Fluor Corp (FLR) 2007 Q3 法說會逐字稿

Good day and welcome to Fluor Corporation third-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 12.30 PM Eastern Time today and also accessible on Fluor's website at www.Fluor.com. The Web replay will be available for 30 days. A telephone replay will also be available through midnight, 12.00 midnight Eastern Time on November 13 at the following telephone number, 888-203-1112 and the pass code of 633-4912 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.

Thank you, operator, and welcome, everyone, to Fluor's third-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 this morning before the market opened. Before getting started with the call, I will 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; and information concerning these 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 on March 1 of 2007, which is available online or upon request.

The information in this conference call related to projections or other forward-looking statements may be relied upon subject to this cautionary note, as of the date of this call. The Company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or for any other reason.

With that, I will turn the call over to Alan Boeckmann, Fluor's Chairman and Chief Executive Officer. Alan?

Good morning, ladies and gentlemen, and thank you for joining us today. I would like to review our results today for the third quarter of 2007, and in doing so I will provide an update on our current business outlook and will discuss our initial earnings guidance for 2008.

But first, let's talk about our financial results for this quarter. We had another phenomenal quarter from a new awards perspective, which at $6 billion surpasses all previous records. This is absolutely helping all business segments, I would say except for our Government group, to continue to post strong double-digit growth in operating profit over this last year.

Net earnings in the third quarter were $94 million or $1.02 per diluted share. That reflected solid profit contributions from Oil & Gas, Industrial & Infrastructure, Global Services, and Power. This compares with $27 million or $0.31 per diluted share for the same period last year.

Operating profit for the quarter was $190 million compared with $47 million in the third quarter of 2006. As you will recall, operating profit for the third quarter in '06 included the impact of loss provisions of $168 million on several fixed-price projects.

Our revenue grew by 22% to $4.1 billion. That compares with $3.4 billion in the third quarter of '06 and reflected substantial growth in both Oil & Gas and our Power segments.

Let me provide you with a brief recap of the results for each of our operating segments. First, Fluor's Oil & Gas segment reported third-quarter revenue of $2.2 billion, up 58% from the third quarter of 2006. Operating profit grew to $112 million, which is up 28% over 2006. This strong performance reflects the significant growth in backlog over the last two years.

Operating margin was 5.1%, and that was down from 6.3% a year ago as a significant number of very large projects are transitioning from engineering to the lower-margin construction phase.

Fluor's Industrial & Infrastructure segment reported revenue of $735 million in the third quarter, down 8% from last year. Operating profit was $27 million; and that compares with $22 million in third quarter of 2006. That quarter included a $22 million charge on a fixed-price road project.

Operating margins in this unit rose to 3.6%, up from 2.7% a year ago. Margins in this segment continue to expand, and that reflects improved performance across the unit.

Revenue in the Government segment was $337 million for the third quarter. That compares with $550 million a year ago, when that segment recorded revenue contributions from the hurricane relief work for FEMA. The unit reported an operating loss of $2 million in this quarter, including a $21 million charge relating to the Bagram Air Force Base in Afghanistan. This compares with an operating loss of $95 million a year ago, when the provisions of $146 million were recorded on fixed-price projects including embassies and the Bagram project.

With regard to this Bagram program, this project has experienced significant additional delays and is not yet complete. There are a variety of factors, but the primary cause of these delays has been continuing difficulties with subcontractor execution and quality control, which have in turn caused liquidated damages due to the delay in the project's completion. We have had added additional Fluor resources to this project and now estimate that the project will be completed in the spring of 2008.

As I move to Global Services, let me comment that this segment reported revenue of $542 million, up 12% from $484 million in the third quarter of last year. Operating profit grew 51%, up to $48 million; and that compares to $32 million just a year ago.

Our operating margins there increased to 8.8%, up from 6.5% last year. Improvements in profits and margins in this area reflect strong growth in performance from both the operations and maintenance as well as equipment services business. Global Services continues to perform extremely well overall and is our largest earnings contributor behind Oil & Gas.

In the Power segment Fluor reported revenue of $324 million, up 121% from $147 million in the third quarter of 2006. Our operating profit was $6 million in the third quarter; and that compared with $2 million just a year ago. Operating margin improved to 1.8%, up from 1.4%.

Our recent bookings, including new power generation and environmental betterment projects, are driving this improved financial performance.

The Power segment recently announced two very important front-end releases involving keys, prospects in the nuclear and coal markets and included new-build support activity for the announced South Texas Project nuclear facility in Texas and the Desert Rock supercritical coal units in New Mexico. These strategically important target projects will be further developed in 2008.

Turning now to new awards for Fluor overall, as I said we have posted the best quarter in our Company's 95-year history. New project awards for the third quarter were a record-setting $6 billion and included a very significant award for work on a new refinery in the Middle East. Our consolidated backlog also rose to a Company record of $27.9 billion, which is up 41% from a year ago.

During the quarter, we also announced some additional key front-end awards which, when combined with our steady flow of front-end assignments, provide substantial support for our expectation that our markets remain strong and offer significant strength into 2008 and beyond.

During the quarter, we also announced some additional key awards which are front-end aligned, which, when combined with our steady flow of other front-end assignments, provide substantial support for our expectation that we will continue to see tremendous results.

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

Thank you, Alan, and good morning, everyone. Since our business results are covered in detail in our press release, I will mainly focus on providing additional information (technical difficulty) awards in backlog (technical difficulty) on corporate financial items.

As Alan mentioned, we had another very strong quarter. New awards (technical difficulty) drove Fluor's total backlog to a Company record of $27.9 billion (technical difficulty) $2.2 billion sequential increase over the last quarter. (technical difficulty)

[Vintage] of fixed-price work in the backlog declined to 24%, down from 27% last quarter. About 41% of our backlog is for projects inside the US and about 59% (technical difficulty) projects outside of the US.

Let me provide some background (technical difficulty) key new awards that contributed to the $6 billion (technical difficulty) total in the third quarter.

Starting with Oil & Gas, new awards in the third quarter totaled $4.3 billion compared to $2.9 billion (technical difficulty). The largest award in the quarter was for the engineering, procurement, and construction of the utilities and offsites for a major new refinery complex in Kuwait. This is the new Al-Zour refinery where Fluor did the front-end work, and it is a program management contract.

The quarter also included a large engineering, procurement, and construction management award for a polymers production facility in Germany. In addition, we booked a sizable new upstream project that is located in Sakhalin Island, Russia, where we are doing engineering, procurement, and construction management on an intermediate production facility that will process 25,000 barrels per day of heavy oil.

We were also awarded the initial EPCM scope for a new polysilicon project. We are very pleased with our recent successes in this emerging market.

During the quarter, we announced several key front-end awards including refinery projects in Russia (technical difficulty) Portugal. The full value of these awards will flow into backlog sometime in 2008.

Overall, Oil & Gas had a very strong quarter, with an ending backlog at September 30 (technical difficulty) $16.4 billion, up 63% from $10.1 billion a year ago and up 17% from the previous quarter.

Moving on to Industrial & Infrastructure segment, new awards in the quarter were $364 million. This compares with $743 million a year ago. As we have discussed in the past, new awards I&I segment will be fairly lumpy, especially in the infrastructure side.

The largest award in the quarter was for the engineering, procurement, and construction management of a copper and gold concentrator project. The balance of new awards in the quarter were broad-based, including a carbon fiber manufacturing facility, a new petro (technical difficulty) pharmaceutical facility, project management services for a major new multiuse commercial and industrial development in the Middle East, and feasibility studies for several key mining expansions.

Ending backlog for the segment at September 30 was $5.2 billion, compared with $5.3 billion a year ago.

Our Government segment recorded $708 million in new awards in the third quarter. The largest award in the quarter was for the final year of our existing contract at Hanford. The value of this award was approximately $550 million. As you may recall, the Department of Energy has announced that they intend to restructure and recompete this contract during 2008.

Other awards included task orders under our SeaTac 2 contract, O&M contacts in our DEL-JEN unit, and several task orders for FEMA.

Government backlog at the end of the third quarter was $839 million compared with $928 million a year ago.

Moving on to Global Services, the operations and maintenance unit had another strong quarter, booking $540 million of new awards, which compares with $221 million a year ago. Operation and maintenance new awards in the quarter included a new long-term award with a major power client.

In addition, there were a number of contract extensions, renewals, and new contracts across the power, chemicals, and manufacturing sectors. Backlog at the end of the third quarter for Global Services was $2.7 billion, which is up from $2.4 billion a year ago.

The Power segment booked new awards of $71 million in the quarter compared to $158 million in the third quarter of 2006. Awards in the quarter included some additional scope on the Oak Grove project for TXU (technical difficulty) very initial stages of a new-build nuclear power project (technical difficulty) Toshiba. As Alan mentioned, Fluor was awarded a contract by Toshiba for the engineering, procurement, and construction-related services for two new nuclear reactors planned for the South Texas Project nuclear generating station (technical difficulty) Bay City, Texas.

In September, the South Texas project owners, which include NRG, applied to the US Nuclear Regulatory Commission for a combined construction and operating license to build two advance boiling water reactors. These units will be adjacent to the two existing reactors in Bay City, Texas. As the first wave of nuclear buildout starts to unfold in the United States, we are very pleased to be partnered with Toshiba as its engineering and construction provider for this key work.

Ending backlog for Power was $2.8 billion, which compares with $1.1 billion in the same period of 2006.

Let me now move on and talk about a few corporate items. Corporate G&A for the quarter was $45 million, which compares to G&A of $33 million a year ago. Expenses for this period increased due to compensation as well as strong operating performance and stock price appreciation.

Our full-year EPS guidance for 2007 assumes G&A will be in the range of 190 to $200 million.

We had net interest income of $10.7 million for the quarter, compared with net interest expense of $137,000 a year ago. This income is the result of the very significant increase in our cash balances over the past year.

Our tax rate for September was a tad high at 39.7%. This compares with 13 (technical difficulty) compares to a $13 million benefit in September of '06 quarter that was the result of a net operating loss (technical difficulty) capital loss carryforwards in that quarter. We continue to expect a normal tax rate of approximately 37% to 38% going forward.

Let me make a few comments on the balance sheet. Consolidated cash continued to move up modestly in the last quarter to $1.6 billion and represented a significant increase over our September 2006 balance of $895 million. Cash flow from operations was again strong, contributing $157 million in the quarter.

Our debt to total capital ratio improved to 24% in the third quarter, and this includes our nonrecourse debt. We also declared a normal quarterly dividend of $0.20 per share.

Capital expenditures for the quarter were $80 million, with the majority attributable to our continued investment in our equipment services business, and some additional investment associated with the global infrastructure required to support the expansion of our workforce.

Depreciation in the quarter was $35 million, consistent with prior quarters. (technical difficulty) Overall, I think it is very fair to say that Fluor's financial condition continues to be very strong and strengthened as we have gone through the past 24 months. And we certainly expect it to continue in the future.

Finally, let's talk about the outlook and guidance for the remainder of 2007 and 2008. Based on the strength of our underlying performance to date, the Company is narrowing its guidance to the range of $4.10 to $4.20 per share for 2007. Looking ahead to 2008, all segments have strong prospects and expect solid growth over 2007. We continue to be encouraged by the strength of new awards (technical difficulty) actively working to grow Fluor's resource base to support the expanding backlog of work.

Considering these factors, the positive momentum, and key financial metrics, we are establishing initial 2008 earnings guidance in the range of $4.90 to $5.30 per share. With that Alan and I will be happy to respond to questions.

(OPERATOR INSTRUCTIONS) Richard Paget with Morgan Joseph.

Good morning, everyone. I wondered if you could give us an update on the LOGCAP contract.

Yes, I will be glad to. As you know, the GAO has come out with their opinion on the protest. We are waiting for the response from the Army at this point in time, and we are waiting to see whether they will go forward. We believe the Army will probably go forward and go ahead and implement with their original selection, but that remains to be seen.

Okay, but there were no task orders or anything in the backlog currently?

There are not, that's correct.

Okay. Then looking at the margins for your O&M work, are you guys getting good pricing there and these margins are sustainable going forward, especially with the new contracts you are writing?

Our O&M business has had an extremely good run of a number of quarters where they are selling more of what I would call high-end services. That is total maintenance contracts where we have incentives on upside for online performance and quality of the system. So yes, I think they're doing a great job and that is a business that I think will continue to do well.

Okay. Then finally on the I&I segment, it seems like a lot of the new awards are either related to mining or something industrial. What is your guys' outlook for the infrastructure market? It's been getting a lot of press lately, but it doesn't seem that that is kind of a hotspot for you guys.

Well, actually, it is. But the nature of the business in infrastructure is that we focus on projects that have a fairly long gestation period. So they are lumpy in terms of their quarter-to-quarter bookings.

But when we do pull one it, it is rather significant. As I have said, we are expected to close the windfarm project that we are doing in the UK over the next quarter or two. That will be a significant booking.

So, they don't come every quarter, but they are very good when they do come. In the industrial side projects tend to be a little smaller and more regular in terms of being in each quarter.

Okay, so infrastructure, do you see it being more of an international market for you or domestic?

It's both, actually. In the US, we are doing quite a lot of road projects. Internationally, it tends to be more rail and alternative energy.

Okay, thanks. I will get back in queue.

Andrew Kaplowitz with Lehman Brothers.

Good morning, guys. A question about Oil & Gas margin. You know, I know they are lumpy; but sequentially they started to go up again. So I know they were doing more construction projects now than we were, at least I think that is what you said Alan. So the fact that the margins went up again I think is a very good sign.

Maybe could you elaborate on sort of what the outlook is there? Any more additional color around Oil & Gas margins?

Well, it does move; and it does move based on the portfolio of projects we have and where they are at in their cycle. Mike and I have looked into this particular quarter and we both believe that this quarter, again, driven by where we are in the cycle of projects, it is going to be one of the lower quarters.

But that is a fact of the pass-through revenues that we see when we get into this phase of a lot of the large projects.

Alan, did you say lower quarter in terms of margins? You think it could be actually better than this?

In terms of the margins, I think we're at a really low point based on all the activities and dynamics of this quarter.

Okay, great. Then maybe if you could give us an update on Sellafield and how is that competition going. I haven't heard that much about it recently.

And you won't. It has gone into a phase where we are all doing the things we need to do to respond to the competitive inquiry. There will be evaluations and decisions now that are in the hands of the client; and probably we won't hear much until first quarter.

Okay, great. I will get back in queue. Thank you.

Curt Woodworth with JPMorgan.

Good morning. Alan, in terms of the guidance for 2008, specifically on the Oil & Gas business, given what you are looking at on the FEED basis right now, can you comment on various inflection points you see in the business? What markets do you think are going to be gaining momentum in that division next year?

Or what aspects of the business do you think are going to be maybe flattening out, be it upstream or downstream? Just to help us kind of frame how we see that business evolving in '08.

Curt, that is a very good question. The market has been characterized by a significant amount of downstream work over the last year. I really expect that to continue into '08.

But I think '08 may be the high mark for the downstream side in terms of investment. We are really starting to see the focus of the clients shift to the upstream side in terms of their priorities on spending.

Having said that, some of the new awards that we booked in this quarter were front-end efforts for downstream. So if that market is -- even though it may peak in '08, it is not going away by any stretch of the imagination.

Okay. Then a follow-up on the margin issue. You said you think that the margins are roughly at a low point this quarter. Yet as we look into 2008, you're going to continue to get a pretty big transition into more of the full EPC role.

So I'm just kind of wondering. Those seem to be offsetting dynamics. Is there any other mix issues going on, or how should we think about margins in Oil & Gas for 2008?

Well, I think I would just go back to my comments, Curt. It is going to move quarter-to-quarter. It is hard to predict quarter-to-quarter as the mixes shift and project dynamics change.

But again, I think we can say we are probably at the low point for recent upcoming quarters in terms of the margin numbers.

You know, and I want to stress here that while margins are important, and I don't want to downplay them, they are not the most important thing that we look at. When we are competing for projects and looking at our work, we focus very heavily on return on assets and the absolute ability to grow EPS.

So, we also, all of us, our competitors, all report revenues just a little bit differently with respect to how they handle pass-throughs. We usually are very conservative and take that whole pass-through into our revenue base.

Yes, that makes sense. Then just quickly, do you have any views on the Sunflower coal plant in Kansas that was rejected for carbon emissions? Do you think that that has altered your thinking at all in terms of the coal plant issue going forward?

I think there are going to be those issues related to coal. They are very real. The environmental concerns, not just in the US but globally, are very strong.

Having said that, the US is going to have to have coal-fired plants to meet its energy requirements over the next 10 to 15 years. We weren't involved in that particular plant. The ones we are looking at are ones that we're pretty confident will go forward. That is part of the selection process that you have to get into today when you go after these projects.

Right. Thank you.

Michael Dudas with Bear Stearns.

Good morning, gentlemen. Alan, could you characterize the drivers in the difference from your guidance for 2007 of $4.10 to $4.20 from the guidance you had issued earlier this year, $3.50 to $3.80?

Has it been certain markets that have been better than anticipated, overall strength, or the impact of some troubled projects may have been lessened in that difference?

No, I think it is more the earlier comments that you made, Mike. I think clearly we have seen continued strengthening and very, very early good strong awards in first and second quarters that have helped to drive our stretch numbers down, which we always start each year off with.

We have had very, very strong performance in that regard from energy and chemicals. Power has had some good awards and their curve has come up a little faster than we thought it would.

O&M has had a remarkable year in terms of being able to leverage the upturn across all the markets for the things that they do. So, as that has all unwound and taken our stretch numbers down, it has also given us an opportunity to leverage our corporate overhead better than we thought we might have.

Given that you're close to completion on Embassy, the issues discussed with the Air Force Base, and your favorite joint venture in California, without predicting when the issues come up, how should we look at the smoothness of projects coming through the business in '08? Given what you have in the factbook, given the strength that you have, and I assume the better risk mitigation contracts that you have put into the business you booked in the last 12 to 18 months. Should we anticipate to see lessening amounts of those surprise issues?

Absolutely, Mike. We should start to have much smoother reports in terms of that. The three that you mentioned are all at the very end of their phase. The last Embassy is the one in Haiti, and that is nearing its completion mark. The highway project in Southern California is nearing its completion as well. The Air Force Base facilities will be complete in the first quarter. So we will have those all behind us.

Our risk profile is coming down dramatically. In the new awards this year and our backlog, our percentage of fixed-price projects has dropped again. Even those that we did book were with significantly enhanced and beneficial terms.

Thank you, Alan.

Jamie Cook with Credit Suisse.

Hi, good morning. I guess let me ask the Oil & Gas question a little differently. While everyone else is focused on margins, margins in this business can be somewhat -- they vary based on engineer and construction pass-throughs, all that, all those types of different issues. So I guess as I look at it, the thing that impresses me is as I look at your operating profits in Oil & Gas, for the past two quarters we have sort of been in the triple digit range, surpassing $100 million each quarter.

So I guess as I look to 2008 and as you move more into construction, should we continue to see growth above what we saw on a profit dollar base above, in the second and third quarter rate? That we should be well into I guess the triple digit profit dollars as you look at '08 for Oil & Gas each quarter?

Yes, let me make a comment and I will ask Mike to follow up if he would like. We expect Oil & Gas to be a very strong contributor to our growth in '08, Jamie. It is going to have very strong double-digit growth within that unit in operating profit. That is continuing to execute the backlog that has built up fairly dramatically over this last year.

So, yes, it is going to be a very strong performer for us, not just in '08; I think we can anticipate again, based on what we have already booked, it to be a strong growth engine in '09.

Okay, then I guess just, you know --

You got it right, you have it right. The margins are not the most important issue in these. Thank you for that comment.

So, as I look at that and I say, okay, we are off a base, we are growing well, we are growing in '08 probably in the double-digit range off of $100 million or so each quarter.

Then based on your last comment, you are suggesting that the problem projects that we have had over the past years, we continue to see less of them. I am having a hard -- your G&A, you are saying between 190 and $200 million.

I am having a hard time getting to your 23% EPS growth at the midpoint. To me that just seems a bit conservative. So is there anything else, I guess, that I'm missing?

No, it is early. We still have a quarter to go before we move into full stride in the year. So, we have given a range that we are comfortable with. I think it does represent significant growth. It will set us up, particularly based on the awards we have got, for an even stronger '09.

All rightie. Then just last question, Alan, can you just comment what you're seeing on the new power gen side? Any incremental bidding activity on the gas side for new generation?

You know, we are seeing some, Jamie. There's obviously with the long, long approval times for air permits on the coal side, there are areas of the US that are needing power, and so we are seeing some incremental project work on the gas side. But I wouldn't call it significant.

Okay. Do you still expect -- I think last quarter, you said you expected some coal-fire power plants, I think, to happen in the back or to get awarded in the back half of 2008. Is that still sort of on track?

Yes, it is.

All rightie, thank you. Congratulations.

Jamie, one little clarification. G&A for '07 is going to be 190 to $200 million. It is probably going to be around $210 million or so, or $220 million in '08.

Okay, great. That was my bad. Thank you.

Alex Rygiel with FBR.

Thank you. Good morning, gentlemen. What is the timing of booking the full award for the South Texas nuclear plant?

I am going to give a shot at probably not until '09, Alex. As you know, that is just the first one coming through at COL. So, while I think is going to be the first one up, the timing is a little bit uncertain.

Okay. How many other nuclear power plants, new builds, are you working on around the world?

Well, nobody is working on one just now. We are working on the front-end of this one.

Right.

(multiple speakers) awarded that. But nobody has got the construction and operating license and actively doing the detail design and procurement. As a comment, this will be the first of those to come through that gate.

Fair enough. On the coal plant side of the business, can you help us to understand where we stand on scrubber installations?

That still continues to be a very good market.

So it continues to expand right now?

I don't know that I would call it expanding, but it has continued to stay strong. We are involved in a fair number of them as we speak.

Okay. Your outlook for capital, CapEx in 2008?

In 2008, it is probably going to be a little less than we are seeing this year, probably around 175 total year.

Perfect, thank you very much.

Barry Bannister with Stifel Nicolaus.

Hi, gentlemen. How are you? Just to build on the last couple questioners' calls, it seems to me that if I look at your third-quarter a year ago forward guidance on '07, versus what your guidance is now a year later, it's up almost 15%.

If I look at your forward revenues that would be implied by your book-to-bill, I have to assume a burn rate far below the last seven years just to get something close to consensus. So when you characterized it to the previous caller as being where you feel comfortable now, when you say comfortable, you mean that Fluor is generally conservative and doesn't like to go out on a limb. Is that correct?

Well, I would say that we like to be able to stand behind our projections and hit them.

Okay. Now on your Power operating margin, does the FEED work on that have a good margin content, so that we can expect the upfront margins to be good as well as the midstream margins when the projects are underway? Or is it just going to be an S-curve -- as the volume comes through the margins will rebound?

Barry, was your question on Power?

Power, yes.

Power is going to be another very strong contributor in '08. In fact, I would say (inaudible) we are probably going to see triple digit growth in Power this next quarter.

We are doing front-end work which has good margins to it. As we kick into the lump sum projects, they typically do, though, tend to be what I would call tail-end-loaded in terms of their profit recognition.

But again, as we ramp up the backlog and the execution revenue in Power, we start to offset some of the overhead that we have got in the unit.

But even though you are working on longer-cycle units in Power now than you did, for example, during the natural gas fired boom, you feel like the terms of the bookings that you have made have a sufficient margin content that we are not going to have to stand in the shadow of what you were able to generate in the last cycle? We might actually --?

It will be a good cycle. It will just be a little longer one.

But margins comparable, hopefully?

I would say margins should be comparable, yes.

Then lastly, when you break down Bagram into modules, what -- are the most difficult modules completed? Or do you still have the toughest work still ahead of you? Because we have watched the San Diego Freeway drag on, and we're just a little bit wary of what lies ahead in Bagram. Can you give us some clarity there?

I would say that there is no difference in the modules. They are all difficult at Bagram. Access is difficult. Subcontracter oversight has been very difficult.

But again, we are surrounding that with as much Fluor resources as we can be productively putting on that project. We anticipate to finish it in the first quarter of '08, so we should have it behind us very near to the time we have our next earnings call.

This charge was your best estimate of cost to complete?

Absolutely it is. That is our best estimate of cost to complete and get out of the project.

Okay. Then lastly, what percentage complete are you on that project?

I believe we are in the 80s at this point in time.

Oh, in the 80s? Okay, thank you very much.

Steven Fisher with UBS.

Good morning. I saw that Marathon's Detroit refinery recently got the go-ahead for construction. It looks like it is going to be about a $2 billion project. Is that a project you might expect to come your way in the fourth quarter?

We would hope so, but we will see.

Okay. Then (technical difficulty).

Hello? Lost him. There you go, you are back on.

Sorry. The question was on your cash balance, which was up again. Can you just give us your updated thoughts on usage and timing?

Mike, you want to take that? Go ahead.

We look at several possible uses of cash, including how much we use it to fund our dividend. We do have a modest share repurchase program authorized by the Board that we look at from time to time. And we continue to look at niche acquisitions.

Right now, given the valuations in the market, especially on acquisitions and what have you, we are going to be very disciplined about use of our cash.

We are pretty comfortable with our balance right now. We expect to see that balance grow very substantially during this cycle that we see in front of us. We don't really see any what I would say right now compelling uses for that cash. We do expect to continue to build that cash during the cycle.

We will continue to reevaluate the use of that cash on a fairly frequent basis. But right now, we see no real compelling needs for the cash or compelling uses at this stage.

Great, thanks a lot.

Ian Macpherson with Simmons & Company.

Hi, good morning. Alan, I was I guess a little surprised at your comment that you see maybe the downstream side of your business perhaps peaking in '08. Is that on a new award standpoint?

Yes, it is strictly on new awards. I didn't mean on financial results.

Sure. Given the -- I mean, the direction in crude prices, the direction in heavy crude discounts, do you think you would hold that opinion subject to revision six months from now, if we're still looking at the same commodity price environment?

You know, I think, yes. These refinery modernizations and modifications that are going in the US are rather big. We have just heard the comment on the Detroit refinery.

But the ones that have been put in play for planning and approval by the companies' boards of directors are pretty much all in process at this point in time. Either already approved or in the front-end engineering phase for approval in '08.

So that is why I make the comment that I do. It does that mean that we might not get something that pops up on an international basis. But the very large market that is going on here in the US will pretty much have run its course in new awards by the end of '08.

Do you have the competitive footprint that you would like to have for the balance of the Eastern Hemisphere work? Or --?

Absolutely, we do. We're extremely strong in the Middle East, having built a lot of the original refineries in a number of those countries, and still with a good, strong presence in the Middle East.

We are very strong in China, Indonesia, Thailand, and areas in the Southeast Asia. So yes, I think we are right where we need to be.

I acknowledge and appreciate that. I just wanted to confirm that you are not necessarily looking for acquisitions as a growth vehicle for that end-market.

No.

Okay. Thanks. That's all I have.

Chris Hussey with Goldman Sachs.

Question. Just want to get around the -- you had tremendous backlog, astounding awards, but the revenue growth, I guess I had expected it would be a little bit better. In the guidance, again coming back to the burn rate, you would expect it to be a little bit better.

Maybe you can just give us a little bit of color around why it is that this current backlog is burning off substantially slower than it ever has in the past. Do you have any capacity issues? Are you guys capacity constrained in terms of performing any of this work?

No, let me go back to comments that we made a couple quarters ago. The backlog that we have today -- and it is astounding -- is characterized by very large, long-cycle projects. Coal-fired power plants, new grassroot refinery additions, infrastructure projects that are quite large.

It is probably more of a mega-project backlog than we have ever seen in the history of the corporation. As a result, they tend to burn off longer. The projects here are three- to five-year-cycle projects, whereas in the past our backlog could be comprised of more of the 18-month to 36-month cycles.

So that is what you are seeing. The good news is that that backlog will be productive for some time to come, and we will continue to have strong booking quarters like we have. It really portends for a great future.

It might be interesting if you could maybe in the future break that backlog down by these long-cycle versus short-cycle. It might just be helpful to allow people to get their hands around that phenomenon because (multiple speakers).

Yes, I understand, but we probably give you more detailed characteristics of our backlog right now than any of our competitors.

I agree, but I always have to ask for more.

I don't blame you.

The second thing is on fixed-price. You said you had more fixed-price. Do you care to characterize it? How much of that backlog would you characterize as fixed-price at this point?

Actually, I said we have less fixed-price than we have (multiple speakers) .

Less fixed-price, but from a -- if you had to give it a percentage relative to a year ago, what would you say?

Well, right now, our fixed-price is about 24%. That is down just from last quarter at 27%. So, it is dropping dramatically. At the end last year we would probably be somewhere around -- I am going to guess -- 30%, 31%

Continues to go in the right direction. Finally, as we have seen oil now up at $98, and you do say that the projects that boards have approved are in place and they are in the FEED process already. But now you're really just talking about projects in the US, I think, not necessarily like a Saudi Aramco or something like that.

But what -- you know, in the past we have always talked about, hey, this project is feasible at $40, $50.

Yes.

It seems like we have to start -- I just looked at the forward tape. I think 2015 forward oil is at $82. What projects are feasible at $80? What do you think that could do to your business in terms of new types of projects that might come along?

Or do you think that, no, whatever is feasible at $40 is feasible at $80. There is really no incremental business that comes from a shift, from thinking about $40 sustainable oil to $80 sustainable oil.

Well, there is no incremental shift between those two based on the projects that are already being planned and going forward. It does that mean that there may not be a new project that might spring up on a fast-track basis in the next 12 to 18 months.

But the ones we know we have right now, we are tracking them towards our -- hopefully pulling them into backlog in '08, and continue to see strong booking trends during that time.

I guess what I am getting at is, what are those new projects? If you had to sort of think about it. Are you -- do you have a group within your organization that is sort of thinking about projects that can take advantage of $80 sustainable oil versus $40 sustainable oil?

Absolutely we do. We stay really close to our clients on those things. Both the international companies as well as the indigenous oil companies in each of the countries.

Okay, thanks, guys.

(OPERATOR INSTRUCTIONS) John Rogers with D.A. Davidson.

Hi, good morning. Just (technical difficulty) talking about the Oil & Gas side. But I am curious on the Government Services side. You talked about the last segment of the Hanford project. I'm just wondering as you look out into '08, is there opportunities to build that backlog back up? What are the projects out there?

Absolutely, I think '08 is a big inflection year for our Government group, John. We have, as you know, from already mentioned comments, we are competing for the Sellafield work in the UK. That falls under our Government business group.

Do you expect that awarded in '08?

Yes, we do.

Okay.

We are competing for the Savannah River project at DOE. That we think will be awarded in the next quarter or two. We have the LOGCAP award, which now we're waiting for it to go forward and to start receiving task orders.

So I think '08 can be a very, very good year for our Government group in terms of its turning point to come back on to a growth curve. So we are very bullish there, just we have to have it happen, and then we will start forecasting it.

Great, thank you.

It appears there are no further questions at this time. Mr. Boeckmann, I would like to turn the conference back over to you for any additional or closing remarks.

Thank you, operator. Really, thanks to all of you for participating on our call this morning. As you can see, the results that we have just discussed, Fluor is continuing to lead the industry in new awards and in backlog and in revenue.

We also I think have the strongest cash flows of any of our competitors. As you result, we are continuing to project very strong growth in earnings as well.

I could not be prouder of what we have achieved to date, and I'm extremely excited about our future prospects. This success would certainly not be possible without the dedication and the excellence of our global workforce and the support we receive from our clients and our shareholders.

So, we greatly appreciate your interest today in Fluor and your confidence in our Company. Have a great day.

Thank you, ladies and gentlemen. Once again, that does conclude today's conference. We do appreciate your participation.