KBR Inc (KBR) 2008 Q4 法說會逐字稿

Good day and welcome to the KBR 2008 fourth-quarter earnings call hosted by KBR. This call is being recorded. (Operator Instructions). For opening remarks and introductions, I would like to turn the call over to Mr. Rob Kukla, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to KBR's fourth-quarter 2008 earnings conference call. Today's call is also being webcast, and a reply will be available on KBR's website for seven days. The press release announcing the fourth-quarter results is also available on KBR's website.

Joining me today are Bill Utt, Chairman, President and Chief Executive Officer, and Kevin DeNicola, Senior Vice President and Chief Financial Officer. In today's call Bill will provide opening remarks and business outlook. Kevin will address KBR's operating performance, financial position, backlog and other financial items. We will welcome questions after we complete our prepared remarks.

Before turning the call over to Bill, I would like to remind our audience that today's comments may include forward-looking statements reflecting KBR's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in KBR's Form 10-K for the year ended December 31, 2008, KBR's quarterly reports on Form 10-Q and KBR's current reports on Form 8-K.

Now I will turn the call over to Bill Utt. Bill?

Thanks, Rob, and good morning, everyone. I'm very pleased with KBR's fourth-quarter and full-year 2008 results. KBR achieved record profitability in 2008, outpacing last year's income from continuing operations by 69%. In 2008 KBR grew revenue by 32% and business unit income by 43%.

In regards to the fourth quarter of 2008, consolidated KBR revenue totaled $3.4 billion, up almost 42% from the $2.4 billion in the fourth quarter of 2007. The services business unit led the revenue increase with a 522% year-over-year improvement due largely to the BE&K acquisition followed by a 71% increase for downstream, a 36% increase for upstream, a 28% increase for technology and a 13% increase for G&I.

Income from continuing operations for the fourth quarter of 2008 was $88 million or $0.54 per diluted share compared to $48 million or $0.28 per diluted share for the prior year fourth quarter, representing a 93% increase per share.

Let me take a moment to discuss backlog. Total backlog was $14.1 billion at the end of December 2008, up 8% from the end of 2007 and down 8% sequentially from the September 2008 quarter.

From the sequential comparison perspective, while backlog was down $1.2 billion, approximately $630 million of this decrease was due to foreign exchange adjustments. The remainder of the backlog decline was from normal project work-off. During the fourth quarter, KBR did not experience any project cancellations.

Further, I was pleased with the sequential backlog growth in the downstream and technology business units driven by several new feed awards and technology licenses and engineering packages. I will go into more detail on these matters later as I discuss the individual business units.

Now let me discuss some operational highlights for our KBR business units. With respect to our upstream business unit, during the fourth quarter, KBR received a $24 million change order related to the previously disclosed charge on an LNG project. Each of KBR's LNG projects and our other large lump sum turnkey projects remain profitable. The Skikda LNG project continues to proceed very well and at the end of the fourth quarter was 37% complete.

At the end of December 2008, the Tangguh LNG project was 97% complete, and commissioning activities were underway. We expect first LNG in the second quarter of 2009. The Yemen LNG project remains on track for the completion of construction for the first train in the first half of 2009 and was 92% complete at the end of the fourth quarter of 2008.

In January 2009 KBR through its joint venture, JKC, was awarded a cost reimbursable contract by INPEX [Sprose] to provide front-end engineering and design services for the Ichthys onshore LNG project located in Darwin, Australia. The Ichthys project is expected to initially produce more than 8 million tons of LNG per annum, approximately 1.6 million tons of LPG per annum, and 100,000 barrels of condensate per day. The joint venture comprised of JGC, KBR, and Chiyoda will provide project management, construction, fabrication management, marine and infrastructure design and module expertise for the LNG facility.

For government and infrastructure, I mentioned on last quarter's call that the government had initiated new work under LOGCAP IV with the first task order awarded in Kuwait. Since then, additional LOGCAP IV task orders have been awarded in Afghanistan, and additional requests for proposals for RFPs are expected over the coming months. We still expect a complete transition from LOGCAP III to LOGCAP IV for new work in theater to occur in 2009. While KBR has not secured any completed LOGCAP IV task orders to date, we maintain our previous guidance that under LOGCAP IV KBR's experience of work in the region should enable us to win our fair share of future work under the contract for approximately 40% plus of the work. We also believe that LOGCAP IV should yield an increased margin over the current LOGCAP III work.

I'm very disappointed with the $6 million charge this quarter on the Skopje Embassy project. We are working hard, and progress is being made to close out construction activities in a reasonable manner. We expect the client to grant substantial completion in March due to additional work requirements being identified as the client proceeds through the final inspection phases. The client is reviewing some KBR claims, which may provide additional revenue at a future date, but this is not being reflected in our current financial reporting.

Over the past few months, the G&I business unit announced several new project awards. In November KBR was awarded a contract by the Qatar-Bahrain Causeway Foundation to provide design management, project management, and construction management services for the Qatar-Bahrain Road and Marine Crossing. This causeway, dubbed the Friendship Bridge, is a four-lane 40 kilometer highway corridor consisting of roadways sections, low-level bridge structures, signature suspension bridges, and freight and passenger rail lines.

KBR was also awarded two projects by the US Army Corps of Engineers. The first contract valued at up to $75 million over a five-year period provides disaster relief for emergency power for the Western region of the United States. KBR will provide all labor, transportation, equipment, materials and logistic support to provide emergency power to the critical public facilities upon activation to the disaster area by the Corps of Engineers.

The second contract awarded by the US Army Corps of Engineers is valued at $35.4 million for the Phase II design and construction of a convoy support center at Camp Adder in Iraq. KBR will design and construct a powerplant, an electrical distribution center, a water purification and distribution system, a wastewater collection system and pave roads at the site.

KBR's services business unit also continues to perform well. The Shell Scotford Upgrader project is proceeding nicely and continues to be a strong contributor to services results. Our ongoing projects at the ConocoPhillips Sweeny refinery and the ExxonMobil Beaumont refinery are also going well. Performance on these projects has positioned us to win new work and continue the momentum in our strategy to work with our historical customer base and position KBR for long-term sustainable growth.

KBR's offshore maintenance joint venture company in Mexico remains on target to meet the excellent performance projected for the year on the strength of two new long-term contracts that I mentioned on the last call. This is driven by the high level of spend by our client for platform maintenance and well intervention in the Gulf of Campeche and the high utilization rate of our two semisubmersible vessels.

KBR's acquisition of BE&K exceeded our expectations during 2008 by contributing $0.12 per diluted share. We look forward to BE&K's continued strong performance in 2009 and beyond.

For our downstream business unit, the Ras Tanura and Yanbu export refinery projects in Saudi Arabia contributed significantly to the fourth quarter's results. The EBIC project continues to progress very well with construction now complete and commissioning phase well underway.

First ammonia production is scheduled for the first quarter of 2009 with final performance testing to occur in the second quarter of 2009.

I'm extremely excited about several recent high-profile awards in the downstream business unit. KBR was awarded a contract by Sonangol to provide front-end engineering and design work for the 200,000 barrel per day Lobito refinery located in Angola.

Also associated with the projects, KBR was awarded a site development contract by Sonangol to provide engineering, procurement and construction management services for the refinery, for the infrastructure necessary to support the construction of the refinery. This includes the development of a heavy haul road used to transport material and equipment, as well as a marine facility that will be used to import and export both raw and finished hydrocarbon products.

KBR was also selected by the Petroleum Oil and Gas Corporation of South Africa to provide feasibility and front-end engineering and design services for a proposed 400,000 barrel per day grassroots refinery called Project Mthombo, or also known as the Cougar Refinery. This selection follows KBR's completion of a prefeasibility study earlier this year.

The technology unit's backlog increased almost 37% during the fourth quarter of 2008, driven by the addition of three licensed and basic engineering packages for ammonia projects. Two of these packages are for separate ammonia plants located in Venezuela, and the third is for a revamped project in India.

Now I will turn the call over to Kevin. Kevin?

Thanks, Bill. I will begin by reviewing KBR's consolidated fourth-quarter 2008 results, which primarily focus on year-over-year comparisons.

Consolidated KBR revenue for the fourth quarter of 2008 totaled $3.4 billion compared to $22.4 billion in the fourth quarter of 2007. Consolidated operating income was $153 million for the fourth quarter of 2008 compared to operating income of $82 million for the fourth quarter of 2007. Operating income in the fourth quarter of 2008 included a positive contribution of a $24 million change order related to the previously disclosed charge on an LNG project, and $20 million charge related to the FCPA judgments, and a $6 million charge related to the US Embassy project in Macedonia.

Operating income in the fourth quarter of 2007 included a $22 million charge related to potentially disallowable costs incurred under US government contracts in the Middle East for activities dating from 2003.

Now upstream revenues was $822 million for the fourth quarter of 2008. That is up $219 million or 36% from the fourth quarter of 2007. Business income was $65 million in the fourth quarter of 2008 compared to $64 million reported in the fourth quarter of 2007. Business unit income in the fourth quarter of 2008 included a positive contribution of a $24 million change order related to a previously disclosed charge on an LNG project and the $20 million charge related to the FCPA judgments.

The increase in business unit income was driven by the North Rankin 2 offshore project in Australia and by gas monetization, including increases in the Skikda LNG project, Gorgon LNG project and the Pearl GTL project, and partially offsetting this increase was lower activity in several offshore projects near completion.

Government infrastructure revenue in the fourth quarter of 2008 was $1.8 billion compared to $1.6 billion in the prior fourth quarter. Business unit income was $85 million in the fourth quarter of 2008, including a $6 million charge on the US Embassy project in Macedonia, compared to $53 million in the fourth quarter of 2007, which included a $22 million charge related to potentially disallowable costs incurred under US government contracts in the Middle East activities dating from 2003.

Now the increase in business unit income was related to LOGCAP III work, a UK facilities project in Iraq for the Ministry of Defense, higher levels of construction activity on the Allenby & Connaught project, and several infrastructure and border projects.

Services revenue was $597 million in the fourth quarter of 2008, up from $96 million in the fourth quarter of 2007. Business unit income was $53 million compared to $23 million for the prior year fourth quarter due primarily to the addition of BE&K projects. Fourth-quarter 2008 comparative results benefited from power projects in Georgia and Texas, work on the Scotford Upgrader project in Canada, service and maintenance vessels in the Gulf of Mexico and several industrial services projects. Downstream revenue was $145 million in the fourth quarter of 2008 compared to $85 million from the fourth quarter of 2007. Business unit income was $14 million in the fourth quarter of '08 compared to $3 million in the fourth quarter of '07. The increase in business unit income was primarily driven by the addition of BE&K projects, progress on the Ras Tanura integrated project in Saudi Arabia and a refinery project in Texas.

Technology revenues for the fourth quarter of 2008 were $23 million compared to $18 million in the fourth quarter of '07. Business unit income in the fourth quarter of '08 was $3 million compared to $1 million for the prior year fourth quarter. The increase primarily relates to a refinery fluid cat cracking revamped project in Colombia, increased scope on a refinery project utilizing the ROSE technology in Poland, and a royalty payment for a SEC technology license in India.

With respect to the ventures unit business unit loss for the fourth quarter of 2008 was $1 million compared to a loss of $3 million for the fourth quarter of '07. Improvement was primarily related to no further losses recorded on the Alice Springs-Darwin Railway project, which was partially offset by our share of the startup costs on the EBIC ammonia project.

Now let's review other financial terms. General and administrative expenses for the fourth quarter of '08 were $60 million. That is up $5 million from the third quarter of '08, primarily related to both short-term and long-term incentive compensation, including better-than-expected performance by BE&K.

Originally we indicated that BE&K would be essentially EPS neutral; however, BE&K contributed $0.12 per diluted share for the six months that BE&K was part of KBR. For the full-year '09, we expect corporate costs to be approximately $250 million.

Our effective tax rate in the fourth quarter of '08 was 41% compared to 36% in the third quarter of '08. The increase is primarily related to the financial penalty in the amount of $20 million to the Department of Justice for the FCPA investigations which is not deductible for tax purposes. The effective tax rate for the full year of '08 was 37%, and we expect the full-year 2009 effective tax rate to be approximately 38%.

Now we will discuss backlog. Total backlog at December 31, '08 was $14.1 billion compared to $15.1 billion at September 30, 2008. Of this $1.2 billion sequential backlog decrease, approximately 630 was related to the foreign exchange on international projects. The remainder was a standard project work-off.

Now overall the backlog portfolio mix in the fourth quarter was 80% cost reimbursable, 20% fixed. That is the same compared to the sequential quarter.

Next, I will discuss liquidity and balance sheet. At the end of 2008, our balance sheet remains strong with no debt, and cash and cash equivalent is approximately $1.15 billion, which net of cash associated with our consolidated joint ventures and advanced payments related to contracts in progress was $795 million. Total cash balances remained flat during the fourth quarter of '08 as cash flow from operations provided $123 million during the fourth quarter of '08, which included a decrease of $127 million related to our consolidated joint ventures and a $57 million decrease in advance payments on a contract in progress.

Also impacting total cash balances on the fourth quarter of '08 was a negative foreign exchange impact of $38 million.

Total cash flows in 2008 provided by KBR operations was $466 million. That is excluding payment of $342 million of cash from advanced payments from consolidated joint ventures and customer project advances. The net cash flow is provided by operating activities of $124 million.

Now last quarter I went into detail discussing our potential outlook on future uses of cash. Now we continue to believe that firms with strong balance sheets, particularly from a cash and debt perspective, will be in better position to function and capture opportunities to grow the business. KBR continues to have a strong cash position, and our ability to utilize our credit revolver remains strong.

We must be very diligent in our cash management. We announced in January of this year that KBR was authorized to initiate a share repurchase program, pursuant to which KBR will repurchase shares in the open market to reduce and maintain over time KBR's outstanding shares at approximately $160 million.

We have been working on a process to automate this buyback program to maintain the 160 million shares. We have not been in the market buying shares since the announcement due to the window period associated with preparation of the fourth-quarter and full-year 2008 results. Now that we have filed our Form 10-K, we can and will begin implementation of this program.

Working capital in Iraq was $79 million at the end of the fourth quarter of '08. That is down approximately $43 million from the sequential quarter due to continued improvement and timing of collections on receivables. Capital expenditures totaled $10 million, and depreciation and amortization was $16 million during the fourth quarter of 2008. And for the full year of '08, capital expenditures totaled $37 million, and depreciation and amortization was $49 million. The capital expenditures for the full-year '08 came in below our previous guidance given at the beginning of 2008 of approximately $70 million. That is primarily related to delaying the expansion of the Canadian fab yard to 2009 and lower IT spend. Our expectation for capital expenditures for full-year 2009 is approximately $70 million, spending primarily focused on that possible expansion of the Canadian fabrication yard, real estate and IT.

For the full-year 2008, the total minority interest in net income of subsidiaries was $48 million compared to $22 million for the full year of 2007, reflecting a significant increase in the profitability recognized by our consolidated joint ventures.

Minority interest in net income of subsidiaries in the fourth quarter of 2008 was $1 million compared to $22 million for the third quarter of 2008, and this decrease included the impact of a tax true-up on two unconsolidated joint venture projects, which previously reflected taxes on the consolidated entities in 2007 and 2008 rather than only KBR's portion.

Now before turning the call over to Bill, I would like to address two follow-up issues related to the FCPA settlement we discussed a few weeks ago. Since the announcement we have received written confirmation from the US Department of the Army from the Department of Defense Contracting indicating that it does not intend to suspend or debar KBR from Department of Defense contracting. Also, the first payment of $52 million on the criminal matter related to FCPA of $49 million by our prior parent and $3 million by KBR, was paid during the first quarter of 2009. We expect an additional payment of $177 million by our prior parent in early March of this year. Therefore, the FCPA liability and offsetting asset will be reduced from the balance sheet reported as of December 31, 2008. We anticipate no issues going forward in regard to KBR and our prior parent making payments.

And now I will turn the call back to Bill for his final remarks.

Thanks, Kevin. I would like to offer my thoughts on KBR's outlook on the present state of KBR's markets. As you know, KBR has established significant positions across three distinct market segments -- US and Canadian E&C, military services, and global hydrocarbons.

First in the US and Canadian E&C market, KBR has seen a general slowing of activity across this market. We see our customer community increasingly focused on awarding their projects to those E&C firms who have demonstrated a track record of delivering on their commitments with high-quality and outstanding safety performance. Further, we see projects now clearly being driven on a cost basis rather than a scheduled basis. While the Canadian oilsands market is readjusting to the lower oil price environment, we believe it will take another three to six months for the E&C supply chain to reduce its costs to allow owners to move forward on the next round of projects in the present commodity environment.

In the US we have seen a slowing in our general industrial and commercial building activities. But our power and construction management activities in the education and health care arenas remain fairly strong.

Second, in our military services market, KBR envisions a stable level of activity under our LOGCAP activities through the remainder of 2009. Our level of activities beyond 2009, however, could be influenced by decisions taken over the coming months by the Obama administration. Within our G&I group, we have seen a slowing of infrastructure activity in the Middle East, but we continue to remain optimistic at our prospects in the Australian and US infrastructure markets.

Finally, in our global hydrocarbon businesses, we see many of the long lead LNG and offshore projects continuing to move forward. There has been a slowdown in the downstream market as owners are both waiting for their supply chain costs to fall and in some cases await the reopening of the global financial markets.

In the LNG space, we see several LNG projects such as INPEX and Gorgon continuing to move forward toward final investment decisions, and overall we're seeing good LNG activity in the Asia-Pacific market. However, the African markets do not appear to be moving forward in a similar fashion.

KBR has seen a good series of awards in our offshore business. These are primarily in the defined or feed phase, and we are optimistic that these opportunities will become larger projects over time. KBR is continuing to build our capabilities in the offshore area with a particular focus on the near-term opportunities available in the Gulf of Mexico.

In the downstream market, KBR continues to be well-positioned for additional work when the Yanbu and Ras Tanura projects move forward into the next phases of feed or construction, as well as the two refinery feeds we're presently working on in Angola and South Africa.

Our technology business in 2009 is expected to perform slightly better than 2008. KBR has not seen any notable cancellations in our backlog. We are expecting a slower sales cycle in the first half of 2009 with a pickup of new awards during the second half of the year.

In conclusion, I'm extremely pleased with KBR's performance in 2008. We continue to concentrate on project execution with a rigorous focus on our sales efforts, and the comparative results over 2007 exemplified these efforts.

I would also like to thank the dedicated people of KBR for their hard work and commitment to excellence that resulted in an outstanding year.

Now we will take your questions. We ask that you please limit your comments to one question and one follow-up. Thank you.

(Operator Instructions). John Rogers, D.A. Davidson.

Bill, you talked about some of your end markets. I was just wondering for a little more clarity on what you're seeing in terms of pricing, especially in the private sector. Where these markets are slowing, are you seeing real price compression?

When you say price compression, you are referring to the costs that we offer our customers?

Yes, the margins that you are building into your project.

Yes, we are seeing a response particularly on the hydrocarbon side where they are looking to depress the supply chain, and it is engineering, it is the procurement, it is the commodities, it is the construction costs. And we are seeing that I would say universally with our hydrocarbon customers and also the other customers we have in our services businesses.

As you know, when you look at an EPC project, the scope of supply for engineering is maybe 8% to 10% at tops, and our margins are of again a much smaller component.

We have seen in the supply chain the cost of our commodities for steel, copper, aluminum, nickel. They have all fallen very similarly to what we have seen in the oil price, and so those are already achieved.

But those just pass through for the most part --

Those pass through. The equipment costs that we have, they have not come down to the degree that the other costs have come down as well. We think their backlogs are still pretty good through '09. But over time we think they will start moving their costs down and perhaps get to levels maybe more quickly than not that will allow projects to move forward. We certainly were able to execute projects in the '04/'05 period when oil was $35 a barrel and believe that over time if oil sustains itself at that level, the cost structure would also fall.

But on the equipment side, we are seeing delivery times come in, become shorter delivery times. We see big validities go out longer. So we're beginning to see the signs that lead us to believe that their costs will come down as well.

Certainly on the construction side, the reduction in activity has brought the labor situation into a better supply and demand balance. As we look up in Canada, the union hauls just are not posting for workers.

So we expect construction labor costs to also moderate and are seeing some evidence of that in the per diems, the over-time and other ancillary costs that are being -- that we're seeing our projects undertake going forward.

So yes, we are seeing a lot of cost pressure, and we are trying to help our customers in achieving the lowest delivered cost of their projects.

Joe Gibney, Capital One Southcoast.

Just one quick question on the tax true-up on the minority interest side. Ex that item, where were we on the quarter for Q4?

Say that again?

You indicated a fair amount of noise in that minority interest relative to a tax true-up. Where were we ex that on the two unconsolidated entities that you mentioned?

That is why I gave you the full year. I think if you take the full year and look at it ratably, I think you have got a good indication of what should be going on on a quarterly basis.

Barry Bannister, Stifel Nicolaus.

The Escravos burn in the quarter, apparently there was very little. What was it?

Escravos burn during the year was up from '07. We were successful in achieving some incentives during the year from our customer. I don't know the specific number, but it was -- we are in the field. We have fundamentally got the home office stuff down, and so the focus is getting all the project activities on-site, and we are staffing up and making good construction progress.

Quarter-over-quarter from a revenue side, we were approximately 250% of what we had in the third quarter of '08. We had a pretty good pickup third quarter -- in the fourth quarter of '08 from third quarter of '08.

Yes, can you just give me a number?

Well, we really have not broken out the Escravos numbers yet, and we prefer not to.

All right. One of the other competitors has achieved some inroads in Afghanistan on LOGCAP IV, and I think I heard you say that you have had some RFPs but not a lot of success in Afghanistan. Could you just clarify what you said there?

Yes, there have been to my recollection four task orders that have been awarded. I think there was even one in the press today that was awarded. They have been relatively small. We have not been successful in any of these four. The task orders that -- now the task orders that we have seen, some have been in Kuwait, some have been in Afghanistan. But we are expecting that we will see larger Afghanistan task orders come out during the first half of '09. We think that this initial work has been in part a -- and again, I'm offering you only my opinion, maybe a part by the customer to help stand up some of the new players in the arena on smaller projects to give them the ability to more credibly bid the larger projects that will be coming out in the balance of '09.

But you really have not moved off of your original expectations of the percentage of LOGCAP IV that you had retained relative to what you retained of LOGCAP III?

Yes, we are still expecting that by the end of '09, all of LOGCAP III will have been converted into LOGCAP IV, and that of the remaining work in theater, we would certainly have our 40% plus of that, and we believe in LOGCAP IV it would be at a higher margin.

Andrew Kaplowitz, Barclays Capital.

So you gave some outlook on the end markets and on new awards. I know you have sometimes done this in the past, and you did this in early January, talked about consensus and being comfortable with it. Are you still comfortable with consensus of this piece, or can you give us any sort of EPS guidance for 2009?

This is Kevin. I think that the reason why we gave the guidance the way we did is I think you guys have had pretty good handles on things, and that was about as good as we could get it. I think we try to make sure you understand just where we see the business going forward based on what Bill's remarks were today. But in general, we're still comfortable with what people are looking at right now in the earnings estimates.

I think our policy has been just to make the one comment at the end of December period, and we will keep everybody updated on events. But we don't want to get into a continuing commentary on guidance.

Okay. That is okay. If you could talk about the government work, like we see sort of the activity out of Washington in terms of worries around legacy projects that you have worked on in Iraq. And so maybe, Bill, if you could comment a little bit on what you see out there. Has that hindered your business at all? Do you worry about that when it comes to LOGCAP IV? Because there is a lot of noise out there in Congress particularly.

Yes, first of all, you cannot ignore what is written in the paper, and then again, the Congress is not our customer on the LOGCAP activity. Our customer is the Army under the Pentagon.

We continue to get very good and in many cases excellent award fee evaluations of our performance in conducting that work. And so our customer is very happy with what we're doing and how we're doing it and recognizing that in our award fee scoring.

So, and we're continuing to get new work. We have those two orders in the Corps of Engineers, and we had the series of work that we talked about I guess in the third -- or the fourth -- the call for the third quarter we had, as I recall, $190 million or so of awards under the CENTCOM contract.

So we're still very active. We're still getting good awards of work. And yes, we still suffer from, I guess, the former Chairman of our former parent who was a former executive officer of the United States, but we think that it's going to come down. In fact, there was even a correction at the Associated Press issue today correcting some of the statements that were made around the possible involvement of KBR in electrocution matters in theaters.

So the truth is certainly there with respect to the Army in terms of our performance, and it is slowly getting out to Congress, and some will choose to read it and accept it, and others may have other agendas to publicize things. But at the end of the day, we are very comfortable that the facts on all these matters are on KBR's side, and we will be vindicated as these matters go through their third-party determinations.

Jamie Cook, Credit Suisse.

Congratulations. Two quick questions, one on BE&K. You did say that I think for the year it was about $0.12 accretive, which was better than you thought. I know you gave some color on what you thought about the US and Canadian construction markets, which is BE&K, but anything on an EPS level, or will it be more accretive than 2008 even with the slowing in the market?

And then my second question, Bill, if you could just speak about on the hydrocarbon side whether you are seeing your burn rates slow as projects get sort of pushed out? And as we look at backlog, is there anything that you sort of thought was going to move forward that is now on hold and if you could quantify that?

This is Kevin. Let me take the first part of your question. I think we felt with the acquisition and what we announced on it we should report on that kind of thing, and we did report that we did better than we had originally predicted as far as that was concerned.

We folded this thing into at least three business units now. So we're really not breaking it out for our own purposes as much as what we would do with you. So it is really kind of hard to sort of continue to answer that kind of question going forward.

We're very pleased with what it is doing. It added backlog. We have got work in there that we have talked about, and you will continue to hear about it. It is primarily in the services area. So I think you will be able to discern that. But we're not breaking it out ourselves anymore.

Okay. That is fair.

And on the hydrocarbon side, it certainly was announced and I think we have commented on the delay at Yanbu for six months waiting for the reduction in the EPC packages they looking for. We have commented throughout the year about the delays of Train 7, and our comments have been so extensive we no longer comment on Train 7.

But things are moving forward. I think they are taking a little more systematic approach as they evaluate things, but these large hydrocarbon projects are certainly from our participation 48 to 55 month projects. Our customers, which are typically the national oil companies and increasingly the IOCs, have access to cash. They do not need the credit markets to execute these projects, and certainly the global demand for hydrocarbons for new hydrocarbon resources is significant even under a no growth economic scenario for the next 15 years.

So while things may be moving a little slower than we would like, we have not seen anything that has been materially delayed from our standpoint beyond what we've commented on on Yanbu and Train 7.

Okay and then just my last question. We have heard a lot of the competition talk about the market moving more towards fixed-price going forward. KBR has made a concerted effort to be a cost-plus contractor, and I am just wondering how that holds up in a more challenging environment?

Let me correct your assessment. We have not made an affirmative decision to become a reimbursable contractor. We have been very steadfast in driving our organization towards best-in-class risk awareness. And I personally and our management team and our board certainly welcome the opportunity to look at lump sum fixed-price projects. Certainly the home office services on the Skikda project are lump sum, and we continue to look at other projects.

Now I will tell you we are much more disciplined than we ever have been in looking at risks and the context of risk, and we are having very open discussions with our customers. And certainly as the volatilities in the marketplace have calmed down, we believe we will see more fixed-price work as you point out. But I also will tell you that we are willing to play in the fixed-price arena and believe we can do so certainly very competitively and certainly much more profitably than we have in the prior four or five years.

Steven Fisher, UBS.

It sounded like from a call a couple of weeks ago the resolution of Nigeria was a pretty important thing to get resolved. Now that it is out of the way, I was wondering, Bill, if you can comment on what is the next most pressing legacy issue or issues that you are most concerned with resolving now?

Well, I would like to -- well, certainly the issues become smaller. We have the inventory of the arbitrations, and we're waiting to understand better the awards we expect to get clarity on in the first quarter, [Enimenus] and EPC 1, which would really with the two EPC resolutions last year have really cleared our decks of these major arbitrations. So we ought have that business behind us.

Certainly as we move towards embracing our new monitor, there is some bit of unknown there. But as I commented in our call the other week, I think we have already got best-in-class controls, and we will certainly welcome the monitor's view on that.

But we do things very much according to law. We have been doing those at KBR since before I got here three years ago. These are Halliburton-initiated policies, and we think they have held the Company in good stead since then.

The deck in terms of projects that need to be converted, arbitrations that need to be finalized, settlements that need to be made is vastly reduced from what it was. And I think by the end of the first quarter, if our schedules hold to form, we will have largely put those behind us.

Okay. And then just a follow-up on Jamie's question. To the extent that you do elect to do fixed-price work under new contracts in the downcycle over the next year or two, how can you protect yourself from the cost overruns as the cycle heats up again?

Well, we are going to spend a lot of time with our supply community going back to back and necessarily allocating risk that we're taking from our customer down to creditworthy suppliers, and we have very extensive and recurring discussions with our customers regarding this.

We are also looking at how do we estimate the risks and perform our internal stress testing of projects to make sure we have appropriate levels of contingencies, funded liabilities, etc. We are looking to share risk. As you have seen on many of the big LNG projects, we have done these in partnerships with other firms that provide us an additional double regard but also additional resources to look at the risk that we take. And we have a fairly good idea of how much risk we want to take in our portfolio and are willing to talk to our customers about that. And there may be evolutions where certain elements could still be reimbursable. That remains to be seen from our discussions with the customer. But it is certainly an area that we're comfortable moving forward in because I think we do a much better job of understanding the risk and certainly our tolerance for how much risk we can take in any one project.

Dan Pickering.

Services, the margins there nicely up from Q4 to Q3 -- sorry, Q3 to Q4. BE&K obviously a player in that segment. I guess the question is, is that margin level in services sustainable? Were there any one-time issues in the fourth quarter we need to be aware of?

I think we had a -- Dan, we generally have seen historically the return of some workman's compensation premiums to us in the fourth quarter that provides us kind of mid to high single digit bumps, and some of that gets allocated out. But it is primarily within services.

But that was the big mover that we saw in the fourth quarter, but it was good performance. The MMM vessels that we have are under new contracts, and because that is an asset-based business, those margins have moved up, and we had the full quarter of operations. In the third quarter, we had one of the units in drydock and one of the units under an old contract. So we saw the MMM business pick up, and that should be sustainable for -- those are five-year contracts, and so those were the drivers.

Okay. All right. So it sounds like maybe a little bit of help from worker's comp, so maybe we scaled back a bit, but not dramatically as we step through the --?

Yes, I think on an annual basis, the workman's comp nets out. We probably are a little conservative in our accruals in the first three quarters and get a little bit of a bump in the fourth.

Okay. And my other question then would be, just as we look at a new administration trying to pump a lot of dollars, infrastructure gets talked about a lot. Can you talk about what if any impact that might have on KBR opportunities? Is the government going to spend money in different places, or is that right down your alley?

Well, they are going to spend money in a lot of places. Our positions and infrastructure are really -- Texas, Alabama, you know, a little bit in California, a little bit in Florida in terms of our civil engineering business that does water plants, roadways, transportation, and we do the construction management at the Panama City airport.

We have also got some benefit we will expect to see in the Department of Defense spending as monies come back, and they are doing some refurbishments of bases.

We also think a lot of the infrastructure is -- when it trickles down, we will go to some smaller contractors and maybe not the national players. And so when I think of the Obama stimulus package, I'm not seeing material impact at the KBR level because our US-based infrastructure business is a relatively small piece of our overall business. But I think it will bump up a little bit, but it's a positive impact on a small part of our business.

Okay. So not a game-changer but nice on the margin?

Nice on a small margin, yes.

Will Gabrielski, Broadpoint AmTech.

Any thoughts on mix between LOGCAP III and LOGCAP IV? Do you guys have an internal expectation on that this year (multiple speakers) -- of what your mix will be?

Well, I think the work that we are aware of that is going to go initially in the first half will be packages in Afghanistan where we are providing services. I think we do -- when Iraq goes, it will be late in '09. But I don't sense you are going to see a change in -- a material change in what we're looking at in terms of volumes at KBR for 2009. I think it is going to be primarily, even if they do make changes, you will still see the bulk of -- the vast majority of the revenues being LOGCAP III revenues.

Okay. And then one last question because the majority of my questions have been asked and answered. But in terms of your guidance range and being comfortable with consensus numbers, and obviously that is a very wide range and implies a pretty big revenue delta, is that dependent on certain programs moving forward? Is that depending on Gorgon kicking in a certain percentage? What are the main drivers that you guys are looking at to make you comfortable with either the high or low end of that range or where you fall in between?

Well, again, I want to stay away from the guidance issue. We have a backlog under contract. We think most of it is going -- most of the impact for '09 comes from what is in our backlog today, and that is -- that has been a pretty solid backlog to date.

Vance Edelson, Morgan Stanley.

Just back on the G&I discussion for a moment but maybe with a different angle, can you elaborate on how the administration's latest views on getting troops out of Iraq in perhaps 19 months, what is the overall impact that any changes in timing could have on the business? How are you thinking about the reset opportunities that you might be involved in regarding the pullout and how that might drive revenues?

Our views on what the administration will do are formed by what we read in the paper. We really don't have any unusual insights or any private insights from that.

We have commented before that with the amount of troops they have got in Iraq, it will take a long time to move the troops out and then to move the equipment and facilities out there. Within Iraq and Afghanistan, I believe we have over 88,000 facilities we say. I think that is just the Iraq component, the 88,000.

So when you are thinking about that magnitude of facilities and then the amount of people that go into occupying those facilities, a decision today to have everybody leave in our minds is going to take two years of hard work just to get it all taken out, conditioned reset and having the sites returned to the conditions that we found them.

Okay. And one quick follow-up on the share buyback. Could you elaborate a little more on what the pattern might be in terms of when you think you can be in the market during the quarter? Will there be blackout periods, or are you saying that (multiple speakers) that you might be able to establish (multiple speakers)

What we are going to do is basically put it into like a 10b5-1 or something that basically says, if we put it in the hands of the people so they don't have any material information, we don't have material information, we just want it on autopilot. That is the way we're working it.

So it is kind of on autopilot hopefully as long as the share count is above 160 --

The initial impact will be we will try to bring the shares in, and then after that, it is going to be very minimal. We are periodically only issuing some restricted stock that might vest or something like that. So you are not going to really notice it. I think that is our whole point is that we're going to just try to hold it on an antidilutive basis like that to 160.

Martin Malloy, Johnson Rice.

My questions have been answered. Thank you.

(Operator Instructions).

This is Rob. If we have got nobody else in the queue, then we will go ahead and complete the call.

Thank you, sir. There are no additional questions at this time.

Okay. Thank you. Thanks for joining the call today. We look forward to the next earnings call. Thanks.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.