularly related to the Khurais project. The Khurais project currently has slightly less than half of the rigs working that we expect to be running at the peak of the project. We also experienced strong completion tool, wireline and stimulation activity in Asia. Profitability in this region was negatively impacted by mobilization costs we've experienced related to new contract awards and low utilization of a stimulation vessel in Qatar. Now turning to the Western Hemisphere. Dave provided our outlook on the U.S. market. Let me just add a few more thoughts on that topic.

One thing we've been very focussed on is aligning ourselves with the customers that optimizes both of our efficiency and profitability. We've done that very well in the U.S. by working with customers who have large pad drilling plans to allow us to utilize our equipment at a high rate and minimize our mobilization time. When you compare our U.S. customer base to a recent report outlining estimated 2007 USE & P spending, the top 20 2007 capital expenditure budgets include 17 of the customers in our own top 20 list of customers. Aligning ourselves with large customers that continue to spend during times of oil and natural gas price volatility positions us very well for continued revenue growth in this important market. We expect to see more pressure on pricing in the U.S. Most of our contracts contain cost escalation clauses. We will work with our customers to recover any label and material costs increases we might experience.

We also plan to continue to work down our customer discounts. As Dave mentioned, we are executing plans that address the slowdown in Canada, including moving equipment to higher utilization areas. Our outlook related to heavy oil in Canada was quite positive. We expect the number of steam assisted gravity drainage wells drilled during 2007 to be twice the number drilled in 2006. We currently have a very strong position in sag-d drilling, which utilizes our precise well placement services provided by Sperry, Security DBS and Landmark. We expect to participate in a meaningful in the growth of the heavy oil market. Earlier this week, we announced our plans to acquire Ultraline, a leader in case hole and production logging services in Canada. This acquisition is consistent with our strategy to expand our portfolio in certain geographic areas. We will be adding Halliburton's open hole logging to Ultraline's case hole capability to expand the total breath of services in Canada.

Our Latin America results were very strong in the fourth quarter, posting a 7% increase in revenue and a 16% increase in operating income. Looking ahead to 2007, we'll continue to focus on growth and improved profitability from projects in our three major operation hubs of Mexico, Brazil, and Venezuela, as highlighted by the recent award of the PEMEX stimulation vessel work. I'd like to highlight two of the emerging technologies we are offering. We continue to see increased acceptance of our pinpoint stimulation services, such as CobraMax and SurgiFrac. In fact, our pinpoint stimulation revenues increased 57% over 2005. Baroid has recently introduced the new diesel base drilling fluid, called Integrade. It is based on our accolade technology which helps lower overall well construction costs by increasing penetration rate. We realized a 90% increase in the number of Integrade jobs performed in the fourth quarter in deep U.S. well applications. Now, I'll turn the call over to Bill Utt to address KBR. Bill. Thanks, Andy, and good morning, everyone.

Well, it has certainly been an exciting year for KBR. I am pleased to lead this organization with such a proud heritage as we continue our preparation to begin a new chapter in our history as a standalone corporation. I am certainly very pleased with the positive public reception in the market for KBR thus far. Every day I am more impressed with the dedication of KBR employees and the culture we sustain. A commitment and work ethic that drives our ability to deliver our services any time, anywhere, often under the most extreme circumstances. This work ethic sometimes means that our employees must work in dangerous locations on behalf of our global customer base. So let me take this opportunity to reiterate that the safety and security of our KBR employees is our number one priority. Now I'll review KBR's financial results. Consolidated KBR revenues for the full-year 2006 totalled $9.6 billion, compared to $10.1 billion during 2005. Most of the decrease relates to lower activity in Iraq.

During the same period, operating income decreased by $214 million, resulting in a 2.6% operating margin in 2006. Our 2006 results included a significant charge on the Escravos project and impairment charges on our Australian railroad interest. I'll provide an update on both of these matters in a moment. Our 2005 results included an $85 million gain on the sale of our interest in a toll road. Now, let me turn to our two segments. Energy and Chemicals posted $686 million in fourth quarter revenue, a 14% increase over the third quarter. Operating income increased 31% to $59 million during the fourth quarter. Revenues and operating income improved as a result of the higher gas monetization activity. Our focus on technology continues to differentiate us from our peers. We have recently sold another technology license for our proprietary propylene technology, Superflex. This will be the second propylene unit in the world of its kind. And the first one in the Asia Pacific region.

We are also contracted for two proprietary ammonia technology projects, one rose unit and two offshore engineering projects in the fourth quarter. This brings our rose licensing sales to a record eight units in 2006. And we expect demand for these proprietary heavy oil refining capabilities to increase in 2007. Now let me update you on a few key projects ongoing in the E&C division. The Escravos gas-to-liquid project in Nigeria was approximately 45% complete as of December 31st. This project still has a long way to go as we've only just begun construction activities. Since June, we have continued to experience cost increases, which have for the most part been offset by client approved change-orders and reductions in our allowances and contingencies. During the fourth quarter, we recorded a $9 million charge related to KBR's forecast of engineering hours required to complete the project, of which a portion of these engineering hours will be non-billable due to our agreement with our partner to cap the total engineering cost we each bill to the joint venture.

Looking ahead, we believe there is a risk of further cost increases due to uncertainties in the construction phase of this project. But we expect we would ultimately recover most of any such cost increases from our client. However, should significant cost increases occur, there could be timing differences between the recognition of these increased costs and KBR's projections and the recognition of offsetting revenues related to recoveries from our clients, via approved change-orders. Any estimated cost increase we are unable to recover from our clients or charged against contingencies and allowances during the period would be recorded as a charge to income. On a more positive note, as of December 31st, our levels of contingencies and allowances on the Escravos project, compared to our uncommitted cost to complete the project, remain at the same ratio as we established at Jun 30th. Additionally, we have completed the first check estimate on the Yemen project, which was approximately 39% complete as of year-end. No significant changes to project cost estimates were identified.

Now, all of KBR's major fixed price projects have completed this important project review milestone. Finally, the [INAUDIBLE] gas project in Algeria has achieved commercial operation, as we successfully completed our project performance test. Shifting to our other division, the Government and Infrastructure division, fourth quarter revenues of $1.8 billion were essentially flat to the third quarter with a slight decline in Iraq-related work. Operating income for the division grew $8 million to $61 million in the fourth quarter. The third quarter included a $32 million impairment charge on the Australian railroad investment. The fourth quarter included a $12 million charge on an embassy construction project in Macedonia in which we experienced an escalation in labor and material costs. This decrease was offset by a favorable partial settlement on the container related issue and higher income from the DML shipyard, largely related to the completion of a project. Let me provide an update on our LogCAP work. During the fourth quarter we reached a favorable, partial settlement on the outstanding container issue. We expect the balance of the container issue to be resolved during the first half of 2007.

The recent troop surge in Iraq has caused us to increase our hiring. We expect our revenues to be modestly impacted by the increase in troop count during 2007. Our customer, the U.S. Army, has recently indicated they expect to announce the award of a LogCAP IIII contract by the end of the first quarter and begin recompeting task orders in the June and July time frame. As you recall, the current expectation is that the LogCAP IIII contract will be divided among three contractors. You may have seen some press on KBR and our DML investment in the UK. We have received inquiries related to purchasing KBR's interest in DML. We plan to evaluate these inquiries, but currently have made no decisions regarding our interest in DML. In the meantime, DML showed strong results throughout 2006. We have provided the UK Ministry of Defense the financial information they have requested with respect to KBR as a standalone entity. Additionally, Halliburton continues to guaranty KBR's performance under the DML agreement.

An agreement on the ASD railroad investment was recently reached with the project lenders. There is now a bank settlement agreement in place, which restructures the joint venture's debt and delays the principal payments for the next few years. No additional impairment charges were taken during the fourth quarter related to this venture. Finally let me update you on our management restructuring efforts. I began this effort in the third quarter and, together with my leadership team, I have continued to define the organizational structure and activities between the corporate staff and the business units. These corporate changes have been designed to enhance risk awareness and transparency, as well as improved KBR's financial performance, all critical to continue the momentum reflected in our recent results. We have recorded a charge of $5 million in the fourth quarter related to this restructuring and to cover the charges for reductions in force, which were necessary in some areas as we optimize our structure around the KBR work load and processes. I expect that we may be announcing further charges in 2007, as we continue to review KBR and its cost structure to deliver our services to our customers.

Let me close by providing you our outlook on some of the E&C markets in which we participate. Worldwide resource constraints, escalating material and equipment prices, and ongoing supply chain pricing pressures are causing delays and, in some cases, cancellations of major gas monetization and upstream prospects. Delays in the awarding of these projects may negatively impact our first half of 2007, as we were expecting some of these projects to be awarded during 2006 and in early 2007. We continue to believe, however, we will win our share of these projects, as they are ultimately awarded. Additionally, other awards in the Energy and Chemicals division, like the recent fourth quarter wins I discussed a moment ago, and the additional work related to the troop surge in Iraq should mitigate the impact of the expected delays in gas monetization and upstream project awards. Now let's turn to Cedric for more details on KBR.

Thanks, Bill. I'd like to begin with a discussion of backlog. Our recent contracts have been more heavily weighted toward reimbursable work instead of pure lump sum turnkey. This is beneficial in terms of reducing risk in our backlog, but it also has the effect of driving overall backlog numbers lower. For example, some cost reimbursable contracts, particularly in our Energy and Chemicals segment, call for KBR to provide procurement management services on behalf of the customer rather than the actual procurement of materials. In the case of procurement management, KBR does not include the cost of the material in either backlog or revenue. The Energy and Chemical division's backlog as of December 31, was 5.7 billion as compared to 6 billion at the end of September. The Government and Infrastructure division's backlog as of December 31 was 7.8 billion compared to 9 billion at the end of the third quarter. Backlog for the fourth quarter was reduced primarily due to the significant work-off on our LogCAP III contract.

The size of projects that we add -- that we expect to add to our backlog should continue to decline as we expect to see our customers agreeing to absorb certain cost items within these projects as opposed to paying KBR to take these risks, including our expected cost for market volatilities and contingencies. Now let's review other financial items. General and administrative expenses included in operating income increased by 23 million to 108 million in 2006. The majority of which is attributal to the implementation of a new ERP system and costs associated with being a standalone Company. We expect our general and administrative costs to average around 30 million per quarter during 2007. Our net interest income in the fourth quarter was 14 million as compared to 1 million in net interest expense in the third quarter. The improvement resulted from KBR paying off debt in the fourth quarter with the proceeds from the IPO. In addition, the higher cash balance positively impacted interest income. In the fourth quarter, our effective tax rate was 49%.

This relatively high rate was driven by our return to accrual adjustments and the inability to credit foreign taxes as a member of the Halliburton, U.S. consolidated group. We estimate KBR's effective tax rate in 2007 will be approximately 38% as we will begin utilizing foreign tax credits in the U.S. With respect to earnings guidance, like Halliburton, we believe it is best practice not to provide specific guidance. Now I'd like to discuss our liquidity and balance sheet. Our balance sheet remains strong with cash and cash equivalents of $1.5 billion at the end of December. With our net IPO proceeds of 508 million and cash generated during the year, we repaid our $774 million note due to Halliburton during 2006 and ended 2006 with total debt of $20 million. Debt should remain negligible throughout 2007. Our overall working capital at the end of the quarter was 915 million, which includes working capital related to our government services work in the middle east of 248 million. We continue to make good progress in reducing our working capital in the middle east, which decreased by 84 million compared to our prior quarter.

For the full-year 2006, our middle east working capital reduced by 247 million to a $248 million balance at the end of the year. Capital expenditures totalled 7 million during the fourth quarter 2006 and 57 million during the full-year. Depreciation was 15 million during the fourth quarter and 47 million for the full-year. For 2007, we expect our capital expenditures to total approximately 95 million and depreciation to be approximately 57 million. In the fourth quarter, KBR adopted the FAS 158 new pension accounting rules. As a result of the adoption, at December 31, total assets decreased by 208 million, total liabilities increase by 45 million, minority interest decreased by 98 million, and shareholders' equity decreased by 155 million. Now I'll turn the call back over to Dave Lesar for his final remarks. Dave?

Thank you, Cedric. It's been a lot of information we've thrown at you today, but let me just summarize where I see we are. First of all, after over two years of very concentrated efforts, we are now only a couple months away from the complete separation of Halliburton and KBR. We still believe that the complete separation will unlock additional shareholder value. At Halliburton, we look forward to focusing all of our energy on implementing our growth strategy as a peer oil field services Company. We continue to grow our already strong position in the eastern hemisphere and will maximize our position in the U.S. through up and down markets. But overall, we still see a very strong global demand for our products and services through the end of the decade. We'll now open it up for questions. Please limit your comments to one question and one follow-up.

[OPERATOR INSTRUCTIONS] Our first question is from Goeff Kieburtz of Citigroup. Your question, please?

Good morning. Wondered if you could talk a little bit about the capital spending plans for 2007 and for ESG and where you see that being concentrated?

Sure, Jeff. This is Chris. For the $1.2 billion of capital spending that we see in 2007, which is a significant increase over 2006, that increase is going to almost -- well very largely go to our eastern hemisphere operations. And the biggest recipient of the increase will be in our drilling information evaluation sector. That will be complemented by a good increase in our fluids space where we have a good number of wins on the cementing units for new offshore rigs and refurbished offshore rigs and as we build out our balk plants for our [barrelling] operations. Andy, you want to add anything to that?

Yeah, Jeff, and Chris hit it, but we're very eastern focussed for growth, both some infrastructure for the project wins, but also just pure service equipment and expansions in the eastern hemisphere and a lot more balance than we've had in the past weighted toward the drill end, Sperry's business, the bits business, and also the wireline business. Especially Sperry downhole tool systems and wireline trucks we mentioned, we have a big investment going there and we're going to continue that.

As my follow up. If we take out the benefit of the -- of the business interruption, fluids had a pretty steep margin erosion in the fourth quarter, is that any cause for concern?

Well, Jeff. Some of it is mix of jobs that we had in the eastern hemisphere. Cementing, of course, was impacted very heavily by what we talked about, the weather and the holiday impact both in the U.S. and impacted significantly in Canada. So we know where the issues are, both in cementing and in the Baroid mix of business and we still think it's doing very well and the outlook is still very strong for both of those businesses. Most of our eastern hemisphere wins have a component of cementing and Baroid in those and we're investing a lot into mobilization costs, get ready for those contracts, but we feel very good about those contracts going forward.

So you would expect things to rebound in the immediate future?

Yes, we're still mobilizing, Jeff, as you know with the eastern hemisphere projects wins they go over multiple years and takes us one to two quarters to get fully mobilized and the cost. We definitely expect them to rebound in 2007.

Thank you.

Our next question is from James Stone of UBS. Your question, please.

Good morning. Dave, I appreciate your comments on the split-off verses spin-off. Can I just ask you a clarification. If you do a split-off and it is not fully subscribed, do you still have the ability to distribute the remaining shares in a tax-free basis?

Yes, the mechanics of a split-off is that if it is less than fully subscribed, but more than the minimum, then the remainder number of KBR shares would be distributed through a pro-rata dividend and the whole thing would be tax free. Those are the mechanics.

Okay. Andy, just as a follow-up. You said pricing in the U.S. will remain under pressure, but Dave said pricing -- price gains would exceed inflation growth. Can you guys just reconcile those two statements?

Yeah, Jamie, this is Dave. Obviously the last couple of years we've had double digit price increases. And so those double digit ability is what's come under pressure. But I think for those that are concerned that pricing has fallen off a cliff in North America, we just don't see that happening. And so yes, we are getting price increases. They are not as good as they have been the last couple of years, but they are price increases. And what is under pressure, of course, is we -- we are asking for more than we're getting. And we're getting more push back than what we would have got in the last couple of years, but that doesn't mean that we're not being successful in getting increases.

That's very helpful, thanks.

Your next question is from Jim Wicklund of Banc of America, your question, please?

Hi, guys. As a follow-up, we've talked in the past about how your pay back on adding new frac spreads in the U.S. is 12 months and all. Have you guys looked to see what normalized returns on that business will or should be?

Sure, Jim. When we look at investment in a pressure-pumping spread, we certainly assume it's going to last a very long time. And so we do look at that over a full cycle and do try to normalize the returns. And we certainly see that the returns that we would be getting would exceed our hurdles of a 15% after tax return on leverage. Certainly, the results -- the economics we run on new investments currently are helped by the fact that we have such a strong market right in this environment. But on a full cycle basis, even if one normalized the numbers, it's -- we think it's quite attractive.

Okay. And my follow-up, if I could. My E&P analyst this morning lowered his - this afternoon lowered his gas price forecast in the U.S. Nobody knows what gas prices are going to be because nobody knows wether. But just generally, I assume you guys are looking for the U.S. rig count to increase this year. I guess, is that true and are you all looking at a gas price to drive that level of activity?

I think there are two things that are going on. One of the important things is a change in the mix of rigs in the U.S. land market where we have a large number of new more efficient rigs coming on, which will be drilling more wells. I think we're kind of agnostic on the rig count itself. Clearly with these new rigs coming on, they're going to be drilling more wells. What we're seeing from our customer base is significant activity. Dave referenced a number of new contracts that, new commitments that we're winning. So we see a very active frac market in front of us fully utilizing, as we see the market today, fully utilizing our available equipment and -- .

That's all that should matter.

Yeah.

Okay, very helpful, thanks, guys.

Our next question is from Scott Gill of Simmons & Co. Your question, please.

Yes, good morning, gentlemen. Andy, did I hear you say that you would consider moving equipment out of Canada into the U.S.? And if that's true, what type of equipment are you considering moving here?

Yes, Scott, it is what we're concerned -- we know we're going to have a good first quarter compared to the fourth quarter, we feel. As historically the first quarter is a strong quarter in Canada. We aren't considering anything to move in the short-term, but of course second quarter with the spring break up we have every year and then the outlook after the winter and gas prices, the outlook for the second half of Canada, we're certainly going to take all that into account. And it would be primarily pumping equipment. First to look at moving it either to better utilization, higher priced markets here in the U.S. or eastern hemisphere.

Any thoughts to, I guess a question could come up, if you did move equipment from Canada into the U.S., would that exacerbate the pricing pressure? So kind of what's the thought process with respect to pricing in the U.S. and how that might impact where you ultimately move that equipment?

Yes, Scott, we don't see -- the type and amount of equipment we're talking about, we don't see it having a negative impact on the pricing in the U.S. It's not that type of scale of movement. And we wouldn't do that. We would -- we feel very good about our pricing, as Dave went through in the U.S. and the demand for our service in the U.S. If we were to be over utilized there, we would move to the eastern hemisphere. So first we're going to maximize the market and activity level in the U.S., but we are positioned along with our new capital build, that Chris talked about. We're always looking at growth opportunity for the eastern hemisphere.

Okay, thanks. One last one if I can squeak it in here, Chris. What was the percent of revenue from Canada during the fourth quarter?

Sorry, Scott, we don't break out our North America segments by practice. So unfortunately I can't do that in this case.

Okay. Thank you.

Your next question is from Dan Pickering of Pickering Energy Partners. Your question?

Morning, guys. I was hoping that you could, as we look at the revenue decline in North America, I just want to make sure I understand. Our math would say that it looked like about half of the sequential decline came from Canada, the rest came from the U.S. and was just wondering if there was any -- one is that close to accurate? And two, do we isolate, then, the U.S. piece of the business primarily to pressure pumping?

The first one is similar to the question that Scott just asked. And so I can't give you more granularity on the breakdown between U.S. and Canada just because that's not our practice or the precedent that we want to set. Now, yes, certainly our biggest business in North America is our production enhancement business, so it is definitely fair to say that that, just because of the size and scale of that business, felt the -- had the biggest impact of the activity reduction in Canada and then our very large market position we have in the Rockies in the U.S.

Okay. Thank you. Unrelated question for Bill Utt and Cedric, please. Bill, you mentioned that there may be some delays in some of these larger projects that you're looking at for KBR. I think around the road show timing, you'd mentioned something like a bidding environment out there of about $20 billion or so projects that you were looking at that might come to fruition. Has that number changed much in the last few months?

Not materially, we still see generally the same list of prospects out there. And the delays we're seeing are really driven by our customers' desire to absorb the information that is communicated to us in our pricing related to this the supply chain pricing pressures that we see. But the overall outlook in terms of the number of project is still where we thought it was back at the road show.

Okay. So they're not going away, they're just slipping a bit?

I would characterize that as being correct, yes.

Thank you.

Our next question is from Brad Handler from Wachovia. Your question, please.

Thanks, good morning, everybody. Could I ask you first on the Halliburton side please, just another sort of financial detail question. If we look at the middle east Asia margins, down by a couple hundred basis points, you guys have spoken to the drivers there, but can you perhaps split up how much of that you think was due to infrastructure kind of ramping versus how much was due to product mix?

Yeah, I think that the ramping up for new contracts was certainly a part of that. In the middle east we have a number of things underway. It was also some mix effect that we had in our fluids business that had an impact, as well.

Yeah. Brad, the main ramp-ups, of course, are Khurais project, our UAE project that we talked about with cementing and we've had several wins in TOTAL -- for TOTAL in Indonesia that are ramping up in Asia area.

I don't know if I'm getting too granular, do you think that's three quarters of it and mix is a quarter or something?

That would be hard --

Hard to break -- fair enough, okay. If I could ask an unrelated follow-up on the KBR side, please. You have given historical information by segments within both divisions. Can you give us that information on the call here now?

We don't have the material ready for the call. We will have it in our filing. And so we'll provide it at that time.

Okay. Fair enough.

In the 10-K.

Correct.

Good enough, thank you very much.

Our next question is from Goeff Kieburtz of Citigroup. Your question, please.

Oh, gosh, I got cycled around rather quickly, didn't I. What I wanted to ask was in terms of your technology spend, could you talk a little bit about what the mix concentration is there?

Yes, Jeff, well, it's roughly 50% on development and 20% on research from a broad standpoint and the rest balance being more operational engineering. So that's the mix. And then it's equally split between our divisions and that's been very consistent for several years. So we have ramp-up in Sperry, in Landmark, and in both cementing and fracturing.

Okay. And on the CapEx, is there any segment of your CapEx that you think will be reduced in 2007 versus 2006?

Well, yeah, our U.S. production enhancement spending is down in 2007 compared to 2006, as we've said before. And both -- that's not news. We've said that before. That remains our plans.

Any other segment?

No.

I don't think so, Jeff.

Okay. Thank you.

Next question is from John Rogers of DA Davidson, your question, please.

Hi, good morning. For Bill Utt, I'm curious on the margins for the Energy and Chemicals business. I mean, we're substantially higher than they have been for sometime. You noted one closeout charge there, but were there any other unusual gains in the quarter? Or was it just timing of projects?

The one we point out would be the -- would be in G&I where we had a contract closeout at DML which gave us -- based on the completion of a submarine project that gave us a bump in the fourth quarter. And also the partial set of metal containers, which was also contributing to the strong margins we had in the fourth quarter. Beyond --

And several non-containers, Bill, you mean related to Iraq, one of the issues that had been raised by the auditors that it's now in the process of being resolved.

That's correct. This was part of the DCA audits that we periodically go through and we're successfully working through the container issue. As I mentioned, we'll have the full issue, we believe, resolved during the first half of '07. And we continue to make good progress on all fronts with the DCA in those discussions. We had a couple feed projects that finished up at the end of the year, which had a little bit of impact, but not to the degree we saw with the DML results and the partial settlement on containers.

Okay. Okay. And the feed projects, but on the Energy and Chemicals side I was referring to, just because -- ..

Well, the Energy and Chemical side we had some restructurings within our Bonny Island projects trains four and five and then the train six project that while they did have a positive impact on operating income did get backed out in minority interest so that the net effect on the bottom-line at KBR was zero.

Okay. Okay. And then on the charges that you mentioned potentially restructuring in 2007 on the management side, any -- can you give us a sense of magnitude there?

Not right now, we take a fairly thorough and thoughtful view at discrete aspects of our business and, as we talked about on the road show, one of the activities we undertook from the -- in the third quarter and into the fourth quarter was a review of the human resource service and delivery side for KBR. And we took a couple months and we thoughtfully looked at what we were doing and we were able to reduce our annual spend on HR costs from $30 million a year to 20. We certainly didn't have any targets going into that exercise with respect to the savings we could achieve. But we were able to very positively realign the cost and support activities of HR within KBR and we expect as we move to other discrete sectors in '07 that we could see continued reductions in our overheads within the company.

Thank you.

Your next question is from Daniel Henriques of Goldman Sachs. Your question please.

Hi, good morning. My question is to go back on the eastern hemisphere margins. How should we think about it in terms of timing? You mentioned some start-up costs and some mobilization costs. Is there like a gradual improvement over the course of the year? Is there at some point there's a step up, how should we think about that?

Yeah, Daniel, I wouldn't think of a big step up because it's a very large business across the hemisphere and we're talking about isolated projects that we won. They are the big projects, the Statoil win for cementing in Baroid, the middle east wins and the Asia ones we talked about previously. There won't be a big step, it'll be a gradual improvement as the projects immobilize and ramp up to full profitability.

And the mix effect, which is also important, does have some volatility from period to period.

And on the Khurais project, how much of Khurais is already in your numbers?

Well, all of the project that's occurred, but it's, as we said, it's less than half the full activity. As you know, when we announced that we expected in excess of 20 rigs working at full activity levels and so we're less than half of that right now at the end of the year. And it's just part of the process that Saudi/Aramco is going through to ramp up that project. But they are going fully forward with it. And so we're active on -- in the eight to ten rig range.

Okay. And Chris, this is for you in terms of capital structure. You obviously still have a very unlevered balance sheet. What do you think is an ideal capital structure and how do you think you get there?

Well, an ideal capital structure would not be net zero net debt, that is true. We do have a fair -- a fair amount of debt on the balance sheet, excluding the cash we're 27, 28% debt to total capital, which would, we would think, be approaching more of a optimal capital structure. So, really the issue is we have a lot of cash that we have been generating in the business. And so what do we do with that? And we have identified that we want to grow internally through expanding our capital expenditures and we've been adding capital to our operations, about as quickly as we think our operations can absorb it.

We will spend the cash on acquisitions and we expect that to be at least $1 billion a year and we're off on that program. And then most the remainder we see going towards returning to the shareholders, principally through a share repurchase program that started at 1 billion and then was augmented with another 2 billion. So that's how we see we can move towards more of an optimal capital structure. But when we think about our priorities, our priorities are first making sure we invest the cash wisely and getting the best return, rather than just doing something in order to get to that optimal capital structure as quickly as possible.

It just looks that if -- even if you spend $1 billion dollar budget, I think you established annually for acquisitions plus your CapEx, it still has -- you still have a lot left over. Should we think about buyback as a gradual thing over time? Or do you think that there's a space for doing something like faster to move to a more efficient capital structure?

That's part of our value -- evaluation relative to acquisition opportunities. That would be a factor. But I think having the cash balance we have gives the company the flexibility to look at a number of different things and also be well positioned whatever the future course of oil and gas prices is.

Thank you.

Your next question is from Robin Shoemaker of Bear Stearns. Your question, please.

Yes, thank you. Wondered if you have a sense, as you do for your U.S. customers about their plans for '07, if you have any similar feedback from your Canadian customers, especially what may transpire there after the spring breakup, if you expect that market to rebound or if it will remain weak or do you know?

Robin, we know what the ones that have released publicly and we know through our contacts from them, they are pretty much in the same position as we are, looking at the market. They're going to -- they have an active first quarter plan, not as big a rate count as it was in the first quarter of 2006, but more active than the fourth quarter of last year. And then, of course, the breakup, and they're going to evaluate the pricing at that point. We see a good market in Canada, we just don't know how strong it'll be and we're going to follow their announcements very closely.

Okay. Just one clarification. On this split-off potential, you've indicated here in your press release you've got -- you spent 1.3 billion so far on share repurchases out of a 3 billion authorization. Now was the split-off -- if you reduce shares that way, does any way that count against this repurchase authorization? Or is that totally separate?

Robin, it would be the additional authorization would be additive to the shares that we would bring in if we proceeded with the split-off. So I think what you do is take the estimate of what we would bring in by the split-off, plus the 1.7 billion. And then we would look at going back to the board for more if we continued to see ourselves undervalued and the cash flow as strong as we anticipate. We would reiterate that the decision on the form of the separation has not been made.

Right. Right. Okay. Thank you.

Our next question is from Kurt of RBC, your question please.

Yeah, hi. Good morning. It's a question related to the -- can you give us the revenue number that was associated with the asset sales that were made in the quarter? So if you had a impact of 48 million on operating income, could you just give us some idea that revenue and operating income for that business that was sold?

yeah, Kurt, as we, I think we covered in minute notes, it was 40 to 50 million annually.

That's the revenue number, right?

That's the revenue number for the two -- more than two vessels, but the two transactions, the one vessel in the UK and the vessels in Nigeria.

And what was the operating income associated with that?

Well, we're -- not wanting to get too granular here relative to the people who bought those businesses and so forth. And also we don't allocate out all the costs to those businesses. And I don't want to give you a gross margin business, gross margin estimate either there. But I think with that range of revenue, Kurt, you can make some best estimates. I wouldn't say that that business is materially different in its margin potential than our others.

Okay. Great. Thank you.

Our next question is from Pierre Conner of Capital One. Your question, please.

Actually you've covered all my questions, thanks, guys.

Thank you, our next question comes from Barry Bannister of Stifel Nicolaus. Your question please.

Good morning. This is actually Robert Conners at Stifel Nicolaus. Barry had to run and jump on the Caterpillar call. My question was for Bill Utt and regarding KBR. Can you provide more color on how a shift away from fixed price contracting may have affected the E&C segment only bookings growth in the quarter and also going forward?

Yes, the comments that Cedric and I made regarding the E&C bookings go back on a backlog basis to what risks that we're taking and how did -- what goes through our books and what doesn't. We have seen an evolution from a model that existed at KBR regarding full lump sum turnkey contracts to an increased level of granularity regarding the various risks of performing home office services, construction, and procurement materials. And we see with our customers, we're developing a much richer and more robust discussion about how we're pricing our products and services, particularly given the escalations that we've seen in the last several months toward our supply chain.

And so we're finding that with these volatilities that are now existing in our supply chain, that our customers are increasingly looking to take those on their side of the ledger and not have KBR provided contingency or a volatility risk premium in our service offering. Now that would have the effect of moving us down to where we are, in some cases, looking only at home office services that we would underwrite on a fixed price basis for the same project that two years ago we might have taken under a full lump sum turnkey. And as we look at that, you could -- you will see as we move forward that the contributions to backlog from these projects may only be 25 or 30% of what they were because of the greater degree of passthrough of these procured items that Cedric alluded to in his call.

Okay. Thank you. And on another note, is there any sort of change in your backlog burn rate going forward at a year ago from various Halliburton and KBR filings. You say the burn rate going forward for like G&I was about 76% and in E&C was about 51%. Are you guys still within that range?

Yeah, I don't have it by percent, but I can tell you and I don't think it works that neatly in terms of a year-over-year rate. It really is project driven. The biggest issue for the quarter and for the year was the decrease in or the work off in our LogCAP III contract and that was $1.1 billion net reduction for the -- for the quarter. Also, in the unfunded category, that also was a $1.1 billion decrease, all of it in the G&I area from 3.1 billion to 2 billion.

But that has a shorter time horizon.

It does. You have to remember on the road show we talked about the transition task order that we received from the government as they were competing LogCAP IIII that took our performance of task order 139 out through the end of August of 2007. And we clearly have been working that backlog off and the funding of that project continues but we haven't seen subsequent awards related to task order 139 because we have gotten, at that time that we discussed, an extraordinary longer committment of work under task order 139 that's during the third quarter.

The history there has been that with the government and the LogCAP contract as we get shorter term backlog then the rest -- .

It's almost just in time. So that goes to support the numbers you have there. On the E&C side the reduction on a quarter basis was just under 10% and that represents work-off in really all of our major gas monetization projects. There is seven or eight to talk about. Only significant increase we put out in the press release was related to the Saudi Kayan project with we booked in the fourth quarter as a offset to that reduction.

Matt, let's take one more question.

Thank you, our final question comes from Mike Urban from Deutsche Bank. Your question please?

Thanks, good morning. I wanted to follow-up on the acquisition side, you addressed it a little bit earlier, but you've made one here recently and looks like there's some others teed up. Any particular product line, region, technology, you're looking to fill out, in other words any themes out there? Or is it more opportunistic?

Obviously, we're not going to give you the list, the targets.

Sure.

But many of the things that we are looking at are associated with our drilling information, evaluation business, or other downhole tools, technology, and equipment. We're focussed on expanding our products and technology and we're also, as we've said from a much broader perspective, looking to grow our non-North America business. So those would be the some of the priorities that are built into the deals that we're working on.

Yeah, Mike, and Ultraline fits well. As you may or may not know, we do not have a presence today in our wireline business in Canada. So it's offered a broadening of that portfolio in Canada, business that we know very well. And it's a good addition to everything else we have in Canada. So we're also, as we've said and Chris covered, we're looking for geographic additions where there's a market share position we like that in a presence that we don't have at the level we want. And those are good acquisitions to add on to us and we know the business, they integrate well. And so we're definitely looking at those in several markets.

And it seems like the deal flow has picked up here a little bit. Is that a function of being further down the road on KBR? Or have valuations become more attractive with a little bit of the turmoil in the market?

I think valuations are an important point in discussions between buyers and sellers getting together.

That's all for me. Thanks.

All right, great. I want to thank everyone for participating and their insightful comments and questions. Both KBR and EST management will be available the rest of the day for those of you that didn't get all your questions answered, so feel free to call us. That concludes our call. Thank you, all.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, you may now disconnect. Good day.