Fluor Corp (FLR) 2003 Q1 法說會逐字稿

Good day, everyone, and welcome to the Fluor Corporation first quarter conference call. This call is being recorded.

At this time all participants are in a listen-only mode. A question and answer session will follow management's presentation.

There will be a replay of today's call at 11:00 A.M. Pacific time accessible on Fluor's website, at www.fluor.com. A telephone replay will also be available running through 5:00 P.M. Pacific time on Wednesday May 7 at the following number: 888-203-1112. Again that number is: 888-203-1112. And the access code of 550524 will be required.

At this time, for opening remarks I would like to turn the call over to Ms. Lila J. Churney, Vice President of Investor Relations. Go ahead, Ms. Churney.

Thank you and welcome to Fluor's first quarter 2003 conference call. Our earnings announcement was released yesterday after the market closed.

Before getting started I'd like to read our cautionary note regarding forward-looking statements. In discussing certain subjects we'll be making forward-looking statements regarding projected earnings, market outlooks, new awards, margins, effective strategic initiatives and other statements regarding the intent, belief or expectation or Fluor and its management.

These forward-looking statements reflect our current analysis of existing trends and information and there is an inherent risk that actual results and experience could differ materially.

These differences could arise from any number of factors. Information concerning factors that could cause actual results to differ materially from the information that we will give you is available on our form 10-K filed March 31, 2003 which is available online or upon request.

The information in this conference call related to projections or other forward-looking statements may be relied upon subject to this cautionary note as of the date of this call.

The company undertakes no obligation to update publicly any forward-looking statementses whether as a result of new information, future events or for any other reason.

Now I would like to turn it over to Alan L. Boekmann, Fluor Chairman and Chief Executive Officer.

Thank you, Lila and good morning, ladies and gentlemen. I want to thank you for joining us today. This morning we will review results for our first quarter ended March 31 and then comment on the current outlook for our business.

In order to provide more time for Q&A, Mike and I will spend less time on numbers already provided in the release. We'll focus instead on background around performance and market outlook.

If I summarize the overall performance, earnings from continued operations increased 13% to $40.9 million or 51 cents per share. These results were inline with expectations and were driven by solid operating performance.

All five business segments contributed meanfully to theses quarterly earnings, putting 4 of the 5 putting forward an effort to resulted in year over year improvement. Our power segment posted significant growth over the first quarter of last year.

While we expect this strong earnings performance to continue through the second quarter due to the timing of project completions, declining activity is anticipated in the second half of the year. However, we do expect the decline to be offset by performance in other business segments.

Overall the balance across our segments in this quarter were good and we continue to focus on maintaining margin levels in our backlog that will support profitable growth.

Our geographic and industry diversity provides a broad base growth potential as well as stability, particularly during uncertain economic times. We see growing evidence of demand for major projects across a variety of industries we serve.

These include opportunities in the clean fuels market with the emergence of deisel regulations along with transportation and other selective projects in mining and general manufacturing.

These prospects have potential for increased bookings in the latter half of the year and at the same time the near term uncertainty both in the U.S. and globally on an economic basis continue to make precise timing of these projects difficult to predict.

Longer term we remain convinced that growth in demand in our major markets will continue to drive an upswing in capital spending. Because of the backlog nature of our business, coupled with our market diversity, this uncertainty has less impact on near term earnings than on the outlook for new awards.

Given these factors, we are making no change at this time to our previous earnings guidance for the year which remains at $2.13-2.35 per share. New project awards in the first quarter were $2.6 billion bringing backlog to 10.3 billion.

First quarter awards included the $1.3 billion booking for the [inaudible] project, a major oil gas development which we refer to as TCO. Estimated gross margin and backlog remained healthy at $632 million or 6.1%.

Consolidated operating profit increased 12% in the first quarter to $96.7 million and our quarterly operating margin also increased to 4.7% from 3.5% in the first quarter of last year.

Before turning it over to Mike, let me make a few comments on the market outlook and strategic plans for the future.

We are continuing to focus on growing our market share in the government and operations maintenance businesses.

Both areas we where made recent niche acquisitions. These markets offer relatively stable growth potential and are both benefitting from increased outsourcing.

Additional niche acquisitions continue to be explored and will be part of the going forward strategy.

Also there has been much speculation about U.S. government contracts to rebuild Iraq. While we have already won two awards, one is a subcontractor to destroy weapons of mass destruction and another to support the Middle East operations of the U.S. Army Corps of Engineers, we find it difficult to predict the overall effect of these awards and any future awards.

We recently announced the formation of a joint venture with Amek, Britain's leading engineering and construction firm, to compete for contracts to rebuild Iraq's petroleum operations. Collectively, we and Amek have a successful history of working together in the oil and gas arena and believe that the coalition phase of our joint-venture will be a positive for us in this region.

Certainly the Iraqi conflict has overshadowed much of the first quarter. Now that at least some of the uncertainty is lifted, let me offer a few comments what we are seeing in other markets.

In the market of large oil and gas projects, the major international companies continue to diversify geographicly and closely watching both long-term demand and changes in global supply. The potential amount of renewed oil production from Iraq is one of many factors driving investment location and timing.

We've also seen opportunities such as the [Sockwind] Island projects continue to move forward while timing for projects in the Middle East may continue to slip. Gas to liquids projects remain a very good match for our skill set and are driven more by the desire of the host countries to monitize their gas resources.

Moving to downstream, we are already starting to see the early stages of work related to diesel clean fuels. Clean fuels work is also continuing in western Europe and interestingly enough, we are seeing this work in places like South Africa.

Moving to the industrial markets, capacity utilization is improving but is still below the level that historically triggers major new investment. Nevertheless there are selected targets of opportunity that are primarily focused on new products as opposed to new capacity.

We are seeing some of this in the consumer products area and also in certain micro-electronic facilities concentrated in the Far East.

We are also seeing continued strength in demand for our services in the life sciences market and while I wouldn't suggest a broad upturn in mining we do see select projects for our services. For example, continued strength in home building along with overall industrial production is supporting expansion in low cost copper projects.

In transportation budget constraints at the state and federal levels are fostering an increased willingness to consider more innovative solutions such as privatization projects which is an area of strength for Fluor.

While slippage in economic recovery keeps an anticipated upturn in chemicals still ahead of us, it is getting closer and we are well positioned to take advantage as this market comes up.

With that let me turn things over to Mike Steuert, Fluor's Chief Financial Officer, to review in more detail our operating results and other financial information.

Thank you, Alan and good morning. As Alan suggested, I will not review the segment costs and revenues as this information is already covered in the press release. But I will comment on new awards and backlog performance by business segment.

Let me preface my segment discuss by pointing out that we have made a modest change in our segment breakouts beginning this quarter. We have taken steps to increased our focus on opportunities for downstream chemical projects to more affectly focus on this market.

Downstream bulk, especially chemicals, will now be executed by and reported in Fluor's industrial infrastructure segment. The newly named oil and gas segments, formerly energy and chemicals, will focus on oil and gas as well as larger petrochemical opportunities. Comparative business segment disclosure will be realigned to reflect this modest change in past periods.

Starting with oil and gas, new awards were 1.4 billion in the quarter bringing backlog to 2.9 million. As alredy mentioned, the TCO project was the most significant new award in the quarter.

Additional scope was also booked on two Canadian oil sand projects along with the new assignments related to offshore oil production projects and two clean fuel programs. For industrial infrastructure, new awards were 600 million bringing backlog to 4.2 billion. The primary strength in new awards industrial infrastructure was due to a number of life sciences projects.

Adding to that was renewed activity for long standing client in the consumer products industry and a hospitality project in commercial institutional market. Also included new awards for the segment was a small chemical complex in Europe, so our increased focus on reemerging market is beginning to pay dividends.

Moving to power, as already mentioned, second half performances expected to be modest with most of the remaining plants in backlog scheduled for completion in 2003 and 2004. Also as expected new power awards in the quarter were very modest which resulted in backlog continuing to decline ending the quarter at $780 million.

Global services new awards were 359 million benefiting from a number of annual renewals which typically fall into the first quarter. Backlog increased during the quarter to 1.7 billion.

New awards for the government group were 145 million up substantially from a year ago. This included additional scope for a midcourse missile defense project in Alaska, a new task order related to the [inaudible] contract and a modest increase in our current Fema contract. Backlog at the end of the quarter was $700 million.

As we mentioned in the past, we booked annual funding for our two major Department of Energy projects in the third quarter which tends to make government backlog somewhat lumpy.

We also received some good news just last Friday from the Department of Energy. Fluor is a 30% partner on a team that includes the Washington Group and Earth-Tec for phase one in the [inaudible] project. This is a $1.05 million contract over approximately six years with opportunity for a second phase, multi-year contract of similar or greater size.

Let me very briefly comment on corporate items. Corporate G&A for the quarter of 36.7 million compared to $33.5 million a year ago. We had modest net interest expense of 650,000 in tax rate for continued operations was 32.5% in line with expectations for the year.

Now let me shift to the balance sheet and other financial items. Cash and securities at the end of the quarter were $530 million. While still very healthy, this was as expected. Decline is 220 million from the year end.

The decline was primarily due to lower client advances on both power and oil and gas projects as well as usage of cash to fund our two acquisitions of Belgium and P2S. As we've said consistantly, maintaining Fluor's strong financial condition remains a top priority for the company and continues to represent a valued competitive advantage.

Let me briefly run through the key elements of the $223 million decrease in cash. We had net income from continuing operations of $41 million. As I mentioned, advances decreased by $171 million. We spent $54 million for two acquisitions. Our capital expenditures were a modest $17 million in the quarter.

Our dividends and share repurchases totals $16 million and all other cash flow items netted to a negative 6 million. If you add those numbers together, that brings our decline in cash to $223 million. Depreciation for continued operations for the quarter was $21 million.

Let me now shift to discontinued operations in the impact of accounting change related to the variable interest entities. During the quarter we recorded an additional after tax impairment provision of $13.5 million for discontinued operations. This was to recognize further deterioration in the fair value of remaining equipment dealership.

This provision also included deferred tax adjustments due to continuously severe conditions in the equipment rental industry. While we remain open to a sale, we have begun shut-down activities to fully liquidate this business over the remaining 6 months. We also recognized an after tax provision in the quarter of $10.4 million or 13 cents per share for the accumulative affect of a change in accounting principle.

As we have previously disclosed in accordance with the requirements of financial accounting standard #46 issued in January, we are consolidating two entities that own certain engineering office facilities that are leased to the company.

The provision consists of the cumulative difference of rent expense previously recognized compared with depreciation expense on the facilities along with interest expense on underlying financing from the inception of these leases through December 31, 2002.

I'll say that simply, it's just a difference between the terrific expenses we paid on the leases and the depreciation and interest expense we will now be expensing.

That will add approximately $1 million per quarter to our depreciation expense going forward. This change also had an impact on our balance sheet as we have previously indicated.

This change included increase of $108 million in property plant and equipment to add to our balance sheet, and an increase of $125 million in long-term debt. As a result of this change, our debt to total capital ratio is now 13.6%.

That concludes my comments. I'd like to turn it back to Alan for concluding comments.

Actually, Mike, at this point we'll turn it over to questions and answers.

The question and answer session will be conducting electronically. If you'd like to ask a question please press the star key followed by the digit 1 on a touch tone telephone. If you are using a speaker phone make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 to ask a question and we'll pause for just a moment.

We'll take our first question from Michael Dudas with Bear Stearns.

Good morning, everyone. Alan, it's been a topic of investors and reports about Iraq, could you maybe add color and you mentioned about the near term uncertainty.

I know it's early stage, first, when do you think the major energy companies will be invited in to take a look at what's going on in that country with regard to rebuilding the petroleum infrastructure and is that causing these companies to rethink what they are doing elsewhere and possibly delaying some of the awards for some of the larger upstream projects you guys have been doing.

Mike, I'll be able to add very little color but I'll give it a shot. The approach that is going to be taken in Iraq for rebuilding the oil and gas business is not clear to us yet, not 100%. I think there is clearly going to be some awards made to contractors, probably via the Army Corps of Engineers. We honestly don't have a direct definition of that yet even though we are positioned for it.

As with respects to the major oil companies, I honestly don't know they are going to be invited in very soon. If I look at the situation in Iraq and what it would take to justify the type of investment that would come from private equity of the major oil companies, I don't immediately see the conditions there that would warrant that kind of investment by those oil companies.

My take on it and that is purely my take, is this will start off being a U. S. government sponsored event and that will be turned over to the Iraqis to separately negotiate with the major oil companies but that's just again my take on it.

Appreciate that. One follow up, Alan. In your introductory remarks, you talked about some of the segments. Could you add more color on the O&M business and maybe the view of some of the clients given, again given the uncertainty we see in the economy near term and these two acquisitions that you brought on, how are they going to fit into Fluor and to best generate more sustainable orders out of the government side?

Actually two very different acquisitions in terms of the markets they address. On the O&M side, we really do continue to see great outsourcing opportunities there. We had a good quarter in bookings and I think we're going to continue to see our backlogs filled in O&M. It is now roughly 17% of the company and I think the acquisition in this particular case of P2S aligns very directly with our O&M business and will be run as a division of our O&M business.

They are active and participating in both maintenance and small capital projects on significant portions of the refineries of the United States and as a result that gives us a tremendous additional not just core competencies in services they offer but in direct relationships with clients at that level. That one is going to be a very positive acquisition and really leverages well with our overall O&M capabilities.

With [inaudible], that is a company that provides services exclusively to the U.S. government both in the Department of Defense and Department of Labor and brings in acapability and a set of client contacts with a strong reputation in a market that we really had not played in before. So it gives us an opportunity to start penetrating some of the outsourcing that's going on at military bases for the Department of Defense and also in running facilities and programs for the Department of Labor.

Thank you, Alan.

Next take a question from Sanjay [inaudible] with First Albany Corporation.

Good morning, guys. First question here on the government side pretty much in line with your strategy that you will plan to grow that business, as part of the Hanford project.

I was hoping to get a little more color in terms how exactly that additional award came about, who were some of the other players bidding for that project, what was the reason you guys really got that business, can you talk more about that?

Well, Sanjay, the project itself was not an extension of our Hanford project, contract. That Hanford contract, we'll be posting the annual renewal of that in the third quarter.

I understand that.

It was associated with Hanford. It's [inaudible] river corridor which is on the river there in Richland, for the cleanup of the banks of the environmental conditions around the river itself. We won that because I think of the strength of our joint-venture with Tyco and the Washington Group.

We put a team together that had proven capability in that arena and I think we also had an execution plan that was not only solid but showed an opportunity to clean that facility up in a faster time frame and that is very critical to Department of Energy trying to move closure on closure of a lot of major facilities.

That's great. Another question and you kind of mentioned a little bit on your comments, Alan, maybe there is opportunity in the general manufacturing, can you walk us through your thought process there given the environment we're in right now?

Sanjay, I made a very special point to say that particularly in general manufacturing it was around new product development.

And again, our manufacturing and life sciences business unit which has been heavily focused over the last couple of years and continues, so on life sciences really has a significant competitive advantage when it comes to time to market performance.

That's what I thought. That's fair. And in terms of the remaining products on your power backlog, you can talk more about that as well?

Well, we have projects that are slated for '03 and '04 completion. Candidly as we mentioned, the bulk are for '03 completion which will be literally occurring as we speak.

These projects year to year pretty much line up for completion just prior to the summer season. That gets them online for the peak season for our clients. We've got most of those for '03 completion particularly completed and go through operation testing to bring them online.

We'll be doing that for the '03 projects and bring them online here in the next month, month and a half. At that point in time we are able to recognize the final profit numbers based on the liabilities that have been mitigated and any bonuses collected as a result of early completion.

Thats great. I really appreciate that. One last question and I'm going to jump back into the queue, hoping if you could give more color on the discussion regarding the pentup demand for some large site projects out there. Remains a question of when more than whether or not. Can you speak about that?

Sanjay, I couldn't agree with you more that it's a matter of when. I do believe that the current situation in Iraq with the hostilities coming to an end really does start to take away allot of the uncertainty, particularly in the Mid-East region but also with respect to any potential disruptions of oil production or oil flow. It also opens up through the Mid-East a significant market for gas both in terms of gas to liquids projects and L & G capacity.

I believe as we started the beginning of the year saying we would book TCO probably any other major new award in the oil and gas arena would come towards the end of the year. I'm actually hopeful we may be able to book one earlier than that. So, I think we are looking for some of these large projects to start occurring, coming to ground as it were. We remain very close in contact with all of our clients still doing updates and studies and we're ready to go when these things hit. We do continue to enjoy a very specific competitive advantage around these large projects with very few competitors being able to handle them. So we are focused on that and continue to update you as developments occur there.

That's great. Thanks a lot, guys. And once again, excellent execution.

And next up with [inaudible] we'll hear from John McGuinty.

Good morning, Alan.

Good morning, John.

Just the first question as a detail. Were there any impact orders or backlog from the two acquisitions?

Very minor. Mike's got the details. Mike, you want to give them the numbers?

Very, very modest in the first quarter. Because we were getting to integrate those acquisitions. A small amount of backlog in the quarter. Very, very modest.

One in global and one in government?

That's correct.

Are we talking 50 million or less kind of thing?

Yes.

Just wanted a clarification. Second, again clarification, did TCO end up being 1.2 billion of the 1.4 or what did you actually end up putting in the backlog -- I'm sorry into the orders. Oil & gas was 1.4. What was TCO in there?

Closer to 1-3.

1.3. Okay. So in a way I guess this is always kind of the issue, if we take TCO out, you got TCO, I didn't say you didn't get it but orders again remain kind of sloppy.

And are you in essence, Alan in your opening statements and in the press release you make a point maybe there's an increase in bookings in the second half, x the elephants but there is clean fuels transportation, maybe privatization, maybe some life sciences, should we be looking x elephants at about 1-5 per quarter or 2-2 and a half?.

I'm trying to understand if you're trying to signal, hey things are sloppier than we were afraid they were going to be.

John, it is very difficult to take a lumpy business and try to characterize it. I have a hard time saying x elephants when I give numbers because these things occur as you're well aware at a particular point in time and could be at one end of the quarter or another.

I would say, I think this quarter particularly in oil and gas was a real anomaly in terms of the lower bookings minusTCO. It truly it to do with timing.

We see the visibilitity we have particularly in the Q2 and Q3 tells us that our bookings will be better particularly in the oil and gas side and I will tell you from the color I try to provide, we are continuing to see a significantly good performance continuing upward trends in ourbookings and I & I and in government.

So, I guess what I'm trying to understand is should we be looking at orders at least equal to, the scope of last year was 2.5-1.5, kind of a good range. Should we be looking at total orders in '03 to be above '02?

John, I think the best I can tell you on that is we expect to have a modest growth in our backlog at the end of '03. I would anticipate somewhere around 10-15% growth in backlog during that time frame.

Okay. If we can get back to the elephants, you said book -- I'm trying to understand exactly what you said, you said book forth one late in the year, now saying one earlier than that, does that mean second quarter or maybe in the second half? I'm trying to understand what we should be looking for.

I think there is one that is showing significant signs of moving forward. I can't be specific on which ones, John. It could come at the end of the second quarter, beginning of the third quarter - very close to call.

And you had said in November in New York that the Sock of Islands projects you thought might be first. Do you still think these two will be earlier or you mentioned they're on track?

There's a good chance that will occur.

Okay. And the other thing you mentioned was when you were talking about -- again I'm going back to the notes you gave in November, you talked about gas to liquid projects in Qatar and Nigeria and not the projects but $100 million front end stuff being awarded this year, first quarter, third quarter, the ethylene plant in Venezuela, Kuwait or China.

Are we beginning -- we may not see the elephants, but are we going to be seeing the front end of the elephants in the front half or does that get pushed back from all the things you were talking about.

We will start seeing some of that frontend in the end toward the middle part of the year. The Nigeria project, we have backed away from pursuing that particular project but I believe the other projects we are absolutely pursuing and have a good chance of landing those.

China, Kuwait, Qatar and Venezuela and so on.

That's correct.

And then one other thing, final question, since the global services tends to be a front end loaded on the renewals if I'm remembering this correctly, is that a fair statement?

All these projects at O&M are multi-year projects and some of them multi-decade in terms of longevity on these sites and we typically start to book renewals in the first quarter and some in second.

I guess what I'm saying is orders are up very nicely verses the second half, but the 359 versus 615 a year ago, that looks to me to be a significant decline. Was there something unusual in the year ago or just because in the economy a lot lower level.

It's just timing, John. We are not coming down on our work at all.

Thanks very much. I'll get back with you.

Just a reminder it is star 1 if you'd like to ask a question. We'll next go to Richard Rossi with [inaudible].

Good morning, everybody.

Good morning, Rich.

Maybe just clarify for me, what do you have in hand, how much do you have in hand of 2003's work generating your 213-235 earnings guidance? Is it pretty wide?

It is but the guidance is wide, Rich, because of events that have yet to occur in Q2 and Q3.

The elephants.

And determine where we fall within that range. I would say that we have a good part of that in hand with expectations for booking the remaining part of it fairly quickly to do a book and burn for '03. I'm not too concerned about hitting the range but where we will fall in the range.

Booking an elephant in the second quarter or third quarter pushes you to the upper range.

I cannot honestly say that. It depends on how fast it gets going. These things have a hard time ramping up and we take little in the first phases of the projects.

Which reminds, what is the revenue flow for TCO?

This project is moving fairly quickly. It's probably going to flow over the next three years and fairly consistent between the three.

And one final thing, did I hear correctly, did you imply you were booking incentives on some of these power projects?

There are a couple of the projects in which we were able to book an incentive based on early completion. Also when we complete early, even though it's not a formal incentive, by virtue of completing early, we have lower costs and indirect costs and able to realize money is coming out of the contingency.

Now booking into new awards. Booking them into result and as we achieved incentive.

That's a good qualification Mike.

That's it. Thank you.

Next go to Alan with Copper Beach Capital.

Hi, thank you. Just to follow up on Richard's question, before that I was reading in the "Wallstreet Journal" over the last months and there was talk in Russia how they pulled licenses from some foreign companies to compete for certain projects. Did that impact you at all?

No, it did not.

You are able to compete for projects [inaudible] off the coast of Russia or others where you were involved?

Absolutely.

Did it impact your competition?

No, I don't think it did to be honest. We have strong position there in any case. There's very few companies that have gone in and been able to associate with the design institutes there and to get the resources on the ground to be able to compete there. The ones that were affected I would say weren't strong competitors for us.

From an income statement perspective, could you give us more detail on what exactly is in corporate G&A. It's moving around so much quarter to quarter over the last eight quarters. Some quarters you'll have 60 million or 50 million, down to low 30's. Can you break out what moves it quarter to quarter, what your guidance is for the year and what are the big components.

More light on that, we range from the 30s into the 40s at least through the last four quarters or five quarters. We were 36 this quarter. We think that's just about a good run rate for the year. I expect this year to be more even than last year in terms of quarterly rates.

We generally start off the year lower and expenses ramp up through the years as we go up slightly higher. That's due to timing and discreet decisions made in the quarter on certain items. Where we are in the first quarter, I think, is fairly representative of where we're going to be throughout the year and our guidance of approximately 150 million that we've been talking about, we're still sticking with that.

What are the largest components in there and is there a stock appreciation right issue and what made it drop from 50 plus million last quarter down to 37 this quarter even though revenues weren't down as much as corporate G&A?

What's in there are expenses for major corporate departments, finance, HR, communications, the typical corporate activities plus what's in there is major element for expenses that we incured for the corporation. Those can vary quarter to quarter.

One of the drivers of that variation until the stock price moves last year, movement in the first half of the year which drove that expense down and up in the second half with stock prices prices appreciated [inaudible]. That's a driver. This year we taken some action to really make some of that in our expense.

Also in the fourth quarter, we wrote off an investment in our [inaudible] fund which wrote off G&A, items in the fourth quarter last year. We also funded discretionary funding in the [inaudible] foundation in the fourth quarter which added to expense. There were some discreet items in the fourth quarter which [inaudible].

Okay, that's helpful. As it relates to you, it seems you're backing away a little bit as it relates to Iraq. The last time everybody getting so excited about ten years ago plus stock took off and took a couple years to recover. Is it fair what you do everywhere else is more important than Iraq?

That's a fair statement. I think Iraq could be something significant but we're preparing for that. We are prepared for that.

But on the other hand it may not be. We have to wait and see exactly how the U.S. government will play the procurment and contracting for this. As soon as it happens it will happen fast and we'll keep everybody appraised.

You didn't book any actual business. Knowing's in the backlog for Iraq, right?

That's correct.

And one last question as it results to John's question in terms of building backlog into awards, the range is still wide - the 213, a new growth of 10%, it's sort of rare you look at construction companies four months into the year you don't have almost all the books as related to getting projects and burning it off.

Your expectation in being able to build backlog of 10-15% sort of implies only about 400-500 million incremental backlog from here towards the rest of the year. What moves that one way or the other, either flat to much more. You need corporations to make the decision, okay, give them a big project or is it guys deciding whether to put the project out there at all?

I think it's more the latter. Obviously, on any project we look at we look at what I'll call two factors. One is we assess the probability the project will go ahead. We'll get funded and a decision made to move forward. We put a factor on that.

The second thing we look at is our ability to win that award either in direct negotiation or through competition. As I look at the ones on our radar screen that fill out the remaining 3/4 of the year, I think the issue is one of timing and the first factor of one going forward than our win.

We're in solid position on these projects having already done a lot of front end work. That does become the issue and something we have continueal discussions with our clients. I've had two meetings already just this week with major oil clients.

To make the mid-point of the range where the street is coming out right now, you see an acceleration. Should we think of second quarter being a little lighter versus things in the second half or the power dropped the second quarter higher. How should we think of the rest of the year in terms of earnings?

Mike, do you want to address that.

Are you talking earnings or backlog?

I'm talking earnings. It sounded like you needed some jobs in the next quarter plus or so to hit in order to hit the high end of the range and if you don't get the job in the next quarter or so it will be in the low end of the range. Does that imply that the second quarter is going to be more flattish with the second half being the ramp? How should I think of the quarterly progression?

I think you look at the quarterly progression this year much flatter than last year, we had a very strong second quarter due to power completions. We'll have power completions in the second quarter. We'll have a good second quarter.

We also look for the other businesses in the third and fourth quarter as we said to offset the decline of performance of power throughout the latter half of the year as the depletion declines. So, I think we are looking for a much flatter structure this year as opposed to last year [inaudible].

Thank you.

A final reminder, to ask a question, press star 1. We'll take a follow-up question from John McGuinty.

Just a follow-up on that. To hit the high end of the range rather than the low end of the range, do you need elephants or just business that is generic industrial kind of stuff that's been put off?

John, I would say there's probably as many as 8-10 different factors that will determine where we are in the range. By factors I mean specific projects, end or issues and we are tracking each one.

We don't want to get into what each of the 8 or 10 are. They do involve a combination of some work in Iraq, some projects - major elephant projects that are awarded that are moving forward and also just successful completions in recognition on already-booked projects.

But not a life science project or an infrastructure project or mining project. You're not looking for run of the mill kinds of stuff. It's got to be some of the special things.

Some of the special things. We will continue to see our bookings grow as indicated in the I&I and in government side. There's things we are uniquely focused on that will have an impact on this year.

John, just let me add. That's not to say as we look across our business page and other segments that we don't have nice opportunities out there that could add to performance this year.

Okay. You've got a specific range obviously laid out. You've got a couple of ways to hit it and the high and the low based on something, obviously. The accounting change, the thing that adds $4 million a year to depreciation. I assume that takes -- what, $4 million out of rent. Are we going to see that? Are both going to show up in te same place, in other words were they allocated or does that shift anything from operations to G&A or vice versa?

Pretty much stays in corporate. That accounting change is one number 46, one that everybody is going to be required to adopt sometime during this year, we decided to adopt it during the quarter because we wanted consistent quarterly results. What it basically does is add depreciation expense. Our lease on that facility was interest only.

Oh, okay. So in other words that's adding $4 million to corporate where it wasn't there before.

That's right.

So that's impacting earnings by $3 million after tax or whatever the tax rate is?

That's correct. Per year depreciation.

So that's 4-5 cents a share.

About 4 cents a share.

Okay. And is that one of the reasons why? I'm not trying to be picky, I'm extremely frustrated by your G&A fluctuations as well. 36-7 times 4 is 147. Your number has been 160 reiterated, that may seem a single point but in other words the 160 is the number you're sticking with.

150-160.

150-160, okay.

As I said we start off a little light in the first quarter and increases slightly throughout the year and depends on discretionary decisions we make in the fourth quarter.

Two technical questions. When I'm looking at your cash flow for the year, should I look at your working capital to essentially be a wash in terms of source or use of funds over the year as it looks like now depending on the projects when they end and begin and everything else?

No. Because we've talked for some time about our anticipated decline in advances.

So, working capital will be a use of funds.

Right. During 2002 we were anticipating a decline in advance. It did happen. We also generated an awful lot of funds from other operations and some of the decline in advance was postponed to 2003.

So 100 million, 200 million? Give us an order of magnitude for '03. Net number for the year is in the range of [inaudible] of working capital. Just for working capital?

Right.

Again, do the acquisitions or the change in the business -- I'm sorry. Global services and government services, each of them seems to have seasonality, in other words the first quarter tends to have the lower margins, lower profitability, yet great profitability relative to a year ago.

Is there still the seasonality, are we looking for big increases in both or were there just things through the acquisitions or whatever - kind of -- in other words what you saw was in global services, you got up to the second, third and fourth quarter run rate but a million over a year ago and federal is up 3 million, are those kinds of gains, can we annualize the kinds of gains or kind of flukes of timing.

We are starting to see gains in both of those businesses, John. It's our strategic intent to continue that trend. The effect of the acquisitions is just not material.

Not material. Okay, so that is a real and sustainable kind of increase.

Right.

And final question, you've been talking about earnings growth, you know double digit goal in the short-term and we haven't seen anything in the way of earnings growth period, which is fine.

We know the economy and all the other junk going on out there, the question is when we are looking for the big pop in '04, is it still there? Do we have to get the elephants to have it there? If the elephants and economy do start to come back in '04, do we have a substantial jump in profitability or has it been muted because of the disappearance of the power market and structural changes going on.

Just trying it figure out the kind of money in '04 and '05 you should be able to earn and thought you could earn or figure out if changes have taken that away from us.

John, we've always been predicting the downturn in the power market. That has happened just as we predicted.

Yep.

So, that is not a different or changed variable in any outlook for '04. We know we would be down significantly in earnings for '04 for power and our expectation and visibility in our other markets is we would be able to make up for that.

We'll continue to see significant growth in global services, our I&I and government business and no reason to believe that won't continue. Clearly bigger issue out there is bookings number oil and gas.

I do believe we'll have growth in '04. Probably too early to put parameters on that but as we go through the year, it will be apparent how much growth we'll be able to project.

One final question. If we go back to elephants last November, Nigeria's out, everything else is still there? The gas to liquids, the petrochemicals, theethylenes, the stuff in Saudi, Kuwait, the [inaudible] Bay or how you pronounce that, it's all still there?

Nothing has gone away.

Accept Nigeria.

Correct.

Thank you.

Next question from Tom Ford with Lehman Brothers.

Thanks, very much. Just a few questions here. Following up on that, Alan, would you care to comment on why Nigeria is out?

It was a selection criteria decision in terms of how we would have had to compete for it, Tom. I don't want to go into more detail than that. We looked at it and made a business decision that we couldn't go along with the bid requirements that are part of the project.

Okay. Now is that taken into account, though, it doesn't sound like you perceive it will be an issue with any of the other projects in front of you.

No, I don't.

Great. The other thing I was curious about, you noted [inaudible] something that comes faster, I guess. I'm curious as to if there's anything you can share with us in terms of why you feel that way.

It's just guess, in discussions with our clients and with respect to the momentum that they have going forward to moving the projects. And we remain positive on the viability and the momentum behind those.

There are various projects, by the way, quite a number of project that is make up that entire [inaudible] slight of investments.

Great. Mike, if you could just review, I don't know if you talked about it are or not, you noted the cash reduction from the acquisitions and advance usage, I'm just curious as of the current cash balance, how much more is expected to be utilityized?

If we look at the 530 million we have at the end of the quarter and look at anticipated advance for the year, that could approximate $100 million.

I'm sorry?

100 million additional.

In terms of a decline.

Yes.

Okay. Is there anything else that could potentially influence that, either positive or negative?

Nothing material, no.

All right. And with respect to the oil and gas backlog and also with respect to government services, were there any adjustments there?

I'm not aware of any.

Nothing material.

Okay. Great. Thanks, very much.

And Mr. Boeckmann, there is five minutes before the top of the hour.

Thank you, operator.

I'll take a follow-up from Richard Rossi with Morgan Joseph.

You already answered my cash flow question. Thank you.

Moving on, a follow-up from Alan [inaudible].

Thanks. Just a bigger picture question. Obviously the cycle is finishing through the year. You guys did a great job the last couple years. It seems to be your highest margin business.

Over the next couple of years, outside of big elephant jobs, doing a good job fixing up your balance sheet and TRS and focusing the company, how do you replace such a high margin business. Where does it come from, in your mind?

Is it the big elephant jobs you need to win to make up the margins the last couple years? Which end market should we look to show off the same high margins.

Alan, it's a balanced approach, to be honest with you. We'll look at that with continued upturn in a number of markets. Primarily I would look at global services, government services and selected markets within I&I.

In some of those cases, businesses have a lower margin particularly on the booking side. They have significant incentive opportunities where the power business was entirely lump sum. Lump sum businesses give you an opportunity to make a higher margin but also carry higher risk with them.

As you know we went through a period of time where we had to tighten in our structure to produce the type of perform of the last years. We'll see growth in a number of markets and take that beyond growth and following our strategic direction which we are serious about following, it will provide a much more balanced company to our investors.

In regards to Tom's question, some clearing, $100 million of additional decline in cash for the power, it where do you expect your cash balance to be at the end of the year?

What Mike was doing was an overall look. The major decline in cash is going to come from working capital.

Okay.

We may make towards the end of the year another acquisition but not going to be extremely large acquisitions. Going to be strategically niche acquisitions.

What's the revenue contribution this year? You spent 54 million for the acquisitions, how much in revenues or project overall do you think you got for that?

On an annualized basis, about $400 million.

400 million revenue. And obviously you didn't recognize all that in the first quarter begin the timing of the acquisitions?

That's correct.

Also there's been talk about, you know, can you give us an update [inaudible] on the joint-venture. Echo has been looking to restructure.

They are looking at restructuring and redoing some of their loans. Our joint-venture is run totally separately from Flour, separately configured joint-venture and it's done well.

A profitable joint-venture for us since the inception and been successful in winning contracts there in the past year. We are still bullish on the Fluor joint-venture notwithstanding some of the challenges our partner is standing.

Since I've been looking at your company for the last eight plus years, revenues are from the 8 plus billion to 12 billion. The profitability is finally in the last years started to come up as you cleaned up the company and focused a bit.

Is there a possibility in the next years of some of these projects that you get the 15-16 in revenue or just going to still be from the $9-12 billion range. You're going to have to do it better and profitability and make it up on the end.

Anticipating both will occur. I believe we have significant headroom for backlog revenue and following on to that recognized revenue.

I think it's a combination of factors. I really have been saying for some time and believe there is a fairly significant upturn in oil and gas spending that's going to occur. I have no doubt we'll be a major player in that. That will start to drive up our backlog. But we're not focusing solely on that.

We are dedicated to making a broader diversified company and one that acts in diligent ways to grow backlog and produce profitable results. We will continue to look for ways to increase our margins, performance Montreals as well as booking margins and grow topline.

Thank you.

There are no further questions at this time. I'll turn the call back over to you for additional or closing remarks today.

Thank you, operator. As we've stated through the discussion, I think through some very good questions, we are focused absolutely on our strategic direction we outlined 18 months to two years ago and that is to maintain our capability in the markets we dominate and particularly on the upstream oil gas market as it comes to the spending cycle and looking to diversify our business and in doing so continue a strong financial diligence balance sheet.

We have seem solid performance on all of our units during this first quarter. The acquisition of two outstanding companies that will be future contributors to Fluor. We've seen good performance in the bookings in the nonpower and energy businesses. And events occurring in Q3 and Q2 which will determine the earning range. We see our company headed in a positive direction.

We thank you for your confidence in the company and your interest in this phone call today and let me thank you for your time today and that will conclude this conference call.

That does conclude this conference. We thank you for your participation and have a great day.