Fluor Corp (FLR) 2004 Q1 法說會逐字稿

Welcome to the Fluor Corporation's 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 that will follow management presentation. There will be a replay of today's conference call at 11 AM Pacific time on Thursday, May 6 at the following telephone number. 888-203-1112. The access code of 153849 will be required. At this time for opening remarks I would like to turn the call over to Lila Churney, Vice President of Investor Relations. Please go ahead, Ms. Churney.

Thank you, and welcome to Fluor's first-quarter 2004 conference call. Our earnings release announcement was released yesterday after the market closed. Before getting started I would like to read our cautionary note regarding forward-looking statements. In discussing certain subjects we will be making forward-looking statements regarding projected earnings, market outlook, new awards, margins, the effective of strategic initiatives and other statements regarding the intent, belief, or expectation of 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 15, 2004 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 statements, whether as a result of new information, future events or for any other reason. Now I would like to turn it over to Alan Boeckmann, Fluor's Chairman and CEO.

Thank you. Good morning, everybody. We would like to thank you for joining us today. This morning I would like to review with you our first-quarter results for 2004 and update you on our current business outlook. We continue to benefit from Fluor's broad market diversity and I think this has enabled us to continue to deliver solid earnings, certainly this first-quarter and that were in line with our expectations.

Our net earnings, as well as earnings from continuing operations for the quarter were $46.7 million or 57 cents per share. This did include $5.1 million or 6 cents per share, which was related to gains from the sale of two real estate properties during the quarter. These will have the added benefit of reducing future operating costs. This compares with net earnings in the first-quarter last year of $16.9 million or 21 cents per share and earnings from continuing operations of 40.9 million or 51 cents per share.

Revenues for this quarter were level with a year ago at $2.1 billion. Importantly, new project awards increased 19 percent in the quarter to 3.1 billion, the highest quarterly total in seven years. We are very pleased that the mix of these new awards in this quarter was broad based with strong contributions from all segments with the exception of power. Our government segment reported strong new awards for the quarter, including additional task orders on CTAC one and two (ph) in Iraq but did not include the most recent Nash contract awards for reconstruction in Iraq. These projects, the Fluor AMEC joint venture awards will be booked in future periods as specific task orders are received.

As a result of this strong uptick in awards consolidated backlog increased 15 percent to 11.9 billion, up from 10.3 billion a year ago and up 12 percent from 10.6 billion at the end of 2003. This strength and diversity in new awards is particularly encouraging as we transition away from earnings in power. We expect to see a continuing buildup in backlog over the remainder of the year across a diversified range of markets. And this will help us in achieving our long-term earnings growth goals.

Consolidated operating profit for the quarter was 98.9 million compared with $96.7 million last year. While the operating margin improved slightly, to 4.8 percent up from 4.7 percent one year ago. As we look forward, we continue to expect that 2004 will be a year of transition from an earnings standpoint. We are moving from a cycle of completion in our power business to another cycle of new projects in oil, gas and certainly other economically sensitive industrial markets, along with an outstanding growth in government.

This broad base strength in first-quarter awards is expected to continue, and is adding to our confidence that 2004 will be a year of backlog expansion. This should build the basis for very good earnings growth over the next few years. Our positive outlook for significant new investment in the global oil and gas industry remains strong, supported by continuing project activities and project awards, as well as what our clients are telling us. They continue to work towards finalizing the complexity of agreements and detailed plans that will enable many of the projects that we are tracking to go forward.

We continue to see progress on a range of oil and gas projects which are broadly diversify geographically, including new oil and gas production and gas processing, as well as LNG and GTL projects. Strong gas prices are adding further support to a number of these projects, which already are based on solid long-term supply and demand fundamentals.

Additionally, we see a second wave of oil sand projects beginning to move forward in Canada and anticipate a significant role for Fluor in these projects, as well. In the industrial segment strong investment in life sciences is continuing, and we are seeing increasing capital spending plans by our chemicals and mining plants, as well. A fundamental improvement in commodity prices is stimulating investment in mining while continuing economic recoveries starting to produce a moderate pickup in the general manufacturing arena ranging from foods to other various consumer products.

Although power remains a pretty soft market, high natural gas prices are driving increased interest in inquiries into potential coal fire projects. As Mike Steuert will cover later in the segment reviews activity in Iraq continues to increase, albeit with significant challenges to execution given the escalating difficulties in the region. We are definitely pleased with our success on the recent amount of Nash awards. During the first quarter we had revenues of $190 million related to direct work in Iraq. Importantly we received very high marks on that work that we performed to date and are awaiting release on additional task orders.

Unlike others mentioned in some recent news articles, we have not stopped work or pulled people out of Iraq, although I would add providing for their safety and security is our first and foremost priority. But while Iraq is obviously getting a lot of attention, we are also continuing to grow our participation in a variety of other government markets. For example, our DEL-JEN, Inc. unit with enhanced capabilities from our recent Trend (ph) Western acquisition is steadily expanding its business with the Department of Defense for military base operations, logistics support and maintenance services.

With this encouraging outlook in mind, we would remind you that profit recognition during the early stages of project execution tends to ramp up gradually. As a result the pace of earnings contribution from newly booked projects will begin slowly in 2004, particularly for the larger projects. However, certain other work such as Fluor's fast-paced participation in the Iraq reconstruction effort will help raise the final year of expected decline in earnings from our power segment.

While we prefer to remain somewhat conservative based on the strength of first-quarter awards, Iraq work to date and other additional impending Iraq task orders and some other first-half prospects, we have narrowed our earnings guidance for 2004 to a range of $2.10 to $2.40 per share. And with that, let me turn it over to Mike Steuert, Fluor's Chief Financial Officer to review additional details of our operating performance and other financial information.

Thank you, Alan and good morning. Our business segment results are covered in detail in our press release, so I will focus on providing additional background and new awards and backlogs for each operating segment. Starting with oil and gas, new awards were 993 (ph) million. This is a very strong quarter given that no single project award dominated the numbers. Major awards were received in both upstream activity, as well as downstream clean fuels projects. Upstream awards include a substantial additional engineering procurement scope on the software and (indiscernible)projects as well as release of significant scope for detail design services on a second major new oil and gas production project in Kazakhstan.

Downstream awards include four diesel clean fuels related projects for refineries in the U.S. and Canada. Backlog for the oil and gas segment increased 44 percent, 4.2 billion from 2.9 billion a year ago and up from 3.4 billion at the end of last year. In our industrial and infrastructure segment new awards were a record 1.3 billion for the quarter with life sciences awards accounting for about half of the total of three major projects in pharmaceutical facilities in the U.S. and a biotech and pharmaceutical facility in Puerto Rico.

We also saw our first significant award for some time in mining for a copper (indiscernible) modernization project in Peru. New awards for the quarter also included additional scope on our telecommunications project in the UK for the (indiscernible) underground as well as several smaller general manufacturing awards. Lastly, a number of studies in front-end engineering awards were booked in the chemicals area adding strength to our positive outlook for this market as we move through the year.

Backlog at the end of the quarter for the industrial infrastructure segment was $4 billion, down slightly from 4.2 billion a year ago, but up from 3.3 billion at the end of 2003. New awards for our government segment were a very healthy 4.412 million up from 145 million in the first quarter a year ago. As Alan mentioned, this did not include the recent Nash awards that our joint venture with AMEC received in March which collectively had a value of up to $1.6 billion. The work (indiscernible) is performing in Iraq under a variety of contract vehicles is booked only as specific task orders are received.

During the quarter additional task orders were booked under several existing contracts, including CTAC one, CTAC two and MassCap (ph) among others which totaled in excess of $300 million. Also included in the quarterly total for government were a number of Belgian awards as they continue their success in growing their government outsourcing business. Funded backlog increased significantly to 1.2 billion compared with 700 million in the first quarter of last year.

Global services had a solid first quarter with new awards of 399 million compared with 359 million a year ago. Included in the quarterly total new awards was one major new operations and maintenance contract along with several renewals, which typically occur in the first quarter. Backlog for the global services segment increased 12 percent to 1.9 billion from 1.7 billion last year.

Moving on to power, as expected new awards were a very modest 21 million in the quarter. Backlog for power declined to 540 million from 780 million in the first quarter last year, consistent with the ongoing completion of projects that we've been talking about for some time. Before moving to corporate items, let me comment on a small change in our disclosures.

As you may have noted, we did not include new award or backlog gross margin in our quarterly report at this time. We have made a decision to discontinue providing this information. A significant consideration for this decision is that when we began providing this additional disclosure we had hope to set an example that industry would follow. Unfortunately, this has not happened. Also as you are aware, there has been a trend away from providing non-GAAP information. However, I must add we believe our financial disclosure remains more comprehensive than anyone else in our industry, and we are committed to providing investors with information they need to make an informed investment decision.

Moving on to other financial information, Corporate G&A, excluding the gain on real estate, improved to 35.5 million in the first quarter compared with 36.7 million a year ago. Full year guidance remains at 140 to 150 million. As referenced in our release, during the quarter we sold excess land in Houston and an excess facility and lease (indiscernible) generating approximately $40 million of cash and a gain of 7.7 million pretax.

We had modest interest expense of 759,000 in the quarter compared with net interest income of 654,000 a year ago. Tax rate for the quarter was 35.5 percent, slightly higher than our rate of 32.5 percent last year. Let me shift now to the balance sheet and make a few comments on cash and other financial items.

Capital expenditures for the quarter were 19.3 million, oil depreciation was 22.2 million. Cash and securities was 546 million into the first-quarter. During the quarter we successfully issued 330 million and converted as senior notes (inaudible) market terms including an attractive interest rate of 1.5 percent and 40 percent conversion premium. This low-cost debt received a rebate outstanding commercial paper borrowings and a lease financing for the company's Aliso Viejo, California facilities and a fund increase in working capital primarily for Hamaca project in Venezuela.

This action further strengthens our balance sheet for both the short and long-term and protects the income statement from future interest rate increases. Regarding the Hamaca project, we do receive a partial ruling on the (indiscernible) issue during the quarter. We were awarded full recovery of all direct costs of remediation. The arbitration panel referred back to the parties to see if agreement could be reached on indirect costs that could constitute the balance of the claim. Importantly, the award confirmed our methodology for computing the amount of change orders arising from any of the contract and has been interpreted to grant entitlement to recovery of additional indirect costs. This ruling though only a small step in a longer journey is solidly in the right direction, and we are encouraged that further progress (technical difficulty) remaining claims will occur over time.

Our debt to capital ratio now stands at 25 percent under our current 30 percent target. In connection with our convertible financing the rating agencies did reaffirm our A investment credit rating. Cash flow from operating and investing activities in the quarter was a -51 million dollars. Due to continued funding of the Hamaca project and the acquisition of Trend Western, realized cash flow was modestly positive for the quarter. With that, Al and I will be happy to respond to questions.

(OPERATOR INSTRUCTIONS) Mike Dudas from Bear Stearns.

Alan you talked a bit in your prepared remarks about your government business and the amount of business that you and your Trend venture (ph) partner won in Iraq, could you share with us, I assume that business is twelve-month in duration, 9/15 hopefully it will be less lesser in scope. How as we look forward to the government business will you be able to replace some of this excess quick burn revenue with some other opportunities within your government business? And then is this run rate we've seen of profits something that is sustainable over the longer period of time.

I am not sure that I can give you a direct answer because I don't know if the answer what we are being -- the way this is structured is we get a general award and then we get task orders to that. The task orders themselves tend to be fairly short in duration. The longest ones can be somewhere around six to eight months. We don't know where that stream is going to end in terms of getting task orders. My guess is it will take us on through at least half of '05 would be my expectations. But again, it's hard to say because we just aren't the ones that are making those decisions. We are in a responsive mode there and ready with resources to come into those task orders.

The crux of the question is assuming that runs out in mid '05 and you're looking to your government business, what other opportunities do you see will there be a continued growth pattern in your government side away from this reconstruction opportunities in Iraq?

The answer is yes. And again, let me answer that a couple ways. First of all, as you know, we do look at and thank ourselves for having a product diverse portfolio of businesses and markets that we can respond to. We are starting to see some signs of uptick in power, and although I do not think it will come in that length of time, continued growth in the government arena in non Iraq area is still occurring, and we are actually very bullish on that particularly given the strength that we have now in with Del Jan, Trend Western and the JA Jones International acquisitions.

In addition we saw strong awards this quarter in industrial. And we believe that will continue with good opportunities in chemicals and mining and in the general manufacturing arena. Also we saw strong awards this quarter in oil and gas. We continue to see that capital spending trend increasing and going on through at least this year and next and possibly on into a fuller cycle. So yes, there are always going to be things in our backlog that are on a down cycle that we will have to replace just as we did with power. I do not think that situation will ever change. We just have to continue to manage that portfolio, manage our growth through acquisitions and internal growth.

My follow-up is for Michael relative to your cash position this quarter are you still targeting a half $1 billion year-end, and is that assume some recoveries from Hamaca in that type of figure?

Mike, we're looking at 500 million plus or -50 million at year-end, and yes it does assume some modest recoveries from Hamaca this year.

Thank you.

Richard Rossi from Morgan Joseph.

Let's go back to Iraq for just a second. Obviously security issue is the main issue, and from what I read in the press it is chewing up a fairly large portion of the total dollars designated for Iraq. What does that exactly mean? If, for instance just theoretically, you have $100 million job to do, you been awarded a $100 million project that is a cost reimbursement project. However, does that $100 million have to cover all the security plus the job, and if the security is chewing up a larger portion of the 100 million than originally anticipated does that mean the job doesn't get done, or second award has to be made?

Rich, the work that we are doing in Iraq is overwhelmingly cost reimbursable. And in the cost is the cost of security. So when we do have a task order through our subcontracts is a security subcontract that flows into those revenues. But they award fees are on the total cost of the project including all reimbursable costs. So we continue to have the security as a major issue. It is first and foremost as our safety culture would dictate, our prime concern when doing task orders is to put a good security envelope around the activities to protect our personnel. And thankfully we have not had anybody hurt in Iraq, and we want to keep it that way.

To your point we will provide whatever funding is necessary to complete the project and including appropriate security that's required for the (multiple speakers).

Okay, so if that security cost is higher than they originally thought, they give you that extra money, the job gets done with whatever it costs to actually do the physical work?

That's correct. Now there is an ongoing process within that of estimating all of the activities, including security and updating those on a status basis with forward-looking projections to get approvals to do so. But to date we have not seen any job go undone because of security.

But is it fair to say that if security -- this is in general -- if security costs are running whatever, 50 percent higher than they originally thought it was going to run and they've got a finite pool of money that at least they have currently designated for Iraq that that is chewing into that finite pool so that fewer projects are going to be awarded?

I think you have to say whatever the funding is authorized by Congress some portion of that is going to get consumed by security. But all task orders are done on a priority basis and they are not all being given out at the same time. They are sequenced over a long period of time, so a task order is given, it will be completed with the proper appropriations and approvals of expenditure and outlooks and forecasts. So I think that while security is significant, keep in mind that the total revenues include a lot of different things, not just the labor component. They include the procurement cost of equipment and a number of other things. So while security may be a significant part of labor, it may not be such a significant part of the overall total install costs.

Okay. Thank you.

Sanjay Sheathe from First Albany.

A couple quick questions here, excellent quarter. In your prepared remarks you made a comment that the outlook for the Canadian oil sands in the market seems to be improving, and can you elaborate on that a little bit more?

Let me just make two comments with respect to that. We see oil prices continuing to stay a level that make those projects very compelling. And we see upfront work being done to develop projects in that arena. And while we did not directly book anything that would in this quarter point to a future development, we see those developing and believe strongly they are going to be part of a growth portfolio as we go into the rest of '04 and '05.

Okay, that's great. And the intensive (ph) the four bookings that you had on the clean diesel (ph) side, are they still most of really the front and engineering related or from the scope standpoint maybe if you can give us a little more detail on that.

Of the four, two of them are full release on work, and two of them are the front end activities to develop the budgets and the overall estimates prior to getting release to go to full scope. So we've not seen really a slowdown in this area from our standpoint. We've been able to win the ones we've gone after and the clients are committed to moving forward with them.

So then based on what you're seeing it is probably fair for you guys to say that it is moving according to plan is on track, right?

I think it is moving on plan and on track, and I think as we had intended we are going to be the key player in this.

That's great, and also along the lines of the upstream business if you were to compare what you are hearing and seeing in this time of the year versus what you're hearing and seeing a year ago period. What is the immediate difference that you are seeing, and how (inaudible) in terms of the outlook you are getting significantly better or still a lot of talk or but the complexity of the (inaudible) maybe make this bookings dynamics a little bit further out?

I think we are seeing actually some of the projects that we had talked about coming closer to fruition. I think we are in (indiscernible) stages now on a couple of projects. How we book those revenue wise is going to differ as I have always cautioned because of the way that we contract these as the lead program manager.

That's great. And I completely understand and (inaudible) not disclose too much here on the backlog gross margin but maybe this one's for Mike, but would it be fair to say that it is actually flat or its trending up? Could you maybe qualitatively give us some color on that?

We are limiting our disclosure. We're trying to avoid doing that that this quarter.

That was a nice try, though, Sanjay.

One last question on the chemical side in terms of some of the front end design engineering work that you guys are doing can you maybe give us some more color in terms of what part of the world that is going forward and based on that maybe could we see some meaningful bookings before 2004 is over?

Could you repeat just the first part of your question?

Essentially you guys did book some front end design engineering related work here, right? On the chemical side? Based on that where are you seeing a lot of opportunity on a geographic basis, and based on that front end design engineering related work could we see actually a meaningful booking on the chemical side during 2004?

The chemical side is absolutely driven in two regions. It is driven in the Middle East, and it is where you have a significant advantage of destock (ph) availability in prices and in China where you have just an incredible growing demand of this product.

That's great. Thanks a lot, guys.

John McGinty from Credit Suisse First Boston.

Let me go back if I can to one of the questions that Michael Dudas asked, which is the government services, the $27.5 million which is triple the year ago, is that in fact the run rate that we should be looking for for the rest of the year? Was it, and if not, what kinds of things are going to affect it?

The answer is no, I wouldn't say that that is a typical run rate. There were some fees in there from the completion of some task orders. There also was some activities that were one time even on a conventional side in terms of short-term activities. But I do believe on a trend if you go forward for a number of quarters you will continue to see us growing our government business, that is a strategic commitment we made to our Board a little over a year and a half ago.

In other words you tripled, so would half of the increase or in other words a third of it non-recurring? I'm just trying to order to get an order of magnitude.

It's going to be pretty lumpy as we go through the year (inaudible)and it really depends on another question, Alan answered about how these task orders get released throughout the year, and that is very difficult to predict right now.

But there was not absolutely, but there was a couple of factors in there that as Alan implied are totally legitimate but were quasi onetime things, and what I am asking is that a third of that 27 or half or --

Its certainly not the majority, but our government business is growing overall with the contribution of Belgian and kind of western (ph) and JA Jones, so there's clearly some solid underlying growth in government.

I'm not saying there isn't.

It is hard to say John, because a lot of the onetime things will in fact reoccur. Additional onetime things. We will get (technical difficulty) task orders, and that is just the nature of the business.

Let me ask a different question, which is the number that really stands out as a surprise to me is the decline in industrial infrastructure earnings on a year-over-year basis. In other words 10 1 versus 16 8 I think if I got the numbers right. Can you explain what is going on there?

Again, we had if you look at the awards in last year we had a shortfall in bookings in industrial last year, that has led to some smaller activity, smaller level of activity.

Lower revenue.

Lower revenue and as a result though we see things trending up; you only have to look at this quarter's bookings in industrial to see that that is in fact occurring.

(multiple speakers) trend up in the second and third quarter or not till the second half -- its a question of lag that is the thing --

My guess is it may trend up slightly in second quarter but you will really see the effect of these in probably third and fourth quarter.

If you recall we also took three projects out of backlog in that segment in the third quarter, which impacted other revenues in the first quarter this year. The strong new awards are going to make up for that as we progress through 2004.

I guess the final question just give us in order of magnitude the power business while it certainly (inaudible) was a heck of a lot stronger than I thought it was going to be. Is this a sustainable quarterly run rate, or does that trend down from the 14 million? Again that's one that is very difficult for us--.

It's going to trend down a bit, John, but we do have a base of business there through our operations and maintenance in some of the ongoing small capital work. But it will trend down a bit from that.

But not -- I mean, not it's not going to --

Not enough to have a significant impact on our portfolio.

Okay, thank you.

Lorraine Maikis from Merrill Lynch.

Just touching back on the industrial and infrastructure business you explained our revenues were lower. Could you just talk about the gross margin and why that was lower this quarter and where you expect it to go as revenues pick up through the year?

Again, it has to do with the mix of work. As we have come down off the backlog we are more into the construction phase in a number of these projects. It is just the again I hate to use the word we keep using but it's a fact we have a lumpy business and it depends on what part of the cycle you're in as to what those results may be. On revenue versus margin, and then the corresponding calculation that gives you the percentage of margin, how that project gets booked, on a contractual responsibility, what part of the revenue flows through our books makes a tremendous difference in the actual percentage of margin that comes down on that. So whether we are doing construction management or direct our construction can have a very different percentage margin number. It is hard to draw a direct conclusion from that other than the fact revenues were down. I don't put a lot of stock on the fact that the margins were down that much in this particular quarter. That is lumpy and that will go up and down depending on the type of work we're doing.

And then the nature of the chemicals awards that you are seeing, when you look at your bidding pipeline is that typically brand-new work or expansion of existing facilities or maintenance?

In the chemicals business we don't book any of the maintenance in any of our direct line business units. That goes in our operations and maintenance business. But in with respect to the first part of your question, it is typically right (indiscernible) seeing new plant construction. And again, back to the earlier question I think John asked, it is in China and in Asia that we are seeing this and in fact it is a new plant as a result of that.

Okay, and then final in the government segment when we start seeing some real traction in terms of revenues in Iraq, where should we expect the margins to go?

As we start booking task, or as we continue to book task orders, let me put it that way we can burn those task orders, it is really going to depend on some of the incentive fees, but mid single digits is a reasonable type of margin to expect.

I think we've already started getting traction as a result of -- in terms of results that occurred in quarter one with respect to the Iraq work.

Thank you.

Stephen (indiscernible) Imperial Capital.

First on Iraq, I was wondering if you could talk about how much revenues in your '04 forecast? And I know that there is an award fee that is associated with the Iraq task orders and I think historically Halliburton has gotten more than 90 percent of that back. I was wondering if you actually accruing any of that into your guidance or if you are just going to take that into your income as you received it.

Again, it is very hard to predict task order type work. So while we have put some into our guidance, it is on a pretty conservative basis.

That's one of the reasons we have the range that we have for 2004.

And of the award fee have you been accruing any of that?

Not a substantial amount, no, we have not.

Okay, so that should all come into the back end once the task order is all finished and--.

Recognize there will be a number of task orders, so there's not going to be one major lump.

But it is fair to say that they are backend loaded?

Yes.

Okay. Can you talk about your non power business growth in the past few years and given that, can we expect to see perhaps a fairly significant growth rate in '05? Or how should we be?

Stephen, first of all thank you for asking that question. If you look at our results and go back to '03 and even '02 and take out the results of power, and even then look at '04 what you will find is without power we have been growing the balance of our business at an extremely healthy rate, a rate that actually would surpass the growth shown by any of our other competitors. And I think that's the good news but it's been obscured by the fact we had an incremental drop in power earnings between those years. And we have focused hard on keeping a strong diverse portfolio and to be in the major players in each segment of that portfolio. So we've enjoyed an outstanding growth over the years in fact in government, in operation and maintenance and in the industrial and infrastructure segments.

As you look at our solid backlog and the award growth, clearly (inaudible) a couple years of solid growth in oil and gas and industrial infrastructure.

So is it fair to say that we should see that growth continue beyond '04 and those other businesses at that rate?

Absolutely. In fact, I won't say they would be exactly at that rate, but we expect to see growth beyond '04. And that is why we call, have continued to call '04 for us a year of transition. We are making the last want to say offset in that incremental earnings in power in '04. And then with the opportunity to grow in those businesses that I just cited, plus now the capital spending cycle coming on in oil and gas, gives us great opportunity to post real growth in '05, '06 and beyond.

Last question, when you look at the ENP cycle is clearly here and the power cycle is clearly finished, but one of the things that has happened perhaps in the 6 9 months there's been an increase in F&D costs on behalf of the ENP companies that's driven gas price up and it looks like its permanent, at least over $4.50 $5.00 and you have had an increasing interest in coal plants which would have been laughable probably a year ago but now I am looking at the drawing board and seeing 50 or so coal plants and albeit only a small portion of those will ever see the development in the construction stage. But there certainly is an interest by several of the utilities to construct them because of the increased margin opportunity. Given that, can you discuss any -- and actually I think there has been at least one awarded, I think Washington Group got a WPS award, and there's actually some other awards that look like they may be given soon. Can you discuss your opportunity on the coal fired generation side for the next several years, including a cost or discussion of your potential of market power per megawatt like one dollar per megawatt opportunity? And then the contrast that with your dollar per megawatt of gas fired?

I agree with your assessment. We are seeing that same level of development on potential coal fire plants with a number of them starting to come to very near to being a reality in terms of actual execution of the engineering and procurement construction. We think that is the next trend in power, particularly North America given the source, the ready source of coal. So we are very strong in that arena. We have completed a couple coal plants even during the big cycle of the gas-fired units. So we think we would be had a very strong player in that regard. Coal plants I think are pretty much a given; the gas prices today are in fact becoming increasingly competitive against gas fire plants. They come on a larger scale than a gas fire plant in terms of megawatts, and so you have a larger capital plant generally associated with a coal-fired plant. So we are bullish on that market. I think it's probably going to take in terms of the realized backlog probably another six months to nine months before we start to see any of those come into our backlog however.

When would work begin for those plants coming in 6 to 9 months and is it possible that you see a new power built cycle on top of E&P spending cycle?

I think we are forecasting that, but I do not think it will be nearly as strong as the last cycle that we saw in '01 '02. But it will be still a good enough market that we think its a good market for us and our position in it would warrant us being a strong player there.

Tom Ford from Lehman Brothers.

Good morning. Alan can you, with the uptick in backlog do you have an idea or do you guys have a sense as to what the burn would be in the next twelve months?

We would expect a modest increase in our burn rate throughout 2004 and into 2005. As Alan said, this is a transition year. And that the larger projects we are putting into the backlog we actually start off with slightly slower burn. The more rapid burn is occurring from our activities in Iraq, where the numbers are smaller and are going right into the backlog.

I think we did 8.8 billion last year. I think you'll see it be more than that this year. But this is going to be a year we foresee adding to our backlog.

First-quarter burn was pretty flat. We expect it growing throughout the year.

Okay. And then the next question would be I think I am not sure if you answered this Alan, so I might be going over something already, but the power margins seen in the first quarter, is that something that is sustained through -- no?

No. We had the project completion in there, (inaudible)that.

We have a couple projects nearing completion in the first quarter, and as you know we recognize a fairly healthy margins (inaudible) at the end of those projects.

So that will be in the power segment in particular, Tom, that will come down.

To sort of if I go back over the past few quarters I see sort of a lower normalized trend. That would be the better place to be?

That would be.

Okay, then Mike, you referenced I think an expansion in Kazakhstan. Was it the reason, there was a backlog adjustment in oil and gas of like 425 million. Was that that?

Hold on one second, Tom.

We did make some currency adjustments in terms of our backlog, Tom which was a good portion of that adjustment.

Okay, can you explain? How do I look at that in terms of meaning currency adjustment? Is it something where you are upping the future revenue burn but the cost will go up also, or I'm just wondering how do I think about that?

In U.S. dollar terms on a few of our projects that have some other currency components, and that has impact as well as on certain projects when there are project adjustments that they go through that column, and we occasionally have adjustments in terms of scope and other activities in terms of what we're doing on certain of these projects (inaudible) put into new awards.

Okay. So how do I think about the cost element associated with -- I mean, is there a corresponding cost assumption that is rising with the currency?

It is, but in terms of those adjustments are would be essentially overall at the same kind of margins that new awards in the backlog would be. They're not going to significantly impact our margins in that business.

Okay, great. What was -- Mike, do you have the working capital for the quarter?

In terms of just one number?

Yes, or if you want to -- I'm just curious about receivables.

We're going to have our balance sheet out with the 10-Q in a couple weeks. Receivables were up modestly primarily due to some of our activity in Iraq. But that was in part offset by increased payables and other liabilities.

Okay.

There was no major increase in contract work in process in the quarter.

Just lastly sort of an obvious question, but just love to hear your answer. You brought the low end of the guidance range up by a dime, and I just want to understand what you're thinking is. What were the drivers there as to doing that?

Well, we had a strong quarter, Tom. That was part of our thinking. That was one of the major dynamics we had in the broad range when we first put it out. We are anticipating that we will continue to go through the year with in some strong markets. And as I mentioned earlier and hope to add to backlog -- that will allow us to continue to refine that range as we go on through the year.

If I can follow up with one last. Can you talk about -- I think the last call you had mentioned with respect to the elephant projects and I know that you've been very clear that what actually gets booked in terms of revenue depends on what type of position you take on the project. But I know that you were saying I think at the earliest type situation was going to be maybe 2Q. So I'm just wondering if you could give us an update.

That is still on track.

Okay, great. Thanks very much.

Leone Young from Smith Barney.

Thank you, but my questions have all been answered.

Alex Rygiel of Friedman, Billings, Ramsey.

Could you generally comment on how rising commodity prices, steel and other commodity prices can impact your business or your customers' decisions? And then secondly with regards to your industrial and infrastructure backlog, how much of that is associated with the life sciences and are the margins in life sciences work better than the other portion of industrial and infrastructure?

Well, first of all we are seeing a rise in prices particularly on commodities such as steel. And the metals that go into some things like pipe -- it hasn't impacted projects, Alex. Projects are still going forward. What it has done is do a lot more forward planning and identifying your commodities and getting them on purchase and headed towards the job site with a lot more focus and early attention. The fact is on projects and we don't have any of these right now to get into a lump sum position were you haven't protected your position with respect to that, it can have a negative effect on you. We have not had that (inaudible). But your second question with respect to industrial a good portion of that has been Life sciences. That has been by far and away our strongest market for some time now in industrial. I would say, though, that this quarter we really did see some nice awards on the mining side where we had a good award come in on a copper smelter. And we've had some couple of other awards come in in what I'd call the consumer products side of the business.

Great, thank you.

Jon Rogers from DA Davidson.

Good morning. I guess first of all just in terms of the question about the currency, what -- can you tell us what the impact actually was in terms of revenue and if there was any operating effect from it?

We really don't disclose those in detail but there was really no operating margin impact in the quarter due to that.

Okay, good. And then the other question Alan in terms of the pace of your work in Iraq, can you give us a sense of what the response has been to the more violence over there? Is the attitude to pick up the pace of activity and try and get the infrastructure rebuilt more quickly, or is it in a sense. (multiple speakers)

It hasn't changed. The pace has been strong, and fast and with a tremendous amount of both priority and pressure from day one. And that has not changed. The issue that is there is if you think about the work we're involved in particularly for the longest period it has been mostly the electrical work, and now we are into water and other infrastructure. The need to have those systems going to improve the quality of life, to even provide for some industry and for even other security measures is very real. And the Army Corps of Engineers among other clients that we respond to there have been putting the pressure on from day one. And rightfully so.

The prospects and maybe I misunderstood that, it would slow down in the second half of the year. Is that just a function of what the schedule always has been?

What happened was there was the compete of the Nash contracts which were just awarded, there is a mobilization effect to that, as CTAC 1 contract has come down. There is just a natural effect of one part of the contract coming down and the other one ramping back up. So that may provide just a slight hiatus but very, very slight in terms of anything we see in revenue.

So then your sense would be that if there is a dip there that it (technical difficulty) back up by the end of the year.

It is a matter of weeks, not months.

And as you know, we have a joint venture with AMEC that they we are doing all of the work in Iraq under. Maybe it's work that occurred in the fourth and the first quarter this year but was Fluor specific. And going through 2004 we will be sharing that activity with AMEC on a potentially a 50-50 basis so the impact on Fluor would be shared with AMEC as opposed to 100 percent Fluor.

And then just one more on the industrial side if I could; could you give us a sense of what you're seeing from clients in terms of project proposals even for things that may not materialize for several quarters or a year? Is that changing at all? And certainly people seem to become more optimistic about profit prospect I was wondering if you were seeing that directly.

If you look across the entire industrial portfolio, which is pretty diversified in itself, we've seen across the whole portfolio a slight uptick in proposal activity. But I guess what's really been more encouraging to us is what we see is some pretty significant targets of opportunity that we've been able to focus on and because of our position to be successful on. And that has been primarily true in units like mining and in chemicals where have we been able to target a particular prospect and go after it and bring it into our backlog. General trend up, but I think we are actually beating the trend in terms of the success that we are seeing.

Great. Thank you.

Alan Mitrani from Copper Beech Capital.

I may have missed this earlier, so I apologize. Is there a reason you didn't give margins in the backlog in new awards this quarter?

We did talk about that. We are, that is a change we're making in our disclosure policy, a couple things. One is we started disclosing that a few years ago. We thought that other companies in this industry would follow that trend. They did not. In addition, as you are well aware there's been increasing emphasis on people moving away from non-GAAP financial measures, and that clearly is a non-GAAP financial measure, and we're moving away from that as well.

I understand that. Can you speak to it, though, on a conference call? I mean you guys have thousands of projects you do. I do not think it is a competitive issue as it relates to disclosure. It's unfortunate that your competitors didn't follow along with it, as I am sure all the analysts probably feel that way as I know I do, but it doesn't mean you guys shouldn't. I understand the non-GAAP issue, but can you speak to it on your conference call as opposed to putting it into your SEC documents just so we have a better sense as to --.

I don't think we can because we do think its a competitive situation. We, in addition to providing that information we probably give more, in fact we do give more divisions of reporting of our revenues and results than any other company.

Our segment breakdown is clearly more detailed.

Right, and so it does start to get into a little more specificity that I think does put us at a competitive disadvantage.

But if you are giving us the overall gross margins in backlog in orders, not by different sectors, I mean you have thousands of projects. There's no way for me to know what you bid on one project versus another.

We've made a decision not to supply that information for other a number of reasons of which we have outlined here.

Okay, thank you.

Why don't we take one more question and see if we have time then for any others.

John McGinty from Credit Suisse First Boston.

Just I will try to be brief. Alan you talked about one of the reasons you raised guidance was that the first quarter was strong. So are you in the guidance and everything else including the nickel of the non-recurring real estate? I guess you are in everything going forward.

Yes, we are, John. We don't want to make an exception to that or make any adjustments so that is in our guidance.

But if we ignore that, I mean you earned about 52, 51 cents which is more or less in line with that kind of consensus was. You said it was a strong quarter. Does that mean that you all were looking for something less?

John, the adjective strong that I used was applied to new awards.

In the same vein when we look at -- in the quarter -- again the number I keep coming back to because it is so much out of context to everything else is the government services, its a nice number but was this what you all thought you were going to earn? In other words since you came in about where we were thinking on an earnings basis where you all looking for this or did something come in lower than you would've been looking for to kind of come in about where it looked like you were expecting?

All of the revenue in margin that we got within the government sector or on task orders that were underway and had been released at the time we gave the original earnings guidance. So there were no surprises there.

So you knew this and then final question on the convert, what is the stock price where the convert begins to have an effect, in terms of dilution?

There are a couple of features, including a contingent conversion feature where the stock price has to be 20 percent above the conversion price for a period of time. It is really not until you get into the 55 range, and then actually a 20 percent above that which is $72 that you really start impacting earnings dilution due to additional share conversion.

Could be a while. All right, thank you.

Your final question comes from Marcy Yeamans from Banc One Investment Advisors.

With all these projects coming into backlog, and I don't know how fungible an engineer is between projects. What is your capacity to address this many projects at once, and secondly, the projects that you mentioned in China, particularly on the chemical side, I would imagine that even though the Chinese currency is linked to the dollar they're going to want to hedge that in case they delink that currency in the future. And usually you do that by borrowing in that country. So if they are tightening the controls on loans in China are any of these projects at risk, or is that financing already set up?

In your two questions first of all, we have found over years that our assets are personnel assets are extremely fungible across business units and business lines. With the very small exception of some very technically qualified people in the process arena in each of these businesses. But about 90 percent of our engineers, procurement specialists and so forth are very fungible (technical difficulty) and quite often between markets. We don't really have a resource restriction here at all with these new awards. In fact, we could increase our backlog dramatically from what it is today and be able to address them from a resource standpoint. So I don't have a concern in that arena.

To your question on China, we find that the projects we are talking about are already funded. I think there is very little likelihood that they are going to delink the R&B from the dollar. But in any case, that is not something that where we take a brisk on currency in any of our projects. And I believe from a client standpoint these projects are pretty committed going forward.

Are most of those for multinationals?

They are a combination of multinationals with Chinese joint venture partners.

Are you losing any portion of that business or having to subcontract it out to locally E&C firms?

We got a model in China that has been working in that demode (ph) for well over two decades now. Where we work hand in glove with Chinese Design Institutes and construction brigrades on an integrated approach to completing these projects. That's been our mode of operation there for quite some time.

Okay, thank you.

With that, let me wrap up with some summary comments. I would like to first of all thank all of you for your interest in our company and your insightful questions today. Our participation across diversified range of markets continues to be a key strength for us, and I think you saw that in this quarter. We are very pleased with the results in this quarter and in particular with the strength and the diversity that we see in new awards. We think this will drive a very healthy increase in backlog, not just in this quarter but in coming quarters through the year.

Importantly, we are very encouraged by the outlook for continued pickup in activity across a number of our markets and believe that in conjunction with that we are exceptionally well positioned to capitalize on the unfolding upturn in this industry. Ladies and gentlemen, thank you very much for your time today, and we look forward to talking to you in future.