KBR, Inc. - Analyst/Investor Day

Nov.11.11 | About: KBR, Inc. (KBR)


November 11, 2011 8:30 am ET


Susan K. Carter - Chief Financial Officer and Executive Vice President

Roy B. Oelking - Group President of Hydrocarbons

William P. Utt - Chairman, Chief Executive Officer and President

Mark S. Williams - Group President of Infrastructure, Government & Power Business Unit

David Zimmerman - President of Services


Jamie L. Cook - Crédit Suisse AG, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Unknown Analyst -

William P. Utt

Good morning. I'm Bill Utt, one of your hosts here from KBR, for our Investor Day 2012. And with me today, I have Sue Carter, our EVP and CFO; Roy Oelking, our Group President of Hydrocarbons,, who will follow me at the podium. After a break, we'll hear from Mark Williams, on our Infrastructure, Government, and Power business and he'll be followed by David Zimmerman, our Group President of Services. Sue will come up and give some financial highlights for KBR. I'll wrap it up and we'll have Q&A. If our speakers are finishing prior to their allotted time, Roy and I are going to each speak for half an hour and then Sue, David and Mark will speak for 20 minutes each. We'll have some limited Q&A but we intend to provide at least 30 minutes of Q&A for you at the conclusion of our presentations. I'm glad I got through our audience, I remembered through my 3 group presidents are sort of tough to do in Texas at times. I'm glad my table got that one. It is also a pleasure for us to be back here in New York, for our Analyst Day 2012. In 5 days, we will celebrate our 5-year anniversary of being a public company. We did our IPO November 16, 2006, in what seems like decades ago for some of us, but it's been a great time for KBR. We've -- obviously, you followed our progress that we've made. Our discussion today is going to focus on why KBR? We want to not only talk about what we plan to do next year, but what is our strategic outlook for our company given the global environment in which we operate. And so it's appropriate that we start off with my cover slide is, why KBR? Rob Kukla has told me that you are very familiar with these forward-looking disclosure statements. I won't read this for you, but it's always good to have this in the slide deck.

As we look at the -- some general parameters on KBR, we talk about our revenue and our backlog which are all above $10 billion. We have a revised guidance for 2011, that's between $3.15 and $3.30 a share. Clearly, we're an international company operating across a number of industries all across the globe. And yet, despite our presence all over the globe, we think there's some really good opportunities for KBR to continue to grow our business, build out our platform and find a way to develop a more compelling offering to our customers while at the same time, reducing our risks and increasing our profitabilities.

This is our current global footprint and later in our discussions, we'll talk about some of our plans to build up new offices in Saudi, in Baghdad, as well as in Brazil. But it's a chance for you all to see really the true global footprint we have at KBR and then, talk about where we're going to take this platform as well.

One thing that we're very focused on in terms of our execution, this will be the one slide where we'll talk about safety, it's really our commitment within KBR that nobody gets hurt. Everybody who comes to work for us, we want them to go home to their families healthy and in the condition in which they showed up. And so we're very pleased with the focus our management team has placed on safety over the last 3 years, particularly given the additional work hours comprised being in Australia, which is an area that is not historically known for having great attention to safety, yet we're bringing a lot of our safety culture, our safety attitudes, our disciplines, our empowerments to our field teams in Australia, in a way that it has allowed us to continue to improve on our safety records. And while they are nice to see that downward trend, we're certainly not going to be satisfied until we get the 0s across the recordables and the lost time incident rates at our company.

As we look at our business, and every year, we go through a look at KBR and try to figure out really what are our strengths, weaknesses, opportunities and threats, and this came out of the strategic review that we did earlier this fall and that we discussed with our board in October. And clearly, as we look at it, certainly, the diversity of businesses, the diversity of markets, the diversity of customers that we have, leading to the breadth of franchise that exist at KBR, we think there's a competitive advantage for us and that compared to where we might have been 5 or 6 years ago, as we look at some of our big elephants, we don't find ourselves in a feast and famine environment, we really see a lot of businesses contributing solid revenues and solid growth, in a way that allows us to continue to hunt the big elephants, but not be as reliant as we might have been or others might be on these big awards as part of our company. We also, obviously, do a lot of complex deliveries. When you're building LNG plants in the jungles or supporting the U.S. Military in the middle of a war, you do learn skills that are very, very key to making your customers' missions successful, and we believe we have certainly, an unparalleled capability to deliver complex projects in very austere and sometimes dangerous environments.

You heard me talk a lot over the last 5 years about risk awareness, and that's certainly one area that we attribute to the strong financial performance that has evolved at KBR, in terms of an increasing margin base, as well as what we consider a far more predictable earnings base than we would have known from KBR perhaps 5 or 6 years ago. So we continue to be focused on that best in class risk awareness.

And we have an integrated resource pool, that was most recently seen and best exhibited on the Gorgon Project where we had 5 separate KBR offices seamlessly working on the engineering of that project. We have a good balance sheet. We have, by our standards, a good amount of cash, good credit resources, no debt and Sue is going to talk a little bit about how we have developed what we think is a very thoughtful approach to deploying our cash between returns to shareholders, new investments, as well as investments in our existing businesses. And certainly, the passion that all 35,000 people at KBR have towards delivering the mission, and our motto of 'we deliver' is something that we're very proud of and our customers see that whenever they have a project, they know that KBR will indeed deliver this project within the schedules and budgets and performance metrics that are established by the customer in our projects.

We look at the weaknesses and one thing that has troubled us over the last couple of years, particularly as we look to drive more efficiency in our business, was our ERP platform. And we found that the SAP platform that we had installed about 7 or 8 years ago, was certainly getting out of its life cycle. And so we've been elected to embark on a new platform that we feel will allow us to continue to reduce cost in corporate G&A, but as well as be increasingly more scalable and part of that, we saw as early as 3 years ago, when we brought in BE&K into our portfolio, and yet we're still operating the JDS [ph] system that BE&K has for some applications, and as we look at our business, we ought to be able to seamlessly have one system that we can deploy globally, that will allow us to certainly be more efficient, more scalable but at a lower cost. So that's one of the things that we'll talk a little bit about, but it's something we've addressed head on this year, and Sue will show you some of the impacts that, that has had towards our G&A spending in her talk.

The opportunities that we see is very high. Despite having a broad base of businesses globally distributed, we think there are gaps to our offering. And as we talk about what our plans are for KBR in 2012 and beyond, we're going to spend a lot of time trying to fill in these gaps. Previously, we've had to, for instance, on EPC projects, by construction labor, as we do the EPC and one of the things we'll talk about later is, taking the platform of an integrated direct hire EPC offering that we've built in the United States, and in Canada, and taking that internationally. And so the opportunities to increase our share of wallet is, we think are very high, to integrate more work within KBR. We're also going to look at how do we lever this -- our financial strength and our position. I think we've done a reasonable job so far, but more opportunities exist in terms of our thoughtful deployment of cash. And as you -- and I hope you'll take away from our discussions throughout the day, that we're focused on building long-term value at KBR. And some of the programs that we're talking about may not have a direct impact or a material impact in 2012, but as we look at where does this put us 2, 3 and 4 years out, we think this puts us in a much stronger position. So our ability to focus long-term, on building true value in our business is, I hope you'll see resonate through a lot of the discussions that we'll hear on our businesses, as well as the conclusions on the financials that Sue will cover.

The threats we see, we're concerned about maintaining status quo. We think, we do a good job, we think among other things, we're a market leader in many of our businesses. But that gives you a target on your back, and we've got to keep moving, we have to keep innovating, we've got to keep doing our project executions better, smarter, faster, at lower cost. And so we are trying to move our model away from the status quo to an improved and advantaged position to KBR. And certainly, we see, as we do in every business, when you have a successful business model, that there'll be new entrants coming in to try to take share of those markets, and then we're obviously cognizant of where those threats are in our businesses.

So before I jump into the strategic outlook at KBR, I want to talk a little bit about what are our objectives as a management team in 2012. And our first objective is we want to close the big elephants. We've talked for a while, and we continue to position ourselves, I believe, very favorably on the Inpex project, Kitimat, Browse, Pluto and Angola refinery project, and those are the big elephants we're chasing. We're clearly chasing other projects in that space, particularly in LNG and in the Gorgon, 4 Train, as well as a Mozambique project. But we want to get those signed up, and so when those projects already to move forward, we want to get those signed up and brought into the KBR backlog.

And this is not the only thing we want to do. We've had good growth in our other businesses, our other non-Hydrocarbon businesses and we want to continue to drive the organic growth in those businesses, into 2012 and beyond. We talked about some of our growth that we've had in the Oil and Gas business, the 20-plus percent growth we're seeing in Technology. We think we've got a great platform to grow our Power business and we talked at our last earnings call, about the awards that we'd received, about $800 million of awards in Power, in 2011 alone. We think Infrastructure and Minerals also allow us to have a great platform for continued growth, building on the Roberts & Schaefer acquisition, for example, in minerals, coupled with our Australia minerals EPCM business.

We're also managing, I think, rather successfully, the transition in our government business, from being perhaps a one trick pony of logistics supply to the Army, to a broader base government services contract. We're seeing awards, not only with other branches of the military, the Navy and the Air Force, but also getting into other branches of government. And this is something we've been working on for a number of years. Our work for NATO is an example of a customer diversity from where we had been historically, centric-focused, most focused on the U.S. Army and the Ministry of Defense. But I think we're seeing a broader base government business, in which we think allows us to grow and take our services of logistics and construction services and to be able to find more customers across a broader base of business.

We're going to continue to look at what's our best use of cash. We have an open share repurchase program that forges the opportunity as KBR shares move up and down to, we think, purchase a security or parts of a business that we know very well and have a lot of confidence in. And that's part of our 3-legged stool of returning cash to shareholders, looking at acquisitions and then also investing in our existing businesses. And finally, we're going to take the next steps into the implementation of the ERP system. So 2012 should be, we think, a very meaningful and transforming year for KBR, as we look at achieving these objectives that we've outlined for ourselves as KBR.

So as we think about KBR going forward, we want to spend time talking about, at least I want to spend time talking about what are we looking at that's going to be different, from the recurrent execution that we have, and we have a very strong focus on execution and delivery. But as I mentioned in some of my earlier comments, there are some gaps in our offering that we want to pursue, and the first thing that we looked at is, what is the broad market trends that we see out in the world that frame the strategic initiatives that we're going to undertake? And certainly, the first is, we look at who's got the money. And from our perspective -- and we read it every day, the balance sheets of the private companies, the corporations, they have the money. And we're concerned about the continued growth and austerity for governments, particularly western governments, and their ability to fund government programs and infrastructure projects. So we're looking to place our bets in the government sector very carefully, where we think we can maintain share and capture a good bit of what spending will occur. But as we look at the broader part of our business, it's really focused on industrial customers and I'd throw the utilities in there, minerals companies, hydrocarbon players, and look at those as where we think the biggest growth and the best series of opportunities are going to be for KBR. We think there's obviously, global risks, economics, social and political, have increased. We've got to be very careful of not putting too many bets down in too few an area. So as we look at our platform, this is where the breadth of franchise that KBR has, I think, plays to our advantage in an increasingly higher global risk environment, being able to move from hydrocarbons to minerals to power to international back to domestic across different customer classes. We think that's going to enable KBR to continue to deliver the most stable earnings, as well as a growing level of earnings within our business, and so the diversity that our business has afford us, we think, become an increased advantage for us, in this global environment.

We also see local content continue to increase as an issue. It's no longer acceptable for the contractor to come in and build the great energy infrastructure that we've done for the last 30 or 40 years in countries. They want something that's lasting. The best example I see of that is the GES+ initiative in Saudi Arabia, where Aramco says yes, I want the benefits of Western engineering and construction to build our facilities, but I also want you to train our people. I want to see an enduring Saudi engineering capability. And while I used that as an example in Saudi, we see that in Atyrau, Kazakhstan, we see that in Luanda, Angola. And we're going to see this in every market where we want to be, and so a lot of our strategies are evolving to becoming more multi-domestic in our markets to be able to leverage the Western expertise that's most typically found in our Houston or our London offices, across a much wider platform of regional offices so as to provide that local content, to be an Angolan KBR in Angola, to be Kazakh KBR in Kazakhstan. And so our model is moving away from the large central engineering offices in Houston and London, and more out to the field where the projects will get executed.

And finally, our view on projects is, by taking a greater share of wallet, by being more vertically integrated in our business, we think that reduces risk for us, it increases control, and ultimately, will increase profitability for our business, so driving a more vertically-integrated model at KBR is something we're moving towards, in a way to reduce risk, give our customers a better KBR experience and at the same time, drive a higher degree of profitability for those projects that we execute.

So if you look at our aspiration, and certainly, our Board and our management team like to have the elevator pitch, and as I gave this to the board in October, it seemed like I needed about 120 stories to describe what this meant, because you got into little bit more than a simple 15-second recantation of our aspiration. But really, we want to be the contractor of choice for our customers, delivering competitive and innovative solutions to their capital budgeting and services requirements. We want them to think that when they have a big, difficult, large project, the first name they think about is KBR, because we deliver. So as you come to continue to know KBR, our aspiration is to be the customer -- be the contractor of choice for all of our customers. And so we're really focused on how do we best meet the needs of our customers and we believe that as we take care of their needs, in a best to market sense, that certainly, our financial performance should follow from that successful performance.

So as we look at attribute to this strategy, we've talked about becoming a more vertically-integrated contractor. We're going to be in more geographic locations. We're going to continue to maintain our best in class risk awareness, and we think that's been a key element of our delivering a more consistent financial performance as KBR. We think we've got great opportunities to organically grow our business and we're going to consider acquisitions and further investments where they can accelerate the strategic implementation of these objectives that I will talk about today. And also, when they present a favorable make by analysis, because everything we're looking at, from our strategic initiatives, are going to be driven by how do we build this out organically, and only when we can find a more favorable make by solutions through an acquisition when we consider that. And certainly, the last one is we're going to continue to push out and increase our engineering content to those high-value centers that we have, as well as the global offices that we have established and will continue to establish over time.

So if you look at the first of these 4 elements that I'm going to cover, we want to hire, we want to establish at KBR, a international direct hire capability. When we bought BE&K in 2008, that was a signal for us to -- that we were going to get back into the North American EPC business. And with some of the projects that we've been able to win over the last couple of years, EPC or EPCM, Molycorp, KiOR, the BP Toledo refinery, these are examples of where we've been able to leverage engineering, procurement and construction in a vertical integrated sense at KBR, and we want to take that now, into our international markets to capture that increasing share of wallet. And as we roll this out, we're looking to do this in Australia first, certainly, given the very large number of LNG projects, as well as mineral projects that are contemplated in that arena. And then over time, move that into the Middle East and Africa. So we're really looking to get back to do the integrated EPC work or have that capability to offer to our customers in a way that gives them a greater opportunity for one-stop shopping at KBR.

The second element is we want to expand our access to fabrication capabilities, in both our offshore markets, as well as onshore. We see the opportunities and we have a relationship that we've established with the Korean fabricator, STX, to look at doing EPC on floating, production, storage and offloading vessels. And we think that's a good opportunity for KBR to move downstream from simply doing the engineering on these projects, to getting into additional services of procurement, project management, as well as taking some of the overall project risk, but with that, the opportunity to make more money on these projects. And so we're looking to leverage that business in a more meaningful sense at KBR. We've talked previously about doing more EPCM work and I think we have some projects, that in 2012, we'll be able to talk about from an EPCM perspective. But it's certainly an opportunity for us to get more vertically-integrated. A lot of the LNG projects in Australia are using module or fabrication and the opportunity to take a greater say in that modular fabrication does move towards our opportunity of being able to take a greater share of wallet. And we think over time, that we probably could see this business representing about $500 million of revenue a year to KBR.

We talked about growing our offices. We've been recently growing offices in Perth, Atyrau and in Luanda. Next year, we're going to build out platforms in Rio, in Brazil, to take advantage of the Latin America hydrocarbons, forest products and minerals businesses. We're going to go to Baghdad and plant a flag of KBR that's nonmilitary, but certainly, leveraging off the relationships we've established there over the last 8 years. And we're also going to be looking at the GES+ opportunity in Saudi. We expect to be able to get that closed with our partners in Aramco by yearend, and our aspiration there is for each of those offices to have over 500 people in those offices, performing work in those local markets and we think the fundamentals of being in Saudi, Iraq and Brazil over the next 5 or 10 years, are very favorable for us and look forward to, again, planning a continued new KBR flags in these markets over the coming years.

And then the final strategic aspiration is, we're going to grow the Minerals business. We bought Roberts & Schaefer this year. We didn't see as much work in the North American market because of some of the delays in the scrubber projects, in the EPA rules on MACQS. But we are optimistic that as that market comes back, and that as we see Roberts & Schaefer brought more into the international KBR footprint, that it's going to be a great platform to grow on, and particularly, as we bring that into the same universe as our EPCM work that we do in the minerals sector in Australia, to really give us a presence that we can build on. It's about a $400 million presence today, and we think that the opportunities for continued significant growth in those businesses are very high for KBR.

So as we look at this strategy, what is the prize for us pursuing these objectives at KBR? We think it's going to drive an increased financial performance in our business. We think it reduces risk. It allows us to have more control over more aspects of the project and it's going to deliver better execution on our projects. We think our customers will like it because they'll have better opportunities for one-stop shopping, fewer pieces to deal with across their projects. And certainly, it allows us to fill in the gaps in our existing international offerings, in terms of fabric access to fabrication capability, and the international direct hire capacity to be able to be more relevant in all of our businesses, in all of our markets, for all of our customers. And so that's the prize we see out there as we implement this 4-part strategy, building -- certainly, continuing to build in many areas of KBR to drive a more relevant KBR. And we think this is part of the reason, part of the answer to the question of why KBR.

So at this step, I'd like to turn the podium over to Roy Oelking. I'd ask that we could take -- we got about 3 minutes, Rob? I could take a few questions, but if we can hold the bulk of them to the end, that would be appreciated. Jamie?

Question-and-Answer Session

Jamie L. Cook - Crédit Suisse AG, Research Division

Your comment on vertical integration and how important that is to KBR. I guess, what led you to -- how did you come to the conclusion that vertical integration was so important? Was it something your customers is asking? And I guess the thing that worries me is, vertical integration means doing everything, and sometimes, that presents risk. You can't do everything well and some of your peers have taken the different approach and saying "I'm only going to do select things". So I mean, how do we think about vertical integration and the risk that, that presents to your business model?

William P. Utt

We have the benefit in looking at all the LNG projects that we do the EPC on. I've seen a lot of the positions our sub contractors take, on -- particularly, in the construction side. And it was interesting as we were going through some of our projects recently, the terms and conditions and pricing that were being offered by the market, at reasonably high margins for a reasonably 0 risk. And so it causes us to take a look at, well, why not us? And so you could interpret vertical integration as implying a higher degree of complexity, but I think there's still some pretty good bird nests on the ground for us to get into some of these businesses and particularly, in some the markets where they're doing elements of those projects on a reimbursable basis, that, 'I've already got the construction management capability, I've already got the systems, I've got all the project management capabilities to run a direct hire of business. So I just really have to set up the resource acquisition side internationally, and I could be in the business of doing some very large reimbursable scopes'. Our conservative estimates, at least on the direct hire, is we think we ought to be able to book about $1 billion by the end of 2013 on that. So I don't -- we're very cautious on risk and I hope that over the time you've come to know us, that you appreciate that we really sweat the risk issues pretty hard and try to make sure that whatever we say we're going to do, we're able to execute them. Joe [ph], did you have a question?

Unknown Analyst -

Yes. So speaking about the direct hire and particularly, [indiscernible] is that $1 billion mostly domestic? And then the second question is as you probably [indiscernible] capability internationally, is it going to require you to have to make acquisitions basically, Australia and moving forward, into the Middle East, are you really going to be able to be competitive in South Korea?

William P. Utt

The first part of the question, Joe [ph] is, this is all international. This is -- we're building off the platform in North America and when I talk about the $1 billion of bookings by 2013, I'm referring to international bookings. When we look at the Australian market, we're in the midst of putting together our business plan of what does it take for us to hang a KBR shingle there, and we'll have a plan of timing, of hiring, of where we expect to be on milestones, of submitting proposals, winning work, et cetera. The tradeoff that we'll have is we will look, on a secondary basis, at this stage, to what opportunities are out there, for us to accelerate our presence in those markets, and if the make buy option is favorable, we may seek to transact and get into the market that way as opposed to building it organically. But our discipline has always been, what can we do on our own and what's the cost of doing it. And only then do we start looking at what are the other options that can get us there possibly faster. But then on buying a going concern premium on a business versus building it from scratch. And so I'd like to believe we can come up with a compelling, and I do believe we have come up with a compelling view that we can do this on our own. And for us, as I think about the question today, if I can get there that much faster, it may be worth an acquisition, but it's also got to be traded off with -- at the end of 2015, where does this leave me? Because it's not what I want to do next year or 2 years now. It's what's the best long-term decision for this business? Andy?

Andy Kaplowitz - Barclays Capital, Research Division

So [indiscernible] CapEx in engineering [indiscernible on CapEx[indiscernible] more CapExto fund [indiscernible] does it mean more CapEx towards the cash flow [indiscernible]?

William P. Utt

Well, the question that Andy asked is, "does this change our CapEx at our balance sheet because of more CapEx on some of these opportunities?". We'll have to see what it takes us. I think the wording we had on the fabrication was access to capability initially. And so in the STX example, they already own the fab yards, we just now have to figure out how we put together the compelling EPC project. When we take think about fabrication, it's more than just a yard, and we studied the Caspian, we studied reopening Nigg, the yard we used to have in Scotland, and opening a yard is one thing, but having all the vessels and what you need downstream with that or another. And so for us to get into what I would determine a different asset intensity profile, would take a lot of thoughtfulness at this stage. We're not there yet, but it's something we've look at. We haven't found a good compelling reason to do anything different from an asset intensity standpoint right now. But in the near term, it's how do we capture that share of wallet in a different sense that's really going to maintain our present balance sheet, our present CapEx profile. We've got a really -- we've done a really good job with Sue's help of collecting cash and managing the working capital in the business. But this isn't -- I'm not trying to signal that next year, we're going to get into the hard asset business in a big way. Steve?

Steven Fisher - UBS Investment Bank, Research Division

The question is sort of rate of hire in Australia and the Middle East? Second, is behind on Australia, so I guess, the question is, and I think in the past you've commented that perhaps the Middle East is not quite as active as it had been over the last 3 or 4 years. So the question is, what do you expect to work on in the Middle East? Because I'm assuming this expansion in the Middle East would be not 2012, maybe 2013, 2014. Is it big projects? Is it small projects? And in what parts of the Middle East would you expect to focus?

William P. Utt

The question is with the Middle East, I think we'll just make this our last question because I'm eating into Roy's time right now. We want to focus on getting into the game, so I don't think we're going to jump off and say that we're going to do a $5 billion project in Iraq right now. I mean, obviously, you see a lot of established competitors in Saudi, and we've looked at how do we package some of our offerings with Chinese contractors and in the Aramco work. But as you get into the Iraq market and try to take advantage of the local content, and we've been working on an Iraqi-First program with the U.S. Military for 4 years now, where we're hiring Iraqis to support our LogCAP work in areas that the military was comfortable for them to provide services. So it'll probably be in a market like that, that's a little more fragmented, less established and it'll start off with some projects that we'll learn and grow on and is our skills increase, we think we can build those up to a bigger platform. But I think that we're going to be very careful as we stick our toe into the Mid East as the, let's do something we can really make sure we can be successful and not take too much risk right off the bat. So -- and I'll have a chance to come back and get questions at the end of our session, but I'd like to turn the platform over to Roy Oelking, who will give you the hydrocarbons perspective at KBR. Thank you.

Roy B. Oelking

Thanks, Bill, and good morning, everyone. I want to spend a few minutes just kind of talking about hydrocarbons and some of the topics I'd like to cover is our organization, our markets and our market drivers as we see them today, a little bit more in-depth discussion of some of the strategic initiatives that Bill framed in his remarks. And our projects, and when we talk about our projects, there's going to be a bit more forward-looking in, terms of some of the projects we're involved in, but we're involved in earlier stages of projects that we think are the next, as Bill call them, big elephants, that we see opportunities for KBR in 2012 and beyond.

With respect to our organization, the update really is there's no change. We feel really good about how we're organized. We have 4 very independent business units, profit loss centers that are market-focused, are client-focused and are doing very well quite honestly. We do see more opportunities from time to time, to combine the offerings, for example, of our Technology business unit, in our Downstream business unit, in the Refining, in the Petrochemical market, combined offerings that give us a bigger share of the project and enable us to get involved earlier in the project through the technology licensing process and carry that own through feed and beyond.

With respect to Oil & Gas which is predominantly our offshore capability. In LNG, we are closely following the development of the FLNG business. Clearly, between those 2 business units, we have a very unique combined skill set that will allow us to be, we think a significant player in that market as it develops.

Even more exciting and it's something that Bill touched on, is the opportunity we see to combine our Hydrocarbons business units with David's Domestic Construction capability to a broader EPC offering for KBR. Initially, domestically, and as Bill talked about, taking that offering on an international basis.

We're very fortunate in the Hydrocarbons business right now. We have a very strong set of stable and very strong market drivers, oil prices are -- bounce around in the sort of the $80 million to $100 million range, international gas prices that drive our LNG investment have been very stable. And the biggest paradigm, I guess, change over the last 5 years, obviously, the shale gas in which providing a very large, very stable and a very low cost of domestic gas that's having a very measurable impact on our domestic markets in downstream and in LNG.

On top of that, we see drivers of the national oil companies who own tremendous reserves, wanting to move there and their business further up the value chain. So instead of selling the commodities into the markets, they're developing, refining in petrochemical capabilities. Certainly, in Angola and the Middle East, to get more value out of their national reserves and that is obviously generating more opportunity for KBR.

And the last is general population growth and the evolving of the middle classes and more people, 7 billion I think was the metric that we just passed in the world, more food, more fertilizer, more ammonia. So we're seeing tremendous opportunities in our Technology business globally, being driven by general population growth and general economic creation.

Aspirations, we have the same aspiration for our other 3 business units, to be a leading player in end markets, as we think we are already with our LNG business. We clearly feel like, based on the projects that we've done, the projects that we're involved in, that KBR is #1 in the LNG space, and we have the aspiration of bringing all of our other business units up into that Tier 1 category. Our current strategic attributes that are fairly consistent across the business units is that given our technical skills from a very conceptual type of engineering all the way through construction management startup, we offer the complete sort of life cycle of our projects' history. We get involved very early in the concept work. We do early front-end planning work with our clients. And in a perfect world, we're able to roll those relatively small scales at early stages of projects through FEED and engineering all the way through an EPC, EPCM offering.

Strong client relationships, a majority of our business is repeat business with our clients. We have a strong track record of delivering successful projects, and that bodes as well for repeat business and for a continuum of business in many of our markets.

Safety and risk management. One of the concepts that we talk about is that, that's applied at multiple levels of the corporation. On our projects, we do a really good job and we have a lot of focus on safety. On risk management, how do we mitigate risk associated with our project execution. That rolls up to the business units, and ultimately, rolls up to the KBR. So safety and risk management apply to KBR at multiple levels of the organization. And our global footprint, it's quite impressive as it is, and expanding as Bill talked about in some of his comments.

With respect to our strategy, it's really in 3 major areas, geographic expansion, increase our share of wallet, which is increasing KBR's revenue as a percentage of the total install cost of the facilities and adding capabilities. The 3 offices on the left, and Luanda, Angola, it's became clearer and clearer to us over the last several years that in some cases, you don't have to execute the entire scope in country, you can offer an execution plan that does portions of the work in country, portions of the work in a home office environment or in high-value engineering, but you've got to have a presence. We found ourselves in the situation of having a tremendous history of project execution in Angola, but not being able to compete for projects that historically, we would have. So we took the decision, a couple of years ago, to open an office in Angola. Similarly, we did an office in Perth, in Atyrau, in Kazakhstan, and those offices have all been tremendously successful. And so we're looking forward to continuing to grow those offices and as going forward, with the offices in Saudi Arabia, AL Kohabar, Iraq, in Baghdad, and in Brazil, in Rio de Janeiro. When we've looked at the world, we looked at where are the regions that have the depth and breadth of a market, being established reserves and oil and gas that we think can sustain an operation, not only for the next 5 years, but for long into the future. Those are sort of the 6 areas and the 6 markets that where we have initially focused on. And so we've opened 3 offices and are in the process of opening 3 more.

Increasing our share of wallet. Following Bill's comment, one of the things that sort of, I think, brought this to the front of our minds is, we're the EPC contractor, we're the prime contractor on the job, and internationally, we find ourselves subcontracting work that we do domestically, and challenge ourselves, why can't we do that? Why should we subcontract that work out and as opposed to self-performing it? So we have this very established, very successful platform that's domestic and we're going to use that and David's going to talk a little bit more about the Kitimat project and how we're going to use that model on our execution plan for the Kitimat LNG project in British Columbia, and then go from there. But it's -- I think it is, from our viewpoint, an opportunity to reduce our clients' risk, to reduce the amount of interfaces on the job, it also has a significant amount of scheduled advantage in terms of being able to overlap construction a bit more with engineering and procurement, as opposed to doing an end to end when you're in a more of a subcontracting environment.

So we think the international direct hire construction is a tremendous opportunity for KBR to increase its participation, its revenue and its profit on projects that we already have. So we don't necessarily have to grow or win more projects as opposed to the strategy of doing more on the projects that we do win.

The STX alliance is fascinating, STX is a large Korean shipping and shipbuilding company with facilities all around the world. Majority of their business historically, has been in cruise ships, and LNG tankers and other carriers. They've made an investment in a shipyard in China, in Dalian, China, a $2 billion investment. It's a world-class facility. We have a tremendous relationship with the Korean shipyards from an engineering standpoint. We work with HHI, we work with DSME, it's a very strong, very good, very profitable engineering business, but as Bill commented, it is limited to engineering. So we went looking for an opportunity where an emerging player in the oil and gas space with a tremendous foundation for capabilities had a greater need for a company like KBR who brought the engineering, the global procurement, the global project management capability and the construction supervision capability to form an alliance where together, we think it'll be a pretty powerful offering to the Oil & Gas EPC community in a model that combines the sort of execution certainty of a KBR and our skills with a low-cost China fabrication shipyard in Dalian, China. So we're pretty excited about that. Certainly, we will continue our domestic EPC business, as I mentioned earlier, the shale gas and low domestic gas prices is driving us and providing us more investment opportunity, more project opportunities domestically, for combining our Downstream business with our construction business in the EPC space.

Our Technology business has been very successful in growing sort of 20% year-over-year, and we're having a focus to invest more on the technology side, looking at acquisitions too. We've built a really global, a really strong sales network, so we've made that investment. We have our sales teams established in China, in India, and elsewhere around the world. So with that investment, if we give them more to sell, we think that business will continue to grow so we look at adding more technologies through alliances with other technology owners or through acquisitions of companies that have technologies. Our goal is to look for adjacent technologies, the ones that we already own, so that we can offer a bigger offering to our clients and things that are contiguous and that they connect to one another and part of the chain.

This is a slide you've seen and as I look at this slide, the large red bubble over Australia is nothing new to anyone, and that market is one that we're all quite familiar with. But I think the dramatic change for this slide now versus a year or 2 ago is the 2 large red bubbles over Africa and North America, the shale gas reserves in North America and the U.S., and in Canada are providing a lot of excitement, a lot of interest. It's a complete paradigm shift from where we were just say, 5 years ago, where the U.S. and North America were looking at being LNG importers to now, we're looking to be LNG exporters.

Africa, the story there is it used to be always West Africa, and now, it's -- some of the more exciting developments are in East Africa. If you follow the exploration success of Anadarko and any in Mozambique, it's very, very, very exciting. So here's a list of projects, we'll talk a little bit more about Kitimat, and Inpex, and Anadarko in my next slide, but it is a long list. And as a look at North America, there's really 3 groups of projects. There's the Kitimat and BG Canada which are LNG export projects out of British Canada, Western Canada. The next group are -- there's a series of facilities that were built along the Gulf Coast that were originally built as LNG import terminals, regasification terminals and we're in the process of looking at several studies with those owners of converting those import facilities to export facilities. And the third, with gas liquids, with the widespread between domestic gas prices and liquid prices in the U.S., the gas liquids market and business investment is getting a lot of attention. We are having several early discussions with Shell and other operators about looking at gas liquids project in sort of Texas, Louisiana, and parts of the country.

Some of the specific projects, and I think you probably all are familiar with them, I'll give you a bit of an update on the Ichthys project. With Inpex, we've gone through a fee that was completed earlier in the year. We've gone through what we call an open book tender process that was completed a couple of months ago and we're in, I would say, continuous negotiations with Inpex, with both sides seemingly very motivated to drive this to a completion by -- before the end of the year with a final investment decision. So we're excited about that opportunity and how that thing -- how that project is moving forward.

Kitimat, we'll finish the FEED on Kitimat by the end of the year. We're starting to have more and more contact strategy types discussion with Apache, the owner and operator, about how that project moves forward in terms of transitioning from FEED to an EPC, EPCM. We've also initiated a significant amount of early site activities at Kitimat, from clearing, from site plan prep, from foundation designs and foundation preparations. So its project is moving forward very aggressively and very much in accordance with the aspirations that Apache have laid out and we're looking forward to Kitimat moving into an FID EPC in the second quarter of 2012.

I talked a little bit earlier about the tremendous exploration success, Anadarko had very conservatively published their reserves at 10 tcf. And just last week, announced 25 tcf reserve in a block adjacent to Anadarko's block in Mozambique. This is developing as to be perhaps the next really LNG center of the world in terms of development. We're excited to be working with Anadarko, we're in a pre-FEED mode. Right now, we expect to have an opportunity to tender for the FEED early part of next year and that is moving towards a final investment decision in 2013. In Browse LNG, that work has been done in our Greenford office in London. We've completed a FEED and been recently giving some additional funding by Woodside to further develop the FEED to what they would categorize, as an EPC-ready FEED, and that project is moving forward as well. We see a second half of 2012 final investment decision for Browse LNG.

Our Oil & Gas market is very globally diverse. We're excited about the activity in the Gulf of Mexico starting to come back to pre-Macondo levels. Europe and the Caspian continue to be sources of consistent and significant work opportunities for our offices in London and in the region. In Australia, we talked a lot about Australia from an LNG perspective, but we also have projects and interests and outstanding opportunities for our offshore engineering resources in Australia. Bill talked a lot about the share of wallet in providing additional services beyond our core engineering resources. And we have some real opportunities to do that. We talked about a couple, Shah Deniz with BP, is their next Caspian field development, it's an onshore and offshore project, expanding the onshore, receiving terminal and providing -- putting more projects offshore to increase the production. We are in a pre-FEED mode, working with BP under our global agreement. That project will move into FEED next year, and then into an EPC role. One of the things that is most exciting about it is BP have come to us and offered us an opportunity to participate in an integrated EPCM project. So we're supplying people already to them, we're providing procurement services, we're having people sent to the field already. So we see this is one of the opportunities to expand our offshore business, our Oil & Gas business, beyond the traditional engineering model.

Lucapa FPSO, we've been shortlisted for the FEED work on Lucapa, that's a Chevron FPSO offshore in Angola. It's an example of a project opportunity that probably wouldn't have existed for us if we had not opened the office in Luanda. It's an engineering execution that will be a combination of Houston and our office in Luanda. But looking down the road, this is the type of opportunity that we see applying our STX EPC model to -- from in an EPC phase. So we think that if we can get involved early, we're doing the FEED work, and then it sets us up with an STX alliance to roll over and make a very good offering for an EPC on Lucapa FPSO. ZADCO is a project that we're pursuing. It's an artificial island, oil and gas production facility, 140,000 tons of module. We're in the process of forming a joint venture with Hyundai, and again, in that scenario, we will be doing much more than just engineering. Our offering there will be engineering, we will do procurement and provide the construction management services that'll bring our share of that project in the $500 million to $1 billion range.

And finally Quad 204, we talk a lot about EPC, but we're very proud of our engineering business. It's a very good margin business and we just successfully finished the CLOV FPSO design in Singapore, in Jakarta, for Total. And it contracted to DSME, and we've now initiated right behind that, the detailed design for the Quad 204 FPSO located west of Shetlands, in the North Sea, where we're working for HHI on that project, with the same team that's rolling over from CLOV, executing it out of Singapore and in Jakarta.

Downstream. Historically, our Downstream market has been -- the major markets has been the Middle East and Africa. The recurring theme that we're seeing more and more opportunities domestically. In North America, Bill mentioned KiOR and BP Toledo, the list of opportunities for us in North America, seems to grow almost on a daily basis. Along the Gulf Coast, in some ethylene projects, continuing in the Middle East with further development of the national reserves in Qatar and in Saudi Arabia. And then in Angola, would be the Sonaref Refinery which I'll talk a little bit more in detail about. Sadara is a project for Dow and Aramco that we're in the process of winding up the FEED and transitioning from FEED into an EPCM support role for that project, we're mobilizing a significant number of people to the field, almost on a daily basis and see tremendous opportunity to play a large role in that project for the next 3 or 4 years.

Sonaref Refinery in Angola, we've been involved in the FEED and last year, we were awarded an interim bridging-type agreement between FEED and EPCM. Songangol have changed their finding approach from a BOT build operate transfer philosophy to having some investment from the IOCs that are also looking to invest in the offshore developments. While it's without a doubt, that project is going to slow down a bit, we've -- our team is scaled back bit and funded through March, and the hope and expectation is that with their new funding approach, then we'll move forward into an EPC model, EPC role in March. While the delay is disappointing, I think the general consensus is that their approach, Sonangol's approach to funding for this project currently is stronger than the approach that they were previously taking. So even though there's a little bit delay, we think the opportunity and the prospects for this project going forward are stronger.

KiOR is an example of our EPC project here in North America. It's an EPC offering. It's a biomass project located in Mississippi. It puts the full spectrum of KBR capability, the workings, including in David's construction group. And Jazan is the latest petrochemical project in -- refinery project, excuse me, in Saudi Arabia. We're initiating that FEED work in our London office, and see that continuing through 2012, and moving into an EPC opportunity for us in 2013. Technology business unit, markets -- largest markets historically have been China and India. One of the things that's really interesting as you look at this, as I wanted to comment across all the markets, is fertilizer, ammonia, so our ammonia licensing business is up substantially in 2011 over previous years and forecasting continued growth in 2012. Our technology is associated with what we call bottom of the barrel. Given the large significant oil prices in domestics creating economic drivers for investment in turning bottom of the barrel residue into commercial products for sales, so We're seeing increased activity in those markets. We basically have 4 areas for our technology business refinery coal gasification and gas ammonia. One of the -- the other emerging markets is coal gasification. We see the large low-grade reserves in China, India, and Turkey and those countries want to utilize those reserves to provide power, to provide electricity and our TRIG technology is particularly effective, particularly focused on utilizing those low-grade coal for -- and we see a lot of investment opportunity, and we see a lot of opportunity to sell that technology in those countries.

Continuing with the theme of why KBR? We really believe that we have a strong foundation for continued organic growth. We have a philosophy that we can reduce the risk of growth by taking businesses that are well-established domestically, that have a strong track record of performance domestically, that have a tremendous experience base, from a people aspect domestically, and take those businesses international and augment our already solid offering for EPC projects in all of our markets. It's part of the spend, the share of wallet, both in our onshore business and our offshore business through our relationship with STX. And one of the great -- even within hydrocarbons, Bill talks about breadth of the franchise, we're very diverse Hydrocarbons business with the 4 business units. We're very diverse globally, so we're able to be very nimble, very agile in terms of adjusting to growing markets and shrinking markets as the world sort of goes through the ebb and flow, so we have the ability to mobilize and react to our changing markets, both in the different markets of Downstream and LNG and Oil & Gas, but also geographically as well.

And we've talked about risk awareness, it's something that -- as well a safety that's just embedded in our culture. We kind of do it like we walk and talk and breathe, that has become that much part of who we are and I think the results from our projects and our execution, our consistency of delivery and our consistently -- consistency of financial performance at the business unit level, as well as at the KBR level clearly is a result of that.

Unknown Analyst -

I have a question. First on [indiscernible] according to talking with [indiscernible] on JV, where you have [indiscernible] acquisition before trying to do offshore, global [indiscernible] internally so viewing that sort of [indiscernible] for the third year that you're beginning to sort [indiscernible]? [indiscernible] you reversed back [indiscernible] unless your JV -- your [indiscernible], sorry, [indiscernible]? And then my second question is it starts with Latin America, according to your analysis, that's like $50 billion worth of opportunities, what will be your strategy in Latin America?

Roy B. Oelking

Okay. I think the part of 2 questions. The first one is with respect to our strategy for offshore and in increasing our share of wallet, increasing our revenue and volumes for offshore work and why we feel good about our STX alliance?

Unknown Analyst -

[indiscernible] alliance now the acquisition [indiscernible]?

Roy B. Oelking

Yes, I've been at KBR 3 years now. In the first year, we actually did 2 very specific studies, looking at some of the questions earlier, about capital acquisition of capital assets, in both the fabrication and in the offshore. And going back to my 29 years of experience with McDermott, we came to the place that -- and I believe that there is still an overcapacity in the oil and gas industry. Even if you look back into 2008, when the industry was at an all-time high and even the Korean shipyards were very busy, there were still additional capacity here in the Gulf coast, in Middle East and other parts of Asia, from a fabrication standpoint, that wasn't being utilized. And I have the same philosophy with respect to the offshore, marine installation equipment, that there's not a need, compelling need for more capability in those regions. So that led us down a path of a more looking for an alliance partner that would give us an opportunity to have a greater share of projects, increase our revenue and profits. But utilize more our intellectual capital from our engineering and project management and procurement skills to augment which is already a significant physical asset. So we think that's a good model that will allow us to be successful and increase our share of business, but without having to make the significant capital investments that we talked about. And that's a different model from KBR, where we currently are in terms of a really capital-intense corporation. And the second question?

Unknown Analyst -

The strategy on Latin America?

Roy B. Oelking

The strategy in Latin America is, to start, we're completing a project with GVA, who is our consulting company that does hulls FPSOs, we're completing a design for Engevix, for Petrobras' 8 FPSO hulls. So our strategy is to enter Latin America, set up an office in Rio, engineering primarily focused on offshore floating structures and we're having some preliminary discussions with the shipyards in Brazil, in Rio. But our going forth there right now, we're still -- our initial focus was let's do engineering, let's be an engineering and procurement services subcontractor to the existing yards. So it's a different philosophy focused initially more on building our engineering business. Let's get established, let's get a track record of delivering successful projects there. So for the next few years, our Brazil, Latin America strategy is focused on offshore floating production systems and primarily, in the engineering market.

Unknown Analyst -

Roy, I have 2 questions. First, on the self-deform [ph] direct hire labor which is so important today, it seems like we've already been there, in the '70s, Fluor, Bechtel, Brown & Root, et cetera, it was all self-deform [ph] construction. And then there was why companies get out of there. Because CCCs [ph], carafes, et cetera. Latents, they could all do cheaper. What's the competitive advantage of direct hire labor hired by KBR today, versus all these specialist construction companies? And then the second question, regarding the shale, billions have been spent already. Why is it that the U.S. E and C industry has not been involved pretty much at all in shale?

Roy B. Oelking

The first question was sort of with respect to the direct hire construction, a bit of a question challenges, sort of we've been there, done that. Why? Why try that again? I don't think that we're going back with exactly the same model. I don't think that you can look at just the labor and how do you bring cheaper labor to project. It think the industry has seen that, that's not necessarily a successful execution, that construction is a lot more than just cheap labor. It's an integral part of the project. There's a significant amount of integration between the engineering and procurement that gets more challenging, it leads to more cost to the projects. We think that in an integrated model, with our own direct hire construction, that we can get projects to market faster because we can integrate those quicker. We get more constructability input into our projects earlier. We think it's a superior execution model that ultimately, will be a lower-cost delivery model even, and not look at it in terms of how many dollars per hour for craft labor, one company can deliver versus the other. So we think, overall, in an integrated EPC delivery, that it will be faster and it'll be less -- it'll be more efficient and more cost effective.

And the second question?

Unknown Analyst -

Shale gas.

Roy B. Oelking

Yes. That's a good question. And we, initially, as KBR looked at some of the oil-and-gas-type opportunities on the production side of the shale gas in Australia, and came to the conclusion at that time that it was not a market for the bigger EPC players on the production side. But we've actually gotten some advice when we presented our strategy to the KBR Board recently that from their perspective, they see in some of the other involvements that they're in, more to the -- on the -- they see more opportunity that -- so we're going to have another look at North America and see whether some of the shale offers the oil and gas, the facility projects that we do everywhere else in the world. Am I done? I think that's it.

Susan K. Carter

We'll be happy to continue with everyone in questions as we go into the Q&A session. Let's take about a 5-minute break and we'll come back with Mark Williams.


Mark S. Williams

If you could take a seat, we'll try to get started. We will have plenty of time for more questions at the Q&A session, and then after that, the briefing. so we do look forward to answering all of your questions.

I have the enviable job of following Roy and talking about infrastructure, government and power. Roy, you did a great job running the Oil & Gas business for KBR, and some people, I think, they're destined for opportunities, and when your name's -- when your last name is Oelking, I think going hydrocarbons is in your future, so I don't have a name like that, but I've got to run the infrastructure, government, and power anyway.

This is the slide that we used last year, the summary, there's been a little bit of a modification to it and I'll talk about that. But it really kind of captures the 6 major markets that I'm responsible for: The infrastructure, minerals, government, the power, the industrial markets and defense.

A couple of changes. One is, we're talking a bit more and focusing on the minerals organization. We're going to -- telegraphing that we'll put more focus on that in 2012, and I'll talk to you more about that when we get there. When we look across all of our markets in this segment of the company, power and minerals are really going to be strong, we believe. I mean, we see strong opportunities coming up, and I'll talk about those individually. And some of you had questions about government and defense at the break. We still see significant opportunities in that business for companies that really have the right capabilities to be successful in the kind of market they were moving into. And I'll talk about that some as well.

When we look at business drivers, what drives this business, greatly, in the -- in a commercial area, the Infrastructure and Minerals, and Power, its global demand, and one way to measure that is GDP. If you look at GDP in the U.S. and Europe, it will be 1% to 3%. It looks like current predictions are in 2012, India and China will be 8% to 12%, so they'll drive a lot of that demand. So there will continue to be opportunities. It won't be booming in the U.S., but fortunately, KBR is a global player, and again, we think there'll be significant opportunities out there.

On the power side, the government regulations, in particular the EPA and the air quality control standards, are going to drive that business. There's a near-term spike to meet those. The latest round of regulations came out, I think they have to be satisfied by 2014. And that's driving a lot of scrubbers and catalytic systems being put into existing coal plants to clean those up, and that's going to continue to be, as coal plants retire, we think that gas is going to be the source of power going forward. And then that's a good opportunity, because KBR has a strong capability in that area. We'll talk about that.

On the industrial side, we certainly see in the forest products business, there's some increased to capital spend. We follow one of our key customers, International Paper, and certainly we see opportunities with them. Government spending is decreasing, but again, I think that the companies that had the right capabilities, in particular, companies that deliver value, that truly have value that's differentiated in the market and have a strong sales force, can be successful in the year that we're moving into. And that extends as well to U.K. Ministry of Defence, where they've announced an 8% cut over the next 4 years, but one of the ways that they're going to handle that is through outsourcing, and we see that as good opportunity for KBR as well.

We talk about aspirations going forward, we try to summarize that a little bit. We want to be leaders in our business, and we do want to be vertically integrated. There are key areas, such as in the power business, which we talk about why vertical integration. In the power business, it's mostly an EPC business. We need to build the engineering capability to fully deliver, and we think that -- in fact, we're sure we've done that this year. Good opportunities there that we seek to bid and win new work next year, and I'll talk some more about that.

And then balancing and growing our business. We want to diversify and continue to grow. We'll then -- I'll talk about it in how we'll do that within primarily, government and defense.

On the power side, I talked about that. KBR has built over 54,000 megawatts of power in the world, either through design or construction, so we have a tremendous resume and background doing the work. A lot of that was on the construction side. We had a specific objective determined in 2010, and we implemented early in 2011, to go out and build up that capability, that engineering capability. And we've done that, and we're now qualifying as a sole source for projects that we didn't qualify for in the past as a sole source for KBR alone. We had a team to make some of those capabilities. So it's been a great year. We sold $800 million of power business this year, so I think it bodes well for the future and what we see coming up in the next few years.

An example of that in DeKalb, Mississippi, is this facility at Kemper County, and this is also another way, where you talk about vertical integration, that I think it's a good example of it. Technology that KBR applies and sells, the TRIG technology is applicable here at this plant, but we've kind of finishing up engineering on this effort. We awarded the construction phase going forward, and it's an important new opportunity for the coal gasification and for power in the southeastern United States. Also has some environmentally friendly features, the carbon capture and storage approach that they're taking with this facility. So it's an exciting opportunity to be a part of.

We talked about -- or we have talked about government and logistics, and certainly, in the earnings calls, Bill and Sue have been talking about what's going on with LogCAP, and certainly, you can read in papers as well as we can, that at the end of this year, the U.S. Military will be out of Iraq for the most part. And we're a big part of that drawdown. There's a lot of work going on to drawdown, but there's also a transition that's going on there. They're transitioning from the military mission to the country-building mission that the U.S. State Department has. KBR was fortunate enough to successfully win that State Department work this year, $500 million effort, and going forward, we'll be supporting U.S. State Department. I'll talk about that a little bit more in a moment.

Another thing that we've done in terms of diversifying there, really, there are billions of dollars worth of business out there in the commercial logistics area for providing things like logistics support to the oil and gas industry or to the minerals business, providing and building camps and running and operating those camps. It's an area that we are leveraging our reputation within the government business over to that.

And then I talked about surviving, and doing well, and even thriving within the kind of market that we're in. The government defense budgets have gone through cycles. Certainly defense, since World War II, there have been up-and-down cycles, and I worked through one of those in the '90s when in real dollars, defense went from $400 billion to $300 billion. So even if the super committee comes out and makes a cut going forward, they're going to cut from $700 billion to $600 billion, that's a lot of money. There's still a lot of opportunity in that business. And from my experience, I think what the '90s, at least, taught me, was that if you have strong value to offer that differentiates you in the market, and you have a strong sales force, you can capture greater market share and grow your business in that environment. And I'm confident that we'll do that.

I talked about the Department of State support, here are a few pictures, a few facts. Today, we, over the past few years, we've had a bit of support for them and within a number of locations, and they were located throughout Iraq. They're going to consolidate down to about half a dozen locations, and KBR will be providing that logistics support to them. I think the key thing here, and Bill touched on that, this is it's the importance to the State Department of the local content.

I mean, they're pushing that very hard, and KBR, several years ago, started the Iraqi First program, where we're bringing on a lot of the local nationals to support the camps and operations and construction efforts that we had going on. In fact, for a while there, that's obviously is drawing down now, but for a while there, we were the second largest employer of Iraqis in the country next to the government, so an important contract for us going forward.

We talked about infrastructure, our emphasis there will certainly be in the Middle East. We certainly are positioned in Australia, in Europe and in North America, and they're going to key the opportunities there, but we do see some of the biggest opportunities being in the Middle East. And again, leveraging off that experience that we have in Iraq to build a little bit dealing with local subcontractors, understanding how to hire and retain the workforce, our relationships with the existing ministries within the country. The fact that we already do some commercial work there in support of the Oil & Gas business, we'll leverage off that to put a focus on growing our business in places like infrastructure and power going forward, in addition to maybe the logistics areas and the Oil & Gas business.

And for the minerals area, again, I talked about it, I mentioned upfront that we were going to put some emphasis on this. We're going to split minerals off from our infrastructure business. We're putting a leadership team in place. We've got a lot of the current leadership that's there, but we're bringing on a new president for that business. We're going to -- we did the acquisition at the end of 2010 with Roberts & Schaefer for material handling. We'll roll them into this business as part of that, and we think it will -- well, first of all, that gives us a broad global footprint to be able to build off of. And we see, again, good opportunities to build that business and grow as we go forward.

So I'll wrap up by saying why KBR? I'll give you my elevator speech, by the way, for why KBR. And then it's consistent with the kinds of strengths we talked about. And but to me, it can be summed up into 2 words: We deliver. And by that, we deliver in the most difficult areas, and we deliver on schedule and on time, and we deliver for a risk-adjusted premium on our capital investment. And I think that when you look at the history of KBR, and what Bill and the team have done, we've been a part of since taking the company public, there is a strong discipline, there's excellent processes in place to ensure that we both estimate bid and execute our work successfully, and I think we'll continue to develop in that -- or excuse me, we'll continue to deliver on projects going forward.

It's certainly, key still about why KBR. We have the opportunity to leverage that power, EPC capability that we built in the U.S. and now leverage it to go internationally. We have the opportunity to integrate pieces of our business together and leverage off the global footprint to expand our minerals business. We see good opportunity and are working towards strategically and operationally, diversifying our logistics services business, where KBR is the premier logistics services provider to the military today, and we feel confident that we can leverage that to other areas.

We feel our position to grow and capture business in the Middle East in a number of areas, and certainly, Iraq is a key place there. And again, coming back to the strong risk awareness in the double regard, the discipline and processes to ensure that we did and execute work successfully would be why KBR.

So let's see, I probably have a few minutes. Any questions? Yes?

Unknown Analyst -

Part of the opportunity that in your processes [ph] and if there's any experience improving this backlog build, with one of your peers over the last 18 months. Is there some concern that you guys may be late in building up that capability?

Mark S. Williams

We still think there are significant opportunities, and certainly, we're putting a focus on it because we want to grow more. And when we look at it, we greatly, today, are doing our minerals business in Australia. As we, with the Roberts & Schaefer organization coming in, we'll do material handling in places. They're in a lot of different places, they're in a lot of different locations and we plan to leverage off that, as well as bring in the focused leadership team to expand. But I think there's -- we still see plenty of opportunities to do that. And then today, it's Australia and Asia and North America, but going into South America, and Africa eventually as well. Yes?

Unknown Analyst -

You have a pretty strong legacy infrastructure business, especially in Australia, could you talk about the timing of some of the projects that you see in the Middle East? And then, as sort of the overall goals for the infrastructure business, do you want to branch out more in Asia, do you want to branch out more in Latin America, places were infrastructure growth is actually quite strong right now? How will KBR be positioned to take advantage of that growth?

Mark S. Williams

Yes. First of all, how do we see the opportunities there in the Middle East? Well, in Qatar, where we're already doing work, we're working on the Qatar-Bahrain Causeway in the past, and we expect that will continue. And also the Doha Expressway which we picked up this year, and that's a key project for us. But a lot of that's been driven in Qatar. That's one of the areas we're focused on, it's being driven by the World Cup games that they -- for 2022. And so those infrastructure projects are going to go forward. Yes, certainly, there has been some refocus that we see in the Middle East on ensuring they're dealing with the welfare issues with the population, as the result of some of the Arab Spring issues. But we don't see that as anything that's going to be a significant drawdown to their spending over the next few years. You asked about other locations for infrastructure. Certainly, we think there is significant opportunity to grow and build our business where we are. As we move forward, certainly, in some of the developing areas, those are potential, whether it's in Asia or in South America, those are areas where we are considering growth. But probably our nearest term focus on growth beyond established markets and countries right now is Iraq.

Unknown Analyst -

Just one follow-up, have you seen growth on business in the last year?

Mark S. Williams

Yes, yes.

Unknown Analyst -

[indiscernible] And is there [indiscernible]?

Mark S. Williams

Yes. Now that the infrastructure business has grown in the last years. And we still think there's good opportunity to grow. The U.S., again, big numbers, the U.S. is an area where we still have opportunity to grow. There's the $400 billion of infrastructure business done in North America.

So. Okay. I need to get off and I'll come back to questions later. David Zimmerman.

David Zimmerman

Good morning. Services, this morning we'll look at Services, and really, Services is the construction maintenance arm of the company. I'm delighted to be part of that business. That was a business that was real strong in our legacy. We made a decision not long after becoming a public company, that we really needed to reinvest in rebuilding that construction business. It became a business group in September of 2007, so we're 4 years into that process.

If you look at -- this is a slide we showed you last year, it basically had the same core businesses that we work under. It's historically been a domestic business or North America-based business, which you're going to hear me talking this morning about what we're doing to grow this internationally to take really the confidence that we've been really working hard to perfect in a North America business line and take it internationally.

The 4 business lines is the construction business, and that's really the legacy, rather the construction business, coupled with the acquisition of BE&K construction business in 2008. We've had an ongoing operations in Canada since the '50s, and we continue to be strong in the oil business and, we'll examine that this morning and tell you how we basically have continued to build that out and expand that in Canada. And how that, in fact, has enabled us to a lineup very carefully with our Gas Monetization business, and really deliver the entire value chain to the Kitimat project, very exciting opportunity for us. We continue to grow our industrial Services business. This is our maintenance business. It's a stable business, it's a business that grows year-on-year, and it's something that -- it's a nice part of our portfolio that allows us to maintain a long, consistent relationship with core clients, so it's a great business. And then the Building Group business. The Building Group business came to us through the BE&K acquisition. We're now 3.5 years into that business. It's a now great integrated part of our business, re-branded it KBR and continues to add value to us.

Looking at our business drivers, I know there's been a lot of discussion this morning about shale and shale gas in the United States. We've been seeing that for a couple of years and examining that marketplace and try to determine what play we've had. I think one of the things you recognized, watching that market, is the players in the market have changed over the last 3 years. You've been seeing the IOC's buyback into that marketplace, 5 years ago they weren't playing in the shale gas, but now with Shell and ExxonMobil through XTO and others, are getting back into shale gas. So the players are changing in the shale gas.

And not only that, the infrastructure as it's been built out, the billions of dollars of work that's in the production side, you're starting to see the gas available, and the big driver for us is ethane. The ethane liquids are becoming available, are driving the chemical industry, and that's really becoming the feedstock to ethylene. And you see the big projects, which will be integrated EPC projects, that are coming available to the downstream business. We're seeing that.

We're seeing clients redoing furnaces. We've got a lot of projects right now where we're rebuilding furnaces and looking at more rebuilds, as well as recommissioning old ethylene plants that we were basically putting off about a couple of years ago. Now that ethane feedstock is available, plants are dow that, in addition to new plants. So we're seeing a lot of opportunity there.

No doubt that what's happening on the environmental side of the business is having a positive impact on us. Everything from cleaning up coal to the fact that natural gas available is driving a renewed interest in combined-cycle power plants.

Oil sands. We've been active in the oil sands for years. We've got a module fabrication facility in Edmonton, which right now is absolutely full. We're looking at what we can do to expand that, to allow us to have a greater impact in the oil sands, and we're starting to see more traction as some of the more established players in the oil sands are moving their projects out of engineering and into EPC. We've got a lot of very, very exciting activities going on in the oil sands.

Our Building Group, we've had a real good year in the Building Group this year. We've seen, really struggle, in the number of prospects available to us in our Building Group. With some bright spots. Certainly, the commercial residential building operations in the Washington, D.C. area has been good for us, as well as a move to manufacturing in the Southeast United States. We're seeing more and more opportunities there. So that's some interesting drivers for us, and something we're excited about.

In terms of aspirations, and I'd almost be bolder and say, we will be the leading provider of construction maintenance services. And it's key in this aspirational statement, that you recognize as both the EPC and standalone. In a stand-alone business, which we operate in every single day, we've got a be competitive in our marketplace and it's a tough marketplace. And in order for us to be competitive, we've got to know exactly what's going on with across a wide variety of markets and a wide variety of competitors. That enables us to be really a value differentiation to our EPC business, and we see that as the highest value that we bring to KBR, is the ability to fully vertically integrate EPC.

No question, our strategic attributes is that we're taking this international. We've had some international projects in the past, we're going to grow it. Certainly, Kitimat is an easy example, because we're already operating in Canada. But we see really the market that's available to us quickest is in Australia. A lot of similarities between both the labor force and execution methodologies between Canada and Australia, and we see that's going to open up a lot of opportunities for us. And that will be the first thing we'll be going towards. Not to mention the fact that we see growth in our existing marketplace. You've been watching our backlog build this year. We continue to see acceleration in that, very excited about that. We're selling into this marketplace. We see that continuing, and that's a big part of our ability to remain competitive.

And then ultimately, as I mentioned earlier, our ability to deliver high-value products and services to our EPC business lines, and allow them to be successful in the marketplace that they're operating in.

I'd like to look back just a moment and sort of connect some of the dots. In 2008, when we really sort of accelerating our position in construction and maintenance, we had -- I had, with the assistance of the entire company, had the opportunity to lead 3 acquisition efforts. Those are well embedded in our business now.

The TGI acquisition, which is a Turnaround business, is really the key element of planning and scheduling. It allows us to have differentiation in doing turnarounds. The turnaround market has been sort of slow, but now it's starting to rebuild and grows rapidly in 2011, '12 and '13, so we see that happening. We're also able to take that on an international footing. So that's become a nice differentiation for us. Not to mention the fact that turnarounds typically have better margins than our standard maintenance business.

BE&K was a major acquisition. It's now re-branded as part of the KBR operation. It's allowed us to do some very interesting things. You see the Solid Waste Authority project up there. That was a project -- we did a rebuild for SWA in Palm Beach. We're able to take the expertise in the great value that we added to SWA on that rebuild to enable us to position our Power and Industrial group to win the larger project that they put under contract. So I think that's been a nice play on that. Plant Radcliffe, again, taking some of the great experience we have with the Southern Company. We do a lot a work for the Southern Company, positioned us very well to here, again, provide assistance to Power and Industrial to lock up Plant Radcliffe, all the way from the technology through the EPC. And in fact, right now, if you look at the Mississippi, we've got a lot of work all the way from the coast throughout Mississippi. It's been a great opportunity for us, coming through the BE&K acquisition. Plus DuPont.

We've got -- we've really got 4 business lines working in DuPont. We've got the maintenance business, where we have what's called a CCMS contract. We're working on 16 different sites. Our construction business is working on 2 sites. Our Building Group is working on 1 site. We're rebuilding multiple buildings within the Wilmington campus for DuPont. And then our downstream business is doing multiple projects for DuPont. So through that BE&K acquisition, and really developing a very close relationship with DuPont, we've seen instant business opportunities. It's been very supportive of our business.

And lastly, but certainly not least, is Wabi. This is a effort we put underway in 2008 in October, to allow us to have 2 labor forces in Canada. We'd always been a building trade union labor force based in Alberta, but we needed to expand geographically end market. And the Christian Labour Association of Canada, which is what CLAC is, is an easier union operation to operate. It's got much more flexible operating rules to operate than the Building Trades Union does. It also give us access to mining sector and multiple provinces within Canada. So we're able to use that now more in British Columbia, Saskatchewan and Ontario, and starting to bring in a number of other projects that are mining related. So you can see that some of the ones that we've listed there that are ongoing work.

Just take in a brief look at each one of the businesses. The construction business, I didn't put any numbers on the graphic, but as you can see, when you compare 2010 to 2011, and if you're listening to the earnings reports, the construction business is really been on a growth position this year, and we see that continuing. That business really honed its position and competitiveness in 2010, survived through 2010 and really is hitting its stride in 2011, and we see the future being bright for that. A lot of the interesting work, as we continue to take this forward, both for the domestic operation, as well as international. Maybe I'll speak a little bit to the international piece.

There was a question earlier about the international, what's different now and then? In the past, international was really driven by cheap labor. And now, the labor, is -- even though it may be less expensive than it is in the U.S., Canada and Australia, labor's still not cheap, particularly when you have to house it and support it. The drivers that all of our clients right now is productivity. And even on projects now, where we're delivering on a subcontracted basis, we are putting teams in the field to drive productivity. We're basically assisting our subcontractors in delivering productive work to enable them to get the job completed predictably and efficiently. We see all of that work that we're doing with subcontractors is work that we do ourselves, and we just need to get basically, quit allowing those opportunities to slip through our fingers on international work, and really step forward and take that portion of projects where we can add a lot of value.

Local presence is important in construction. Construction is the fundamental local business. Regardless of whether you're working in Australia or in Pascagoula or anywhere else, you have to hire local labor. You can't be importing a lot of labor, it's expensive. Whether you're importing, in Pascagoula for example, the client really came to us because of our strength in Mississippi and ability to bring in a local labor force out of Mississippi as opposed to bringing in a lot of labor outside of Mississippi, which we had to pay a living out allowances, too.

Vertical integration, we're seeing that more and more. We've talked about it this morning in terms of Downstream. Many of the projects that Roy talked about this morning, we're adding specific construction resources in there, continuing in Power and Industrial. So that's something that's really a great opportunity for us, and our teams do a good job of working with the other business units to deliver on that.

Industrial Services, this is the side of the business that doesn't get a lot of play, perhaps it's not real big and glorious, but it's very, very stable. It grows year-on-year. We're currently at 93 sites. In our legacy, we've been larger than that, so when we sort of recreated this business or got back into business, we've gotten down to 25 sites in 2006 and early 2007. So if you look at that, we added in the BE&K acquisition, it grew that business, and we've been steadily growing that business ever since. Now the great opportunity is to do something that, and we've been looking forward to, is to take some of this international.

We've got our ongoing effort right now in Saudi Arabia, and we've got a partner that we've lined up. We're in pursuit of a very large maintenance refinery project in Jubail. So this is also something that gives us an opportunity to take overseas and continue to grow this business. You can see, we also already have some international business, both in Poland, Russia, Egypt and Mexico. We also have Mexico and Canada. So this business has got an international footprint, probably more so than many recognize.

Canada operations, this is a business that was hit pretty hard, obviously, with the downturn of business in 2008 and 2009. It's getting back into a growth mode. We had a decent year in 2011, but we see really increasing opportunities for us across a diverse spectrum of markets in 2012. Some of the large oil sands players are really on the verge of making some major investments, and we're well-positioned to take that. Not to mention the fact that we're seeing the diversification it allows us to get into the mining sector. That's been a growing sector brought to us, predominantly through the Wabi acquisition. We're looking at some expansion in our fabrication facility, which we've had there in Edmonton. It allows us to get more modules through that yard, and pipe verifications through that yard.

Here, again, we are also being supportive by major projects. We put up a little case study here, just a simple walk on Kitimat and how this all came to pass this year. Basically, taking the position that we enjoyed in Canada, both as a fabricator, pipe fabricator, module fabricator, direct hire constructor with long union relationships. It enabled us to really add a tremendous amount of value to the Gas Monetization, the product line on the Kitimat project. It really -- the need was there, large project, remote environment and make sure you have a First Nations relationship, which is always important in many parts of Canada. And then deliver a solution that allowed them to have good local content at a competitive solution, and a relationship with union labor that is constructive, so that we can do modularization which is necessary for that project, at the same time maintain relationship and the goodwill with union labor to allow it to be successful. So it was a nice model, that sort of instantly showed how we can bring the 2 pieces of business together to the best interest of the company.

Our Building Group business, predominantly located in Southeast United States. We've been -- it's now been rebranded as KBR. We are growing more and more outside of its traditional core area, where we can expand, using KBR footprint in the United States, as well as in a specific marketplace. We're moving them into Texas, and we're starting to see some success in Texas. So we're pleased with that.

One of the things we didn't note in here, but sort of dawned on this, as we're talking about vertical integration is, is we've actually seen several opportunities come up here in the last 6 months, where our Building Group is actually able to line up with some of our other business units. So we've got some of the Building Group employees working on Kitimat on that. We're putting them on the Cameco project, which is a large uranium mine in Saskatchewan. And we're just seeing an opportunity to work together with Power and Industrial in Alabama. So I think we're always on the look to see where we can bring best synergies in the business to add more value to the projects that we do, at the same time control the risk better.

This is just a set of typical projects. I won't go into this. We talked a little bit about DuPont, which is numerous sites. The project that we're doing right now for Southern Company in Juliette, Georgia, this is Plant Scherer. We've done a lot of work at Plant Scherer right now. We're doing an SCR and flue gas desulphurization unit, that's a piece of work that's ongoing, just completing the steel erection which you see in the picture there.

And certainly, Kitimat, Roy mentioned this morning the site development work is ongoing now. We've got KBR and some local civil contractors on site, doing that site development work, blasting rock, crushing it up, doing some of the early roadwork and that's pretty interesting to see that project going forward.

New pieces of work, we're getting kicked off, is in recently, and started erecting steel just recently for Gulfstream in Savannah, Georgia. Continuing with our aerospace reputation, we just finished the Boeing project offer in the process of finishing Boeing out. We just turned over the delivery center, which is one of the primary buildings that Boeing uses to interface with their customers, that we just turned over this recently. And that this has been a great success for Boeing. A great success for Charleston, South Carolina, and we're delighted to be a part of that.

As we looked to why KBR, the first thing we talk about is, is that it's important to us to recognize that we're market tested. Construction business, living in a direct hire construction business, where you're putting your labor on the line and competing, really doesn't allow weaknesses here, you don't survive long. So it allows you -- it makes you very adept at understanding what your business is, how to be competitive, how to deliver on the margins and how to have predicable outcomes. Not only does that position us well to continue to grow on our North America markets, but it also positions us well to take it internationally.

You can see in the third bullet there, we've identified the people, systems, tools and knowledge, and the vision to take it international. We know we're already basically supporting international work through subcontractors, so it's the next logical step for us to stop passing along those nice pieces of work to subcontractors, and start deciding which pieces of the work that we want to do for ourselves and keep that within KBR.

Without a doubt, the strong awareness of the risk management, understanding risk and dealing and mitigating risk, has allowed us to be successful quarter-on-quarter. And I think that's a huge issue of importance to us, as we continue to expand both in the domestic market, as well as international. It's great to be part of the construction operation. We feel very good about adding value to the overall KBR, and look forward to growth in the international marketplace.

So with that, I'll -- a couple of questions. Got a question over here. Anna?

Unknown Analyst -

Do you think there is [indiscernible] within the oil and gas end markets to [indiscernible] figure out where the cracks are you can find with the [indiscernible] and water and Australian labor? And then in Canada, with the -- just labor resources, so with the domestic ethane, ethylene play, pretty much in its infancy, is there anything when you're talking to your clients that could potentially pop up in a few years that you're seeing right now?

David Zimmerman

I'm not -- you're talking for the domestic U.S.?

Unknown Analyst -

Yes, that could be sort of like a bottleneck in the supply chain.

David Zimmerman

Oh, bottleneck in the supply chain. It's not evident right now. We always have to be cognizant of what's going on in the labor force and we saw in 2006, '07, and '08, the United States labor force got overheated and it drove prices up. And I think everyone is cognizant of that. There's been a lot of work done since then. One of the things that you see us working on, and we think it's going to be applicable to our international work front is training. We've got multiple stages of training. Everything from what we call quick train, which is taking people that are underemployed and bringing them into the construction industry, and then moving them up the scale so that we've got a trained construction workforce. For a long, long time, in the construction industry, you couldn't make a living, right? Prior to 2000, and back in -- I'll say prior to 2004 and '05, you couldn't really could make a living, particularly on the Gulf coast in the construction industry. That's changed. The rates have gone up, I think, which is good for labor, I think it's good for the industry. And I think, people now see that, that is a viable, respectable, good way to make a living to support a family, so we're going to see that. NCCER, which we're a major player in, continues to work on labor. So I think the bottleneck would be labor, but I believe that we're somewhat ahead of the curve. We're going to stay in step with that.

Another question? We got one here in the back.

Unknown Analyst -

My question is out of respect to the oil stands and the delay of the Keystone pipeline, I guess a few questions. One, do you think that sponsors could slow down ongoing projects because of that delay? Number two, do you see some risk that upcoming FIDs on projects gets delayed because of the delay of the pipeline? And number three, do you think you could see some more investment in refining infrastructure up in Canada, because of the delay in offtake infrastructure?

David Zimmerman

No. No. Yes. I don't know what's going to happen on Keystone, whether or not we'll make an inappropriate decision, try to delay that project, which is critical to the United States and getting that oil sands and that refined product, really that improved oil into the United States. But clearly, there are projects that are going forward, and Canada has the ability to market their oil, and they're not going to be really held hostage, I don't believe, by Keystone. So I think you're going to see projects going forward. And clearly, Canada wants to invest in upgrading their products, both in refined products, as well as in chemicals. If you follow a Northwest upgrader, which is called Northwest Refining, they're looking at moving their project ahead. And they've got the vision of the kind of program from the -- for the source, and they're going to deliver consumable transportation products, diesel fuels. So when you're able to have a project like that, it's not really tied in any way to Keystone delivery. So I think you're going to see projects continue to move ahead regardless. Hopefully, we'll make a good decision on Keystone.

If you all can hold your questions, we'll move out along, and I want introduce and turn this over to Sue Carter. Sue?

Susan K. Carter

Good morning. It's good to see you all, and I'm pleased to have you here, and pleased to be able to go through some of our financial attributes this morning for KBR.

Let me first start out and talk about 2011 guidance, and I want to talk about this, one, because we're quite proud of it; and 2, because it's a little bit tricky to understand all of the different components of it. So if I start out at the bottom of the slide, with January 2011 guidance, where in the first week of January, we came out and said we had $2.05 to $2.30 for our guidance, that's great.

As we went through the first and the second quarter, there were some items that came about through our discrete tax items, and also importantly, our operating performance split pretty evenly between G&A and operating performance were also better than we expected, so took our guidance up in our July call, about 25% to $2.60 to $2.85.

Then in the third quarter, we had another opportunity, if you will, on the tax side that contributed $0.45 to the third quarter, and we said, well, "Gee, we can't just let that stand, let's update the guidance, and oh, by the way, our operating performance also continued to be strong," and added another $0.10. So as we've gone through the year, now we are at $3.15 to $3.30, I think that's a very nice walk. It's good from an operating performance perspective. If you look at those items, as I've added them up, our operating performance, is about 15% from where we started out in January of 2011. So we think this is good performance. We're happy to deliver on this for 2011.

So as we look at KBR, we have the slogan, "We deliver." We also deliver on our guidance. We went back and said, for 2008, the guidance that we gave in 2008 was $1.30 to $1.60, and we delivered $1.84. In 2009, the company came out and said that we thought our guidance, our EPS guidance was in line with analyst expectations, and at that time, it was $1.59 to $2. We delivered $1.79.

In 2010, we said $1.60 to $1.80. We then raised that to $1.75 to $2, again, on strong performance, and we delivered $2.07. So our history is, that we're thoughtful about the items that we're putting into our guidance and that we're delivering on those items. So that's a good story from my perspective and from all of my colleagues, as they execute their businesses.

Turning to backlog. I have a couple of slides here on backlog. This one starts to look at the period of 2006 to 2011. The red line across the bottom is revenues, the blue line is our job income backlog. And as you can see when we get into 2009, the revenue line starts to drop off primarily from the LogCAP project. But our margins are going up. And in 2011 on a year-to-date basis, our revenue backlog is down 3% and our job income is up 10%. So good performance on the backlog and building strength.

Another view of what's happening with revenue and job income margin in the backlog. So again, we started out in 2006, you see the revenue growing across the bottom to 2009, then the revenue starts to back off and our job income on margin is going up. The mix of our businesses and our improving performance in all of these areas is contributing to the performance that you see on this slide, very nice story and a good performance on the part of the company.

Now as we look forward, we've talked all morning about the different projects that we're working on for the future, and we're looking at our backlog. So I've got 2011 shown here, and then a projection out into 2014 and we didn't put a scale on here and what this is meant to show you is, that backlog is going to grow. So what we know is, we know the project, the major projects that we've all talked about this morning that are in there. We know as of today, what the final investment decisions are going to be or what they're projected to be for these projects. But what we don't know is, when those actually move forward. We also don't know some of the new projects that aren't on the radar screen yet. And so what we're signaling to you is that there's some pretty significant backlog growth to come, over the next few years.

Switching over to cash, from 2009 forward, we've generated cash and we've also deployed cash and we think we've done a very thoughtful and disciplined job of deploying cash. So we start out at 2009 with $941 million of cash on the balance sheet. We generated $549 million of cash in 2010. So what did we do with that? We took about $704 million and we did acquisitions. We did share repurchase and dividends, and we did some capital and other type of spending. So our cash ended the year at $786 million.

We've generated $312 million in 2011 through 9/30. And what have we done with the cash? Well, we've spent a little over $400 million on acquisitions, share repurchases and dividends, and CapEx and other type of spending. So we had $690 million on the balance sheet at the end of September. Again, I think we've done a very good job of not only focusing on cash and generating cash, but in deploying that cash and putting it to good use.

From a G&A standpoint, we've talked to you about the focus that we have on cost control. So if I start out at 2007, you can see the bars coming down and G&A going down on each of those years. We've guided G&A, starting in the first quarter at about $220 million for 2011. What I'm showing you here is what the base G&A is doing, so that's the solid portion of the bar for 2011, the solid red portion. So, again, G&A coming down.

Bill mentioned in his opening section about the ERP project that we're working on. So what I'm showing you here in the red hashed section is the ERP spend for 2011. Again, we think this is an important project and an important enabler for the company. We're going to continue to spend funds on that, but we also want you to know that we haven't forgotten about our commitment to control costs and to control G&A.

Financial strength. So again, let's take those couple of items that I talked about. We're very focused on the balance sheet. We're focused on how we look at working capital and how we look at projects as we go forward. Our sort of mandate, if you will, as we look at proposals, is cash neutral better on the projects. That's just good business.

We look at the balance between our receivables and our payables, to make sure that if we have customers that have terms that we have our suppliers on like kind of terms, so that's a good focus for us. And then we're always interested in process efficiencies as we go through. And what that means is, how fast can you get an invoice out, how fast are you monitoring the disputes, how accurate are you and all of those things. But that's a really important part of the process for cash generation, and it's something that we look at and we look at everyday.

From a credit resources and liquidity and leverage ability, we've got a $1.1 billion 3-year revolving credit facility. It has about a year to go on it. As of September 30, there is no cash drawn on the facility and we've got $253 million of outstanding letters of credit. So what this all means, as we look at that is, we've got ample opportunity and ample facilities to grow the business and to do all of the things that we've been talking about today.

I talked about, when we looked at the slides with backlog, the shifting portfolio, so again, revenues have been going down, margins have been going up in the backlog. This is a look at what's actually happening with the business. So we started out with 2008 and the top 2 pies are revenue.

In 2008, 62% of our revenue came out of the Infrastructure, Government, and Power business, again, primarily part of that LogCAP contract, 28% was in the Hydrocarbon space and 10% in the Services space. As we fast forward to year-to-date 2011, 37% is in the IGP space, 46% in Hydrocarbons and 13% in the Services part. As we look at business unit income, you see some of the same phenomenons occurring. So the Hydrocarbon space, in particular, 43% in business unit income in 2008, going to 52% in year-to-date 2011. And again, the message here is, the same as what we were looking at in the backlog is that, our mix of business has been shifting. We believe that it's shifting in a good way. It's more balanced, and it's creating higher margins in the business. And the hydrocarbon's performance as we look at it today, continues to include the lower margin projects that we've talked about with the scrubbers and skeet that through 2012. So we expect that to continue to improve.

So this is another view of what I was talking about with the shifting mix in the business. So the solid red line that you see is, that's the KBR without the LogCAP project. The red hashed portion of the bars is the LogCAP project. So you can see from 2006 through 2009, kind of growing and then it's starting to wind down in 2010 and 2011. And again, in 2011, we've given you the guidance on LogCAP of $1.6 billion to $1.8 billion in revenue. So again, shifting mix in the business, and we think that, that's a good thing and KBR has been growing revenue in its other businesses.

From a shareholder return perspective, so the left-hand side of the chart is year-to-date 2011, and what you've got is a comparison of KBR to our peers, to the Dow Jones Industrial average and to the S&P. So we're clearly outperforming our peers in this group, and that slightly behind the Dow Jones and S&P. So we think that's a good thing. If we expand that out and look at the period 2006 through year-to-date 2011, the KBR performance is quite clear on this. We're outperforming each of the different areas and outperforming it significantly. So that's something that as an organization, we watch and were quite proud of.

If I look at a different view, which is the price-to-earnings multiples, this isn't quite as good a story. KBR is somewhere in the back of the pack here, and the reason I showed this to you is not to point that out, but it's to say, we think that with what we're doing as a company, with the execution that we're doing, with the performance that we're delivering and with the opportunities that we have looking forward, that there's opportunity on the PE multiple going forward.

So why KBR? From a financial perspective, again, our backlog continues to strengthen. The margin improvement is visible in the charts that I showed you. Backlog is also going to grow through a strong prospect list, and more to come that we're not even aware of today. We're generating cash. We are focused on cash. There aren't too many meetings that go by where we don't have a cash discussion and how to make that a better story. We're focused on our corporate G&A and controlling that. That G&A, as we move forward and grow the business, is going to provide us leverage. We don't expect our G&A to grow much because we're going to keep as tight a lid on it as we can, while also doing things like the ERP project. But it does provide us leverage as the business grows.

We're going to continue with the deployment of cash. I don't think we're going to introduce new areas in there. Again, we talked about acquisitions, we've talked about investment in the business and we've talked about our return to shareholders. All of those should continue, and we'll look at those going forward. And then again, our balance sheet is strong, and we have ample resources to support the growth and the initiatives that we're talking about.

Now for guidance purposes. We've told you a few weeks ago when we did the third quarter earnings call, that we were going to come out and give EPS guidance in the first week of January, and that we will do. What we've done today is, you all create good models, and in many cases, and we actually tell this to the management team, your models are as good as our models for many of the items. However, there's a couple of items that might be difficult for you to model, and so we thought we'd give you a look at that guidance today.

So on the LogCAP revenues, our guidance for 2012 is $300 million to $500 million of revenue. On the effective tax rate side, our effective tax rate is projected to be about 28% going forward. And I think that's an important item to give you for a couple of different reasons. One, because we've had a lot of movement in that in the last couple of years, but particularly in 2011. And I'll say, it's important to also note that that's actually good movement because that's earnings per share, and in most cases, it's also cash, so that movement in the tax rate is a good one. But when we look at that 28% rate going forward that we're guiding you on, that is a really good tax rate. That's very nearly comparable to many of the companies that have a foreign domicile, and so I think we've done a good job bringing that effective tax rate down and using it as part of our overall strategic advantage for the company.

So again, just a couple of items to whet your appetite for 2012. So with that, what I'm going to do is, I'm going to ask you to hold questions, because we're very near the Q&A session, and let me have Bill come up do his wrap-up and then like I say, we'll have plenty of times for question in the Q&A session and over lunch. Thanks.

William P. Utt

Thank you, Sue. I want to come back and try to tie it all together for you all, in terms of, why KBR? Because that's been a consistent theme that we've looked at as a company. It's not just why KBR relative to our peers in the E&C space, but why KBR relative to other equities and other investments globally. And that's how we look at how we're competing for the investors' share of wallet.

There are 3 things that we want to focus on. And the first thing is obviously, we think we've got a lot of drivers in our company for growth. We've talked about the big elephants in Hydrocarbons, the LNG projects, the refinery in Angola. We also talked about the continued organic growth of our business outside of those big elephants, that we see in power, where we sold $800 million of work this year, that we're expecting to see in infrastructure particularly, as we build out the Middle East. And then building on the platform of our minerals business with Roberts & Schaefer in the EPCM work in Australia.

We also have our aspirations to increase our share of wallet, and we've had a lot of good questions about capital intensity and the complexity of vertical integration, but as we look at the market from our platform and we get to see a lot of things today in terms of where the markets are for some of the subcontracted services on our projects, we think they're pretty attractive. I think I referred to them earlier as birds' nests on the ground in some respects, and we think that we want to take that and keep that as KBR. And therefore, we see the opportunities for us on the international direct hire to be leverageable to what we believe would be $1 billion of bookings by the end of '13.

We also see the opportunities in the linkages with the fabrication, and Roy talked about our alliance with STX and some of the additional work that we're hoping to get on the construction management side on Shah Deniz, too. We think that can be about $500 million a year increase in our Oil & Gas business.

We've talked about our continued geographic buildout. We've done Perth. We did Kazakhstan. And we've continued to look at the new markets that build on those two, plus the Angola market into Baghdad, into Rio, into the markets that we see that have a great potential of Saudi Arabia, and so we think we can have 500-person offices within those markets over time as we build our presence there.

And finally, the minerals market. Someone said that you might be a little bit late in getting in the minerals, but minerals market's going to be here till well after all of us are gone. And yes, we may have a small part now, we're doing some work with some of our peer group in terms of Roberts & Schaefer subcontract, but we think the skill sets of KBR, our global presence, the balance sheet that we have, that there is a big enough market out there for us to significantly grow, what today is a $400 million a year platform. And so we don't have to be the biggest, but we just want to keep having continued growth in that market.

We also look at the acquisitions that we've done. We've not been afraid to get out, and where we can't get it there quickly enough ourselves, we're happy to buy. And we have both the track record of leveraging that into our businesses that we saw in David's discussion on BE&K, Turnaround Group and Wabi. But we're also looking at how do we leverage our balance sheet, because we do have a balance sheet. We have good cash. We have no debt. We have an EPC receivable that we will collect that will further enhance our cash position. So as we see opportunities on a make by trade-off that present good returns for KBR and our shareholders, and get us executed into our strategy sooner, we will transact. But we're going to be very thoughtful because we look at this as a business. It's not a series of projects, but it's a business.

You see that in our approach to risk awareness, and that's the second point, and the point I want you all to take away from is, we really sweat the details in terms of our risk awareness of the business. And I think you've seen it in terms of the consistency of our financial performance over the last 5 years. I hope you'll see even a more consistent financial performance as we continue to demonstrate the best-in-class risk awareness, that I think KBR represents in our markets.

And then finally, the execution of our business and how do we deploy cash, we've improved margins over time. We're looking to continue to drive better margins through lower cost or better packaging of our opportunities. We're looking to control overhead, and we're hopefully, we can show you slide next year, where the shaded red lines are even down further compared to where they are expected to be this year.

And then finally, we're going to continue to thoughtfully deploy cash. We think the shareholders want us to productively invest our cash, but where we can't find those investments, I believe they expect us to return that to them in terms of our dividends, our sweeping programs and periodic buyback programs. And we think that's the proper way to run our business. We think it's a good industrial model that we follow, and we're going to continue to demonstrate that thoughtfulness on how we run and execute our business.

And at this stage, I'd like to invite our management team up to the stage. I think we're going to let Sue sit here, because these chairs are pretty tall for someone in a dress. But Roy, David and Mark and I, will take the chairs and we'll let Sue be our traffic cop. But thank you, for coming out, and we look forward to the Q&A session. Sue?

Susan K. Carter

While these guys are getting mic'd, we're going to go back this direction first, then we'll come back to you Jamie.

Unknown Analyst -

This is Diana [ph] from KeyBanc. Thank you, ever so much for coming to New York, to meet with us. I've got 3 questions. I've written them down so I forget them. And so the first question I have is, as you look back to January of this year and when you set 2011 guidance, the operational upside you've seen, is that just being because you were conservative when you've set your guidance? Or have you seen upside because there's some areas that have come in stronger than you thought? The second question is in regards to the pipeline of backlog prospects slide that you have, Slide 60. Obviously, an impressive slide. Could you talk about the delta in that how much is coming from the new risks that you've talked about that you're taking up in new regions you're going to versus your traditional risks in regions? Is it half? Is it 1/3? Anything would be helpful. And third question I guess is more for Sue. Clearly, you've given a 2012 tax guidance. I assume that means you have an idea of preliminary guidance for next year as well. I would love to know why you guys decided not to give 2012 guidance at this point. And do any of your near-term big elephants play a part in terms of visibility for guidance for next year?

William P. Utt

Okay. To the first question, we have seen historically that we are very analytical on our approach to building our budgets in terms at KBR. I think we have that orientation that we're going to deliver these budgets. We've seen perhaps a little more optimistic performance in the markets during 2011. Certainly, we have a little bit better G&A performance than we thought, a lower cost and exiting Clinton Drive and just overall, better G&A control. But we also saw some improvements in our markets and so we're seeing higher volumes. And we talked about $0.10 a share at the first earnings, $0.09 a share at the first time we changed guidance, and then we raised the low end of the guidance because of continued stronger performance. So I think that's reflective of as much our culture of making sure we come out with something, we feel good about it and are able to deliver. The second question in terms of, I guess, the backlog growth, if you follow KBR, we have a lot of projects that you have different accounting treatments. Some we consolidate with large minority eliminations. Others, where the minority elimination of someone else's consolidation. I think we've talked about the Inpex project being won as a 30% partner where we would report on equity basis, so we could report maybe a modest change in the revenue backlog. But I think the job income change would be significant. And we would talk about that as obviously as we could. As we get into some of the other projects, certainly, as we look at Kitimat, Pluto, Browse and Angola refinery, as it presently structured today, those would be consolidated for us with large minority interest because of our partners there. And the final outcome both in terms of size of project and the final configuration of partnerships would drive the ultimate changes in the backlog. It's unfortunately a very confusing way of doing it and often times, you get an unfair presentation of the project either too good in the case of the consolidated projects, and then when things change as we saw in Gorgon, you have to do a lot of explaining that when you have a large change order that you have to reduce a percent complete, but there's a big back out in the minority elimination and so -- it's a very complex accounting. I wish we could do proportional accounting from my perspective. I think that would give us a much more simpler view on things. But we'll work within the GAAP perspectives. In terms of the high-level answer in the guidance, our board signs off on our guidance. Our board meeting is December 15. We concluded the budget discussions last week. We're still working on the final numbers. We feel good about our tax just because of all this scrubbing we've done this year on tax. So the board will sign off. We'll announce in January. As Sue said, you guys historically have done a pretty good job looking at our business, and we felt a couple of the things that might be of interest to you and your models that reflect KBR perhaps differently than you currently look at are, we kind of look where the LogCAP numbers are and where the effective tax rate is. And we'll come out with a more complete guidance in early January, as Sue commented.

Unknown Analyst -

Sue, this question is for you. As I think about -- as we think over, let's say, the next 2 to 3 years, and we think about the drivers of EPS growth, you gave us that nice backlog growth chart, but how do we think about job income margins and a possibility for incremental improvement? You've done a nice job so far and I get it's probably more of a volume story for KBR going forward. But with some of the new projects coming on, like Escravos moving off, it also sounds like you're going to need some incremental investment in the company to get where you want to be. I'm just trying to think, is job income margin line at the ceiling or not?

Susan K. Carter

Well, I think as you think about the job income margin, the best indicator that you have is what we're showing you of what's happening in the backlog. So the job income margin is growing, and that should continue to translate into better results coming out of the businesses as you go through that period.

Unknown Analyst -

But I'm thinking about [indiscernible].

Susan K. Carter

Well, again, I think that will continue. Again, we're looking at end-projects, we're looking at all of the risk and reward that goes along with those and balancing those out. So our expectation is that we're going to continue to get as much on the margin side as we can. Having said that, though, and we've said a couple of different times, some of the projects, for instance, Skikda was a nice project for us, but it had procurement in it, which is at a much lower margin. We're not afraid to do that. And so what I'll tell you is, we're going to continue to be as efficient and competitive as we can on the job margin side, but we're also going to be interested in doing some of those things on a procurement, which makes it a little bit more difficult to give you just a total definitive answer. But obviously, improvement is something that where we want to go.

William P. Utt

It's a little bit frustrating from my perspective because on one hand, we're getting rid of the low margin backlog and we've done a good job of getting LogCAP converted up to market base margins, Escravos is going to be complete by the end of next year. That will have an upward impact on our overall margins. As we booked Inpex on an equity basis, that's going to be a huge margin project because your revenues are going to be job income for the most part and so you're going to see an upward movement. But on the other hand, we're managing our business to job income dollars on a risk-adjusted rate of return basis. And while we say it is coming off, it's going to be mid-year doing the commercialization of that, I would do another Skikda. I would do another Skikda tomorrow because the amount of money we're making off of that project relative to the risk we're taking, albeit at a very low margin is a great trade off for my shareholders. And so that's the tough part for us because we're going to see big, accretive impacts from equity projects where we don't consolidate. We're going to see opportunities to do -- other Skikdas will bring you the other way. But I think in terms of how I would think about it, I think the better leverage in terms of our earnings is going to come from volume growth as opposed to margin improvement. We've really run a lot of margin improvement out of the business here. We could see that in the history. But I think when you look at the next 2 or 3 years, you're going to see that increase of the net income be more attributable to volumes than the margin increases. Although I do want to challenge our teams to keep pushing margins up wherever they can, some of which are market driven by a better balance market. Others will be accounting driven in terms of the consolidation issues.

Unknown Analyst -

Okay. First for Bill, I think last year, you talked about all these businesses and you kind of gave a longer term target for each business to be $1 billion. I know we're not there yet, but can you just talk about where you stand now as to where you thought you might be? And if the priority or the pace of any of those have changed dramatically? And then the other question is, it sounds like one of the bigger focuses right now through acquisition is international construction. Can you talk a little bit about the strategy there and whether you'd be looking for local players specifically or maybe looking at larger companies that have a global construction presence in more like in multinational model? Any color you could give around that would be appreciated.

William P. Utt

To your first point, last year, we took the car out of the garage because we finally got the organization to where it was and we had it in the business units, we had the management set up. But I am pleased with our execution this year. I mean, just some highlights. We continued to build a market leading LNG position. We see great opportunities in oil and gas. Downstream has a great series of prospects in Africa and The Middle East, technology is growing at plus 20%. We've sold $800 million of power this year which exceeded my expectations. The Roberts & Schaefer business while in the short term not generating as much business as we would've envisioned because of the air quality control, the failure to pass the new rules and its impact on scrubbers, I'm really bullish, more bullish, on what that can be for us as part of the broader minerals group and we're continuing to sell -- continue to sell EPCM work at Rio Tinto and Australia, and we just got to show them that we've got the structure, skills and systems and processes in place to do that other areas other than the Pilbara region of Australia. We're remarkably stable in terms of what we're seeing in the International Government, Defence and Support Services business. We've seen -- obviously coming down on LogCAP, but we've been worried about that since the roadshow. And if you look at some of Sue's slides on LogCAP, we were $5 billion, $5 billion, $6 billion, $5 billion last year. It's going to be at the high end of the $1.6 billion to $1.8 billion range. Next year it's 500. So a lot of respects, we've dodged the ultimate twig getting digested through the snake and we've got a much better platform. I think Mark's done a good job of branching us out from simply being a supplier to the Army to winning work with the Navy, with the Air Force, other branches of the Federal Government and why we would've have liked to have gotten that diversification maybe faster or sooner. I'm pleased that with the steps we are taking, we've seen a recovery in the construction business in the U.S. I'm very happy with that. Continue to win multi-site work and industrial services. The Building Group is a victim of its markets. We haven't seen a lot of healthcare or education facilities. It hit a great cycle for us right after the 2008, 2009 crash that we had because they had a lot of awards that came out that gave us the momentum. But now we are looking rebuilding more on an industrial platform and some geographic expansions. Canada, we're hoping that comes back. That hasn't come back to where we were a couple of years ago. Obviously, the Shell Scotford project was a big project for us. And we've got to find the ones that can replace that project in Canada. And Kitimat is going to be one of them. And then the second question...

Unknown Analyst -


William P. Utt

The international construction. Yes, right now, we've done expat-led construction. We'll go out and get people to bring in bodies for us and we'll do the construction management all the way down to some of the supervision with the help of some Filipinos we bring in. I think the discipline we're going to have is, we're going to look market by market. construction is a local business. In our world, we think you got to be local to be effective. We are going to look at what it takes to take our model to do direct hire in Australia and quantify that and look at the schedule, what the expected ramp is. And only then are we going to consider to make buy. But we have to firmly know what the cost and timing is of doing it, what I'd say, the old-fashioned way, as opposed to acquisitions. And so we're not looking right now at the acquisitions. We're spending our time driving, what does it take for us to do to make that next step to be in the direct hire business?

Unknown Analyst -

My first question is actually for Sue. You put up the slide on G&A and the investment in ERP. I'm just curious how you see the investment progressing in 2012? Are we kind of slowing down from there? What kind of return profile you expect after your investment is made? And also for Mark, just on government, I'm just curious, are you seeing any other additional opportunities with the State Department that could add to your business in 2012? And what about other potential opportunities in Afghanistan?

Susan K. Carter

Let me talk to the G&A and then we'll send it over to Mark. As we go forward, we're in early stages of the ERP project. And the reason we show it to you this because we want to show you what we're doing with the base cost and what we're doing on sort of the enabling and process improvement. So that spend will likely increase as we go forward over the next couple of years. But again, as we do everything else, we're going to keep that spending to absolutely where it needs to be. And so it will be higher, but we'll continue to share that with you and show you what we're doing on the project.

Mark S. Williams

And you asked about additional work perhaps at the Department of State and also in Afghanistan. Within Iraq, the Department of State really was looking at 3 separate vehicles to get their support. One was medical. We chose not to bid that but it wasn't really up our alley and there were risks there that we didn't want to take. And then there was the services contract that we're awarded and then there was one for armed security which we choose not to do. So the answer in Iraq is, not in the services area, but Afghanistan and Iraq and elsewhere of the Department of State. We've done construction in the past. We certainly do or pursuing or will pursue construction work in the future. And there may be other services opportunities. So the Department of State clearly is a big new customer for us and we've done the work for them in the past, or we're doing -- we get a lot of visibility now with them and a lot of attention. So yes, that's a key area for us. And Afghanistan in general, there are opportunities. The NATO has announced the decision to draw down there by the -- draw down combat operations by the end of 2014. The military will still be there. If you go there, there will be a building, huge one, lots of construction under way. And we're doing all of that. I mean, we're involved in all of that. We have contracts, one of the big contracts we won this year was this Middle East MATOC. It was through CENTCOM. It's really for the Corps of Engineers. It's a huge potential under that contract. So yes, we see good opportunities going forward.

Unknown Analyst -

So one question for Bill and one question for maybe Roy or Bill. This quarter, I had some investors say to me that E&C's are uninvestable because they always have issues, that was a really messy quarter for some companies. You guys had a better quarter than many of your peers. But it was a tough quarter. So what do you say to new investors around the risk profile of your portfolio now? And you've had a little bit of noise on something like a Skikda in the past. So how do you get us comfortable that there's not something lurking in the background that could come up over the next year? And then the other question for Roy or Bill is, if you look at the CapEx bubbles that you showed us, actually, the biggest set of bubbles is in Africa and -- KBR has been very strong in Africa but Africa has been very much start and stop quite a bit. So how do you get us comfortable that those prospects are actually going to move forward? Are you guys comfortable? And is it just funding in Africa or is it -- it's not a mature enough environment yet and maybe the next 5 years, it's going to get there?

William P. Utt

I appreciated your comments on the quarter. We didn't feel as good about our quarter after the results of our call. But over time, I guess relatively, we did pretty good. From our perspective, we're trying to run this like a business, and my internal messaging is always includes risk awareness, risk awareness, risk awareness. And I think, certainly, relative to others in the peer group, I think we did the best job because I think we are a reformed bad projects company, and every day, we remind ourselves of that fact. And I'd like to think that we still have a humility about some of the really bad things that have transpired on our P&L. And I certainly am and I can speak for everybody from KBR here, we don't want to repeat that. Now as for the questions of what's in the backlog and we have -- we obviously have regulations we've got to deal with. We've got to look at performances. We try to be as clear as we can at any stage of a project. Last year, we took some provisions on LVs that are going to end up probably in arbitration somewhere related to Skikda. Now the good news is, we had an issue on the Brown root Condor receivable that we closed with Sonatrach, had to go to arbitration, got that resolved, we've been paid, and at the end of the day, things work out. We do have issues with time because you look at the EPC. We have that finding last year, in the early part of 2010 that impacted fourth quarter '09, and here we are, waiting on a panel[ph] cord here in New York to see whether we can collect on a bond to get our $400 million. And -- but all we can do is just be open and transparent. We think we are prudent, appropriate and measured in what risk we're taking on and how we execute a project. We've walked away from projects that we didn't think we could manage or didn't think were appropriate risks for our balance sheet. We look at how do we bring in others in projects to take scopes of work and to reduce the financial risk on our balance sheet. So I can talk around your point about, here are the attributes of our culture, of how we approach risk and how we're sensitive to it. And at the end of the day, we think we're going to deliver a better risk-adjusted rate of return than what our plans are going into a project. But we work hard every day to make sure that we don't have those surprises and we don't repeat them. And while past performance is not a predictor of future success, I just would look at how we kind of come down that curve in the 5 years that we've been public and kind of where we are today and yes, we are in a business that does have that risk. Our systems do not eliminate that risk. Our systems, I think, do a good job to minimize that risk. And so that's about what I'll comment. Then I'll let Sue handle the bubbles.

Roy B. Oelking

Well, I'm going to add on a little bit to that. Part of the story, a little bit of recognition to our people and our teams is that part of the story of margin growth is that every project we start, we talk a lot about risk-adjusted income. But every project we start, we start with our contingency, we start with allowance, with funded liabilities and we're delivering, through execution and performance, converting those funds to profit. And so more and more, and we track it on every project. We look at where did we end up that project on margin versus where did we start that project. And I think we have a record that we're proud of from a project standpoint, from a business unit standpoint, that more and more, you're seeing that we are delivering projects at a higher margin than what they were bid at in its true performance. Change management, I think we've gotten a lot better and are stronger culture of changed management against all of our -- across all of our portfolio of projects and businesses where we're really doing a much better job of running our project. It's one of the real challenges. As we look around the world and you look at the tremendous opportunities in places like Kazakhstan, Nigeria, and Angola and Iraq, there is no question that there's -- for hydrocarbons, the reserves are there. There is no question that there is the technology to develop those reserves. There's, in most cases, an IOC that's quite keen to invest and move those projects forward. So what are the constraints? The constraints are, a lot of times, is the National oil company and their ability to fund their part of the project. The constraints are, in some cases, unreasonable expectations with respect to local content and how much can be done and expectations by the governments that you go from very little to significant over a short period of time. And it is, it is one of the challenges. And what we've tried to do and one of the benefits we have because we're primarily in a people business is that our -- the offices we set up are very scalable. Contrast that to some of the discussion we had about investments and large investments in capital assets from Marine equipment and fab yards which are -- they are not so scalable. So we feel like we get there, we've got to stay close and we're making an initial investment and set up based on projects that we can really see, and then we scale them up as the work comes to us. Yes, or after a while, you just sort of pack up and come home. But you don't have the ability to stay there forever. But so far, we've been successful. We've grown the office in Atyrau about 200 people. We got our office in Angola is engaged and we've got a couple of prospects that we think we're going to close if we can put that to work. And GES+, I mean, we're the organization there, the structure there, we're going to form a joint venture with an existing Saudi engineering company and we're essentially bringing over backlog as well, it's about 350 people. So that's given us a nice buffer in terms of sort of gradually moving into that area.

Unknown Analyst -

Just 2 questions on cash. First, how should we think about your motivations relative to that 10 million share authorization that you have? And the second, you mentioned you try to keep the contracts cash neutral at all times. Just talk about how those conversations go with your customers. Are those easy discussions or do you end up having to give up something else in return in order to get to that cash neutrality?

Susan K. Carter

Let me start out with the share repurchase question. So in the third quarter, as we told you, on the 10 million share authorization, we repurchased 1.2 million shares against that. And as we look forward, again, we're going to continue to evaluate cash and purchase shares opportunistically in the marketplace. So obviously, we're going to continue to move forward on that. And then what was your second question?

William P. Utt

Cash neutral.

Susan K. Carter

Cash neutral. I think there is a lot of negotiation that goes on with the customers on a lot of different areas. And cash is one of those areas that perhaps is something that is easier to say, okay, what terms do you want to put on this and how do we slow that down? I think the challenge that we place on the groups is, again, providing that balance between what the days are, the customers are proposing and balancing that with the suppliers. So that's something that we can manage on that side. And then just making sure that everyone is aware of our desire to at least do that. And like I say, we are not 100% successful on that, but I think it's a good strategy to go in and I think most of our, the customers, at least from what we hear back from the proposal teams are, aware that that's good business. And so I think it's something that we just keep in the forefront and keep going on.

Unknown Analyst -

A little bit of a higher level question. European bank lending to infrastructure projects, particularly in developing markets. Perhaps your thought on KBR's exposure to possible reduced level of support from European banks and what it might mean competitively as well?

William P. Utt

The infrastructure work that we're doing is primarily in the Middle East and Australia. And as we look at those governments, they have the cash flow to fund their infrastructure out of their oil reserves and what the proceeds are for minerals sales. So we feel fairly insulated from European banks. We look at our customers on the power business, invest around utilities for the most part, and we think they've got the wherewithal to do their projects so we structure our projects that if something dramatic and unforeseen happens, that we're able to take the cancellation payments that we believe they are good on their balance sheet from a credit analysis perspective and would allow us to get out of a project in a very remote situation without a financial impact to KBR. The other projects are really targeted to the big industrials in the world that have money. The international oil companies, the minerals companies and we try to look for customers that are able to execute capital spending programs. We don't do a lot of project financings in our portfolio, so I think we're relatively protected from the European lenders side if something were to happen. My biggest concern is if something were to happen, it would result in a revaluation of the dollar against the euro and I love the euro at $1.44. And I love the Japanese yen at $0.85. So as long as those things keep going, I feel very comfortable. It's when they start changing and the relative cost of my services compared to our competitor group changes, that's when I start worrying a little bit more.

Unknown Analyst -

Bill, you seemed -- you've talked a lot about significant opportunities for growth in the hydrocarbons business, minerals business, the power business. But in contrast, I'm not really hearing a lot in terms of the government business. Obviously you've given some guidance on LogCAP for next year to be down meaningfully. Why keep your defense business?

William P. Utt

I think as long as we can be relevant in the business, the business returns, great returns on capital employed, I mean we're in the 30% range there. It doesn't, today, take a lot of oversight and management. And I really think since March of 2010, the publicity has just really gone down on us and there's a lot of black cloud hanging over us, in part, because of who our prior parent was and everything else. And that's calmed down. It makes good money. We've got good brand equity. Yes, I think if we could see something where we could dramatically change the face of KBR and we needed to do something. We might think about it. But right now, I like the breadth of franchise. I like the diversity it gives us. It gives us a stable platform. I'm certainly much more comfortable when you look at our IGD FS and the North American government logistics business. Where are they in our portfolio on a relative size standpoint. I feel very comfortable there. And so as long as Mark and his guys see opportunities to get out to the Department of State, the Navy, the Air Force, there's still a lot of money to be spent. And I believe we probably ran into, in my view, a feeling of how much bigger we could get when we were doing $6 billion a year of LogCAP. But now that we've come down, there is probably some of those governors on overall size fall off. But they have good businesses. They are legacy businesses. And as long as they keep making money and having good returns on capital, and command the appropriate level of management attention, they're a welcome part of the portfolio.

Unknown Analyst -

So it seems to me that everyone's bullish on LNG, the fundamentals seemed great. But what, in your view, would it take before that story gets derailed and what are the risks to that LNG story in the next 3 to 5 years? Is it pipeline, is it global shale deposits? What would cause the LNG investment cycle to fall apart?

William P. Utt

From a global standpoint, I think you have to see political turmoil in China that would distract them from building their supply chains, which have been a big consumer both in minerals and LNG. I think you'd have to see a global recession that would impact the growth of the economies in Korea and Japan and other parts of Asia which have been big consumers and LNG. Those are the big things I worry about. And those things would have perhaps a disproportionate effect on those in the hydrocarbon space compared to other business models. But again, I like the breadth of our franchise because if I have any one business falls off or a sector or that falls off, I still have the ability to maintain presence, relevance and profitability in government. Because if we have turmoil in China and other issues that could be related to other events in the Middle East, Mark's business could get big really quick again at the time when the hydrocarbons business may slow up. So I think I've got some favorable internal hedges at work. But clearly, the amount of consumption of minerals and LNG, in Asia principally, the LNG in China, the minerals in China, the diversity away from nuclear to non-nuclear sources in Japan is favorable to us. And then what's Korea doing because that's also been a very large consumer of gas. So really we keep an eye on the health of Asia and what directly or indirectly could impact their continued behaviors of growing their economies.

Roy B. Oelking

I mean one element that doesn't seem to be there is as we talked about is availability of reserves and that's always a question in oil and gas when production is, can the exploration's success keep up with the demand? And one of the things that's really encouraging, you talked about East Africa, you talked about Western Australia, the exploration success has been extraordinary. And so for the most part, we eliminate one of the questions about projects going forward and we could slow things down would be the reserve size, and that doesn't seem to be an issue.

Unknown Analyst -

Just looking at the growth in backlog targets and wondering if that is dependent upon implementation of the vertical integration strategy. And when can you give us some sort of timeline on when you think you'd be finished or be able to achieve it?

William P. Utt

The backlog growth is not dependent on this new [indiscernible] to date. They're both the most clearly associated with hydrocarbon opportunities. The minerals business, I think you're going to continue to see. Any business where you need new work to deal with depleting asset base is a great business to be in building this supply. So I think you can see a number of drivers for us. The obvious -- the ones you can best quantify and see are the big elephants, but behind that, our businesses are growing. We saw David's slides on U.S. construction and how that's come back dramatically this year. And so in terms of those opportunities, I think we said we think by the end of '13, we will have booked $1 billion of direct hire internationally. And I think the platform we'll have on the increased access to fabrication can be $500 million a year. Now whether that gets here this year or in '13 or '14, it's going to get there because STX doesn't want to hang around with us if there's no action and neither do we. And so we respect some of these FPSOs and you look at them, we've engineered a lot of these things in very similar areas, in geographies where we're very comfortable doing work. And so these are natural step ups for us. The regional offices, 500 people, you're perched at over 350 now. Roy said Kazakhstan is 200. Luanda is, what, 25, 30?

Roy B. Oelking

Yes, it's much smaller.

William P. Utt

Much smaller. So we are going to bring in a couple hundred of people in GES, Rio. We had looked at and we are close to making an offer on a couple hundred million engineering office down there but we backed away because the historical human resource liabilities went to the new owner, and we couldn't get enough clarity on the due diligence to get comfortable transacting so we're going to go in and do it the hard way, just build it from scratch. So those will continue to have impact for us, and I think you'll see an average office size with 200 to 300 people on those new 3 opportunities by the end of '13. And minerals, worth $400 million now and we ought to have a solid double-digit growth rate, at least in the next couple of years, being over 20% compound growth rate. So there's just a lot of drivers out there that we need to continue our focus on execution, get the big elephants in, get the other businesses to continue to deliver their growth and do our best to take these new initiatives to fill out the geographic or service offering gaps in our portfolio.

Unknown Analyst -

If you take a look at -- you've always done a great job of outlining your elephant-sized projects and then you look at the big bubbles that you should in the different end markets. And so one could make the case that you could be materially higher in backlog in several quarters. What size of backlog or revenues is this business right sized for?

William P. Utt

That's such an open-ended question. Yes, I'd be disappointed after 4 or 5 years out, if we aren't at a $20 billion backlog platform, we would've missed the opportunities that we see are out there for us. Because the projects are out there, we are well positioned, they're good markets. And so this will be a bumpy ride. We'll have periods of great growth. We'll slide for a while, but I think the trends are there for us to really grow dramatically as a company. I'd tell our young folks that not only they have a great opportunity with the company that has a lot of folks who are going to retire in the next 10 years because of our age distribution, but we're going to do our best to try to double the size of the company in 5 or 6 years and that's our aspiration and we think given the opportunities that we see, that why couldn't we do that and we thought if we get a couple of breaks the right way, we can get there a lot faster. But we're not content to manage the business that the current platform it is. It think there's too much opportunity out there. And if we can't do the job, I'm sure they'll still find folks who can take advantage of those opportunities.

Unknown Analyst -

On the minerals side, you mentioned it's a $400 million business right now. You've seen Fluor of the last couple of years really grow that mining business for them. Where are you right now in terms of the scale and capabilities relative to your competition? Could you do some of the big projects that guys like Fluor are doing right now? On a margin perspective, how do your margins in your minerals business compared to your overall margins?

Mark S. Williams

Yes. Certainly, we have the capability to do large projects. We're doing the Rio Tinto job right now, which is over $1 billion in TIC. They hooked down 4 jobs there. We have the opportunity to do that. We've got to get the right team focused on it, and it's really a matter of getting out and selling the work. I do believe we have the capacity to execute the work. The way that KBR is set up, there's, the leveraging of our operations resource and the engineering resources, the private control folks. So there's is lot of that, that's built into the organization. So I certainly think that we have the opportunity to grow. You mentioned Fluor is doing very well recently in that area. Certainly, it just demonstrates there's more opportunity for us.

Unknown Analyst -


William P. Utt

I think we do have the capabilities. I think what we missed is we've missed having the market leadership focus because this has been a subset of our infrastructure business where there are more historically outperformed streets and sidewalks, water, plants. And this is a chance to, with the right leadership, get somebody and their focus exclusively on the minerals business, bring a little bit of brand equity and street cred to the customer base and begin building a management team around it that -- the management team. We've got -- we're set up with the engineering resource base and the construction resource base to support any project anywhere in the world. And it's just a matter of getting, for us, the front end side of that satisfied to get, to be credible so that customers look at us as being part of the club. That's the challenge for us is becoming thought of as part of the club, getting on the bid list, doing and winning our share of the work. It's not a lack of talent or capability that exists. It's just it's in the eyes of the customer. We have to demonstrate our commitment to their market.

Unknown Analyst -


William P. Utt

I think our margins are consistent with the overall hydrocarbons margins. I mean, it's double digits. Now if you get into construction, construction universally trades at single-digit margins per construction labor. The engineering staff will be in the double digits. And so we ought to be able to have a composite margin that's probably not terribly different than what we see in our downstream business or where we would see a normal industrial business going. I think we've got a better position in LNG. And so we tend to have higher margins when you net out some of the impacts of Ichthys and Escravos. But I think it ought to be in the teens overall if you do an EPC or EPCM. Now that's EPCM and you have a large construction for us, then you may bleed that down into the single digits because of what you're getting in return for the fieldwork. And those are the risk-adjusted basis, mid-single digits is probably okay.

Unknown Analyst -

And then on the LNG side, you mentioned kind of a couple of different wave of projects in North America, I guess one in Canada and you've got some of these Gulf Coast and even East Coast terminals looking at the conversion. What's your thought on the likelihood of some of these projects happening, the kind of timing and how big that market opportunity is for you?

William P. Utt

I think if you look at our prospect list that we talked about, they all will happen. The question will be, when. Obviously, Inpex, we have a good feeling that's going to happen.

Unknown Analyst -


William P. Utt

I'm sorry, Kitimat?

Unknown Analyst -

Yes. [indiscernible]

William P. Utt

I don't have any particularly unique insights there. I would say that it's going to be much more difficult, in my mind, for the U.S. to get their minds around exporting energy than the Canadians. Canadians have been exporting energy forever to the U.S. And so whether they're sending it to Asia or sending it to the U.S., that's just a different market. From a U.S. standpoint, I think there could be some challenges in exporting LNG now. Part of what drives my statement there is, if you look at where all the LNG receiving terminals are, they're probably at the wrong part of the country relative to where the markets are. If you're starting off in Texas and Louisiana, you've got a way to go either to get through the Panama Canal or figure out how you're going to get to Asia. Kitimat, I think the BG offering in British Columbia, that's a much more direct route and they'll have a significant cost advantage relative to proximity to resource, as well as the reduction in shipping cost to be a higher profit player in those markets than somebody coming out of U.S. Gulf Coast. Because you also have a lot of that gas that's in the Middle East and also the gas coming out of Sonatrach, out of Train 7 Bonny Island, Angola LNG, that's probably going to be a North/South trade going up to the European terminals. Plus, you've got all the gas that's coming over from the north streamline and the other pipe into Europe. So I think there's some economic challenges in addition to some of the political challenges related to the U.S. Gulf Coast because of geography and U.S. historical, political practices on importing, being only an importer of energy. One last question?

Unknown Analyst -

[indiscernible] one private company, [indiscernible], like internal management process, as project goes through the pipeline, how do you, in a concrete, way change how you risk manage it, in a way that what keeps you confident about...

William P. Utt

[indiscernible] as the beneficiaries of this process give you their take. Go ahead, David, why don't you start up with your...

David Zimmerman

It starts at the very beginning. It starts at the very beginning with the identification of the prospect. We've got a very proceduralized process of identifying, assessing the risk early on before we even make big decisions. So yes, it starts before we even make a decision to pursue something. And then it's systematic through that process both in terms of the work the business unit does, and then we've got our built-in oversight process or double regard process where we've got a separate group of professionals that appears to us to have the ability to sort of step back from the business and make sure that we are looking at it correctly. They're looking at the estimates that we do. They're looking at the commercial terms. They're looking at the payment terms. They're looking at complex terms and conditions. They're looking at every aspect of it. And there's, depending on the size, it's all indexed against the size of the projects, you're not doing the same thing for very small projects as you would for megaprojects. And then for larger projects, then the entire executive team gets brought in to a final review in terms of the entire scope of the work again. So it's a detailed process, looking at multiple risks. And to me, that thing that's been the most transforming living through it is the fact that it's institutionalized now. So 5 years ago, maybe the executive team with Bill's leadership could address that. But I think you would find if you asked that question to just about anybody in our business today that they'd have the same response, is it's institutionalized.

Mark S. Williams

I just had been here a couple of years and get a chance to feel and be involved in what's going on. As you go through that process during the bid process, the executive leadership team here spends a lot of our time doing just that in terms of helping to oversee, making sure that's going right and making sure that we've gotten the manageable risk and that we're getting the proper return of those risk. But then even after its bid, it's a critical part. If done correctly for the bid, that's what's bid, the project reviews, the oversight gets done in a matrix fashion. There's still a lot of attention put on it. So it really is, it's not a one sheet checklist in terms of, have you covered your risk and turn it in and bid it. It's a very detailed process that allows KBR to do exactly what Bill is kind of telegraphing. And that is we're going to increase the amount of fixed priced work we're doing because we feel comfortable we can execute better than we did in the days of the really bad projects.

Roy B. Oelking

I think organization is our strength. We've divided the business [indiscernible] with the business units in each one of those business units all in those projects. And so I think we've got the projects where we get a lot more management focus, a lot more attention to those performance, a lot more personal relationship with our clients, where we're able to identify issues early on and interact with them. So I think the organization is also a strength where projects don't kind of get lost. Every project has a sponsor. It's an important part of net business unit's business and gets reviewed on a regular basis.

William P. Utt

Okay. Thank you very much for coming out. We've enjoyed the opportunity to update you and it made a more wholesome sense on where KBR is going and kind of where our prospects are. We appreciate your continued support through your questions and ideas that we enjoy receiving. Again, thank you very much. We look forward to our next time together which will be the January guidance call. Thank you very much and have a great day.

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