$0.44 per diluted share for third quarter 2008 income from continuing operations

HOUSTON, Texas – KBR (NYSE:KBR) announced today that third quarter 2008 income from continuing operations was $74 million, or $0.44 per diluted share, which included a negative impact of approximately $0.04 to $0.05 per diluted share, related to Hurricane Ike. This compares to income from continuing operations of $60 million, or $0.35 per diluted share, in the third quarter of 2007.

Net income for the third quarter of 2008 was $85 million, or $0.51 per diluted share, which included income from discontinued operations of $11 million, or $0.07 per diluted share, resulting from foreign tax credits related to DML. Net income for the third quarter of 2007 was $63 million, or $0.37 per diluted share, which included income from discontinued operations of $3 million, or $0.02 per diluted share, related to post-closing activities for previously disposed businesses.

Consolidated revenue in the third quarter of 2008 was $3.0 billion, an increase of 39% from $2.2 billion in the third quarter of 2007.

Consolidated operating income was $144 million in the third quarter of 2008 compared to $102 million in the third quarter of 2007. Operating income in the third quarter of 2008 included a $13 million reversal of a charge related to an unfavorable jury verdict of approximately $40 million from litigation with a subcontractor on the LogCAP III contract in the second quarter of 2008. Operating income in the third quarter of 2007 included an $18

million pre-tax gain on the sale of KBR’s interest in the Brown & Root-Condor Spa (BRC) joint venture in Algeria.

“This was a solid quarter for KBR, in terms of revenue growth, operating income growth, and earnings per share growth from last year’s third quarter. The integration of BE&K is going extremely well and BE&K is making strong contributions with new awards and financial performance.” said Bill Utt, Chairman, President, and Chief Executive Officer of KBR. “KBR’s long-term prospects across its end-markets remain positive and KBR is well-positioned to capture those opportunities.”

Upstream business unit income was $53 million in the third quarter of 2008 compared to business unit income of $57 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from various gas monetization projects, including the Pearl GTL, Skikda LNG, and Gorgon LNG projects, several offshore related projects in Australia and the Caspian area, and an FPSO project. The third quarter of 2007 included an $18 million pre-tax gain on the sale of BRC.

Government and Infrastructure business unit income was $104 million in the third quarter of 2008 compared to business unit income of $98 million in the third quarter of 2007. Business unit income in the third quarter of 2008 included a $13 million reversal of a charge related to an unfavorable jury verdict of approximately $40 million from litigation with a subcontractor on the LogCAP III contract in the second quarter of 2008 and positive contributions from Iraq-related activities, the Allenby & Connaught project, work on the CENTCOM project, and several water projects. Business unit income in the third quarter of 2007 included a $6 million gain related to a favorable settlement on a road project.

Services business unit income was $27 million in the third quarter of 2008 compared to business unit income of $6 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from BE&K, the Scotford Upgrader project in Canada, service and maintenance vessels in the Gulf of Mexico, and various industrial service projects.

Downstream business unit income was $15 million in the third quarter of 2008 compared to business unit income of $4 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from the Yanbu export refinery project, program management services for the Ras Tanura project in Saudi Arabia, and several BE&K projects.

Technology business unit income was $4 million in the third quarter of 2008 compared to business unit income of $5 million in the third quarter of 2007. Business unit income in the third quarter of 2008 had positive contributions from an ammonia project in Venezuela and a refinery fluid catalytic cracking revamp project in Colombia.

Ventures business unit income was $0 million in the third quarter of 2008 compared to a business unit loss of $3 million in the third quarter of 2007. Business unit income in the third quarter of 2008 was primarily impacted by income from the investment in the Allenby & Connaught military accommodation and services project and offset by start-up costs related to the EBIC ammonia project in Egypt. Business unit loss for the third quarter of 2007 included continued operating losses generated on an investment in a railroad project in Australia.

Corporate general and administrative expense in the third quarter of 2008 was $55 million compared to $65 million in the prior year third quarter.

Total cash flows provided by operating activities for the first nine months ended September 30, 2008 was $1 million, which included a $158 million reduction in net committed cash from advanced payments related to consolidated joint ventures, other consolidated subsidiaries, and a contract in progress.

KBR is a global engineering, construction and services company supporting the energy, petrochemicals, government services, and civil infrastructure sectors. The company offers

a wide range of services through its Downstream, Government and Infrastructure, Services, Technology, Upstream, and Ventures business units.

NOTE: The statements in this press release that are not historical statements, including statements regarding future financial performance and backlog information, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond the company’s control, that could cause actual results to differ materially from the results expressed or implied by the statements. These risks and uncertainties include, but are not limited to: the outcome of and the publicity surrounding audits and investigations by domestic and foreign government agencies and legislative bodies; potential adverse proceedings by such agencies and potential adverse results and consequences from such proceedings; the scope and enforceability of the company’s indemnities from Halliburton Company; changes in capital spending by the company’s customers; the company’s ability to obtain contracts from existing and new customers and perform under those contracts; structural changes in the industries in which the company operates, escalating costs associated with and the performance of fixed-fee projects and the company’s ability to control its cost under its contracts; claims negotiations and contract disputes with the company’s customers; changes in the demand for or price of oil and/or natural gas; protection of intellectual property rights; compliance with environmental laws; changes in government regulations and regulatory requirements; compliance with laws related to income taxes; unsettled political conditions, war and the effects of terrorism; foreign operations and foreign exchange rates and controls; the development and installation of financial systems; increased competition for employees; the ability to successfully complete and integrate acquisitions; and operations of joint ventures, including joint ventures that are not controlled by the company.

KBR’s Annual Report on Form 10-K dated February 26, 2008, subsequent Forms 10-Q, recent Current Reports on Forms 8-K, and other Securities and Exchange Commission filings discuss some of the important risk factors that KBR has identified that may affect the business, results of operations and financial condition. KBR undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

	Three Months						Three Months
	Ended						Ended
	September 30,						June 30,
	2008			2007			2008
Revenue:
Government and Infrastructure	$	1,759		$	1,566		$	1,707
Upstream		550			407			699
Services		539			77			129
Downstream		138			103			101
Technology		19			26			23
Ventures^(a)		1			(2	)		(1	)
Other		12			—			—
Total revenue	$	3,018		$	2,177		$	2,658
Business unit income (loss):
Government and Infrastructure	$	104		$	98		$	63
Upstream		53			57			39
Services		27			6			17
Downstream		15			4			14
Technology		4			5			7
Ventures^(a)		—			(3	)		—
Other		1			—			—
Total business unit income		204			167			140
Unallocated costs:
Labor cost absorption		(5	)		—			2
Corporate general and administrative		(55	)		(65	)		(52	)
Total operating income		144			102			90

Interest income, net		7			17			9
Foreign currency gain (loss), net		—			(11	)		1
Other non-operating gain, net		—			—			—
Income from continuing operations before income taxes
and minority interest		151			108			100
Provision for income taxes		(55	)		(35	)		(36	)
Minority interest in net earnings of subsidiaries		(22	)		(13	)		(16	)
Income from continuing operations		74			60			48
Income from discontinued operations, net		11			3			—
Net income	$	85		$	63		$	48
Basic income per share^(b):
Continuing operations	$	0.45		$	0.36		$	0.28
Discontinued operations, net		0.07			0.02			—
Net income per share	$	0.51		$	0.38		$	0.28
Diluted income per share^(b):
Continuing operations	$	0.44		$	0.35		$	0.28
Discontinued operations, net		0.07			0.02			—
Net income per share	$	0.51		$	0.37		$	0.28
Basic weighted average shares outstanding		166			168			169
Diluted weighted average shares outstanding		167			170			171
Cash dividends declared per share	$	0.05		$	—		$	0.05

	Nine Months Ended
	September 30,
	2008			2007
Revenue:
Government and Infrastructure	$	5,150		$	4,505
Upstream		1,860			1,284
Services		776			226
Downstream		339			276
Technology		61			72
Ventures^(a)		(3	)		(7	)
Other		12			—
Total revenue	$	8,195		$	6,356
Business unit income (loss):
Government and Infrastructure	$	247		$	226
Upstream		197			124
Services		57			33
Downstream		37			7
Technology		16			18
Ventures^(a)		(4	)		(9	)
Other		1			—
Total business unit income		551			399
Unallocated costs:
Labor cost absorption		—			(10	)
Corporate general and administrative		(163	)		(177	)
Total operating income		388			212
Interest income, net		32			44
Foreign currency losses, net		(2	)		(16	)
Other non-operating gain, net		—			1
Income from continuing operations before income taxes
and minority interest		418			241
Provision for income taxes		(151	)		(93	)
Minority interest in net earnings of subsidiaries		(47	)		(14	)
Income from continuing operations		220			134
Income from discontinued operations, net		11			97
Net income	$	231		$	231
Basic income per share^(b):
Continuing operations	$	1.31		$	0.80
Discontinued operations, net		0.07			0.58
Net income per share	$	1.38		$	1.38
Diluted income per share^(b):
Continuing operations	$	1.30		$	0.79
Discontinued operations, net		0.07			0.57
Net income per share	$	1.37		$	1.37
Basic weighted average shares outstanding		168			168
Diluted weighted average shares outstanding		169			169
Cash dividends declared per share	$	0.15		$	—

	September 30,				December 31,
	2008				2007
Assets
Current assets:
Cash and equivalents	$	1,110		$		1,861
Receivables:
Notes and accounts receivable, net		1,333				927
Unbilled receivables on uncompleted contracts		760				820
Total receivables		2,093				1,747
Deferred income taxes		167				165
Other current assets		289				282
Current assets of discontinued operations		—				1
Total current assets		3,659				4,056
Property, plant, and equipment, net of accumulated
depreciation of $240 and $227		262				220
Goodwill		679				251
Intangible assets, net		74				15
Equity in and advances to unconsolidated affiliates		177				294
Noncurrent deferred income taxes		92				139
Unbilled receivables on uncompleted contracts		133				196
Other assets		247				32
Total assets	$	5,323		$		5,203

Liabilities, Minority Interest and Shareholder’s Equity
Current liabilities:
Accounts payable	$	1,140		$		1,117
Due to Halliburton, net		17				16
Advanced billings on uncompleted contracts		686				794
Reserve for estimated contract losses		92				117
Employee compensation and benefits		362				316
Other current liabilities		327				262
Current liabilities of discontinued operations		6				1
Total current liabilities		2,630				2,623
Noncurrent employee compensation and benefits		109				79
Other noncurrent liabilities		184				151
Noncurrent income tax payable		80				78
Noncurrent deferred tax liability		43				37
Total liabilities		3,046				2,968
Minority interest in consolidated subsidiaries		—				(32	)
Shareholders’ equity and accumulated other comprehensive loss:
Common stock		—				—
Paid-in capital in excess of par value		2,086				2,070
Accumulated other comprehensive loss		(136	)			(122	)
Retained earnings		523				319
		2,473				2,267
Treasury Stock		(196	)			—
Total shareholders’ equity and accumulated other
comprehensive loss		2,277				2,267
Total liabilities, minority interest, shareholders’ equity
and accumulated other comprehensive loss	$	5,323		$		5,203

	Nine Months Ended
	September 30,
	2008			2007
Cash flows from operating activities:
Net income	$	231		$	231
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization		33			30
Equity earnings from unconsolidated affiliates		(34	)		(71	)
Deferred income taxes		52			8
Gain on sale of assets, net		—			(216	)
Other		10			52
Changes in operating assets and liabilities:
Receivables		(119	)		(247	)
Unbilled receivables on uncompleted contracts		73			271
Accounts payable		(102	)		(91	)
Advanced billings on uncompleted contracts		(212	)		87
Accrued employee compensation and benefits		(2	)		35
Reserve for loss on uncompleted contracts		(25	)		(43	)
Collection (repayment) of advances from (to) unconsolidated affiliates, net		69			(39	)
Distribution of earnings from unconsolidated affiliates		88			93
Other assets		(89	)		(38	)
Other liabilities		28			110
Total cash flows provided by operating activities		1			172
Cash flows from investing activities:
Capital expenditures		(27	)		(32	)
Sales of property, plant and equipment		6			1
Acquisition of businesses, net of cash acquired		(498	)		—
Disposition of business/investments, net of cash disposed		—			334
Total cash flows provided by (used in) investing activities		(519	)		303
Cash flows from financing activities:
Payments to Halliburton, net		—			(120	)
Payments on long-term borrowings		—			(7	)
Payments to reacquire common stock		(196	)		—
Net proceeds from issuance of common stock		3			4
Excess tax benefits from stock-based compensation		2			3
Payment of dividend to shareholders		(17	)		—
Payments of dividends to minority shareholders		(23	)		(28	)
Total cash flows used in financing activities		(231	)		(148	)
Effect of exchange rate changes		(2	)		7
Increase (decrease) in cash and equivalents		(751	)		334
Cash and equivalents at beginning of period		1,861			1,461
Cash and equivalents at end of period	$	1,110		$	1,795
Noncash financing activities
Dividends declared but not paid	$	9		$	—

	September 30,						June 30,
Revenue:	2008			2007			2008
G&I: U.S. Government – Middle East Operations	$	1,364		$	1,217		$	1,340
U.S. Government – Americas Operations		183			192			156
International Operations		212			157			211
Total G&I		1,759			1,566			1,707
Upstream:
Gas Monetization		434			265			575
Offshore		97			92			98
Other		19			50			26
Total Upstream		550			407			699
Services		539			77			129
Downstream		138			103			101
Technology		19			26			23
Ventures		1			(2	)		(1	)
Other		12			—			—
Total revenue	$	3,018		$	2,177		$	2,658
Business unit income (loss):
G&I: U.S. Government – Middle East Operations	$	78		$	61		$	36
U.S. Government – Americas Operations		13			31			13
International Operations		42			36			45
Total job income		133			128			94
Divisional overhead		(29	)		(30	)		(31	)
Total G&I business unit income		104			98			63
Upstream:
Gas Monetization		37			31			32
Offshore		20			15			17
Other		6			26			4
Total job income		63			72			53
Divisional overhead		(10	)		(15	)		(14	)
Total Upstream business unit income		53			57			39
Services:
Job income		41			9			19
Gain on sale of assets		—			—			1
Divisional overhead		(14	)		(3	)		(3	)
Total Services business unit income		27			6			17
Downstream:
Job income		20			7			20
Divisional overhead		(5	)		(3	)		(6	)
Total Downstream business unit income		15			4			14
Technology:
Job income		10			10			12
Divisional overhead		(6	)		(5	)		(5	)
Total Technology business unit income		4			5			7
Ventures:
Job income (loss)		1			(2	)		(1	)
Gain on sale of assets		—			—			1
Divisional overhead		(1	)		(1	)		—
Total Ventures business unit income (loss)		—			(3	)		—
Other:
Job Income		4			—			—
Divisional overhead		(3	)		—			—
Total Other business unit income		1			—			—
Total business unit income	$	204		$	167		$	140

	September 30,
Revenue:	2008			2007
G&I: U.S. Government – Middle East Operations	$	4,072		$	3,529
U.S. Government – Americas Operations		460			565
International Operations		618			411
Total G&I		5,150			4,505
Upstream:
Gas Monetization		1,454			907
Offshore		332			260
Other		74			117
Total Upstream		1,860			1,284
Services		776			226
Downstream		339			276
Technology		61			72
Ventures		(3	)		(7	)
Other		12			—
Total revenue	$	8,195		$	6,356
Business unit income (loss):
G&I: U.S. Government – Middle East Operations	$	183		$	193
U.S. Government – Americas Operations		27			49
International Operations		126			82
Total job income		336			324
Divisional overhead		(89	)		(98	)
Total G&I business unit income		247			226
Upstream:
Gas Monetization		110			112
Offshore		104			38
Other		18			13
Total job income		232			163
Divisional overhead		(35	)		(39	)
Total Upstream business unit income		197			124
Services:
Job income		76			41
Gain on sale of assets		1			—
Divisional overhead		(20	)		(8	)
Total Services business unit income		57			33
Downstream:
Job income		52			18
Divisional overhead		(15	)		(11	)
Total Downstream business unit income		37			7
Technology:
Job income		32			33
Divisional overhead		(16	)		(15	)
Total Technology business unit income		16			18
Ventures:
Job income (loss)		(3	)		(7	)
Gain on sale of assets		1			—
Divisional overhead		(2	)		(2	)
Total Ventures business unit income (loss)		(4	)		(9	)
Other:
Job Income		4			—
Divisional overhead		(3	)		—
Total Other business unit income		1			—
Total Business unit income	$	551		$	399

	September 30,		December 31,
	2008		2007
G&I:
U.S. Government - Middle East Operations	$	1,570	$	1,361
U.S. Government - Americas Operations		705		548
International Operations		1,928		2,339
Total G&I^(b)		4,203		4,248
Upstream:
Gas Monetization		6,597		6,606
Offshore Projects		239		173
Other		106		118
Total Upstream		6,942		6,897
Services		2,884		765
Downstream		360		313
Technology		95		128
Ventures		766		700
Total backlog for continuing operations^(c)	$	15,250	$	13,051

(a) Backlog is presented differently depending on if the contract is consolidated by KBR or is accounted for under the equity method of accounting. Backlog related to consolidated projects is presented as 100% of the expected revenue from the project. Backlog related to projects accounted for under the equity method of accounting is presented as KBR’s share of the expected future revenue from the project. Our backlog for projects related to unconsolidated joint ventures totaled $2.8 billion and $3.1 billion at September 30, 2008 and December 31, 2007, respectively. Our backlog related to consolidated joint ventures with minority interest totaled $3.5 billion and $3.2 billion at September 30, 2008 and December 31, 2007, respectively.

As of September 30, 2008, 20% of our backlog for continuing operations was attributable to fixed-price contracts and 80% was attributable to cost-reimbursable contracts. For contracts that contain both fixed-price and cost-reimbursable components, we classify the components as either fixed-price or cost-reimbursable according to the composition of the contract except for smaller contracts where we characterize the entire contract based on the predominate component.