Fluor Corp (FLR) 2007 Q1 法說會逐字稿

Good day and welcome to the Fluor Corporation first-quarter conference call. Today's conference 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 1 PM Eastern Time today accessible on Fluor's website at www.Fluor.com. A telephone replay will also be available through 12 midnight Central Time on May 14, 2007 at the following telephone number -- 888-203-1112; the access code of 957-6419 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, sir.

Thank you, operator, and welcome to our first-quarter conference call. With us today are Alan Boeckmann, Fluor's chairman and CEO, and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released yesterday after the market close.

Before getting started with our call I'd 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 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 1, 2007 which is available online or upon request. The information in this conference 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. With that I'd like to turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.

Thank you, Ken. Good morning, everyone. Today we'll be reviewing our results for the first quarter of 2007 and we'll provide an update on our current business outlook. Also we'll discuss our guidance for the full year.

Our operations posted extremely strong results in this prior quarter, it enabled us to largely offset the anticipated decline in contingency response work for the U.S. government. We continue to win substantial new project awards across our diversified businesses which we will expect to continue driving growth in revenues, in earnings and in backlog.

The demand for engineering, procurement, construction and maintenance services continues to be extremely strong as evidenced by the substantial new award value that we recorded in the first quarter. New project awards totaled $4.5 billion, up 17% from $3.8 billion a year ago. This quarter included a $2.9 billion summary of awards in oil and gas with the balance representing a broad based mix across the other segments. Our consolidated backlog rose to another new company record of $23.7 billion, up 54% from a year ago and up 8% sequentially over the prior quarter.

Now let me talk about the operating results. Revenue of $3.6 billion was level with the first quarter of 2006. Strong growth in oil and gas and global services offset the expected decline in revenue in the government segment. Our net earnings were $85 million or $0.94 per diluted share compared with $89 million or $1.00 per diluted share in the same period last year. Operating profit for the quarter was $177 million, that compares with $184 million in the first quarter of 2006.

All of our business segments posted substantial growth over last year with the exception of the government segment which benefited from hurricane relief activities in the first quarter and also throughout 2006. Our operating margin was 4.9%, that compared with 5.1% a year ago which was also largely due to lower contributions from the government segment.

Fluor's oil and gas segment reported its first-quarter revenue of $1.7 billion, up 41% from the first quarter of 2006. Operating profit in that segment grew to $88 million, up 56% over 2006. The results reflect the significant ramp up in new project awards over the last two years and operating margins were 5.3%, increasing from 4.8% just a year ago.

Fluor's Industrial & Infrastructure segment reported revenue of $773 million which was level with last year. Operating profit was $21 million, a 55% increase over the first quarter a year ago. Improved performance resulted from the strength of new awards over this past year and included growing contributions from the mining business line. That unit is performing extremely well and, as expected, the I&I group is trending back towards historical margin levels.

For the government segment was $346 million for the first quarter and that compared with $1.1 billion a year ago. Operating profit was $16 million, down from $78 million a year ago and operating margin declined to 4.7% from 6.9% last year. The first quarter of 2006, as I've said before, benefited from contributions from hurricane relief work for FEMA and also Iraq construction work and I also would include the Fernald project.

Global Services segment reported a 38% increase in revenue to $635 million in the first quarter primarily due to an increase in operations and maintenance activity. Their operating profit grew by 32% to $47 million reflecting strong growth from the operations and maintenance and also equipment services business lines. Operating margin there was 7.4% compared with 7.8% last year.

Fluor's power segment reported revenue of $206 million, up substantially from $78 million in the first quarter of 2006. Operating profit was $5 million in that first quarter with an operating profit margin of 2.3%.

During the quarter we announced the formation of a dedicated business line within our power group to address the next generation nuclear power market. We're prepared for this emerging market by employing the combined talent and activities and resources from both our government and power groups. We believe that Fluor is very well-positioned to leverage its vast experience in siting, program and project management, engineering, procurement and construction to add value in this marketplace.

And with that, let me turn the call over to Mike Steuert, our Chief Financial Officer, to review additional details of our operating performance and he'll include comments on new awards and other financial information. Mike?

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

As Alan mentioned, total backlog at March 31st was $23.7 billion. Our percentage of fixed price work in backlog is down to about 23% and our work outside the United States is now at about 61%. Let me provide you some background on key new awards that contributed to the $4.5 billion total for the first quarter.

Starting with Oil & Gas, new awards were $2.9 billion for the quarter, up 61% from $1.8 billion a year ago. The largest award in the quarter was for the engineering, procurement and construction management of the utilities and offsite facilities for a major petrochemical complex in Saudi Arabia. The value of this award was just slightly in excess of $900 million. We also booked a sizeable award for the engineering, procurement and construction for a capacity expansion of a hydrocracker unit at an existing refinery in California.

We were awarded a project in Qatar to do the engineering, procurement and construction management for a marine terminal and the LNG loading facilities. In addition, we booked a number of other upstream, downstream and petrochemical awards in the U.S. and Mexico and in the Middle East. Ending backlog for the Oil & Gas segment rose to $14 billion, more than (technical difficulty) $6.8 billion just a year ago. Our Oil & Gas backlog rose $2 billion or 16% sequentially over the last quarter.

New awards in our Industrial & Infrastructure segment were $414 million which compares with $672 million a year ago when a major infrastructure project was booked. The awards were broad based including new projects in mining, life sciences and general manufacturing. The largest award in the quarter was for the engineering, procurement and construction management for the expansion of an existing pharmaceutical facility in Puerto Rico.

Mining received two awards including the engineering and procurement relating to a complex gold, silver and copper mine development project with facilities in both Chile and Argentina. We were also awarded the engineering, procurement and construction for the replacement of the primary crusher at a copper mine in Nevada. From a manufacturing perspective awards were relatively small and involved capital improvements to existing facilities in the U.S.

Backlog for the Industrial & Infrastructure segment rose to $5.2 billion which is an increase of 39% over last year. Our government segment had a light quarter new awards wise booking $127 million of new work. Awards included additional operations and maintenance work for DEL-JEN, a FEMA contract for personal assistant, and some additional scope on one of our Department of Energy contracts. Backlog at the end of the first quarter for government was $548 million which is down from $840 million at the end of last year, mainly due to the annual work off of our Hanford contract.

Moving to Global Services, the operations and maintenance unit booked $757 million in new awards in the quarter which compares to $578 million a year ago. Operations and Maintenance awards were broadly diversified across power, oil and gas and industrial markets including mining. The largest award for the quarter was a renewal of a long-term contract with a leading metals producer. The balance of new awards were primarily for renewals of other long-term O&M contracts.

Backlog of $2.5 billion increased 9% sequentially but was down from $2.7 billion a year ago. The Power segment booked $261 million in new awards, the majority of which were for the engineering, procurement and construction of a 570 MW gas-fired combined cycle power plant in Ontario, Canada. We continue to wait for the air permits on the Oak Grove project for TXU. We have signed a contract and we believe we could potentially receive full notice to proceed within the next quarter. Backlog for the Power group grew $1.4 billion, up from $1.1 billion a year ago and $1.3 billion at year-end.

Moving on to corporate items, G&A for the quarter was $45 million which compares to G&A of $42 million a year ago. The first quarter year ago included $2.5 million of costs relating to the relocation of the corporate headquarters from California to Texas. Our full-year EPS guidance for 2007 assumes G&A will be in the range of $180 million to $190 million. We had net interest income of $4.2 million for the quarter compared with income of $185,000 a year ago. This is a reflection of an increased level of cash balances.

The effective tax rate for the quarter was 37.9% compared with 37.8% in the first quarter of 2006. This rate is consistent with what we expect will be no more run rate going forward, notwithstanding any settlements or unusual items.

Now let me shift to the balance sheet and also discuss cash flow. Consolidated cash balance increased to $1.1 billion up from $976 million at year-end and up from $654 million a year ago. Approximately two-thirds of this cash is located outside the United States. Cash flow from operations in the quarter was strong contributing $168 million.

Our debt to total capital ratio was 25% at the end of the quarter; this is up slightly due to the growth in the non-recourse debt balance from the UK Highways Agency project. Capital expenditures for the quarter were $48 million with the majority attributable to the equipment services business but also including some investment associated with the global expansion of our workforce and the required infrastructure. Depreciation in the quarter was $35 million and again, as we've said before, overall we were very pleased with the strengthening of Fluor's financial position which continues.

Finally, let's make a few comments on our guidance for the full year. Earnings guidance reflects our expectation that continued broad based growth will more than offset the lower contributions from the government segment this year. First-quarter new awards were sizable. While individual quarterly bookings may fluctuate due to the timing of major awards, we expect continued substantial strength throughout 2007.

Oil & Gas represents the largest market opportunity along with Power, Industrial & Infrastructure and Global Services, all of which have solid prospects as well. We are encouraged by the strength of our first-quarter performance which has increased our confidence in delivering earnings per share in the range of $3.50 to $3.80 per share for 2007. Operator, with that Alan and I would be happy to respond to questions.

(OPERATOR INSTRUCTIONS). Michael Dudas, Bear Stearns.

Good morning, gentlemen. My first question is regarding maybe broad based for you, Alan. How has Fluor been able to manage client expectations relative to your ability to allocate resources, the fact that your client base, as demonstrated by this backlog and the end market. Certainly have a breadth of projects to go forward with and also with the challenges of procurement and getting the critical lead-time opportunities, is that something that is getting more difficult or is it because of your scope (inaudible) a lot easier for you to manage the expectations from your clients' standpoint?

Mike, you've asked a question and it's one that kind of pervades the whole industry right now and that is around resources, both labor, experienced talent and also the procurement of capital goods. The market is extremely broad and strong and we are seeing some upward pressures in each of those areas. But I will tell you, from our standpoint it plays to a number of our strengths.

We grew our salaried population last year on a global basis by over 4,000 people. We expect a significant addition again this year and we've been doing that on the basis of a system that allows us to work in an integrated fashion across the globe, but particularly on the engineering side. So we've been able to keep up with that and we have been able, because of our breadth and our resource strength been able to branch out and field more project teams, more qualified project teams than a lot of our competition. And that's what's allowed us to grow our backlog curve at the slope that it's growing.

The challenge is going to be on the construction side, but we've been working very diligently at each of the locations to make sure that we can work either through our own direct hire construction or through subcontractors to field the right teams. And again, while it's a challenge that's what our clients pay us for and we take a pretty proactive stance on that and are looking forward to planning for that. So I think it's going to continue to be a challenge, but it's not one that we think is going to stop us from continuing to grow backlog and earnings.

And you mentioned the 4,000 that you hired last year and the more this year. Can you breakdown where you're getting them from? Are the majority coming from other engineering construction companies or are you getting them from the client base, international companies? Where are you finding this type of talent?

I would say the majority are coming from other construction companies. On the other hand, we have had a fairly significant recruiting effort at the entry-level. We had our strongest year ever last year in the hiring of new college graduates; that was on a global basis by the way, not just in the U.S. Our system, and the way we have integrated and used a common execution platform globally, lets us bring in people at an entry-level -- particularly on these large projects where we have a number of functions that can be overseen by more senior people gives us the ability to bring in these entry-level folks who are technically very strong and have them productive very quickly.

My final question is relative to your clients in the Power sector, how have things changed -- TXU aside, how have things changed relative to their expectations on new plant build given all the uncertainty regarding regulation?

I think regulation is the key issue. We're seeing pressure across the, particularly in North America but also in Europe, on the regulation side. It's given I think more of a balanced approach to what's happening in power. You're not just seeing significant coal fire projects come on the scene now we are seeing increased opportunities in IGCC and I think it's adding to the momentum on the nuclear side. So while we don't have a significant IGCC project in backlog right now, I've seen some significant opportunities for that to start moving forward. Button right now the name of the game is air permits on the coal side and we are getting to see some additional opportunities now on the gas-fired side for peaky projects.

Thank you, Allen.

Ian Macpherson, Simmons & Co.

Good morning. Congratulations on a good quarter. Alan, at the risk of asking a question that might just be (technical difficulty) here. But can you talk about what you're seeing for prospects for your new awards flow? It was up hugely in 2006, I think over 55% year-over-year last year and looking at $4.5 billion in bookings for the first quarter, do you see last year's new awards as a sustainable or repeatable level or should we be expecting new awards based on your current capacity to plateau at some level in that area or lower?

No, Ian, I made the comment over the last successive quarters. We continue to see strength in our new awards. I've very confident we'll see at least the level of awards that we saw last year in 2007. Again, it's lumpy. From quarter to quarter it may be up or down. But $4.5 billion, we've had a number of quarters now in a row over $4 billion. Our prospects are pretty significant. We get a great line of sight on those because we do a lot of the front end work on these mega projects and particularly in the downstream Oil & Gas and in the overseas side of upstream Oil & Gas and petrochemicals, we're seeing some significant operative awards throughout the year.

Great. I appreciate that. Looking at your foray into the nuclear power side, how do you expect the development of that initiative to unfold (technical difficulty)? Does that figure to be somewhat of a loss center in the early stages impacting your results or will we really not see it until new awards start to flow through there?

We put that business together because we believe that is going to be a very strong market. We're already seeing signs of that and we're currently bidding on prospects that would be around the current generation systems that are in place and looking at studies and opportunities for new plant units. So while there's a small investment now from an overhead standpoint, it's not material and not affecting the results of the Company.

Okay, thanks, Alan.

Jamie Cook, Credit Suisse.

Good morning. My first question, Alan -- one, can you update us on the possibilities? One, upcoming opportunities with sort of the UK cleanup and anything -- I think last quarter we spoke about Savannah, that's up for renewal, sort of where we are on that so we could get a feel of whether the government business could actually see some increased growth prospects?

Yes, Jamie, I'd be glad to. Let me start with the last one, Savannah River. We're actively in the proposal phase for that project right now. With our Consortium team, in fact I visited the proposal team two weeks ago in South Carolina, and we're looking to put together a very strong proposal for that. We'll be in the thick of the competition for that, a decision expected later this year.

On the UK, a number of opportunities continue to unfold over there. Clearly the two that get the most press are the Magnox opportunities and the Sellafield site parent body organization that would be put together to manage that entire site. We are, and in fact we were in the UK two weeks ago for our oral presentation on the Sellafield competition. And that competition is unfolding in terms of its process. It won't process. Again, I don't think a decision will be reached on that until probably the first quarter of next year. But we are absolutely targeting that and intend to be successful on that.

A number of other opportunities come up around the whole nuclear complex in the UK. Around weapons systems, around the other sites that we've seen around the country. So it's a very robust -- it's got a number of opportunities, we're having to look and prioritize those, but I think it's one that we clearly will have an opportunity to play in and we'll see future results from that, although not until 2008, 2009.

Okay, that's fantastic. And then next -- unless I missed it during your prepared remarks can you sort of give us an update on what's going on on the embassy projects. In Haiti in particular, I think as of the end of February were 56% complete. I think in your 10-Q you said the same. So sort of where are we as of the end of May and how do you feel about sort of the progress of that project?

Jamie, I continue to monitor that project on an ongoing basis. I was just at the site. We had a topping off ceremony with the embassy personnel there. I'm very encouraged by the progress on that site. We're now well over 60% complete. In fact, we are projecting a much earlier completion than what we had originally forecast in our third-quarter outlook last year and we've notified the government of that. So tremendous progress. As I've said before, I really don't expect any changes in the financial situation, at least in a negative sense, from the whole overall embassy program.

My last question, on the global -- when you look at where the strength of your business, everyone sort of focuses on Oil & Gas. But when you look at the profit contribution from the global services division, it's been quite impressive and very consistent. So I guess is there any reason for us to believe -- I mean, this should be an area that Fluor should be increasing their level of investment and do you see the profitability that we've had over the past year or so sustainable?

The business is a very unique business. It's made up of a number of our core competent competencies that support our Engineering & Construction business that have grown into businesses of their own. And so they have a significant track, if you will, parallel to the overall Fluor business and also have a good strong third party clientele as well.

So as the rest of Fluor grows it provides an impetus for that organization to grow. And they do a great job of both supporting the rest of the business strategically but also being very profit oriented in terms of providing returns to the Corporation. So it is -- in fact the largest area of our capital spending is in that business, so we do make investments on an ongoing basis in global services.

All right, great. I'll get back in queue. Thanks.

Richard Paget, Morgan Joseph.

If I look at the I&I segment on a basis -- backlog is down a little bit; new orders were lighter than they have been in a while, and I always know there's the lumpiness. But given that some people are saying parts of the industrial economy are cooling a little bit, have you seen that or is this just a matter of when some projects came up verses when they didn't?

I think your first comment on it being lumpy is the explanation. The areas that we focus on there are not seeing a downturn. We have a very strong business in the mining side and that's been our strongest performer and continues to be. But again, the number of projects that just lined up for this particular three-month period were just not the same as they were in prior quarters. Last year we had a significant booking on the infrastructure side. We just announced an infrastructure project today, but it will be a second-quarter timing. So it's just a timing issue. I think we've got a very strong business there, one that's going to continue to grow.

Okay. And then in the Q there was an mention of some unbilled fees, I think around $130 million less some retention related to Fernald. And that you expect to I guess collect on those over the next couple quarters. What's the impact on the income statement for those?

That income was previously accrued, so there was no income statement impact. In fact, we collected the majority of those fees this week.

Okay, great. That's it for me.

Andy Kaplowitz, Lehman Brothers.

Good morning, guys. Nice quarter. Can you talk more about the mining opportunities that you have? I see that you mentioned a strong -- obviously commodity prices are very, very high. And so I would expect that that could become more of an outside portion of your business over time.

Well, it's been a market that's been strong for us over the last year or two. Our mining area focuses pretty heavily on copper and iron ore. We have other opportunities in some of the other commodities; particularly in I'd say precious metals. But it is focused very heavily in South America and Australia and some in Asia. And again quarter-to-quarter project timing will be different. But again, we see a very strong market there, and we've got a very strong team. Our linkage to clients there gets us involved early on in the projects and we have a global reach which helps us particularly in that business.

Okay, great. And then in Oil & Gas, I know that your margins are up year-over-year, but over the last few quarters they've gone down a little bit. You had mentioned previously I think that margins would be a little lower this year as you invested in the business. Is that what's going on here and are you just sort of transferring some of your projects to construction and you're getting higher pass-through also? Because I'm just sort of wondering what's the give and take between that and maybe better pricing within Oil & Gas? Could you just sort of elaborate a little bit?

We've had better pricing opportunities without a doubt. But again, it's a timing issue. From quarter to quarter we'll be involved in more or less relative work on front-end efforts. Also when we book these very large projects, they tend to come with just a little lower margin against the overall large block of revenue just by the nature of the projects and the pass-through revenues that occur in them.

I will say this, the other issue that we see, which I think is a very positive one, is the bookings we're getting in Oil & Gas are for very large and what I'd call longer-term projects. So they start off with a slower revenue and profit burn than what some of the projects may have looked like two or three years ago. The good news on that is it sets us up for a much longer-term cycle (inaudible). And so as we're adding the backlog in Oil & Gas it's a very substantial and solid backlog that we'll be able to continue to grow from year-to-year.

Also, as you rightfully stated, we've had some costs associated with buildup of new personnel and so forth which is an overhead that we've had to absorb. particularly over the last four to five quarters. We'll see a little bit more of that as we go through this year, but we're going to start to also get economies of scale there in terms of our margins. So I think we're going to have a very nice trend in that area.

So, Alan, we can expect margins to maybe go up a little bit from here you think, that 5.3% level throughout the year and next year?

Again, quarter to quarter it will be a little lumpy based on the split of work and what the ratios are on the types of work we're doing. But I think as we execute well and we continue to bring in some of these projects we are going to see that go up.

Okay, great. Just one other follow up. The Southern California highway contract, it looks like there was a minor thing in the Q on it. Can you just update us on how you're progressing in that project and sort of (technical difficulty) should end?

It's scheduled to and towards the end of this year. As you know, it's a project that we're doing in a joint venture. And again, we had a small amount of a charge in this quarter. The project is progressing well towards completion. I can't sit here and say that we won't have other charges, but I don't think they will be material. Again, we're keeping a close eye on that project as is our joint venture partner.

Okay, great. Thank you very much.

We do expect to see quarterly noise in that project though since we're really not in control and that's been our experience -- we'll probably experience through this year as we complete that project.

I understand.

(OPERATOR INSTRUCTIONS). Steven Fisher, UBS.

Good morning. On the Sellafield opportunity in the UK, is that going to be a binary outcome for those involved in the bidding or is there some alternative role for the teams that don't actually win the bid?

That is a very good question. The competition that's going on at Sellafield is for a parent organization that would manage the site. The expectation is that whoever is the winner would then act as a management organization to bring in others for specific scopes of work. And that's a role that we play in a lot of our other industries, particularly in Oil & Gas where we are the program manager and manage other contractors to execute the scope of work. So to answer your question very specifically, it doesn't rule out participation by the two parties that are the losers in that competition.

In the event that you are the winner, is there any cash that goes out the door as part of that selection, or is it just a future business opportunity?

It is a competition for future business; it is not an acquisition.

Okay. Just on the guidance, if you annualize the first quarter, it looks like you get pretty close to the high end of your range. Obviously, there's a lot of moving parts to your business, but is there something you're seeing that's going to cause results to weaken over the next few quarters?

I think we are sticking by our guidance for the year. I wouldn't qualify it as conservative or aggressive. We are offsetting a significant decline in the government business year-to-year. We also have a very different tax number for the year, on a significant rebate that we received last year that went into those numbers.

So if you look at the offset that we have had to provide both in government and on taxes, and then you looked at even if we hit the mid range of that outlook, we are still showing a 24% increase year-over-year.

Okay, great. Thank you very much.

Barry Bannister, Stifel Nicolaus.

On the SG&A, it held around 140, $150 million in '03, '05, and then it scaled up with the move and other costs to 180, $190 million in '06, '07. Are we at a new sort of plateau where we could expect as revenues grow some operating leverage in the model, or will that just simply move up with revenues?

I firmly believe (inaudible), we should be able -- as the business grows for the most part, we should be able to keep our corporate G&A somewhere around that line. You will see higher incentive compensation costs which are built in in the corporate number as the business grows, but for the most part we ought to be able to leverage where we are.

Okay and then there's a Reuters story today that Kuwait has doubled the budget for the 615,000 barrel a day [Alzor] refinery to $12 billion amid escalating costs and they'll rebid it sometime this summer as a cost-plus. I noticed as recently as April 24 that the Yanbu and Jubail refineries in Saudi Arabia which were both 400,000 barrel refineries were only expected to cost (technical difficulty) billion. So the cost essentially doubles and yet it's only a 50% bigger refinery. Obviously there are a lot of special factors on each refinery, but have costs gone up quite a bit just in recent months or is it the structure of the project or can you address that?

Well, I think clearly there are market pressures that all three of those projects are going to face. In the case that you're quoting, it was a structure issue. We've gone back out on a rebid based on a reimbursable cost model which we think will be a more cost efficient model given the markets that we're in. In this particular market the pricing of risk becomes a significant issue in client's decisions how to structure the bids. And right now with the risk elements on escalation it gets too pricey when contractors are now putting into their model, particularly over in that part of the world.

So we're going to go out and do the rebid and then, based on those results, we'll be moving forward on that project. I think it's -- the project is going to be a very successful project. It's got good economics to it and the client is very committed to it both strategically and economically.

And then Kuwait has, after this replacement and old refinery is finished they're going to upgrade the Mina Abdullah and Mina Ahmadi refineries. Do you have a timeline on what they were thinking in terms of those and how large are those?

Those are significant in and of themselves. Again, we're doing the front-end work on those and those really do work in a parallel fashion. It's not a sequential issue of building the new (inaudible) and upgrading the others. There's a significant integration among the refineries in Kuwait and (technical difficulty) program that runs in parallel.

Thanks a lot.

Brent Thielman, D.A. Davidson.

This is John Rogers. I was just wondering, Alan, if you could talk a little bit about your -- update us on your thoughts on acquisitions. I mean, your balance sheet is in great shape and if you look at the market opportunities is that something that you're interested in at this point?

We are interested in acquisitions, but we put a pretty tight criteria on those. We're looking at acquisitions that from a strategic standpoint add to our capability or scope in particular markets or geographies. We continue to look at those. The ones that we are looking at to date are not going to be earth shattering; they're not going to make the front page of the Journal, but they will be important to us strategically. We continue to look at them, we are keeping our discipline about us so in terms of what we buy, we want them to be accretive and they have to add to us from a strategic standpoint.

Does that imply that probably complementary you're along on the same segment lines that you're operating in now?

Pretty much, yes.

Okay, great. Thank you.

There are no other questions at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you, operator. And I want to thank everybody for participating on the call today. I believe we're off to a very good start for this first quarter. All of our operations are performing solidly and we're within our expectations for the year. We do see tremendous opportunities across our markets and I'd like to stress that. We believe our backlog will continue to grow throughout 2007.

We look forward to your participation in our upcoming investor day on May 18th in Dallas. It's not too late to register to any of you if you'd like to attend that event. We greatly appreciate your interest in our company and your continued support and we also thank you very much for your confidence. Have a good day.

Thank you, everyone. That does conclude today's conference. You may now disconnect.