Fluor Corp (FLR) 2008 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the Fluor Corporation's second quarter conference call. Today's call is being recorded. At this time, all participants are in a listen only mode. A question and answer session will follow management's presentation. A replay of today's conference will be available at approximately 8:30 p.m. eastern time today, accessible on Fluor's website at www.fluor.com. A web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. eastern time on August 18th at the following phone number: (888)203-1112, and the pass code 700-6477 will be required. At this time for opening remarks, I'd like to turn the conference over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you. Welcome to Fluor's second quarter 2008 conference call. With us today on the line are Alan Boeckmann, Fluor's Chairman and Chief Executive Officer and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after market closed, and our 10-Q was also filed today. We have posted a slide presentation on our website which Alan and Mike will reference during their prepared remarks.

Before getting started, I'd like to read our cautionary note regarding forward-looking statements, which is summarized on slide 2. In discussing certain subjects, we will be making forward-looking statements regarding 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 on our form 10-K filed on February 29th of 2008, and 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.

Also during this call we will discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and will be posted on our website at investor.fluor.com. And finally just to remind everyone, I also want to point out that all earnings per share figures in today's call reflect a two for one stock split that was effective on July 16th. Did that, I will turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.

Good afternoon, everybody and I'd like to thank you for joining us on this call. Today, we'll be reviewing our results for the second quarter, our market outlook, and we'll be discussing our guidance for 2008 which we have increased this quarter. As you have seen from our release, our second quarter was very strong. With revenues, earnings, cash, new awards and backlog all increasing substantially from that a year ago. Most importantly, we are well positioned and we remain confident that strong demand in our key markets in the US and arranged the world will continue to drive substantial growth for our company.

As you turn to slide 3, I'd like to provide some highlights of our financial performance for this quarter. Our net earnings rose 119% to $209 million, that represents $1.13 per diluted share, and that compares with 96 million or $0.53 per diluted share for the same period last year. Operating profit for the quarter more than doubled to $392 million compared with $187 million in the second quarter of 2007. All business segments contributed to this positive result by posting solid growth in profit over the last year. Second quarter results included a pretax gain of $79 million, translating into $0.26 per diluted share from the sale of our joint venture interest in the Greater Gabbard offshore wind farm project. Details of this transaction were released in May. Our operating margins rose to 6.8% and that was up from 4.4% a year ago, reflecting improvement in all segments and, of course, the Greater Gabbard equity sale. Our revenue rose by 37% to $5.8 billion, up from $4.2 billion in the second quarter of 2007, driven primarily by significant growth in the oil and gas and power segments.

Moving to slide 4, we posted another quarterly record for new awards with new project awards for the second quarter totaling $6.4 billion, which compares with $5.8 billion a year ago. The quarter included a $1.8 billion award for the Greater Gabbard offshore wind farm project in the United Kingdom, which will provide carbon-neutral renewable electricity for more than 415,000 homes. Other large awards in the quarter included refinery upgrade projects in the US, which had a combined value in excess of $1 billion. Consolidated backlog rose to another new company record of $33 billion, that is up 28% from a year ago and up $1.5 billion over the prior quarter. This represents our 11th consecutive quarterly increase, and another new company record. If you turn to slide 5, I'd like make a few comments on our markets and our key prospects. Overall, we continue to see very strong demand across many of our markets including oil and gas infrastructure and mining. We're seeing the market for power pick up as well.

Looking first at the government segment, we will be booking a new award for the first year of our contract at Savannah River in the third quarter. With Fluor's share expected to exceed $300 million per year for the duration of that five-year contract. A 90 day transition period there is now complete. Separately, we are awaiting the award of the liquid waste contract at Savannah River, which we expect the DOE to announce later this year. As for LOGCAP IV, passporter bid activity has been very slow to develop, but we hope to see some measurable activity by year end. As we move to the global services segment, the robust engineering and construction environment is creating very strong demand for their services. These include operations in maintenance, equipment and tools and temporary labor. O and M is very busy, servicing long-term clients and expanding our geographical coverage, and this in fact should pick up later again this year, once the refiners get back to normal levels of turnaround and maintenance activities. This group is focused on expanding regionally, and you can see from our results, our margins continue to be strong.

On slide 6 for industrial and infrastructure, the two most active markets here are certainly mining and infrastructure, which includes transportation. Touching on mining first, while there weren't any major awards in this particular quarter, there are some very sizable projects slated for the second half of the year. These continue to be driven by investment to expand both copper and iron ore supply and by very strong commodity prices. We also see viable prospects associated with aluminum, gold, tar sands, nickel and uranium. We anticipate strong demand for large capital projects in this market segment, well past the end of the year. As for infrastructure, as we have discussed in the past, we generally only book one or two large projects per year, given the complexity and their extended development periods. In terms of new infrastructure projects, the Greater Gabbard Wind Farm was awarded during the second quarter. As we look ahead, key prospects for the balance of this year are focused mainly on design/build highway projects in the US. Longer term we continue to see opportunities to deploy our private public partnership business model, to help develop key infrastructure programs including both roads and rail lines.

The power market is heating up a bit with some key prospects set to be awarded in upcoming quarters. As we have recently discussed, though, a number of customers are going ahead with plans to construct gas-fired plants, particularly given the inability to secure permits for coal plants, we are now on track to book two gas plants in the US this year and also looking alt potential opportunities in Europe. On the coal side, the EPA has approved the air permit on the Desert Rock project, which is an important and positive step for this project to be sure. As you may have read, though, the state of New Mexico plans to appeal that decision, and there are other environmental hurdles that will have to be cleared before this project can move forward, including approval of the environmental impact statement. But we are very encouraged by EPA's action.

On the nuclear side, we continue to support the south Texas project, as Toshiba and NRG work to complete their construction operating license application. In addition, we'll continue to position ourselves for other nuclear new build opportunities in the US and internationally. We're also seeing some sizable projects develop, including involving renewable energies that include wind, solar and biomass. With regard to scrubbers, the recently announced ruling that overturned the Clean Air Interstate Act may potentially impact this market segment but it's too early to tell. We continue to pursue prospects in both US and Europe in this area.

Finally, as I turn to oil and gas on slide 7, this segment continues to be extremely active. They had another very strong quarter, with $3 billion in new awards which included prospects and awards in the US, eastern Europe and Asia Pacific. And the prospect list for the balance of 2008 is substantial as well. In downstream, we continue to be active on numerous FEED contracts. As we mentioned in the past, both cost escalation and environmental issues have caused some short-term delays in awards, but most projects are expected to proceed on full EPC awards. We expect the second half of 2008 to be very strong in terms of new bookings for downstream. As expected, the petrochemicals area has slowed somewhat, but we continue to be very busy in the polysilicon area, and are making extremely good progress on existing projects. As we are working for a number of major clients around the world and we expect that substantial investment levels will continue to benefit Fluor, given our strong market share and position in this growing area.

Finally, in upstream, we continue to track developing opportunities in the Middle East, in Russia and Canada, a significant portion of major integrated oil company and national oil company budgets are directed towards new production. Accordingly, many of our current prospects relate to the development of gas resources as well as offshore and onshore production facilities. So in summary, from a market perspective, we're seeing continued strength across most of our key markets globally, and this supports our view that 2008 has the potential to set many new company records. So with that, let me turn the call over to Mike Steuert, our CFO, to review additional details of our operating performance, our new awards and other financial information. Mike?

Thanks, Alan and good afternoon to everyone. First, let me provide you with a brief recap of the results for each of our operating segments.

Please turn to slide 8 of our presentation. Fluor's oil and gas segment reported second quarter revenue of $3.3 billion, up 56% from the second quarter of 2007. Operating profit grew 68% to $169 million. New awards in the second quarter totaled 3 billion including several refinery upgrade projects in the United States and eastern Europe, ending backlog at June 30, 2008 for oil and gas rose to $20.9 billion, which represents a 49% increase from a year ago.

Moving onto slide 9, Fluor's industrial and infrastructure segment reported revenue of 912 million for the quarter, up 4% over last year. Operating profit for the second quarter was $121 million, up from $23 million a year ago. The strong operating performance was driven by mining and metals and progress on major infrastructure projects as well as the Greater Gabbard equity sale. New awards for the quarter were $2.4 billion of which $1.8 billion was for the greater Gabbard project, ending backlog was up 25% to $7.1 billion compared to $5.7 billion a year ago. Revenue for the government segment was $300 million for the quarter, this compares with $325 million a year ago. Operating profit was $11 million, an increase from $9 million a year ago. Second quarter new awards totaled $87 million and ending backlog was $316 million.

Now turning to slide 10, the global services segment reported a 16% increase in revenue to $696 million. Operating profit for the segment grew by 38% -- or 37% to $66 million. This is a result of strong growth from both the operations and maintenance and the equipment services business lines. For the quarter, new awards were $673 million and backlog increased to $2.7 billion. Segment continues to win new clients as well as secure multiyear renewal agreements from existing clients. Fluor's power segment reported an 86% increase in revenue to $522 million, up from $280 million last year. Operating profit was $25 million in the quarter, a substantial increase from $6 million a year ago. Revenue and operating profit growth during the quarter were driven by significant progress on major projects including the Oak Grove coal fired facility in Texas. Power segment new awards were $206 million and ending backlog for the quarter was $1.9 billion. As Alan mentioned earlier, Fluor's consolidated backlog now stands at a record $33 billion, up $1.5 billion over the first quarter. The percentage of fixed price work in our backlog is 26% and about 46% of our backlog is for projects in the US with 54% for projects outside of the US.

Let me comment for a minute on corporate items on slide 11. Corporate G&A expense for the quarter was $62 million, up from $52 million a year ago, mainly due to an increase in compensation expense resulting from strong operating performance and an increase in the company's stock price which affects expense associated with various share based plans. For the full year, we expect corporate G&A expense to be in the range of 210 to $220 million. We had net interest income of $14 million for the quarter compared with net interest income of $8 million last year, reflecting returns generated by higher cash balances. Effective tax rates for the quarter was 39%, which is slightly above our expected rate of 38%.

Shifting to the balance sheet. Cash and marketable securities balance at June 30th was $2.4 billion, up sharply from $1.9 billion last quarter and $1.5 billion a year ago. This increase was driven by strong cash flow from operations, including client advances. Capital expenditures for the second quarter were 68 million including equipment for Amico, additions to our computer infrastructure, and upgrades to our systems. We now expect CapEx for the year to be in the range of 260 to $280 million. On July 16 as Ken mentioned, Fluor completed a two for one stock split, as of June 30th there were 185.1 million shares outstanding. Fluor's Board approved a normal quarterly dividend of $0.125 per share payable on September 5, 2008. Overall Fluor continues to have a very strong and robust financial position.

Finally, let me make a few comments about our updated guidance for 2008. This is shown on slide 12. As we have seen throughout the year, demand remains strong for the engineering construction solutions that Fluor provides. We are encouraged by the strength of our financial results to date and see substantial opportunity for the balance of the year. As a result, we are increasing our full-year guidance for 2008 earnings per share to a range of $3.65 to $3.80 per share, which is up from the previous range of $3.30 to $3.45 per share. With that, Alan and I will be glad to respond to questions.

Thank you.

(OPERATOR INSTRUCTIONS). We'll pause a moment to assemble our queue. We'll go first to Jamie Cook with Credit Suisse.

Hi, good evening and congratulations. I guess, Alan, I have to ask you about the guidance. I don't want to date myself but I've covered you guys for quite some period of time and I've never seen you raise guidance so much so early in the year. So, I'm just trying to get a feel for where -- is there one particular segment that continues to perform better than your expectations? Is it older problem projects rolling off? Just where do you view in 2008 so far, where is the upside, I guess, surprise coming from relative to your expectations?

Jamie, I would have to say it's occurring in quite a number of areas. First of all, our new awards have been extremely strong as you can see. Also every segment is performing well. We literally don't have a problem project when we look around and see performance that can go down from, drainage on a project. We have through the engineering phase to construction. Oil and gas revenues have probably been the ones that have been the most particularly strong if I have to look at any one market and say that it's gone beyond our expectations, but they've all done very well. Our margins remain strong, we've increased those in I and I and global services and I would also say actually we're seeing very strong overhead leverage in all of our groups with increased revenue and also at corporate. So it's all of those combined that's -- that what us performing as well as we have. Remember with we raised guidance last quarter you all accused Mike and I of not being conservative anymore so maybe that will put that to rest.

I guess just my follow-up question. The margins in the global services business were, 9.5%. I've never seen that business get that type of margins. Is that something, was there anything unusual in the quarter or is that, what type of run rate should we think about on a go forward basis for that business?

Clearly that's very high. It's one of our best quarters from a margin standpoint, global services ever had. So I wouldn't forecast that as a run rate. I think it depends on the volume of work and the type of work that we're doing in any given quarter. I would say ongoing from quarters out it won't be quite that strong but I think we're growing over the normal trend line in global services by selectivity and strong performance.

And then just last, can you just sort of give us an update on the power side of the business? Can you just give us an update on what you think -- I think last time you said maybe we'd get about four gas fired power plants within the next sort of six to 12 months, how you see that shaping up and over the longer term on the next 12 to 18 months, do you see gas or renewables as a bigger opportunity for Fluor specifically?

Well, we do, it's very unlikely we'll get a coal plant in this year. I think Desert Rock has made an important step forward but I think that will translate into an award if it does come in probably the first quarter. In the meantime, though, we are seeing a tremendous number of inquiries and front end studies being done on gas fired plants. In our prepared comments, we said we expect to book two -- actually book two into full backlog this year. There will be many others that we'll be working on and probably translate into a full award as we get into '09.

All righty. Thanks. I'll get back in queue. Congratulations.

Thank you. We'll go next to Andrew Kaplowitz with Lehman Brothers.

I've been called worse. How are you doing.

They normally mess my name up, Andy.

Nice quarter. Could you talk with, visibility around awards, like if you look at now versus, lets say six months ago and 12 months ago, it also seems like you're telling us that you have better visibility now, going forward than you did six months ago or 12 months ago. Am I reading that correctly?

No. I think we do. We've always had I think probably very good visibility compared tie lot of the people in our space because of the amount of front end work we do. I think it's actually improved because more of our businesses are -- units are getting into a tremendous amount of front end efforts and we've gone through a lot of the issues of escalation that cause delays in our projects, so we got a pretty good view, particularly over the next six months, I would say -- I won't say entirely accurate but we've got a pretty good fix on it.

Do you think -- I mean, if you look at the feeds now versus the feeds a year ago, would you say that your feed volume is higher now?

I think it's pretty much the same, Andy, but we're coming into I would say that final stage on a number of very large ones. But we are replenishing those but in terms of the next six months, I think we've got pretty good line of sight so what we think is going to come into backlog.

And Alan, I know it's early but could you comment on 2009 in terms of backlog? Do you think it's reasonable to believe that we can grow backlog off of what is going to be a pretty high base it looks like at the end of this year? What are you thinking about that so far?

2008 I said was going to continue to be a year -- a year of growth and backlog. I expect we will be able to grow backlog in '09 in at least the first couple of quarters and that's again just based on visibility. It's hard to see with any clarity beyond a year from now, though, Andy and all I can say is the trends and the dynamics that are in front of us do look good. Got you. And just one final question on this line. Obviously, you've seen what the stocks have been doing lately and do you think that's just sort of, the market doing what it's doing and have you talked to any customers, in the near term about sort of the reaction to what's going on here in the stock market and, I think, maybe we're making a mountain out of mole hill, but I'm sure your customers sort of watch what's going on with oil prices and what have you. The whole sector has moved down with oil over the last month to six weeks. Which, it's amazing because oil is still at a price that is significantly more than what it would need to warrant the investments in the projects we're all looking at. So I think, if there's -- if anything, the market where it's at today represents a great opportunity for the overall -- for the whole segment. Because oil prices are still at a very strong level to justify the capital programs that our clients have.

And you don't see any sort of, more uncertainty on the customer's part? They all have their sort of five year view on oil prices and that's sort of how they're basing a lot of these investments.

You are exactly right and it is significantly lower than today's marketplace.

Okay. I'll get back in queue.

We'll go next to Michael Dudas with Jefferies.

Good morning everybody -- good afternoon, everybody, rather.

Good afternoon, Mike.

On the infrastructure and I&I front, taking out the wind project, looking at the rate of new order growth, can you maybe -- that's probably the most overall sensitive to economic supply demand conditions. Could you maybe elaborate what you're seeing in a broad sense in the two areas you see quite positive in mining and infrastructure, but maybe some of the other areas to see what's confirming some of the fears in the marketplace about global economic activity slowing down?

Yes, Mike, you're absolutely right, the I&I group for the last maybe two years really, year and a half to two years, it's really been all about mining and infrastructure. We had very -- even though we had a good award this quarter on the manufacturing and life sciences area, the consumer products side of that and even the pharmaceutical biotech side has been relatively flat and I think a lot of that has to do certainly with the economy. The mining side, though, has been extremely strong, and even though we really didn't get any significant awards in this particular quarter in mining, they really are lined up for the next several quarters. We've got some very strong prospects there.

And maybe when the consolidation maybe happens or doesn't happen in the mining sector, that might unlock some of these projects going forward?

I think it -- there's probably a bit of uncertainty now because of the potential M&A activity there, but, if that occurs it's hard to say the effect that it will have on it. It could remove that uncertainty. It also could drive some rationalization, but we'll wait and see.

Mike, could you share with us possibly what of the 2.4 billion in cash on the balance sheet, what is in a sense shareholder cash and revisit your thoughts on allocation and maybe the market opportunities for niche acquisitions or capital balance sheet reallocation?

Well, Mike, our number one priority continues to be acquisitions. We are looking at a number of those. We have for quite some time. We'll continue to focus on niche acquisitions and perhaps the markets -- the current market environment will give us some more opportunities going forward there. And that's -- that is really our number one focus. We did adjust our share repurchase plan with the stock split and we'll be looking at share repurchases as well as we go throughout the rest of 2008 and 2009. Alan, I don't know if you really want to add anything to that?

Mike, what would you say is our cash balance if you take out the client advances? I think that was the one question.

Right.

Mike was saying.

If you look at our cash growth, it's been in part financed by client advances and in part just by, solid operating results. We have client advances that represent about $1.5 billion of our cash so we have roughly $1 billion of what I would call free cash above our level of client advances at this stage, Mike.

Thank you for that. I appreciate. Thank you, gentlemen.

You bet.

We'll go next to Curt Woodworth with JPMorgan.

Hi, good afternoon.

Hello, Curt.

Alan, if you look at the oil and gas revenues this quarter of $3.3 billion, is it pretty big step function change from last quarter. Do you feel that, that type of burn rate or revenue run rate is going to be fair looking out over the last two quarters of the year?

I think it is for the next quarter or two, Curt. We're into heavy procurement, heavy client furnished material section right now of the projects that we've been booking in oil and gas. So I think it will stay pretty much at this level, maybe even go up just a touch over the next quarter or two.

Okay. And then in terms of your comment on the downstream booking opportunity for the back half of the year, can you give us a sense of the size of those projects and also right now what percent of your oil and gas backlog would be downstream?

Oh, fairly dramatic part of it would be downstream at this point in time. I would say way more than half. It's probably in the three-quarters level, but the -- as we go forward in this year, there's one particularly very large one that we'll be looking at booking and there's a number of them that would add up to fairly significant projects. We also have a couple that are outside the US that would come the downstream standpoint that will be coming into the next couple of quarters.

Okay. And in terms of globally what you're seeing in the E&C market, I mean, how would you characterize either engineering or construction labor capacity for the market? I know you've said you have I don't think any near term capacity issues for Fluor. Just kind of give us an update on that and if you expect your win rate to be affected by that going forward.

The limitations that are out there from a total industry standpoint, certainly the professional side, the home office engineering and procurement side has been a challenge for all of us but I think the industry has been able to manage that. The more specific problems are going to occur in particular regions for individual projects. Middle East is going to be a challenge, I think Australia is going to be a challenge, western Canada, those are areas where construction labor are very tight. Having said that, all of us in the industry are focusing on that and we see the prospects of this, we are working with both the governments and local clients and industry to do training. But it is going to be a challenge. I don't foresee that it will dampen our opportunity to do projects. We have always been even over the last year, year and a half, been fairly selective based on what we can resource.

Great and just one final question, if I may. On the wind market, do you see many opportunities similar to the size of the UK project globally and are you focused on any US projects right now?

Well clearly that was a very large project. It's the largest one we're looking at internationally, and a wind project itself from -- for us to be focused on it, needs to be a large project. It requires our expertise for the logistics and the size and, the planning and the financial strength. We are looking at a couple in the US, and I think hopefully we'll be at least participating in one as the -- the next year unfolds.

Great. Thank you very much.

We'll go next to Alex Rygiel.

Thank you and a follow-up on that last question as it relates to the wind opportunities in the US. Are they solely offshore opportunities that you're looking at or are you also looking at on land opportunities.

No. We are looking at on-land opportunities as well.

Great. Does that also include solar?

It does, but we've been really focused on the -- what I call the downstream side of solar. To me that's where the real opportunity lies because the plants that are necessary to make the product, to create a solar cell are a lot more complex, a lot more capital intensive than an actual solar farm would be, and so that's where we have focused through our chemicals business is producing the polysilicon that goes into those cells.

Sure. That's helpful. As it relates to nuclear, could you talk a little bit about the timing of maybe when we might hear of additional opportunities either domestically or internationally for Fluor?

Well, I will think it's kind of a mixed set here. We are focusing on some US opportunities. We are and I think everybody saw the announcement in the Middle East for the Emirates, we are going to be competing for that. That's a rather dramatic and significant program. So I think there's -- that market continues to unfold. I would just remind everybody that that market in terms of its actual revenue generation is still several years away until licenses are granted.

Of course. And lastly for Mike, is there anything you can do to limit the creeping tax rate?

We are focused very aggressively on that. We had a couple unusual items this quarter, but I think overall 37 to 38% is probably going to be the range we're going to see for some time.

Excellent. Thank you very much.

We'll go next to Graham Mattison with Lazard Capital Markets.

Good afternoon, guys. Congratulations on the quarter.

Thank you, Graham.

Thanks.

Question on the polysilicon plants. I mean, in the recent past you guys have gotten a number of awards there. Do you still see the at some point for some significant polysilicon plants out there?

We do. Yes, we sure do. We've got a major market share there and it's a market that is a quick time to market issue is very imperative for these clients and we're able to offer that. So I really think we have the inside track on that market. We continue and hope and it's our intent to stay there.

And you see this potentially later part of this year or is it more of a 2009?

I think we still have some award yet in this year. But I think it will go on definitely certainly into '09.

Okay. Great. And then just turning to I&I. If you back out the wind gain, is that margin sort of 4.5% about a good run rate to go forward with?

Yes, I would think so.

When there's nothing sort of one time or unusual there?

No, other than the Gabbard, there was no -- nothing unusual there. We did have, if you look at our 10-Q, we did make a modification in our claims status on the connect project.

Got you. Okay. Great. I'll jump back in queue. Thank you very much.

(OPERATOR INSTRUCTIONS). We'll go next to Andrew Obin with Merrill Lynch.

Yes. Good afternoon and congratulations. Just a question about pass-through costs and how I should be thinking about it. What's the margin on pass-through costs blended compared to your, shall we call it, core margin? Do you earn margin on your past-through costs?

We do and in some projects it -- we do not, but most -- in most projects there is some margin on it as we get a margin on -- or a fee on the total installed cost, but it is lower than the margin that's directly conducted by Fluor.

But should I be thinking that it's just a nominal fee or is it like half?

It's -- compared to the margin that we get on the work we conduct, it is fairly nominal.

And just another question. How should I be thinking about the impact of inflation and given the fact that we do have stuff indexed in the backlog on year-over-year backlog growth? Could you quantify the impact of inflationary pressure on backlog growth? What percent of backlog growth would you attribute to just inflation?

Well, it's certainly -- it certainly does have an effect. As projects increase in the cost to execute both from escalation of material and labor, that does find its way into our backlog, some cases it's a project adjustment on already booked projects and it serial then is based on the awards based on the estimates that are conducted for that proposal. It's hard to say what the percentage would be in our backlog. You'd have to take a reference point and, go back and look at the escalation for each of the component parts of that project. But I would certainly say it does have an effect.

But is it just the way to think of it, is it five percentage points of total growth? Kind of just to get a ballpark or you guys just can't calculate it?

Gosh it would be hard. I would be guessing at a number if I did give you one right now.

Just a final question. As I think about mix of feed and construction and your backlog, and I apologize if you've addressed it already, but has there been a dramatic shift as we transition into the cycle from feed into construction or is it more of a gradual shift?

It's gradual. We still continue definitely to get feed opportunities and are working on those in a number of areas. As I mentioned I think in the last couple of calls, our feeds are tending to be -- to come up with a different mix. We're doing much less US downstream now. Most of those have come into backlog. There's still a few out there that we will be booking in the last part of '08 and early '09. The feeds now for downstream are more international and they are also both US and international more upstream.

Just what's the mix of feed in construction today versus a year ago?

I would have to say the percentage for construction has gotten higher simply because of the number of projects that have moved into EPC and into our backlog. And then we've been able to move on into the field in those. So a lot of those have kicked into our revenue generation now and as a result simply because they are so large, they tend to have a reduction effect on the percentage of feed work but that doesn't mean --

Could you quantify it?

We're still working on the significant amount of feed work that will allow us to grow backlog.

Could you quantify it?

I just again don't have that data here.

Well, congratulations. Thank you very much.

Thank you.

Next to Brian Chin with Citigroup.

Just a quick clarification here in the slides, the EPS guidance said to a range of 3.55 through 3.70. I think in your comments and on the press release it says 3.65 to 3.80. I want to make sure I have the right numbers.

Brian, this is Ken Lockwood. Yes, we've discovered that that went out with the wrong number. It is 3.65 to 3.80.

Okay. Great. And then also on the Sellafield loss, can you comment on what happened there and is there any take away with regards to future UK nuclear decom projects?

Well, we are -- we were obviously disappointed by that decision. We had worked on that for some time. We are currently working on other remediation opportunities, not just in the UK, but certainly in the UK there are still others. We expect that there will be additional opportunities at Sellafield. So it's not -- it's a significant market opportunity for us. We have a very strong position in it. We are, as I mentioned earlier, we're still bidding for the second phase of Savannah River and there are opportunities coming up in this next year at Fort Smith and Yucca Mountain for DOE so we still have focused on that industry.

Are there any takeaway reasons as to what could be learned from the Sellafield loss that could be applied to any of the other projects or how should --

Let me just state that the answer is yes, but I wouldn't want to state those. On a public call. We have -- we obviously have going to continue to compete there so we'd like to keep our strategy close to our vests.

Fair enough. Thanks.

Next to Barry Bannister with Stifel Nicolaus.

Hi, guys, this is actually Robert Connors and Barry Bannister on conference. I was looking at this I&I margin and the -- it was a very strong 4.6%, the strongest since quarterly margin since I believe since 2001. I was wondering if mining might be taking or getting some traction and pricing is improving in that market or what would you mainly attribute it to?

A couple of things. The answer is yes to your first comment. I think we are getting some traction in mining. But we also are getting a couple of the projects that we have booked in the last year and a half in infrastructure are now into a full revenue generation at good margins. As I commented earlier on the earlier question, I think that's a pretty good number going forward.

And, Alan, one of my questions is the 365, 380, is that with the $0.26 included?

It is.

Okay. And you're entering the northwest shelf of Australia on the LNG liquefaction side and the JV structure. Is that going to be your global approach.

It is for a total responsibility, Barry. As you know we don't do the cold box side of LNG.

And then on BP Whiting, that refinery job that was held up on environmental issues but I haven't heard anything on it in a long time. Would you give us an update.

Our client put out an announcement here recently on that and it looks like they are definitely moving forward now. My anticipation is that we will be booking that. It's hard to say which quarter, but it will be in 2008.

And can you say whether that was the big refining job that you thought might fall this year.

It is.

Since you said it was domestic?

It is.

Okay. And that is it for me. I'll follow up later with some power questions.

Great. Thank you.

(OPERATOR INSTRUCTIONS). We'll go next to Steven Fisher with UBS.

Good afternoon. I wonder if you could comment on your fixed price exposure, that 26%. Alan, you said you don't have any problem projects in there. Could you just discuss how much lump sum turnkey dollars you have in the backlog and what actions you have taken to kind of mitigate any of the typical lump sum turnkey risks.

Well, we continue to strengthen our risk program as we go through and plow some of the painful lessons learned back into it. What we have been able to do is on the projects that we booked into backlog over the last two or year and a half that are characterized as lump sum, in a lot of respects they are not. We have been able to take some of the more riskier elements out of there where we couldn't really provide a mitigation plan that satisfied us and we've been able to take them outside of the contract and index them either through an escalation clause or some other thing that turned them into more of a reimbursable characteristic. They still get listed as lump sum in our backlog, but quite a few of the projects that we have booked have that in there. The other thing is in the selection process we go through in our lump sum bids, we have been very careful to really go into markets where we have a competitive slate that we know we have an advantage and we know we have value to bring to that. So very, very -- I'm -- I think the backlog we have today is probably from a quality standpoint the strongest that the corporation has ever had.

Okay. Great and just a clarification. Did you say the booking for Savannah River was going to be about $300 million?

That's correct. And that will be quarter awards.

Thank you.

We book our governmental contracts every third quarter and only book one year in advance.

Okay. Great. Thanks a lot.

We'll go next to John Rogers with D.A. Davidson.

Hi, good afternoon and congratulations.

Hi, John.

Most of my questions -- but Alan, if you look at acquisitions out there, are there any particular specters that you could comment on that you're not involved in that you'd like to add or is it just a question of spending your reach where you are now had?

Well, we have said for some time that there's a couple of areas that definitely fit our strategic intent. One is we'd really like to grow our infrastructure business. It's been a very strong business for us. But it's been one that we'd like to scale up much more significantly given the opportunities that we see globally. And so an acquisition in that area is one we would put as a fairly high priority. Another one is just in the operations and maintenance, that's just also a very fractured business globally but one that's been very good for us and so we're looking at opportunities to acquire there on a regional basis or a client set basis. The other areas are in the nuclear side, both -- any part of the nuclear cycle interests us, whether it be in the fuels side, the power side or the remediation side.

Okay. Thank you.

We'll go to Mark Thomas with Simmons and Company.

Good afternoon, guys.

Hello, Mark.

Hello, Mark.

Alan, you touched on the clean air interstate rule and how it might affect, I guess, future scrubber work. Could you quantify how much of your backlog includes work that could be impacted by this rule?

Well, I think if I just looked at our current backlog, we have got a number of projects that are in backlog and those aren't -- those don't appear to be impacted by it at all. The impact it would have is on future opportunities if that ruling stands and isn't challenged. I think it will slow down the scrubber opportunities across the industry.

Why would it not affect your current backlog? Is that because those projects are already, I guess, almost completed or --

The monies have been committed for those and on an incremental basis they still make since.

Okay. All right. That's all I got. Thanks, guys. Good quarter.

Thank you. And our last question will be from Alex Rygiel with FBR.

Thank you. Just a follow-up. When you analyze your change in backlog to try to get to or quantify the year-over-year change in rising material inflation, it actually appears as if materials inflation is softening within your backlog. Is that the case?

I think it has come down somewhat. I mean, we will still seen inflation, but the last two quarters was not as strong as we had seen a year ago. That could change. You know, we have seen some changes in iron ore costs globally that will -- I think will find its way into pricing in a number of areas and commodities. So we haven't seen the end of it, but you're right, it's moderated over the last two quarters.

Thank you.

At this time I'd like to turn the conference over to Mr. Alan Boeckmann for any additional or closing remarks.

Thank you, operator. And Mike and I thank all of you for participating on our call today. As you can see from our strong results and our confidence in our outlook going forward, 2008 is rapidly shaping up as another record year for Fluor. Our diversification in terms of the industries and geographies that we serve really provide us with substantial opportunity across a number of markets. We greatly appreciate your interest in Fluor and your confidence in our company. Have a good day.

Ladies and gentlemen, this does include today's teleconference. We appreciate your participation. You may disconnect your phone lines at this time.