Fluor Corp (FLR) 2011 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to Fluor Corporation second quarter 2011 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 call will be available at approximately 8.30 PM 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 7.30 PM Eastern Time on August 10 at the following phone number, 888-203-1112. The pass code of 6931964 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. Welcome, everyone, to our conference call today and with us in the room are David Seaton, Fluor's Chief Executive Officer, and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement, as you know, was released this afternoon after the market closed and we have posted a slide presentation on our website which we will reference while making prepared remarks today.

Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements which is summarized on slide 2. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information, and there is an inherent risk that actual results and experience could differ materially. You can find a discussion of those risk factors in our 10-K which was filed on February 23, 2011, and our most recent Form 10-Q filed today, August 4, 2011.

During this call we may also discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are posted in the investor relations section of our website at investor.Fluor.com.

With that, I'd like to turn the call over to David Seaton, Fluor's Chief Executive Officer. David.

Thanks, Ken. Good afternoon, everyone, and thank you for joining us on what has turned out to be a pretty interesting day in the markets.

I'd like to start by highlighting a few of our accomplishments for the second quarter and ask you to please turn to slide 3. Net earnings attributed to Fluor for the second quarter were $165 million or $0.94 per diluted share. Our segment profit totaled $280 million and included substantial positive contributions from all of our businesses. Consolidated revenues totaled $6 billion which represents a 17% increase over the second quarter of 2010.

We also continue to have strong cash flow generation, ending the quarter with $2.5 billion in cash and marketable securities after utilizing $113 million during the quarter for repurchase of our shares. Increased demand for our services and our success in capturing key prospects is evident. As new awards for the quarter were totaled $9.7 billion, we had substantial award activities across our businesses with mining and metals and oil and gas and government contributing significantly during the quarter. As a result of our strong bookings, our backlog grew to a record $40.3 billion which exceeds our previous high marks set last quarter by over $3 billion.

If you turn to slide 4, the oil and gas segment had a number of wins during the quarter, including a significant award for the utilities and off sites component of the Dow/Aramco Ras Tanuar integrated project, or RTIP, in Saudi Arabia. We are particularly pleased about our success in winning this critically important award, and the project which will become the largest integrated petrochemical complex in the world. We were able to leverage our strong relationship with Dow and our experiences with them in the Middle East and our extensive history with the -- in Saudi Arabia, but more importantly re-established our relationship with Aramco which has been an important strategic initiative to Fluor for some time. Other major awards included a polymer's project in Saudi, additional scope on the West Qurna project in Iraq and the Kerla oil sands project in Canada in addition to a polysilicon project award in China.

More importantly, we continue to work on numerous front end projects and are tracking sizable prospects in that particular market around the globe that will begin to help us as we go into 2012.

The industrial infrastructure segment also had very strong quarter with the group more than doubling their profit from year ago. They also had strong new awards including $2.7 billion award of the major new scope relating to the Port Hedland Inner Harbour project as part of the BHP Billiton's ongoing iron ore expansion program in Australia.

The mining business also booked approximately $1 billion on a copper project from Minera Quadra Chile Limitada as well as other awards in Canada as well as South Africa. As with the ENC, we continue to track some significant prospects in the mining and metals business.

In infrastructure we continue to work with the client to progress the important I-95, 395 interchange project in Virginia towards the closing which could occur some time later this year.

Finally, I want to provide you with a brief update on the Greater Gabbard project. Despite worse than anticipated weather conditions, the project made progress with the installation of subsea cabling during the quarter. As of the end of the quarter we had installed just under 100 subsea cables out of 152 and the overall project currently stands at 85% complete. Wind turbine installation is scheduled to recommence in September.

Moving to government, the group booked $1.1 billion in new awards during the quarter, mainly driven by an acceleration of the timing of quarterly bookings under the LOGCAP task orders for Afghanistan. Global Services added $164 million in awards for new maintenance awards as well as renewals of some of the longer-term O&M contracts. As expected, the power segment had low new award volume during the quarter but the unit has a growing list of opportunities across its plant betterment gas-fired, power, solar and other renewable businesses.

In summary, we continue to capture significant new awards which have contributed to five consecutive quarters of backlog growth. We feel very positive about our prospects for the balance of 2011 and beyond. Mining will continue to be a major contributor, and we are encouraged by the high level of front-end or feed activities that we are seeing in the oil and gas market. We also have a number of strategic initiatives under way which we believe will further strengthen our market position.

Before I conclude my prepared remarks, I want to address a legal issue that resulted in a jury verdict against Fluor late last week. As you may know, a Fluor subsidiary had ownership interest within Doe Run lead company from 1981 to 1994. The Company sold its stock in Doe Run in 1994 along with all liabilities associated with leads melting operations. In addition, the Company received indemnities from the buyer for certain liabilities arising out of the Herculaneum smelter operations.

Notwithstanding the terms of that transaction, Fluor was included as a defendant in an action by 16 plaintiffs in Missouri which concluded late last week with a jury awarding $358,500,000 in compensatory and punitive damages to the plaintiff. We were very surprised by the verdict, plan to appeal immediately, and believe it's probable that judgment will be overturned on appeal. The current -- the Company does not believe that a loss will ultimately be incurred and, therefore, it has not taken a charge for this in the second quarter.

Now I will turn it over to Mike Steuert to review some of the details of our operating performance and corporate financial metrics as well as our financial outlook. Mike.

Thanks, David, and good afternoon. Detailed results for each operating segment can be found in the earnings release and in the 10-Q. My comments today will focus on a few highlights and some corporate items. Please turn to slide 5 of the presentation.

As David mentioned, Fluor's consolidated backlog increased to a record $40.3 billion at the end of the quarter. The percentage of fixed price contracts in our overall backlog declined to 24% from 27% last quarter with 81% of our backlog currently outside the US, which I believe is a new high mark for international content. This continuing trend towards internationally focused prospects was reinforced by the fact that 92% of our new awards over the past 6 months were for projects outside the US.

Moving on to a few selected corporate items on slide 6. G&A expense from the quarter was $31 million increasing from $28 million a year ago, mainly due to higher stock-based compensation cost. The effective tax rate for the quarter was 32%.

Let me shift to the balance sheet for minute, consolidated cash and marketable securities totaled $2.5 billion at quarter end, up from $2.1 billion a year ago. Cash from operations through 6 months was $428 million, this result reflects positive cash flow from earnings sources partially offset by working capital increases and industrial and infrastructure and oil and gas businesses.

As David mentioned, we purchased a total of 1.6 million shares during the quarter for $113 million. We have authorization to repurchase approximately 4 million additional shares under our current program. During the quarter, we also paid out $40 million in cash to redeem the principal balance owed to convertible debt orders as well is $21 million in dividend payments.

Capital expenditures for the quarter were rather healthy, $102 million. This compares with $75 million a year ago. The majority of the CapEx was driven by additional investment in construction equipment within our Global Services segment. Overall, Fluor's financial condition remains strong as we said for quite a few quarters, and we are very well positioned to fund the future growth that we see in front of us.

Finally, let me conclude my comments by talking about our guidance for 2011 which is shown on slide 7. With the strong financial results through our first 6 months including earnings, new awards, and backlog, we are raising the lower end of our 2011 or EPS guidance to range of $3.10 to $3.40 per share from the previous range of $3.00 and $3.40 per share. Our guidance for the year assumes strong new awards will continue throughout 2011. G&A expense will be in the range of $160 million to $180 million, capital expenditures of $260 million to $300 million, and an effective tax rate remaining of 32% which is consistent with the trend that we have are experienced to date.

Operator, with that we are ready to take questions.

(Operator Instructions) We'll take our first question today from Jamie Cook with Credit Suisse.

Good evening and congratulations on a nice quarter. A couple questions. First one, wanted to address the oil and gas margins in the quarter. One of my clients e-mailed me and told me they hoped my title would be oil and gas margins at Fluor, so I am wondering if you could talk about what the issues were in the quarter and if we should still expect margin improvement in the back half of the year. On the flip side of that, your INI margins were much better and you have been playing those down, but we've had several quarters better than expected margin improvement. I'm just wondering how we think about that and, last, can you talk about the profitability profile of the stuff you're putting in backlog today?

I think, Jamie, thank you. I think oil and gas margins, we are still at an inflection point. We've had a lot of projects that pushed further to the right on the schedule than we anticipated. So I think from a margin perspective, we are kind of rattling along the bottom as probably will start to see improvement as we start into 2012. As I said, there is a significant amount of feed work in that business. And I believe both those and the ones we have won will improve the margin in our backlog relative to oil and gas. We've got a couple, as we said in previous calls, we've got a couple of projects in there that have a high CFM content, furnished material, and they look more like the mining projects. Those will continue to be -- continue to burn big revenue numbers as we go throughout the rest of this year and into next year. But I think, as I have said and Alan said prior to me, we're pretty pleased with the amount of margin dollars coming out of the bottom of oil and gas. With regard to INI, we've had a couple of one-time issues that have helped us there, but clearly that business is really doing well and we are pleased with that. But I think overall, we are seeing an improvement in the margin potential in the new awards that we are taking in the backlog, even as we speak now.

All right. Thanks. I will get back in queue.

We will take our next question today from Andy Kaplowitz with Barclays Capital.

Good evening guys. Good quarter.

Thanks, Andy.

David, if you look at the Dell/Aramco contract, we all know it was under some intense competition. I will just ask you, how aggressive were you in that contract? Could you talk about the terms of that contract in particular? I know you don't like talk about specific contracts, but I think it's an important question. As we sit here, what did you have to do to win the contract?

I would like to answer it this way. I think that we provided a pretty competitive offering that came down to the people that the customer trust it to execute the program. We've had great success with Dow, if you think about Kuwait and some of the investments that they have made there. We've got a strong following within Aramco that believes in the kinds of predictable outcomes that we provide, and I think that's what sold that project. It is a very competitive marketplace out there, but I wouldn't say that we were overly aggressive in capturing this project. I think it came down to the value proposition that we provided.

Okay, that is very helpful. Just overall back -- your INI backlog is obviously at a record. How hard will it be to sustain that backlog going forward? David, are there enough prospects out there that you may be able to sustain it?

I think getting to a $40 billion mark is historic and something that we are really, really proud of. And I think staying there is going to be difficult, frankly, given the amount of burn that we are going to experience as we go through the next few quarters and work off the first part of that mining backlog that we brought in. I believe that we will continue to stay at these levels if not improve as we get into 2012. As I mentioned, with the within EMC, we are operating on probably -- I wouldn't put a number on it, but there is in excess of 25 feeds that we are working on that if you look at the TIC, and I know that's really a meaningless number relative to what our backlog could become, but it -- those are in excess of $30 billion. So I think when you look at oil and gas, I think when you look at mining, there is still head room in mining for growth and significant new awards as we go through the rest of this year and into next. I think we are poised to continue on a growth curve. I feel very good about where we sit in the individual markets, I feel good about, except for the United States, the stability of many of the market outside that we deal in. I think some of the statistics that Mike gave during the prepared remarks around the percentage of our backlog outside of the United dates shows that our diversity is a great story. So I think when you put all those things together, I think we are in different markets at different places but all in all I think we have the ability to continue to grow as we go into 2012.

Now, I will use that lumpy term again that you've heard us talk about in previous calls because, frankly, the $9.6 billion new award there was one project that shifted from Q3 to Q4 -- excuse me, Q3 to Q2. That doesn't mean that we are not looking at a robust new award plate for the rest -- the second half of this year and as we go into next.

That is helpful. I am sure there are a lot of questions. I will get back in queue. Good quarter again.

Thanks.

Our next question will go to Alex Rygiel with FBR Capital Markets.

Thank you, David, Mike, great quarter.

Thanks, Alex.

I know it's a little early to talk about 2012, but given where backlog is today and kind of the year-over-year growth in change in backlog and your most recent comment with regards to a pickup and burn within the mining segment, can you kind of comment or attempt to bracket even in a wide range, what revenue growth could look like or how revenues could ramp in the next couple of quarters?

With the kind of backlog growth, you're right, Alex, we've seen -- we are expecting some ramp up in the second half of the year revenue growth in terms of what we are going to burn in the Company. Looking onto 2012, we really have not gone through our planning process yet. It is a little difficult to say. We did do a bottoms up plan in September and October and are much better prepared to talk about that in our November in our third quarter call. But certainly, as David described, the backlog growth that we have seen we've got $40 billion now, it's going to be lumpy going forward but there are some very attractive aspects out there for the latter half of this year and early next year. I would be disappointed if we don't see continued ramp up in revenue burn as we move through 2012.

And just to follow-up, if there was one item that was kind of at the top of the list, the reason why you possibly you didn't raise this year's high end of the EPS guidance, what might that one reason be that kind of keeps you holding back a little bit until you see another quarter of earnings develop?

I think is primarily some of the projects that have moved out in the quarters relative to when they are awarded and also the continued delay on some projects that we've got in backlog that we are waiting on governmental approvals.

That's particularly true in the power segment.

Very helpful, congratulations. Thanks again.

We will go next to Brian Konigsberg with Vertical Research.

Good afternoon. Thanks for taking my question. Actually, just coming back to the guidance again, I mean you did raise the bottom slightly and kept the top but it seems that actually second half earnings generation would be down for first half which doesn't seem to make a whole lot of sense given your backlog and the momentum you're building. Can you just give us a little more color on kind of the moving parts as it relates to the framework of your guidance?

Yes. Let me add -- shed some light on that. If you take our first half results and annualize it, we are right around the top of the range. And as we said, we do expect some delays in projects and things moving to the right that we will have a weaker second half in our power business. In addition, if you look at our business over the last several years, our corporate G&A goes up in the second half, especially in the fourth quarter, so that will reduce some profitability. If you take those couple factors out, we expect some good improvement in the rest of the business the second half. But given those factors, we are being somewhat conservative and saying the top of the range would be equal to the first half if you annualize it.

And, also, can you give us a taste of what the competitive environment looks like in terms of pricing? We've heard there is at the margin some improvements, maybe give some color by your different segments?

I'm not sure I would do it by the segments but, I think what we've seen is something we talked about before. We've seen some significantly predatory pricing as we experienced last year and into this year. Most of those folks have almost filled their shops up. I think that some of the customers that were leery of that have made some different decisions. And, as such, they are coming to companies like us where we demand a little bit higher profit. Unlike our friends in Washington, I think profits are good. I think what we do is we look at it every individual project on its own merits and see whether it takes -- it makes the hurdles that we expect given the risks that we are taking. And, as I said earlier, I am pretty pleased with the margin dollars that we are putting into backlog.

Great, thank you very much. Great quarter.

We will go next to Will Gabrielski with Gleacher.

Thank you. So just a follow-up on questions we heard earlier on [Sadara] I guess. Can you say whether you or not you were the low dollar bidder and if price was the final determine on that project?

You'd have to as the client that question.

They don't talk to me.

Seriously, they don't share. We got an indication that we were very competitive, I don't know that we were the absolute lowest. There were several competitors, as I understand it, that were all grouped together, and luckily they, for us, they made the decision to choose us.

Okay. Question on the [EMT] margins. How much of a difference in what you're seeing right now versus what you might have thought you were seeing at this point is related to utilization versus as sold margins and within that question between Kearl, West Qurna, and Santos, are those ramping up on the schedule you would like to see at this point or is that part of the problem?

That is part of the problem. I think it's more utilization and timing than it is the margin dollars in the backlog. Santos is progressing nicely, so is Kearl. So it's just unfortunate that the amount of CFM in Kearl really skews, frankly, the margin percentage but, again, as I stated, I am pleased with the margin dollars that we have in backlog based on the risk that we have assumed.

Okay. You talked about 25 feeds with a $30 billion total investment estimate on those projects. Since you gave that, maybe you can give us a historical comparison so we can compare that to where we may have been at different parts of the cycle.

I think that's a good question. If I think back to when I ran ENC, it kind of feels like the beginning of that last ramp-up, but it's completely different. There is some down stream in there, but is more heavily weighted on the upstream side as well is a petrochemical site. So we do see that market re-surging, but I guess in sheer dollars it feels like the 2005-2006 kind of timeframe. But the engineering content in those projects is a little bit less than it is in say a down stream project and what we anticipated in that last cycle.

Okay. And then lastly, the stock prices declined quite a bit since you last reported earnings and your backlog has done nothing but go up and presumably the mix of working your backlog continues to get better as you work off Gabbard so I'm just wondering what are you guys thinking about with the cash and when you look at your services business, is that still core to what you're doing? It certainly involves a lot of CapEx every year. Are there ways to monetize anything you have currently?

I will let Mike mention it, but I think our strategy still is the same. By and large, we are looking at the acquisition as being a good use of funds. When we find something that makes sense from a strategic perspective and the price associated with the opportunity matches with what our expectations are and I will let Mike talk about it.

Those are tough criteria to meet even looking we haven't really found something that meets the criteria. In the meantime, we have (inaudible)buy back stock and it's reasonable to assume we will buy back stock especially at these values that we personally think are tremendously undervalued. We think it's a great buy. We do have 4 million shares left in the current authorization, it's a good use of funds as we go forward.

Okay, great, think is a much.

Our next question comes from Scott Levine with JPMorgan.

Hi. Good afternoon. We are going to get a better sense of how the year is playing out relative to your initial expectations? Obviously you've refined the EPS guidance but you don't guide on bookings and you have a record quarter here. Is this better than you would've thought at this point? Basically, is the order book to date and what you guys see for the back half roughly consistent with what you guys anticipate in your guidance at the beginning of the year?

I think it's in line. As I said, we have one project shift from the third to the second quarter which put it in direct territory. But as we look, the first 6 months of the year and add to it what our prospect suggests, we are pretty much on target.

Okay. And maybe turning to the US, obviously it seems to be the weak spot. It sounds like you don't feel any better about this market. You did announce a contract with Dow and Freeport earlier in the year. Is the market as weak as you thought it was at the beginning of the year and maybe some thoughts on what's transpired on the hill and expectations for businesses that are affected by policy in the back half of the year like infrastructure and things like that?

I guess I'll be running for president to answer those questions. It's interesting. I look at the US market right now and I see what we've got kind of in our sites, that some things like I mentioned are awaiting some permits or some investment decisions. At the US returns at all its upside for us. I think our diversity has allowed us to go and capture business outside that keeps us growing in spite of what was see in the US. I'm not sure I can add any color that already hasn't been talked about on the TV around tax policy, just some sort of logical energy policy, those kinds of things that the US absolutely has to get figured out if the US is going to maintain its position in the world market.

Got it. One last one maybe on Gabbard. You said the term inflation kicks in again in September, that was previously expected. Is there a period of time in the next couple of quarters kind of pivotal here in terms of the workflow? At what point do you really start to ramp down in terms of the mobilization and maybe if you could affirm I guess the prior completion date you have given on that project? I'm guessing it's still intact?

Yes it is still intact. We are still working a plan that we established 6 or 8 months ago. The weather still continues to be a challenge. That is something that's outside of our control, but we feel pretty good about the progress we are making. The critical aspects of having the Leviathan there which is one of our jack-up rigs that allows us to install the generator sets us back on station and beginning in a couple of weeks, the installation in our plan we hope to get all of the turbine generators set during this next couple of month period of time, but in our plan we have planned in if we don't get it all done, to do the remainder in January once the Leviathan is available again. So we are still working towards a plan that we had in place, whether it's really the only challenging component at this point.

Thanks, nice quarter.

We will go next to Joe Ritchie with Goldman Sachs.

Good afternoon, everyone.

Joe.

Going back to Jamie's question earlier about oil and gas margins and whether we hit a floor and you guys mentioned that utilization is starting to improve in that part of the business and that has been part of the issue for the lower margin. Is it fair to say that we have hit a bottom there or is it possible we could still go lower from where we are today?

I think there's a chance it could go a little lower as we work out the rest of this year, but in line with the guidance and the plans that we had, we kind of expected to have a little bit of a lull from a percentage perspective, but on an individual project perspective I think we are still happy. I believe that the improvement in EMC on the margin production perspective and the profitability of production perspective, we are looking at 2012.

Okay. And then if you are looking at 2012, is it fair to say then what you are booking into your backlog today is higher than the 3.5% margin that you are reporting?

In most cases, yes.

Okay. Great. One last question. You mentioned the 25 to 30 feet you are working on an oil and gas. Is there a sense of timing on some of those feeds will turn into EPC contracts? You guys looking at the back half of this year or most of those feeds going to be in to larger contracts in 2012?

It's all over the map. There's not one quarter were we are anticipating some big slog coming in. It's really nicely spaced out, frankly, over the next 6 to 7 quarters.

Okay, great. Thanks.

Let's go now to Andrew Wittmann with Robert W. Baird & Company.

Hi, guys. Good afternoon. I guess, David, in your comments you mentioned that you are thinking about doing some strategic initiatives that are under way. Kind of put that out there, didn't give a whole lot of details, so I was wondering if you could maybe fill us in a little bit about some of the things you might be thinking about?

I think we are looking at growing all of our markets. We are looking at strategic initiatives that focus on allowing us to grow within given market but also to maybe enter some different geographic markets. There is some technology plays that we are looking at in various segments of our business, but there are things that will enhance our offering and our footprint, frankly, and I really wouldn't want to go past that.

Makes sense. Are there any end markets at all that you don't do today that there could be a new end market that you are going into or would it just be kind of a niche in an existing broader end market?

I think it would be a niche in a broader scheme.

That makes sense. I guess kind of a technical question, on the power side it looks like even despite your revenues down pretty significantly, margins hung in there very well. Was there something in there that made it unique this quarter?

We would say unique, I will have ask Mike to answer part of that but I think we've continued to see a fair amount of work on the plant services side, the better plant betterment side that we continue to do. That has been able to keep the earnings streams coming in and power even though we are waiting certainly for some of the bigger programs to take back and.

And we are also wrapping up a couple jobs that are essentially -- that were completed in the quarter. We had some favorable profit adjustments in those in the quarter.

Okay, great. Could you care to quantify the profit adjustments this year versus last year? Just to get an apples to apples on the margins that you are earning.

There are so many pluses and minuses, that's really hard to do.

Understood. Okay. Thank you.

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

Hi. Good afternoon and congratulations as well.

Thank you.

I was wondering, David, if you could talk for a second a little bit about your capacity to take on additional work. You have grown backlog in bookings probably to a greater extent than most -- at least the public peers. And as you talk about the business cycle getting better, are you concerned at all that the next wave of projects could offer even greater margins and you wouldn't be able to take advantage of that or do have the ability to continue to add capacity and bring on special project managers and other key people?

That's a great question. I think we have continued capacity in just about all our markets and part of it has to do with the robust training process that we have in Fluor and how we bring up that next wave of management. We saw that certainly when we grew from 2005 to 2008 and the opportunities that people were afforded just to step up and I think that's our first avenue towards being able to multiply our coverage. Secondly, we have invested a lot of money in our systems and tools that allow us to have a very robust dispersed execution model to where we are not forced to ramp up in one place versus another like many of our competition -- our competitors have to do. And then, finally, I think that we are very competitive in the market, and I would say one of the employers choice in our markets. So not only do we have the organic growth of available to us, I think we've got the ability to bring in the talent that we need to continue to grow. I feel really good about where we stand in our ability to continue to grow our people and provide opportunities for growth for not only the folks we have inside but also to attract that next wave of employee in. I think the key part is in that growing that organic talent base, they clearly understand our tools and systems and what our expectations are and I think that just adds to the quality and the assurity of delivery that Fluor provides.

Thank you, appreciate that. One other follow-up, Mike, you mentioned I think for the first 6 months 92% of your work or your bookings were for work outside of the US? What is the breakdown of your current backlog relative to international, how much of it is actually being executed outside the US?

About 80% of our backlog is outside the US.

Okay. And the engineering on that, how much of that is being executed outside the US?

We don't run have a breakdown.

It's all over the board, but we still have a significant presence from a talent standpoint in the US. Between the various offices, I guess the way to explain that is our US offices -- would probably during the trough where the financial meltdown we probably decreased our US staff by about 15% and I think we've stabilized to where we are back up from there. I'd say we are probably 5% down from where we were before.

But John, our systems are such that we are able to work share around the globe 24/7. A lot of these jobs have both domestic and non-US content.

Okay, but it sounds as if at least compared to the previous peak, more of the work as a percentage is going to be completed outside the US.

From a location a project, you are absolutely correct. But, again, the numbers I may have miss spoke, the 5% down since the peak is basically the global number.

Okay.

I think the fact of the matter is that we are going to continue to utilize the talent that we have based on the talent, and we've got a competitive offering when you combine it with our global reach. We've really spent a lot of time and effort in perfecting that dispersed process that allows us to move stuff, as Mike says, around the globe and really work 24/7.

Okay, thank you very much.

Our next question is from Tahira Afzal with KeyBanc.

Good evening, gentlemen, and congratulations on a very good quarter.

Thank you, Tahira.

What I have noticed is that you've done a really commendable job in keeping G&A under control. And really (inaudible) your initial guidance, seems like it's tracking much lower. Would love to get a sense of how we should be looking at corporate G&A for the rest of this year? And as you ramp up in 2012, what the run rate could be as well?

Let me first address this year. As you look back at the last several years, we are typically lower in the first half in terms of our G&A run rate. We usually see a modest increase in the third quarter, in terms of our G&A. And just given our spending patterns and when our renewals come up for maintenance and for other things, we see some fairly heavy spending in the fourth quarter and we expect that pattern to continue this year. We did reduce outlook for G&A by about $10 million this quarter versus what we talked about last quarter on the call. That reflects what you said really good performance that we've seen in the first half, but we do expect some increase in the second half. Some of that could be compensation based as well. As we look at -- we saw some increase this year over last year due to stock-based compensation, we could see more about second half of the year.

Got it. So next year, I mean would it be -- if you do see an increase is it going to be driven more by compensation or as we ramp up would you have any requirements outside of that?

I think as we look at -- it's early, we haven't done our plan like I said earlier. I think as we look at 2012, the only basis for any major shift in corporate G&A would just be the normal annual salary increases, things like that which would be rather modest.

Got it, okay thank you very much, that's all I have.

Next to Avram Fisher with BMO Capital Markets.

Hi. Good evening. Seems like you said INI margin strength is due to the heavy engineering component in the faces of the contracts. When do those projects convert to the EPC or to PNC side I guess?

The INI margins were very attractive for the last 2 quarters, I would say higher than normal. That was reflective of the number of items that occurred in terms of progress, in terms of settlements and things like that. It really wasn't due to any kind of special engineering content at this stage. Those margins typically are more typical in the 3% to 4% range than what we have seen. And I think over time, as we move through these large projects, we will be getting back to that range. But what it just really reflects is a super performance in the last 2 quarters of a INI business and that includes closing out of other contracts and reaching settlements on certain items and what have you.

Exceptional performance. Since the close of the quarter, have you sensed any changes in client's willingness to spend CapEx or spend money or pursue projects?

I think we have had some decisions that have gone forward, but I think most of the margins we are really pursuing, we're pretty far down in the decision-making loop. Commodities have held by and large which continues to push the mining segment oil prices have stayed reasonably stable and people have gotten their approvals in place. I think the project is just 2 kinds of color comments there. One is projects have gotten so big that many companies are having to go back to their boards multiple times to get these approvals. The impact to us is the impact of it pushing out a quarter or two. So I think the diligence around the capital spending decisions has increased within our customer base, but also I think a lot of the capital plans that we chase, there is a long gestation period on it anyway and I think that's what has pushed a lot of the new awards around within a quarter and the year, but also, as I mentioned, relative to oil and gas, pushing it towards the 2012 timeframe.

Do you have any significant backlog that is not burning?

No.

Okay. And on Kearl, what is the impact of the situation there with the modular transportation? Handing it back to you, I guess.

That's not part of our scope, but it really doesn't have any impact.

Okay. And, finally, just taking a stab at guidance, you are normally pretty conservative with guidance. Would you qualify your guidance now as normally conservative?

There's nothing unusual about our guidance.

Thank you.

That was an interesting way to put it, I will give you that.

We'll go next to Andrew Obin with Merrill Lynch.

Good afternoon. Can you hear me?

Yes. Hi, Andrew, how are you?

Good. My favorite question on cash flow. We went back to burning capital on sort of working capital. Could you sort of explain what happened in terms of work in progress and receivables and when do think this will reverse itself?

What you saw, you sought revenue burn increase in the quarter over the prior quarter. With that, you saw an increase in both accounts receivable and work in process. Andrew, that's just to reflection of the growth we're seeing in the business. It's going to be a little bit lumpy, it's also impacted by where we stand on our collections of LOGCAP. Our LOGCAP contract also has some -- it's a very over used word, but also has some very lumpy cash flows. Since the end of the quarter, we have had some significant collections on LOGCAP and our cash position is back up to a little over $2.6 [billion], about where was at the end of the first quarter. So, we have seen some of the receivables and work in process come down.

For the second half of the year, should we expect working capital use to be a neutral, a use of cash or are you saying you're going to get back some of the working capital you used you have in the second quarter?

I think the growth we are seeing and the fact that in response to an earlier question, I said that we would expect our revenue burn to increase as we go through the second half of the year. I think you could see a modest use of cash during the second half of the year. It will not be great, but it would just be modest.

Sure. And could you just comment about chemical opportunities in the US going forward? I know US is sort of not the most exciting market, but there's been some announcements in the industry. What are you seeing there a couple years out?

I was being somewhat flippant about the US economy given the circumstances, there is some pretty good things going on right now. I think one of the projects that was mentioned is the Dow project in Freeport. We are seeing a larger level of study work in that particular market but it's more around the downstream derivatives which I think plays in well with our skill set. It's debottlenecking of crackers, it's the monetization of that downstream and upgrading that production capacity primarily given the change in the gas price.

Thank you. Your earnings were very nice at the end of the day like today. Thank you.

Thank you.

(Operator Instructions) We'll go next to Robert Connors with Stifel Nicolaus.

Just getting back to that $30 billion of TIC that is in feed right now in oil and gas, will that have to require a JV partner or any sort of M&A activity in order to book or do you think you can pretty much do it organically?

I think we can do it organically, but I wouldn't say that we wouldn't look at JV partners in some areas.

Okay.

We've got some really good partners run the globe on certain projects, and we will look to leverage that, but our ability to do it organically is not a limiting factor.

And then can you just sort of give us a taste of what sort of end markets, is a predominantly mostly going to be upstream related with a little slice of pet chem and maybe some refining? Any color on that?

As I said, it's all over the board and I think the way you described it is appropriate. Mostly upstream with really good prospects and projects in both petrochemicals and in refinery.

Okay. And one more question, going back to the comments on cash flow, one of the good things about Fluor is that if you were to look at contract capital as a percent of revenue, it always hovers around a very low level. Do you see that changing much as you pursue more lump sum oriented projects particularly within oil and gas or does the working capital characteristics sort of stay the same in Fluor?

We don't see it changing much. In fact, if we would have a higher lump sum content it would be even better. Lump-sum jobs we tend to get advance payments, on some jobs we work on the client's money throughout the whole life of the job.

Would you also say you are probably being compensated too on the margin side where traditionally you probably do more cost plus but assume more lump sum in the future if you're seeing better pricing on that?

Generally yes, but it is all over the place. It's really hard to generalize on that.

Okay. Thanks for the clarity. Good quarter.

Problem with how large and diverse we are, there are a lot of moving parts, and to give any guidance along one dynamic would be misleading because we really have a convergence of a lot of good things I think happening to us now.

Okay, thanks a lot.

We'll take our next question from Steven Fisher with UBS.

Hi. Good afternoon. I'm sorry for the background noise here. Mike, is there any carryover of the power closeout into the third quarter?

Not to the extent it was seen in the first and second quarter. There will be less.

Okay, so just a little but then?

Right.

And then, David, on the competitive side how much of a facture do you think flexibility on terms and conditions is in winning new contracts in today's environment relative to offering discounts on price?

We've seen some -- if you go back a little bit of time we saw some pretty interesting things around terms. That's moderated and I wouldn't suggest that anything we are putting into our backlog today is much different from a term standpoint of what we have historically seen. We have seen an erosion of margin availability, but I think as we get through this year and into next, you're going to start to see that leverage pick back up and season better opportunities. But as I said previously, I am pretty pleased with what's going into the backlog right now as we start to work towards 2012 and 2013.

Okay so no material trade-off risk in exchange for kind of holding price in terms of --?

No.

Okay. Thanks a lot.

We'll go next to Chris Wiggins with Oppenheimer.

Thank you. Just a couple of quick ones. Did you buy back any shares so far in the third quarter?

No we have not yet.

Okay thanks. And you called out some increased capital spending in the government business in the quarter. Does that continue into the third quarter or have you wrapped that up?

We had roughly $100 million of CapEx in the second quarter and that's really not in the government business, that's in our American equipment business, that's in global services.

Okay. Thanks. And then just one last one. It looks like there was risk added in the queue about uncertainty of past or future acquisitions. Is that just a new generic or does that point to anything specific?

That is just generic. Generic risk. We take a close look at our risk factors every quarter and update them as appropriate.

Great, thank you.

We'll go next to Sameer Rathod with Macquarie.

Hi. Thank you. Some of your earlier comments indicated that projects were getting pushed out and delayed. Given the murky macro picture, can you indicate what you're seeing today and how it compares to what we saw in 2008?

I think there is more surety today than there was as far as new awards. You've got to look at the -- what we were earning in 2008 we're basically taking in to backlog in 2006 and 2007. So if I compare it to the 2005 timeframe, it feels about the same. The things that were coming into backlog in 2008 were -- or what we were earning on would come in a prior time. I don't think from a macro standpoint in the markets that we are in that are really moving the needle that we see much change.

Okay. Thank you. That's it for me.

Our next question comes from Will Gabrielski with Gleacher.

Thank you. You made a comment on M&A and technology, and I wanted to know if you would just drill down a little bit further into that because it runs counter to historically your view and technology and your idea of being agnostic. I'm just wondering is there's something that's changed in the specific end market or has something come across that's more intriguing to you about that?

Well, I don't think we've necessarily changed that agnostic approach. I think we are looking at some things that with a fresh pair of eyes, so to speak in certain places. I wouldn't want to be specific about that. But by and large, nothing that we are looking at would demonstratively change the way we look at technology ownership.

Okay. And if you'll allow me on the P3 market, something we talked about last year. Hasn't been much talk about it this year. Any updates on your pipeline and opportunities?

The pipeline is still healthy, these are just very long development cycles on the P3 side. I-95 through 395 that we think has a good chance of closing in the fourth quarter. We still believe that's the business model of choice for those infrastructure projects that are out there but our growth currently in INI has really been on the mining side as opposed to the P3 side still remains robust.

All right, thank you.

This concludes our question-and-answer session. I will turn the call back to David season for any closing remarks.

Thank you, Operator. I really like to thank everyone for participating in this call this afternoon, specifically given how the day went. I am sure you are all headed to the cocktail hour. But as we have indicated I think in the prepared remarks as well as in the Q&A, we feel very good about the strength of our results for the first half of the year. We continue to look at a number of opportunities that will position our Company for growth over the long-term. Again, we greatly appreciate your interest in your confidence in our Company and, with that, have a good day.

Ladies and gentlemen, this does conclude our conference. We appreciate your participation. (End of Transcript)