Fluor Corp (FLR) 2004 Q2 法說會逐字稿

Good day everyone and welcome to Fluor Corporation second-quarter conference call. Today's 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 conference call at 9 AM Pacific Time today accessible on Fluor's Website at www.fluor.com. A telephone reply will also be available running through 5 PM Pacific Time on Thursday August 5, at the following telephone numbers; 1-888-203-1112 and the access code of 185466 will be required.

Now at this time for opening remarks, I would like to turn the call over to Lila Churney, Vice President of Investor Relations.

Welcome to Fluor's second-quarter conference call. Our earnings announcement was released yesterday after the market closed. Let me mention that our Board meeting this quarter was out at our offices in Shanghai, China and is where our speakers, CEO Alan Boeckmann and CFO Mike Steuert are calling from today. While it is morning for most of us it is approximately 9 PM in Shanghai.

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 strategic initiatives and other statements regarding the intent, belief or expectations 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 in our Form 10-K filed March 15, 2004 which is available on line or upon request.

The information in this conference call related to projections and 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 the call over to Alan to get started.

Good morning everybody and thank you for joining us today. As Lila pointed out, Mike Stewart and I are calling from China where we have just held our second-quarter board meeting earlier today. Given the growing level of Fluor's current activities and the significant future potential of this market we felt that it was important to give our Board a first-hand view of what is occurring here in China as it is rapidly becoming a regional and global economic powerhouse.

During the past 25 years Fluor has completed more than 140 projects worth over $8 billion in the mining, oil and gas, chemicals, manufacturing, life sciences and power sectors for China's state owned enterprises and for multinational companies. During this tenure in China we have formed significant relationships and gained valuable experience working with Chinese design institutes and construction companies. We are currently executing more than 5 billion dollars in project investment value and have diversified our business mix to encompass multiple industry sectors.

Among our current activities in China, Fluor is managing a 2.5 billion dollar Petrol chemical project in Nan Chang (ph). We are also the managing contractor for a $1 billion chemical plant in Shanghai and are designing nonshore oil production processing facilities for a $2 billion program in Bohai Bay. We are exceptionally proud of our legacy in China and we are excited about the prospects that this market represents for Fluor.

Now let me move on to our second-quarter results and our current business outlook. We continue to benefit from our broad market diversity which is continuing to allow us to manage through the individual market cycles and to deliver more consistent earnings performance. Our second-quarter results were in line with our expectations with all 5 segments contributing to a solid quarter.

Net earnings as well as earnings from continuing operations for the second quarter were $44.8 million or 54 cents per share. This compares with earnings from continuing operations in the second quarter last year of $43 million or 54 cents per share and net earnings or 45.0 million or 56 cents per share, which included the net earnings of $2 million or 2 cents per share from discontinued operations.

Revenues for this past quarter were 2.2 billion dollars level with one year ago but up 7 percent sequentially.

Consolidated operating profit in this quarter was $99.6 million compared with 97.1 million last year while the operating margin increased to 4.5 percent up from 4.3 percent in that second quarter of a year ago.

I am very pleased to report that we had another very strong quarter for new awards which increased 46 percent to $3.3 billion. This was even better than our first quarter total of $3.1 billion which in fact in and of itself was our highest quarterly totaled in 7 years. Also worth noting was the broad based mix of new awards that reflected activity across a number of our diverse markets.

Fluor's broad industry and geographic diversity has positioned the Company extremely well to capitalize on the strengthening trend in capital spending globally.

Second-quarter awards including several sizable projects such as a significant oil sands project in Canada, a major mining project in Chile and a large manufacturing facility in Taiwan. As a result of the strong quarterly awards, consolidated backlog grew 23 percent to 12.9 billion up from 10.5 billion a year ago and up nearly $1 billion from the 11.9 billion at the end of the first quarter.

The continuing strength and diversity of our quarterly new awards is particularly encouraging and it provides the support for the positive market outlook that we have been talking about. As we look forward 2004 continues to be a year of transition from an earnings perspective with an evolving mix of businesses contributing to current results. We are obviously very encouraged by the trend for new project awards throughout the first half of this year.

We continue to expect further backlog expansion which is driven by increasing momentum in the global oil and gas market, by strengthening spending in certain economically sensitive industrial markets and the continuing growth in our government business. Growing backlog along with continued improvement in the global economic environment should build the basis for excellent earnings growth over the next 5 years.

The confidence that we have expressed in a major capital spending cycle in the global oil and gas market is now being evidenced by the strong new level of awards in the first and second quarters including release on certain of the large projects that we have been tracking; the continuing expectation for additional project developments through the balance of this year and beyond.

Let me remind you that while these are very large projects and in challenging and diverse geographic location and that our role will vary. Sometimes we may be program manager, often including EPC responsibility for the off sites and utilities. In other instances we may be performing the detailed engineering and procurement for major portions of the project such as with the OPTI Canada oil sands and project that we booked this quarter. The point is that typically these elephants as some like to call them, are almost invariably broken into pieces that involve multiple contractors.

Now let me the clear that this cycle of investment holds significant backlog in earnings potential for Fluor and while you should expect that our bookings on some of these projects will be sizable, it will be rare that we will book the entire value of a project into our backlog.

Oil and gas opportunities continue to encompass a wide range of projects including significant new upstream production and processing, LNG and GTL projects, additional investment in oil sands and major petrochemical facilities along with downstream clean diesel fuels programs.

Moving to the industrial segment, we continue to see ongoing investment in live sciences with increasing activity in the economically sensitive markets such as mining, chemicals and general manufacturing. The power market remains very soft and although we are seeing increasing interest in coal-fired facilities and we're pursuing a few select opportunities that meet our risk rework criteria.

In our government segment, we saw some delays during the second quarter in issuing new task orders for Iraq as the U.S. Army Corps of Engineers transitioned to the new Nash contracts but activity has picked up again within this last month.

We also continue to see good growth in expanding our business within the Department of Defense for military base operations for logistic support and maintenance services. We also anticipate new awards for our international business of J.A. Jones which is focused on Department of State projects for new embassies and consulates and that that will pick up in the second half of this year. These awards are typically released in the September to October time frame in line with the government's new fiscal year.

Based on the strength of first half awards and solid execution across our operations, we are further narrowing our guidance for 2004 to a range of $2.15 to $2.35 per share. This range continues to reflect uncertainties regarding Iraq restructure activity and the pace of execution of first-quarter awards.

With that, let me turn it over to Mike Steuert, our CFO, to review additional details of our operating performance, our new awards and other financial highlights.

Thank you, Alan. Good morning to everyone. Our business segment results are covered in our press release so I will mainly focus on providing additional background on new awards and backlog for each operating segment.

Starting with oil and gas, new awards were a very healthy $1.3 billion, up 13 percent from a strong quarter a year ago. As previously mentioned, the quarter included the large Canadian oil sands for OPTI Canada valued at approximately $570 million. In addition other downstream awards in the quarter included 7 clean fuel projects primarily in the United States and Canada with 5 different clients.

Upstream awards included a floating production facility off the West Coast of Australia. We had recently completed the final engineering and design for this project. Other upstream awards in the quarter were additional front end engineering and design projects for an offshore oil and gas production project in China and for LNG regassification terminal in Mexico.

Backlog for the oil and gas segment increased 4.9 billion, up 40 percent from a year ago and up approximately 640 million from March 31.

In our industrial and infrastructure segment, new awards for the second quarter were a record $1.5 billion, up from a record award in the first quarter of $1.3 billion and nearly double the $776 million posted a year ago. Included in the segments quarterly awards was our second major mining award this year, a project to process marginal ore at the world largest operating copper mine in Chile. Also included in industrial and infrastructure quarterly awards was a major LCD display glass manufacturing and finishing plant in Taiwan.

Other bookings for these segments included several smaller pharmaceutical projects, engineering for a Next Generation uranium enrichment (ph) facility for USCC (ph), American centrifuge plant in Ohio, project management services for 2 transportation programs and another scope increase in our telecommunications project for the (indiscernible) underground.

Backlog for the segment increased 12 percent to 4.8 billion from a year ago as well as sequentially from the first quarter by over $800 million.

New awards for our government segment were $240 million, virtually all for Iraq related task orders. This represents a 67 percent increase over last year's second-quarter new awards of $144 million. Backlog nearly doubled from a year ago to $915 (ph) million. Although backlog declined sequentially from March 31, let me remind you that this is normal seasonal pattern due to the large annual bookings we make each year in the third quarter for our two major Department of Energy projects. This results in a large spike in backlog each third quarter that is steadily worked off over the next three quarters. The fact that our government backlog is higher year-over-year highlights the success we have had in growing our base of work beyond the two large Department of Energy contracts.

Global services new awards increased 14 percent to $247 million from $218 million a year ago. Backlog for the segment increased 16 percent to 1.9 billion over the second quarter last year and remained level with the first quarter.

Moving onto power, new awards were a relatively modest $85 million. As expected, backlog for power declined further $455 million from 595 million a year ago.

Moving onto other financial information, corporate G&A was $32 million, up slightly from 31.4 million in the second quarter of last year but well within our expected range to meet our full year guidance which remains at 140 to $150 million.

We had net interest income of $649,000 from 374,000 a year ago. Tax rate for the quarter was 33.5 percent slightly better than our forecasted tax rate of 34.5 percent.

Let me now shift to the balance sheet and make a few comments on cash and other financial items. Cash and securities increased $49 million during the quarter to 595 million at the end of the second quarter. Our debt to total capital ratio at the end of the quarter was 24 percent, well below our 30 percent target.

Cash provided from operating activities for the second quarter was $58 million. Year-to-date capital expenditures were $42.5 million, while depreciation was essentially the same at $42.8 million. Maintaining Fluor's strong financial condition remains our top priority and continues to represent a valuable competitive advantage to the Company.

With that summary, Alan and I will be happy to respond to questions.

(OPERATOR INSTRUCTIONS) Richard Rossi, Morgan Joseph.

Good morning and good evening. Let me just go with some margin questions then. In the oil and gas area, you mentioned in the release that in the oil and gas area you mentioned in your release that you had some procurement revenues that lowered the margins, could you quantify that in any way?

We really don't try to quantify the kind of procurement activity that happened in the quarter but clearly you saw the increase in revenue in the quarter. That is a reflection of higher procurement activities as well as higher other activities in the quarter. And it also reflects the different phase we are going into in some of these oil and gas projects which is resulting in our slightly lower margins.

As a follow-up on the phasing on that new work, how many more quarters -- looking at that new work, do we have another quarter or 2 where it is still a slow start up or is that going to start to pick up in the second half?

Given where we are at in the cycle for oil and gas, we are in the early part of a number of these projects. In the early phase of projects, as you know our model depends on percent complete with potential reserves and incentives at the tail end of those projects. Really the bulk of these projects given the sizes of them and the time frame is really going to occur in the out years of '05, '06. I would say we're still going to be in that mode for a number of quarters.

It is really building the backlog for the next 2 years. And a little more clarity on the procurement issue, the biggest source of that is the progress we are making on TCO (ph) where we are in the field now. We passed the stage for engineering activity and we are doing some procurement activity.

All right, that was helpful. Thanks very much.

Lorraine Makis with Merrill Lynch.

Hi. This is Gina Gordon calling in for Lorraine. A quick question. You know the range of your guidance from the low end but also from the high end. What was the components that led you to lower the high end?

I'm not sure that I can relate a direct component to that. We have looked at all of the factors, Gina, that come together to form that forecast and we still have 2 quarters to go. We are through half of the year. We have had good bookings in the first 2 quarters in line with what our expectations were. We have generally had fairly good results on a number of the issues that we looked at, but it is still a fair amount of uncertainty. We still have some stretch in bookings for remainder of a year and I would say we just took all factors into account and tried to come to as narrow range as we thought was prudent at this point in time.

Right. And those factors include the rate at which some of these new awards will be burned in the second half versus in 2005 and 2006 as well as Alan mentioned in his comments, still a little bit of continued uncertainty as in Iraq as CPA (ph) transitions oversight for the reconstruction activity to the State Department.

Great. Industrial and infrastructure were weak in Q2 and I think last quarter you had mentioned that the business would trend up. Do you expect it to trend up in Q2? Do you think that is just going to push back and we will see some more increases in Q3 and Q4?

Yes, we saw again lower results in Q2, again that was a result of I think if you looked at the history of bookings in that group in the latter part of '03 that is now going to be picking up. We had good strong bookings in Q1 and Q2 and we will start to see an increase in that industrial performance as we go into the third quarter.

Okay, thank you very much.

Michael Dudas with Bear Stearns.

First question relative to your new orders this quarter and the backlog of expanse, Mike, could you go over what the percentage of cost plus fixed-price lump sum and how it may or may not change as we move through the next couple of years as these big cycle factors come through?

Sure.

We came down in terms of lump sum, Mike. Let me grab that data here.

It was approximately 60 percent reimbursable costs. I'm sorry, that is backlog, not awards. At the end of a quarter, our backlog was up 30 percent lump sum and the rest was --.

Any backlog -- we are now at about 30 percent fixed cost in the 70 percent reimbursable.

Is that driven by the market or is that driven by how comfortable you guys are in your contract?

It is a combination of things. The market, again we worked off both power and (indiscernible) revenues which were lump sum and the new projects we are getting primarily in the oil and gas side are large projects that are reimbursable.

My follow-up, relative to China how is the situation changed over since the last time you were very active in the country? What are some of the things that Fluor needs to do to have China become a significant part of the business opportunities over the next few years?

Mike, that is an extremely good question and very timely. We held our Board of Directors meeting here because a combination of things -- first of all we're celebrating our 25th year of operations in China, longer than any other contractor we are aware of. And we have been very successful, primarily focusing on both state-owned enterprises here and the joint ventures they are forming with western clients. With the ascension in WTO (ph) and the change of the number of the laws and the ability to have foreign ownership of service organizations here now, we have taken a strategy of becoming much more local with respect to our execution capabilities and we are transforming our execution platform in China. We've got a significant amount of work going on here currently. I guess the good news is we see even more prospects in front of us. We are very bullish on our position in China and for the market we are addressing here.

John McGinty with CSFB.

Good evening. Could we talk about in the government sector, Iraq, where there is a -- while it is a nice increase year-over-year, it is a fairly substantial fall off sequentially first quarter to second quarter. Is that all? Is the decline all Iraq? Is there virtually nothing in Iraq in there? You gave us a flavor of what Iraq contributed to government last quarter, what is in the second quarter figure?

Two counts. Both our earnings performance from Iraq and new awards were much stronger in the first quarter than they were in the second-quarter. Second quarter had what I would say a fairly significant slowdown based on just the transition from the earlier projects to the Nash awards which have taken some time to transition over with some of the management contracts and the shifting to the interim Iraqi government. We are now starting to see those pick up again. I think the good news is we made our earnings expectations even with the slower performance out of Iraq.

Is the second quarter -- if we are to assume a run right in the second half of the government, do we take the first quarter, do take the second quarter, do we take something in between? Can you just help us because that is invisible to us as outsiders?

We're not going to be getting into any specifics there but I would say third quarter is likely to be fairly similar maybe just a little more but fairly similar to second quarter because we're coming out of a low point of the transition. We start to see the pickup in awards and I think we're going to continue to see it as we go through and see even stronger awards as we go into Q4.

My follow-up question, Mike, can you tell us where you are on the so-called contingent convertibles and whether or not assuming what that would mean to you if in fact you have to count that -- just review that with us?

We are following the accounting developments fairly closely, watching what they are ultimately going to do. If they go to the converted method of accounting and you guys can run the same numbers we can. It is a fairly simple calculation. This year it would be with the change in accounting would be about 10 cents a share.

If you went back and did it as of day one?

Yes. We probably will but maybe 9 cents because we didn't do at the beginning of year. On a pro forma full year impact, it would be about 9 to 10 cents a share.

Thank you very much.

Sanjay Shrestha with First Albany.

Given the stellar bookings here in the first half of 2004 and given the lumpiness of the business, what should we expect in terms of the bookings going into the second half? Also if you can tie that together given the mix here of some long-term projects, some quick burn and book kind of projects here? How should the earnings flow here? Is it really going to the power in the second half of 2005, first half of 2005 or are we talking about 2006 as really being the year when we are going to see some serious earning power out of Fluor?

Good question. As you know, third quarter is usually a relatively strong quarter for us because we do book as I mentioned the 2 major Department of Engineering annual funding in the third quarter. So that should certainly contribute to a strong third quarter and a strong second half for overall bookings. This isn't just 1 project; there is a large number of projects that are moving in the backlog, so you can't just pick 1 time frame. We think that these will roll out -- some will roll out faster than others but overall it will be pretty even growth throughout 2005, really culminating some solid growth in 2006.

Okay. That is great. Also, Mike, another quick thing about the global services segment -- the margins were down a little bit. Should I read too much into that or was there anything particular in this quarter?

I wouldn't read anything into it, Sanjay. I think that business does have a little bit of lumpiness to it although I think year-to-year it is a good strong earner for us with some growth.

Fantastic and one last question. If you could give us any update related to the ongoing arbitration on the Hamaca project?

As we have said before, we are compelled to give full disclosure on that. We believe we are in a very strong position. We believe that all of the decisions that have come out of the arbitration panel have been very positive for Fluor. We expect that we will have the final results on the soils indirect costs, I would say probably sometime in the late third quarter, or maybe early fourth quarter as well as the Activinial (ph) dispute. That would leave the national strike for an '05 result and arbitration. I think we will have some good results from that as move on into Q3 and Q4 for this year.

That is great. Thank you very much.

Tom Ford with Lehman Brothers.

Following up on that Alan, with the Hamaca, or Mike. With the arbitration panel decision, I thought there was one earlier this year. Was there anything in the numbers reflecting that this quarter?

You are correct Tom; there was a partial decision on soils earlier this year that addressed the direct cost as well as some decisions on the amount of delayed time that was awarded to us. We were very happy with that decision. That decision did not impact our financial performance this quarter. There was no impact in the quarter.

We've taken a very conservative approach on that whole issue, Tom, as we have mentioned both in our 10-Q. We've got a number of other awards coming up. What I would say on that first award -- that was in April, it was the award of direct costs and also the award of delay time. And again, as Mike said, we were very happy with the results of that. I think maybe even more importantly there were a number of factors that were adjudicated in that ruling that have to do with principles that will be used in the ongoing dispute around the other topics. Again, we feel that each one of those was decided was very much in our favor as we had expected it to be.

It does take time. That is the frustrating part of this process is that arbitration is a rather slow riding process, but again, we have a very strong contract. We believe in regular (ph) position and that is why we have stayed the course on this dispute.

As Alan said, we will be conservative as we move through this process in terms of concerning any increase in profit take up on the project.

As a follow-up going back to Iraq. Folks have -- there has been discussion or commentary out there that the oversight by the government or their attempt at trying to impose cost discipline is increasing. And Alan, I just wanted to get your sense as to whether you agree, disagree, what are your thoughts there?

I would have to say I can't honestly say. I have not seen a difference and I mean that in a positive sense. From the day we started on the CTAC work, which was for the Army Central Command, we have had very close liaison and oversight from the Army Corps of Engineers. All of the task quarters have been handles in a fairly professional manner of putting in estimates and following government procurement guidelines. We have gone through and reconciled our buildings and we have gone through some audits, so I would say they have had a fairly close control on that from the very beginning. At least on the work we have been associated with. We haven't seen any real change there.

You've got to recognize, our work started a little later than Halliburton or some those in the news -- we really started in earnest in the fourth quarter of last year.

You guys did have a change order on a power contract, but you don't feel that there is any type of issue there?

Are you shifting subjects or are you still talking Iraq?

Still talking Iraq.

What we do on the work we have there, when we get an overall procurement award, we don't book any revenue there. We book it as we get tasks released to us and so we did have some power work released to us in this last quarter. So I wouldn't call it necessarily a change order, but it is the way we recognize these things going into backlog as we get the specific release.

Okay, thanks.

Louis Teller (ph) with John Levin & Company (ph).

I was just wondering if you could break out the receivables? What was the receivable number and what was the unbilled amount of that?

Again are you talking Iraq?

No, for the total.

We will have that detailed in our 10-Q that will come out in a couple of weeks. We really don't have that detail available right now.

I missed it but what did you say the percent of revenues and earnings from Iraq this last quarter? Did you give that out?

We don't disclose that. That is within our government sector.

That is all I had. Thank you.

(OPERATOR INSTRUCTIONS) John McGinty with CSFB.

Power, you have said it is going to be down in the second half. Is the second half going to give us a run rate -- I mean this is assuming you don't get a major order but I'm trying to set the stage for '05, is the second half going to give a run rate -- base for power for '05?

It won't. Again, the results here are extremely uneven just based on some timing issues so no it won't. In fact I think our power earnings for second half of the year will probably be lower than our normal run rate.

So as a guide, should we look at '05 being equal to '04 in terms of power -- I mean broad generalities?

Perhaps slightly below.

But just slightly. I don't think we have that same incremental offset that we've had the last couple of years.

Okay. With regard to Iraq, and this is -- I mean who knows but at least assuming that we stay there and that is obviously political and everything else -- in your thinking is the run rate which is kind of up, down, down back up, whatever. In your planning process are you assuming that there is Iraq business in '05? What are your thoughts on that?

Again, we will be making our '05 -- (multiple speakers) .

I'm not asking for the numbers I'm just --

We will be making that assessment for '05 as we get into reporting our third quarter. There is a lot that happen between now and then. So I would say right now we are assuming there will be some Iraq work in '05. I think that is a fairly good assumption given the funding that is available and the work that has yet to be done in basic infrastructure there.

Right. On these new awards that we received so-called Nash awards, those are really multi-year awards with significant funding to address both power and water issues in Iraq. To date, the past quarters have been fairly modest so that there is -- under those awards assuming they continue, there is certainly a need for that work there will be a lot of activity in 2005.

But, Mike, don't those have to be voted annually by the Congress on funding?

Right, and they are also being reexamined by the State Department right now in terms of reassessing priorities.

Okay. Speaking of the elephant hunts, was the $570 million oil sands project one of the elephants because the mine was not on your elephant map. I'm not saying the $700 million project for mining is not -- it is great -- it is an elephant clearly, but it wasn't on the map. Was the oil sands project that you had on the map, was this the 570, was this the --?

It was.

So this was the elephant you said you were going to book?

Right.

What about the second half? Are there any in the sites? What should we expect?

It is going to be close.

1 or 2.

I think we are pretty confident we can get the front end of an elephant in the second half whether or not we take the whole thing is a timing issue.

To the early part of '05.

In other words, built into your numbers you're only conceptually expecting to get 1 elephant in the second half? I mean everything else is still out there obviously but in terms of your planning process?

I'm not sure that we can say today that from a planning that were taken in the second half, but I think it is going to be very close. We suspect on bookings would be from a timing standpoint -- it may be significant but in terms of earnings capability in effect on '04 or on '05, it would have not much effect either based on that timing.

At this point except for the book and burn which is obviously significant, in terms of the big elephant type things '05 you pretty much know -- in terms of having an impact on '05 earnings, we are moving past that point I assume?

I would say we are moving past in terms of those things that could be booked in '04. Although I think we're going to continue to see some good bookings in '04.

No, no. Absolutely.

But in terms of elephants, I think there may be 1, again, it may go over into the next year.

Thank you very much.

Stephen Sino (ph) with Imperial Capital (ph) .

Congratulations on the bookings number. This is I think the second largest mining project you have booked this year. We have seen a lot of the minerals and the metals go through the roof in terms of pricing and there is a lot of speculation that with the declining dollar, it makes a lot more sense to build more mines in the U.S. And I was wondering if, in fact, you have seen any evidence of the domestic activities in mining? Also, a follow-up, if you could just sort of qualitatively give your opinion on how you expect the mining sector to unfold for you in the next few years in terms of, if I were at the beginning of the cycle, do you think there are just a few projects out there, do think there's a lot of projects? Just give us a little bit of color there.

First of all, we don't see a lot of significant opportunity as you could put it domestically in the United States in mining. There may be some activity, but most of the large opportunities we are looking at are in Asia, South America, and Africa. In terms of where we think we are in the cycle, I would say that we clearly are moving upwards in the cycle, although the two that you mentioned, while they may be at the front end of the cycle, I really regard them as extremely good positioning and targets of opportunities. I think the real upwards cycle of mining is really going to start to occur in '05, and it is driven again by the upward trend in commodity prices for the metals that we have particular capability in.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) Richard Rossi with Morgan Joseph.

Just a follow-up on -- you mentioned that in China you were working on $5 billion of business value in projects, but how much are you carrying in your backlog?

That is a good question. What we've quoted was total installed cost, and particularly in one of those projects, we really have only booked the value of our program management services. So, again, as we have said many times, now we contract a particular project may vary, depending on a whole number of factors. When we book only the program management value, obviously that comes with a very high margin to it. When we take in the overall revenue, there can be certain pass-throughs, so we'll sort of make it look like a much lower margin. The fact of the matter is that we look at these things with the total amount of gross margin it does put into backlog on each and every project, and we have very little competition when it comes to the overall program management. So it is a good market area for us; it's one that we have great expertise in. And particularly, there are several large programs that are coming aboard in China that we think we are well-positioned for.

But the value into the backlog?

Again, we don't quote any particular projects there.

But total for China.

Again, we don't break that now by country. I would say it is probably, in terms of total revenue bookings, it is probably less than 10 percent of our total today. It could clearly go above that as we move into some of these larger programs.

All right, that's a good start. One follow-up on the power backlog, what is left in that backlog for power plant jobs themselves? Is there much?

We're really down to, in terms of the capital projects, down to a fairly low number in backlog today. A lot of what we have going in there is what I call evergreen type work, operations and maintenance programs. We have a couple of good targets of opportunity we are pursuing, and we feel good about a couple of those, but again those will happen in out-quarters.

We have a couple from our joint venture with Duke/Fluor Daniel, but have completed or are completing this year. As you may recall, we were awarded one in Texas last year, Brazos.

And that is out roughly by the end of a year?

That would be 2005.

The Duke work.

That will be totally completed this year.

Thank you very much.

John McGinty with CSFB.

Mike, I hate to do this on the call but I'm not going to be back in the office this afternoon. Working capital just a question on Hamaca, I apologize if I should know this, I'm just hoping you can refresh my memory, if you win the Hamaca, is it just a cash flow or is there an earnings impact and what would the cash flow be over a couple of years without regard to timing?

It is obviously a major cash flow impact. As of the second quarter we had about $220 million of deferred costs that we had spent on these claims and not been reimbursed for. That will continue to grow until we have some final arbitration agreement. I would expect that to grow over 300 million to give you an order of magnitude of the cash impact.

Over 300 million.

Right the amount that we are funding before we get the decision, as Alan said later this year toward the end of a year. The earnings impact will depend on a number of factors on how we come out these arbitrations. And how we come out on the completion of the projects, which by the way is going very well and should be completed within the next month or so.

But there is nothing in your guidance in the 230 or whatever -- I'm sorry whatever the new guidance is narrowing the range there is nothing in there for the earnings impact of Hamaca, or is there?

No, there isn't. As Alan said, we are being conservative. One of the major issues that has yet to be arbitrated that will have a major impact is the National strike and that arbitration will get underway late this year, early next year and we probably won't get a decision on that until late 2005.

At that point would you take it as an extraordinary if you got it since it so unrelated to the timing of the event?

I guess you could argue both sides of that. We would view it as ordinary because we certainly incurred the cost as ordinary expense. It will really be (indiscernible) of the level profit we should earn throughout the life of this project. It's just the fact that we are in arbitration and it is taking us longer to earn the ordinary profit that our excellent work have provided.

Are you actually just recognizing all of the costs and none of the revenues or are you in essence recognizing it on a breakeven basis at this point?

The accounting rules say (inaudible) where we're putting the 220 million on the balance sheet we are allowed to recognize any profit and we of course are not recognizing any profit on that work.

Are you recognizing the 220 million in costs?

Not in earnings.

That's what I meant. As a follow-up on the cash, would that more likely be in '05 and '06 or would it all be '06? Assuming you win everything?

No, the -- our current expectations are that the cash -- the remaining cash on the soils for the indirect and related costs that Alan mentioned will be late this year. As will be the cash on (indiscernible) which is a labor issue. The cash on the national strike will probably be late '05.

Of the 220 or 300 million, could you give us some order of magnitude of what of that would be '04 and what of that would be '05?

That we don't split up.

But presumably by far the majority of it is the '05 -- I mean is it like a third, or a quarter in '04?

If you look at our 10-K and 10-Q disclosures of our total claims it is roughly a 50-50 split between soils and (indiscernible) and national strike. Maybe it is a 50-50 split, John, but of our total claims half of it I think we had 159 million in claims on soils, 210 million in claims on (indiscernible) and the labor issues and 300 million plus on national strike.

Final question, any reason in '05 that Corporate GNA or the tax rate would be any different than '04?

We don't expect any material differences, no.

Thank you very much. Have a safe trip back.

There are no further questions at this time gentleman. I will turn it back to you for any closing comments.

First of all, let me thank everybody for their time today. We are obviously pleased with the progress we have made in this first half of 2004. We're also very encouraged with the strength of our new awards particularly in our oil and gas sector. As we have been indicating for some time, we have anticipated this pickup in backlog on numerous fronts as the global economy continues to strengthen and we think this is going to bode well for us going forward.

We sincerely appreciate your participation with us today and also for your continued interest and confidence in Fluor. Thank you and have a good day.

Thank you. That does conclude today's conference. We thank everyone for joining.