Fluor Corp (FLR) 2006 Q1 法說會逐字稿

Good day and welcome to 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 will follow management's presentation. There will be a replay of today's conference call at 12 noon Central Time today accessible on Fluor's website at www.fluor.com. A telephone replay will also be available running through 7 PM Central Time on May 14, 2006, at the following telephone number, 888-203-1112. The access code of 977-2643 will be required.

At this time for opening remarks I would like to turn the call over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Good morning, everyone. With us today to talk about our first quarter is Alan Boeckmann, Fluor's Chairman and CEO, and Michael Steuert, Fluor's CFO. Our earnings announcement was released yesterday after the market closed.

But 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, tax matters, 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 the factors that could cause results to differ materially from the information that we will give you is available in our Form 10-K filed March 1 of 2006, and our Form 10-Q filed on May 8, 2006, both of which are 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 at this time I will turn it over to Alan Boeckmann, Fluor's Chairman and CEO.

Thank you, Ken. Good morning, ladies and gentlemen. Thank you very much for joining us today. This money we're going to review our first quarter. We will give you an update on our current business outlook and, in turn, discuss the guidance for 2006.

Fluor is off to a great start in 2006. Our earnings per share exceeded expectations, and we continue to see substantial new project opportunities across all business groups. The outlook for Fluor is very positive with many of our markets in strong upturns and driving increased demand for engineering procurement, construction, and maintenance services globally. Our clients continue to announce significant capital spending plans, and the Company is particular well-positioned to capitalize on these trends in the oil and gas, petrochemicals, infrastructure, mining and power markets.

Revenues for our first quarter increased 27% to $3.6 billion, up from $2.9 billion in the first quarter of 2005. Net earnings increased to $88.9 million or $1.00 per share compared with $47.4 million or $0.56 per share for the same period of last year.

Operating profits rose 56% to $184.4 million with the majority of the increase coming from the Government and our Global Services segments, along with continued strong contributions from Oil & Gas. Operating margins for this quarter rose to 5.1%, up from 4.1% just a year ago.

In the Government segment increased profits and margins were attributable to three things. First was the absence of charges on embassy projects, but also to disaster relief or for FEMA, as well as solid contributions from the Fernald project and reconstruction work in Iraq.

Growth in Global Services was mainly due to strength in the construction equipment services and our temporary staffing unit.

For this quarter, the Power segment reported breakeven results compared with profits of $3.1 million in the first quarter of '05. The Power unit is gearing up for this coming wave of coal-fired power generation and scrubber projects, and in response has increased spending to bid new work.

We're very encouraged by TXU's announcement that they have selected Fluor as one of two exclusive partners for the engineering, procurement, and construction of a number of new coal-fired power generation facilities. New orders on these will not be recorded, though, until permits are obtained and we are given notice to proceed on individual sites.

Operating profit for Oil & Gas was a strong $56.7 million, with operating margins improving to 4.8%, up from 4.6% last year. New awards were very strong across upstream, downstream, and petrochemical markets; and our backlog in that unit rose 12% over this last quarter.

Finally, operating profits in Industrial & Infrastructure declined from $20.8 million a year ago to $13.6 this quarter. Last year we benefited from a substantial progress on a European infrastructure project. The I&I unit, though, is performing very well, and we expect the group to trend back toward historical margin levels by the end of the year.

Importantly, the Infrastructure unit recently announced two major new awards, the first of which was the construction management of the World Trade Center transportation hub, with Fluor's share of that $1 billion project included in our first quarter. The second announcement occurred in April, when the unit received official confirmation of the award of the San Francisco-to-Oakland Bay Bridge project. Our 50% portion of this award is approximately $700 million and will be booked in the second quarter.

New awards for the first quarter totaled an impressive $3.8 billion, with substantial new bookings at all segments except Power. Our consolidated backlog rose to $15.4 billion compared with $14.9 billion in December of 2005. Our percentage of fixed-price work in backlog held fairly steadily at about 31%; and our work outside of the United States registers at 60%.

Let's shift gears now and talk about the full year's outlook. Our first quarter was very strong, but contributions from the Government group's contingency response work for FEMA and our reconstruction work in Iraq, along with the nearly complete Fernald project, are likely to be materially lower in the second half of 2006. For this reason it is not realistic to try to draw a solid trend line off of this first quarter.

But when considering strong first-quarter performance and the favorable outlook for Fluor's other markets in 2006, we're raising our guidance for the year to a range of $2.90 to $3.20 per share, up from our previous guidance of $2.80 to $3.10 per share.

So with that, let me turn the call over to Mike Steuert, our Chief Financial Officer, to review additional details of our operating performance, including new awards and other financial information. Mike?

Thank you, Alan, and good morning. Our business results are covered in some detail in our press release, so as usual I will focus mainly on providing additional information on new awards and backlog for each operating segment and on corporate financial items.

Starting with Oil & Gas, new awards were $1.8 billion for the quarter, up 22% from the $1.5 billion a year ago. The largest award in the quarter was for the engineering, procurement, and construction management of a polysilicon expansion project for a chemical client in the United States. We also booked an award for the engineering and procurement for an onshore oil production facility in Nigeria.

We were awarded a large front-end engineering and design contract for a major refinery upgrade program in the U.S., as well as front-end work for refining and modification expansion projects for other clients in the U.S. and in the Middle East. In addition, and very promising, a number of other feed and early phase engineering awards were received for work in the U.S., Canada, and in Europe. As Alan mentioned, backlog for Oil & Gas segment increased to $6.8 billion, up 12% sequentially from the last quarter.

Moving on to Industrial & Infrastructure, new awards in this segment were $672 million, which is up from $592 million a year ago. New awards in the first quarter were broad-based, including awards in infrastructure, general manufacturing, transportation, mining, and life sciences. The largest award in the quarter was for the previously announced contract for the construction of the World Trade Center transportation hub in New York City. Fluor is a 32.5% JV partner, and our share of the work is about $350 million.

The quarter included an engineering, procurement, and construction management award to modify multiple wafer fabrication facilities for an important client in the United States. The unit also booked contracts involving an aluminum refinery expansion, a rail line extension, and a retrofit of an existing pharmaceutical facility.

In mining, the unit was awarded the initial engineering and procurement for a major copper project in the United States and a program management contract (technical difficulty) services for a copper concentrator project in Eurasia.

After the quarter, as Alan mentioned, we released details on our partnership in a joint venture that will construct the San Francisco-to-Oakland Bay Bridge extension. This project will be booked into backlog in the second quarter. Backlog for the Industrial & Infrastructure was essentially flat at $3.8 billion compared with $3.9 billion at the end of last quarter.

Our Government segment had a very strong quarter, with new awards totaling $766 million, up sharply from a year ago. The quarter included approximately $500 million in new contract awards for FEMA for individual assistance relating to providing temporary housing in Louisiana. We also booked a contract valued at approximately $50 million relating to emergency planning and response efforts. These awards are indefinite delivery, indefinite quantity contracts; and we have made substantial progress on both contracts based on past quarters to date.

As expected, work in Iraq is winding down; however we did receive a small award this quarter for reconstruction work in Iraq. The unit also booked several operations and maintenance contracts and additional task orders for contingency response work in both Iraq and Afghanistan under our CETAC-II contract.

Backlog at the end of the first quarter was $1.1 billion, down from $1.4 billion last quarter, reflecting the work-off of our Fernald and Hanford contracts, which are booked annually in the third quarter, and the rapid burn of the FEMA and Iraq task orders. Just to remind everyone, we are completing the Fernald cleanup project later this year, so the final year of that award was 2005.

Global Services operations and maintenance unit booked $578 million of new awards in the quarter, which was down from $754 million a year ago. The year-ago period included a major new multiyear contract in Europe. Operations and maintenance awards were broadly diversified across the power, oil and gas and industrial markets. The largest award in this quarter was for the renewal of our long-term contract with IBM at numerous sites.

The balance of the new awards were primarily from renewals of other long-term contracts reflecting continued customer confidence in our service offerings. Backlog increased 8% to $2.7 billion, up from $2.5 billion at the end of the last quarter.

Power's only award in the quarter was for additional engineering services relating to the potential Peabody Prairie State coal-fired power plant. As Alan mentioned, we have been selected by TXU to help them build a number of new coal-fired power plants. We are extremely pleased with this announcement and the significant potential it represents in terms of new awards in future periods. Backlog for Power remained essentially flat from the prior period at $1.1 billion.

Moving on to corporate items, G&A for the quarter was $41.8 million which compares to G&A of $38.1 million a year ago. The first quarter included $2.5 million of costs relating to the relocation of our corporate headquarters from California to Texas. We expect to incur approximately $16 million of additional costs to complete this move, mainly impacting the second quarter.

G&A also includes the impact of adopting FAS 123(R), relating to stock-based compensation. The impact on the quarter was approximately $3 million pretax or $0.03 per diluted share after-tax. We would expect a similar size impact in future quarters. Our full-year EPS guidance for 2006 assumes G&A will be in the range of 190 to $200 million.

We had net interest income of $185,000 for the quarter compared with $130,000 a year ago.

The effective tax rate for the quarter was 37.8% compared with 41.2% in the first quarter of 2005. The decrease in the 2006 tax rate is attributable to the absence of foreign losses resulting from provisions on certain international embassy project recorded in the 2005 period. The foreign losses in 2005 reduced the Company's ability to absorb excess foreign tax credits incurred in relatively high tax jurisdictions. For 2006, we expect the tax rate to be in the 35% to 38% range.

Let's now shift to the balance sheet and discuss cash and other financial items. Consolidated cash balances decreased to $654 million from $789 million last quarter. Cash flow from operations in the quarter was a use of $158 million. The primary driver of this cash usage was a build-up of project working capital in our Government segment, primarily relating to work for FEMA.

We had $45 million of commercial paper outstanding at the end of the quarter; and our debt-to-capital capital ratio was 22%. You will note that the 22% ratio includes about $72 million in nonrecourse project finance associated with the UK highways agency project that was booked last quarter. This is up from $58 million last quarter and will continue to increase over the life of the project.

We paid our increased quarterly dividend rate of $0.20 per share on April 3. No cash payments were made during the quarter due to the timing of the dividend payment dates.

Capital expenditures for the quarter were $56 million which is up from $33 million a year ago. This quarter included capital spending of $20 million related to construction of our new headquarters facility and ongoing renewal and replacement of machinery and vehicles in the construction equipment operations, including operations in Iraq.

Depreciation in the quarter was $28 million. Overall, we remain very pleased with the Fluor's strong financial condition. With that, Alan and I will be happy to respond to questions.

(OPERATOR INSTRUCTIONS) Sanjay Shrestha with First Albany.

First of all, congratulations. Just one thing I kind of want to dig a little deeper on. Q1 was fantastic. We obviously got some FEMA and the reconstruction work from Iraq. Was that in your expectation, or that was kind of well ahead of what you guys thought as well?

We absolutely knew that we were going to have some positive effects from that in the first quarter, so a good portion of that was baked into our overall annual expectations. But as we have said, it clearly is going to be something that is not repeatable as we move into probably really the third and fourth quarters of the year.

Got it. That is why you are raising the guidance the way it is; because when you gave your guidance, that was already baked into it. So other end markets outlook strong, is really contributed to that raise for the year. I just wanted to clarify that.

That's pretty good, that is a great question.

Okay, just a follow-up question here. it seems like your government services segment -- I mean Global Services are doing pretty well. Is that a trend that you're going to start to see here a lot more going forward, with your temporary staffing and the equipment rental business, given what is going on in the E&C space?

How do you think that is going to help you guys as maybe there is a potential labor shortage, the rising price of labor, and stuff like that that we're starting to see here in the industry.

The Global Services segment is an extremely important part of our business, both strategically as well as financially. It really is, if you think about it, it is businesses that have grown out of the core competency of the Company to provide EPC services. We have our equipment unit in there, temporary staffing, we have operations and maintenance, and we have our procurement organization.

It is very integral to all the rest of our operations, and I think it is a unique offering. But we continue to see a fair amount of organic growth through that unit as our markets move and as it also serves a significant number of third parties.

Got it. One last question then. On this TXU announcement, based on what they're talking about as when those plants are going to be up and running, looks like the project needs to move forward by the latter part of this year or by early 2007. Would you care to comment on that?

Yes, if you do the math, they have announced that they want these plants to be operational by 2010. That does mean that probably one -- probably at least one will have to be into fully PC by this year; and I suspect that we may have another one as well.

But again, I think the very innovative way that TXU is going about this is they are really looking at some early procurement and really making these projects forward. So we may be doing some booking of backlog on particularly some of the procurement items even before full notice to proceed.

Got it, terrific. Once again, congratulations on a great quarter, guys.

Jamie Cook with Credit Suisse.

My first question, if we could just circle back on the FEMA outperformance in the first quarter. I guess what are your assumptions for FEMA for the full year? I guess what I am having a hard time with is, given the mass destruction from the hurricanes, why is this work going away? Is it just there is really no visibility so you want to be conservative? Or is this work going to someone else or is it over?

Jamie, our scope of work for FEMA was the temporary housing. The work that we have been awarded really has been on a very, very strong course, installing a significant number of units each day. That work essentially will be over by probably the June, July time frame.

So there is nothing else with FEMA that we should expect that you are doing besides the temporary housing type work?

That is correct.

What should we expect in the second quarter for FEMA?

It is hard to say. I don't think it will be as strong as the first quarter, but it will still be there.

Okay. Is it fair to assume, outside of the strong awards in FEMA, what type of profitability -- I mean, was it normal? Was it above your expectations?

Jamie, I'm sorry. Specifically you're talking about FEMA?

I'm talking about FEMA. Because your revenues were up, but your profitability was much higher. I guess was this higher profit, more profitable work than what we usually get within the Government Services business?

As you know, we don't quote profit margins percentages, but I would say that the FEMA work is pure services. It is a markup on labor. So it does carry just a bit of a higher percentage than you might see if it was an EPC with procurement and equipment and a lot of pass-through revenues in it.

Okay. Then just lastly, it appears, given your results in the first quarter, that the problem projects you were having over the previous quarters, specifically in Industrial & Infrastructure, it seems like they are over, I guess. Is this a correct assumption?

Given the strength in new awards, should we feel comfortable that -- about the quality of the new projects being booked going forward, so that we don't have more problem projects to deal with?

I think -- let me answer in two parts. First of all let me skip to the last part of your question. I think the quality of our backlog is very, very strong. Even the lump-sum projects we're taking on are basically a developed lump-sum and not competitively bit.

The problem projects we have had, and I will mention specifically the embassies and the road project, those are nearing completion. The road project will be complete one year from now, and we have not recorded any additional losses in this quarter. I can't guarantee that there won't be anymore out there. But I think we've got a good handle on those. We've got good teams working each of those issues, and our claims process is now in full gear on both of those efforts.

Great, thank you very much.

Barry Bannister with Stifel Nicolaus.

A year ago in the Q1 the embassies cost us $0.25 to $0.30; and I think I heard you say that they were nearing completion. So is it logical to expect that in the second and third quarter, when they cost $0.08 and $0.05 a year ago, respectively, that those charges will not reoccur?

Again, Barry, I cannot guarantee that we won't have additional charges. On the embassies we really have just a couple of them left to complete. They will complete towards the end of this summer. We think we've got a good handle on them. That does not mean that we could not have some issue or instant, particularly around labor related or weather related that would not cause us a problem. But it would not be substantial.

One of your competitors is working on a freeway in Southern California and the cost overruns there have necessitated charges in the past. Your charges are less than their charges. I was just wondering if you had greater information or certainty or visibility on ultimate collections on these change orders.

Well, I think again, on the basis of accounting, we have taken an approach that looks at what we believe are justifiable claims to offset those charges and gotten third-party adjudication on that. So we use a claims accounting method that does account for what we believe are the recoverable parts of those claims.

Lastly, the biggest elephant out there I guess is the Alaska gas pipeline. You had a role in the Prudhoe Bay pipeline many years ago. I was just wondering, what are your relations like with, I believe according to Oil & Gas Journal it's Exxon, Mobil, BP, and Conoco Philips that are going to be taking the lead in that project. Are your relations good? Are you hearing any talk about that project at all?

We are, we heard some talk about it. I think it is a project that does have a lot of momentum gathering behind it. Those are three clients that we do an extensive amount of work with.

(multiple speakers) pipe diameter and because it is gas not crude oil that you work with?

Actually, we probably in terms of pipelines and in terms of handling from a technology standpoint, we're extremely strong with gas processing and gas handling. So if that project goes, we would really hope to be a part of it.

I would hope so to. Thanks. Great.

(OPERATOR INSTRUCTIONS) Richard Rossi with Ferris, Baker Watts.

Looking at the margins in the Oil & Gas sector, which obviously jumped nicely versus the fourth quarter, but I noticed the revenues were down versus the fourth quarter. Is it fair to say that part of that margin jump is mix? And if that is the case, should we be looking for upper 4% margins for the rest of the year? Or is it going to be bouncy and erratic as it usually is?

Unfortunately, as we say, it is a lumpy business, Rich. It depends on the mix. If we are into a significant amount of front-end work, the margins do tend to be higher, as opposed to getting into very heavy EPC. But we are trending up in general. I think just based on the market and our competitive position in that market, we are going to continue to trend up in that marketplace.

Certainly that is expected. But would we -- is it fair to assume that in the first quarter with this margin jump there was a more favorable mix with front-end services than you might have had in, let's say, the fourth quarter?

I think actually it would probably be roughly about the same, to be honest with you. We have taken on new work in front-end work as Mike said in his statement; so we are seeing some very promising new front-end work still coming down through the pipeline. But I would say that if you look at the ratio from last quarter, I would say it is probably roughly the same.

So then it is legitimate improvement in profitability and not mix improvement in there that accounted for the big change.

That's correct.

Okay, the other thing is, looking at Fernald, how much -- we are closing on the end of that project; I'm presuming more incentives are coming into play here. How much of an impact was that in the first quarter?

Again, we're not breaking out numbers. I would say just as per our statement the Government sector benefited from several things, FEMA, Iraq, and the closing activities on Fernald.

In the timing on Fernald as we close out, is this a diminishing issue as we move through '06? Or is there a cliff here where it just drops off dramatically?

It is going to drop off fairly dramatically as we get into the second and third quarters.

Okay, all right. Thank you.

Paul Patterson with Glenrock Associates.

Just wanted to sort of get a little bit more clarification on the TXU situation. I heard you I think say at the beginning that you would not be booking them until they received permitting and a notice to proceed. Then a little later on, in response to a question, you said that you actually might in one situation book it until -- book it before you get the notice to proceed. I was just wondering if you could sort of clarify.

Thank you for asking that; I apologize for not being clear. Our practice in all Power projects is not to book until we have notice to proceed. Now the typical practice in the power industry is to provide that notice to proceed once permits are received.

However, I alluded to TXU. TXU is moving fairly aggressively in this area, and I give them a lot of credit because they're moving in on this market and trying to get a very strong position. They are releasing some spending for procured items, particularly long-lead items, prior to that notice to proceed.

So when we are instructed to procure, we do that and show that revenue and put it into backlog, just as per GAAP accounting procedures. So it is a departure from the normal path or normal pattern that you would see in Power, but only because of the way our client is operating and moving forward here.

Okay, now have they instructed you to proceed so far? I mean, to procure?

We're doing some procurement on some of these projects, yes.

Okay, can you tell us how many?

No, I'm not able to do that.

Okay. Can you give us a time frame of the permitting that you think these projects are going to be completed with?

Again, the permits under the auspices of our client. We are assisting with that, but they're moving forward with particularly their permits. As we speak they were filed literally with their announcement here of three or four weeks ago.

Right, April 20.

I think they are going to be on a fast track. I would be hopeful of getting a couple of those by the end of this year.

Okay, so you think a few of them might happen by the end of the year. Then your expectation for the construction once the permit is actually received, when you look at these plants, when they are talking about the standardization, any idea about how long these guys actually might take to build?

Again, per their announcement they want these things to be substantially complete and generating power onto the grid in 2010.

Does that seem realistic to you from what you are seeing, in terms of your -- when you look at previous projects? I mean, you are there, you are the construction guy. When that you hear, when you look at that, and you look at the size of this project and everything, does that seem reasonable to you?

I would not have been on the podium with John Wilder if I didn't think it was possible.

Okay. Do you think it is -- can you give us -- okay, it is possible, but -- ?

Not -- possible is probably the wrong word. That is a commitment that TXU and Fluor and the other construction partner are making.

Okay, I appreciate it.

Min Cho with Friedman, Billings, Ramsey.

A couple quick questions for you. The lower gross margins in the Industrial & Infrastructure segment, is that mostly due to the lingering problem projects, or is that a mix shift issue?

I'm going to let Mike answer that question. I have been jumping in all of the questions here.

That is somewhat of a mix shift issue. In the first quarter last year we had our highest margins of the year, where as we mentioned we recorded some substantial progress on a project in the UK. That created 3%-plus margins in the first quarter. The margins in this year, in this quarter, up are probably more typical; but we do expect growing margins throughout the year in this segment.

Okay, because I looked back over like 2003 and 2004, and it looks like more typical margins in that sector may be closer to 2.5% to 3%.

That is correct, and we do expect to get back there.

Okay, by the fourth quarter?

Yes.

Also, I noticed in the Q that you talked about a lost project in the Power segment. I mean, not a huge project obviously; but if you could give a little more detail about that.

Also you mentioned increased costs for negotiating new bids. Is that due to the size or the amount of new opportunities? Or is that something you are seeing in terms of just project costs in general?

Let me talk first about the project. We had a project that was literally starting up and had a problem with the generator, and had to go into repairs for that. So that caused a loss in just the very tail end of that project. But it was not substantial.

The other issue -- in fact if you could repeat your question for the last part that would be helpful.

Right, you mentioned that there was increased bid and proposal overhead for new contract [pursuit].

That is true. It has to do both with the quantity of bids and also the type of bids. These are very large projects; and as we are preparing bids that [were] not in what I would call an extremely competitive position, because the clients and ourselves work together fairly collaboratively on these programs.

But we are preparing a bid that is really getting in and really doing a significant amount of pre-engineering to come up with the cost estimates for these projects. So they are typically a little more costly than your normal bid. But again we are in a fairly advantaged position competitively; so we work collaboratively with the client to come up with those estimates.

Okay. Last question, obviously, it seems like there's a lot of opportunities right now from new coal-fired plants. But could scrubbers become a meaningful growth driver for you in the Power segment?

I think scrubbers are going to continue to be a significant market opportunity in the Power segment for us and other people that play in that segment.

Okay, great. Thank you.

D.A. Davidson, John Rogers.

Great quarter. A couple of things. First of all, on the corporate SG&A costs, you gave us a range of 190 to $200 million this year. Is that pretty smooth throughout the year, or is there any significant moving costs or anything in there?

It typically hasn't been very smooth.

Right.

We do expect a bump in the second quarter, as we incur the majority of the remainder of the cost with our relocation to Texas from California. Also typically we have a fairly high level of corporate G&A in the fourth quarter as well, as we have some discretionary decisions we make in the fourth quarter regarding some funding areas. So we would expect a bump in the second and the fourth quarter.

Okay. Then looking out over the rest of the year, we talked a lot about the different segments, but is there anything else out there in terms of incentive fees that you are looking at this year, that could be substantial? Either opportunities that aren't in your estimates or included.

Nothing really that would merit mentioning. Obviously, our business is very lumpy, and we have a lot of projects, and we have a lot of incentive fees that we collect for those; not one single one of note.

Okay, I mean they're spread all over, but just anything of particular note.

Alan did mention the fact that we are approaching our very successful completion of the Fernald project and that will impact the second quarter and drop off pretty much in the second half of the year.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS) Barry Bannister.

There have been press reports in Japanese newspapers that Fluor is a rumored interested party in a 20% stake in Westinghouse Nuclear, which was sold by British Nuclear Fuels to Toshiba. They paid a fairly rich price, but it apparently has a large, large opportunity in the future. Can you at least comment on your nuclear plans? How does Fluor plan to enter that market, if at all?

Obviously, we can't and won't comment on that press announcement. But the nuclear market is something that is going to be a strong market, I think, globally, but also in the U.S., probably within the next four to five maybe even six years.

We do intend, if that is true, to be a player in that. We have built nuclear plants in the past, constructed them, and we have a resume there. We would hope to then be able to be on the total services EPC side of those new build opportunities.

Okay, great. I used to follow equipment rental companies, and as I recall they could generate fairly large gross margins by selling their used equipment into strong construction equipment markets and booking the profit as the differential between the market price of the machine and the accumulated depreciation on the piece of equipment. Did you have any sort of -- in your rental company any sort of unusual year-over-year sale of equipment or unusual pricing of rental rates that helped boost those results?

No, we really didn't. In fact, if you look at our cash-flow statement there is a line on the cash flow that really shows you the sale of equipment as fairly modest in the quarter.

How about pricing? It has got to be -- I mean, I have heard numbers that are as high as what your entire margin is in that division. So have you seen good pricing power on your equipment rental operations?

I think we have had an ability to get better pricing power, just simply because the market is a pretty strong market. So the old supply-demand equation works in our favor there. But Mike is right; we have not had any benefit from equipment sales.

Great, thanks a lot.

Jamie Cook.

Couple more questions. Just first on the tax rate, I think we are raising it to 35% to 38% versus 33% to 34%. Did you give a reason why?

One, just overall level profitability. Historically we have had some benefits from foreign sales corporation, external tax benefits from non U.S. taxes. As our overall taxes increase, that will have a smaller impact on the rate, plus we are changing our mix of domestic versus foreign slightly as well in terms of profitability.

Then, Mike, on the stock options, is it now -- it looks like $12 million versus before we had 10 to $20 million?

Yes, we have kind of narrowed down our focus and looks like it is pretty much going to say at the run rate for this year at least.

Then we also raised our SG&A $10 million at the midpoint, because we are now 190 to 200 versus 180 to 220.

Right, again we have had the first quarter behind us. We have a little better definition on our FAS 123 stock option expense as well as our cost for the corporate relocation.

All right. So I guess my issue is if we take all this together, this really gives you cost headwinds, because all these numbers are going up in the magnitude of $0.25 to $0.30. So it leads you to believe that the performance from your core operating results is much stronger than it looks, in that the guidance even that we are putting out today appears conservative. Can you comment on that? Why such conservatism?

One, we're just in the first quarter. As Alan mentioned I think this is the first time we even raised guidance this early in the year. Obviously, there is some impact, again, as we have talked about the fact that some of the first-quarter contributions from FEMA as well as Iraq and Fernald are not going to be present in the second half of the year. So at this early stage of the year, we're really being conservative with our guidance, Jamie.

Okay, thank you very much.

At this time we have no further questions. I would like to turn the call back over to Mr. Boeckmann for any closing or additional remarks.

Thank you, operator. Well, let me just say thanks to all of you for participating on this call today. As I said at the onset, we are off to a solid start for 2006. I think even more importantly we're optimistic about our prospects for the year.

We see a significant number of opportunities across all of our markets. I am very encouraged particularly in the strength of our markets in Oil & Gas and our success in winning new projects there. As well as in Power, I might add. I am confident in our ability to attract, develop, and retain the resources that we will need to effectively respond to this demand for our services globally.

We greatly appreciate your interest in Fluor today and your continued support and confidence in our Company. Have a great day.

That does conclude today's conference. We thank you all for your participation and have a great day.