Kbr Buy Pitch, 11/3/08

A Hedge Fund Liquidation Story Buy Pitch Halliburton Spinoff: KBR November 3rd James Cullen Portfolio Manager Boston College Investment Club

The BCIC Portfolio • Still Over-Diversified – In Sum, Need to Reduce Number of Holdings – New Buys Must Be Large Part of Portfolio

• But Fear is Widespread – Club Has Cash, Bargains Exist – Selectively Add Holdings

Proposal: Buy 600 shares = $8,700 (3.8%)

KBR Overview • A Spinoff of Halliburton • Diverse Construction, Engineering, and Services Company – Government and Infrastructure – Upstream/Downstream Energy – Services (Construction and Industrial) – Technology (Value-Added Refining) – Venture (Financing and Investing in Projects)

KBR by the Numbers • $10.6 Billion in Revenue (ttm) – P/S of 0.24x; 0.13x Including Cash

• $300 Million in Net Income (ttm) – P/E of 8.2x; 4.5x Including Cash

• $310 Million in “Owner Earnings” (ttm) • Backlog of $15.25 Billion

Revenues by Segment

• 78% of G&I Revenues (50% of Total) From US Government Ops – Middle East

Operating Earnings by Segment

• Smaller Reliance on G&I/US Government Middle East Ops for Earnings (24% of Operating Income)

Reasons to Buy • Strong, Cash-Rich Balance Sheet – Industry Consolidation, BE&K Purchase

• Massive Projects Financed by Oil Companies and Governments – Customer Base Still Has Liquidity

• Large Backlog & Legacy Projects • Favorable Risk/Reward

From the Conference Call, Part I • Withdrawal from Iraq? – Short-term Increase in Work – Longer-term, Decrease in Revenues Would Lag Troop Declines

• Energy Price Declines a Problem? – Helps on Input Costs as Well – Projects Still Economical – Balance Sheet Financers/National Oil Companies

From the Conference Call, Part II • Project Cancellations? – “We have not yet seen any indication that major projects in the international energy sectors are being cancelled or delayed…” • Bill Utt, President and CEO, KBR

• LogCAP III and IV – Afghanistan Work Remains Steady – Targeting 40% of IV Contract – KBR Historically Successful in Securing Work

• New Projects More Profitable

Risks to the KBR Long Thesis • Extreme Drop in Global CapEx – Upstream Energy or Downstream Refining – Attempting Project Diversification

• Wasting Cash on Balance Sheet • Very Competitive Bidding on Projects • World Peace …and other things we don’t know we don’t know

KBR Valuation: The Downside • Stock Around $14.50/Share – Back Out $6.65/Share in Cash  About $8

• Net Tangible Assets – $9.50/Share  -35% Downside

• Net Cash Position – $6.65/Share  -55% Downside

KBR Valuation: The Upside • Earnings Estimates – Full Year 2008: $1.71  4.7x Earnings – Next Year 2009: $1.91  4.2x Earnings – 10x Earnings + Cash = $25/Share (+70%) – 15x Earnings + Cash = $34/Share (+135%)

• Book Value Basis – With ROE (Net of Cash) KBR Generates, About 2.5x Book Value = $36/Share (+150%)

Conclusion: Buy KBR • Excellent Balance Sheet • Global Scale, Top Player in Field • Desirable Customer Base – Resilient on Project Spending

• Very Inexpensive – Political Risk Seems Oversold

• Buy From Distressed Sellers