Fluor Corp (FLR) 2013 Q2 法說會逐字稿

Good afternoon and welcome to the Fluor Corporation second-quarter 2013 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 PM Eastern Time today accessible on Fluor's website at www.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 11.00 AM Eastern Time on August 7 at the following phone number 888-203-1112 the passcode of 2083183 will be required. At this time for opening remarks I like to turn call over to Mr. Ken Lockwood, Vice President of Investor Relations.

Thanks very much, operator. Welcome, everyone, to Fluor's second quarter 2013 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; and Biggs Porter, Fluor's Chief Financial Officer. Our earnings announcement was released this morning before market open and we have posted a slide presentation on our website, which we will reference while making our prepared remarks.

Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide 2 of the slide deck. During today's call and slide presentation we will be making forward-looking statements, which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences, in the Company's Form 10-Q, which was filed earlier today, and in the Company's 10-K. During this call we may 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 would like to turn the call over to David Seaton, Chairman and CEO.

Thanks, Ken, and good morning to everyone and I appreciate everyone joining us this morning. Today we will be reviewing our results for the second quarter end discussing trends we see for the remainder of 2013.

Now if you turn to slide 3, I would like to begin by covering some of the highlights of our second-quarter financial performance. Net earnings attributable to Fluor for the quarter were $161 million or $0.98 per diluted share. I think this represents a good quarterly result when you consider the EPS was impacted by a $0.07 charge for the resolution of the last of the Company's outstanding recorded claims. Otherwise, we met our expectations for the quarter.

Consolidated segment profit for the quarter was $288 million, which is comparable to $287 million a year ago. Segment profit results were driven by strong growth in Oil & Gas as well as the growth in Power. These improvements were largely offset by the $17 million pretax charge relating to the final embassy claim. Consolidated revenue was $7.2 billion reflecting growth in Oil & Gas and Power segments, which is offset to some degree by lower revenue in Industrial & Infrastructure as well as Government.

New awards for the quarter were substantial at $7.2 billion, including $3.6 billion in Industrial & Infrastructure and $3.3 billion in Oil & Gas. Consolidated backlog was right at $37 billion, which is down from a year ago primarily due to the down turn in the mining and metals market. Having said that, the margin dollars in backlog and the margin percent in backlog are higher than they were last year. Our financial results are summarized in the table on slide 4 and as you know the full detail by segment is included in our earnings release.

Now if you turn to slide 5, Oil & Gas awards in the quarter included significant new scope on a large upstream project in Russia and a FEED award for Sasol's ethane cracker and associated derivative chemical facilities in Lake Charles, Louisiana. This important FEED program is already underway and is expect to be complete later this year. This project, along with Dow Chemical's projects that were awarded earlier, is further evidence that we are especially well positioned for the US petrochemical build out. Looking ahead, we expect to hear a decision relatively soon on the CPChem ethylene cracker, which we are bidding together with JGC.

In addition to our strong position in petrochemicals, we are excited about a number of LNG prospects, which we are also actively pursuing, some with JGC as well. We are well into the FEED on the Anadarko's onshore facility in Mozambique and we are currently pursuing export facilities for the Kitimat project in Canada and the Cameron project in Louisiana. We also continue to see a significant number of Oil & Gas opportunities internationally including major upstream and downstream programs in Canada, Mexico, Kazakhstan, Australia, Asia and the Middle East. We expect that strong FEED demand will translate into EPC awards in the next few years. Ending Oil & Gas backlog was $18.7 billion, which is down modestly from $19.5 billion a year ago.

Moving to industrial infrastructure, the new awards for the quarter were $3.6 billion, which included $2.9 billion award for the expansion of the Cerro Verde copper project in Peru for Freeport-McMoRan. This construction management contract is a follow on to the engineering and procurement phases that we recently completed. We also booked $184 million infrastructure construction to provide program management and construction supervision services for the $5 billion across Sharq Crossing program part of Qatar's ambitious development plans ahead of the 2022 World Cup. Industrial infrastructure backlog ticked up to $16.2 billion in the second quarter driven by the large mining award in Peru.

Now pleased to slide 6, the ending backlog for Government segment was $531 million, which compares to $505 million a year ago. New awards in the second quarter were $256 million primarily for the LOGCAP task orders. We are beginning to see a reduction in the task order volume on LOGCAP contract in Afghanistan. For the balance of 2013 we expect a quarterly revenue run rate of approximately $350 million to $400 million, which is below the $500 million run rate that we have generally experienced up through the first quarter.

As I mentioned earlier, we recorded a $17 million charge in the quarter relating to a court ruling in our final embassy claim with the US Government. This result was particularly frustrating as the court ruled in our favor on two of the three central issues yet awarded us only a small fraction of what we believe we are owed. We are considering an appeal to the amount of the award.

Moving to Global Services, this segment reported $28 million in segment profit and $154 million in revenue. This group continues to be active in supporting projects as well as external customers. Global Services organization is leading our efforts to support and grow our integrated construction and fabrication and supply chain capabilities. Our fabrication resources in Mexico, the Philippines and Canada are ready to support -- and in some cases are already supporting some the large projects globally. In anticipation of the huge demand for skilled craft resources in the Gulf region, we recently have opened training centers to support the Dow Chemical ethylene cracker complex in Freeport, Texas and expanded our welder training program in Houston.

Power backlog was $1.6 billion at the end of the quarter. The group continues to track opportunities in new gas-fired plants, solar facilities as well as plant-betterment programs. Looking at the rest of 2013, I think we are on track to book the Brunswick County combined-cycle gas-fired plant for Dominion Energy in the third quarter end see several opportunities for environmental retrofit projects later in the year.

With that, I turn it over to Biggs to review some of the details of the operating performance as well as some of the corporate financial metrics for the quarter. Biggs?

Thanks, David. Good morning, everyone. Please turn to slide 7 of the presentation. As David indicated, consolidated backlog at quarter end was $37 billion. The percentage of fixed-price contracts in our overall backlog declined from 18% last quarter to 16% at quarter end. Our geographic mix stands at 70% international and 30% in the United States.

Moving to corporate items on slide 8, G&A expense for the quarter was $32 million, which is comparable to the last quarter, and a year ago. The effective tax rate for the second quarter was 31%, which was on the low end of our expectations for the year. We expect the rate for the second half of the year to be in the 32% to 34% range. Shifting to the balance sheet, Fluor's financial condition remains very strong with cash plus current and non current marketable securities of $2.6 billion at quarter end. This is up about $100 million from where we ended last quarter, but level with where we started the year. Cash flow from operating activities in the second quarter was $264 million driven mainly by earnings sources.

While working capital balances were modestly better at the end of the quarter, on a year-to-date basis we have seen reductions in advance billing balances as we make progress on certain projects and increases in accounts receivable balances mainly due to the timing of collections. It is worth noting that one major customer advance has now been fully utilized, so this should be less of a cash-flow drag going forward. We expect more normal working capital patterns in the second half of the year with corresponding improvements in the cash flow. If you look at our cash flow statement, you will see that we did not repurchase any shares during the second quarter. With the expectation that future cash flow will improve, we anticipate the resumption of share purchases in the second half of the year consistent with our capital allocation philosophy.

I will conclude my remarks by commenting on our guidance for 2013, which is on slide 9. While we continue to see a number of opportunities in our Oil & Gas business, the charge relating to our final embassy claim and, as we stated last quarter, the slowdown in mining and metals have put pressure on the upper end of our EPS guidance range for 2013. As a result we are tightening the EPS guidance range for 2013, $3.85 to $4.20 per diluted share, which compares to previous range of $3.85 to $4.35.

With that, operator, we are ready to take questions.

(Operator Instructions)

Jamie Cook, Credit Suisse.

A couple of questions -- one, David, could you just talk about how we should think about the burn rate related to mining in the back half of the year relative to what you originally thought? How we should think about that going into 2014? Then my second question relates to oil and gas -- one, I think some of the projects that had more procurement roll off in the first half of the year fairly soon, so can you talk about that and how that should potentially impact margins in the back half of the year?

Then, also, Kitimat and Cameron are two obviously big awards. Can you talk about the potential timing of them and what you think you're positioning is with JGC relative to Kitimat? You are bidding against KBR and Hewitt. In Cameron there are a number of bidders out there, but your likelihood of winning those projects? Thanks.

Thanks, Jamie.

With regard to mining, I would characterize what is going on in mining is, most of the miners taking a deep breath, as I think I have said before. I think the Cerro Verde award shows that there's still people ready to pull the trigger and spend money on things that make sense. I just spent last week in Australia on several of our job sites and I think the need is still there. I think when you combine the markets, you combine the fact that each of the mining companies have basically new management teams, I would suggest that what we are seeing is a little bit of a hiatus right now. And I believe that we will see a resurgence of that as we get into mid '14 on some of these programs.

Having said that, I think that we still have a fair amount of projects going on that still have to complete. I don't think you're going to see much of a change as we get into the second half of this year -- or we are already into the second half of this year. But I think it could have a little bit of a slowing effect on the first part of next year just simply because of the lack of new awards that are going in. But the group is very active, we are doing a lot of stilled study work. There is still good projects out there, they are just not as big as the ones that we have experienced over the last bit of time. I do see that it is going to improve.

You talked about oil and gas, and there was two questions there, one on margin and one on LNG. As I said in the prepared remarks, we are seeing better margin both in terms of dollars and in terms of percentages in our backlog, which is a very good trend. I see that continuing as we get into this next cycle. I am not really going to comment on how that actually burns, but relative to LNG, and I think our relationship with JGC, I'm very pleased with that. I think the team has done a really good job of looking at that market and coming up with an alignment that is satisfactory to us as well as JGC, but frankly speaking is very satisfactory to our client base.

On the timing, you know that as well as I do on the timing of Kitimat and Cameron -- I think, Jamie, unless we have a really good opportunity to win something we really don't go after it. So, I feel good about our position. I feel really good about our relationship -- our growing relationship with JGC. I have known them for many years and worked with them for many years around the world, primarily in the Middle East back in the day when I lived out there. I feel very good about where we stand from a strategic perspective, and feel good about our ability to win some of these projects.

But David, just as a follow up, I feel like in first half of the year, within oil and gas, there were some projects that were unfavorable to margins that roll off fairly soon. Is that fair outside of the pricing trends that you talked about and better utilization? Then, two -- within those two projects, within Kitimat and Cameron, I think some of the comments that have been made is, the LNG projects and potentially GTL projects could have a greater probability of going fixed price versus than cost plus. So, can you talk about the risks associated with those projects going fixed rate?

I think we are quite comfortable with fixed-price work; we have done that for a lot of years. It is just recently our percentages have dropped. So, the fact that they are either negotiated lump sums or they are competitively bid lump sums, we feel like we can be competitive and we feel like we can be profitable in executing those programs. I'm pretty confident about our ability to deliver on those projects.

With regard to some of the burn off, there are a couple of large projects; but I'd remind you that percentages are interesting but not what I am most focused on. I am focused on earnings growth with these projects, and if they have a fair amount of CFN in them, so be it as long as we feel comfortable with the profit dollar growth. Yes, the one in Canada that has been a significant drag -- I think when you think of mining it's got the same pattern. There is probably going to be a few more that we put into backlog in the coming years that will have the same impact. When I think of just the percentages, I am interested in it, but I am more interested in the margin dollars. As I said, we are seeing margin dollars increase in backlog, which I think is a good testament to our earning power going forward.

Okay. Thanks. I will get back in queue.

Andrew Kaplowitz, Barclays.

David, just following up on oil and gas for a second. You have done a good job here of keeping book-to-bill around 1 over the first couple quarters of the year. I thought your prospects might have been a little bit more back-end loaded. As we go into the back half of the year and into next year, can you sustain that book-to-bill around 1? I know you are going to tell me it is lumpy, but generally speaking, can you sustain it?

Is it going to be really -- everybody continues to be focused on North America, but it seems like you guys have just as many prospects internationally. Would you agree with that statement?

I absolutely agree with that statement. It is really good that the US is in a growth mode. From an economic development perspective it is a great story. We are really well positioned, as I said, in most of those markets that are growing in the United States. That is a good story for the US in general and us specifically in executing those projects.

As I said in my prepared remarks, whether it is Canada, Kazakhstan, Asia, continuing work in Australia -- the opportunity slate, as I think I have said in the past, is as big as I have ever seen. I think we are very well positioned in most cases. To answer your first question -- as you said, it will be lumpy, but I think as we go through the next probably six quarters, probably as far as I would like to get out on a limb here, I think you are going to see some of the same book-to-burn ratios. There's a lot of big projects coming in between, say, the fourth quarter of this year and the fourth quarter of next year.

Okay. That's great.

David, let's get the Bay Bridge question out of the way. Can you talk about the steel rod issue? There's obviously has been some press on it. Do you still assume performance incentives in your new EPS guidance? How should we think about the risks of the project?

I will answer it this way -- the bridge as it stands today is significantly more safe than the bridge they are driving on. The fix for the rods is well known and has been approved by Caltrans. That fix is not a long-duration fix nor is it an impact on our ability to open this thing on time. I feel pretty good about the relationship that we have got with Caltrans. I feel good about the fix and how it will progress, as long as we get the approvals from them to execute. There are some competing ideas on how you fix it, but Caltrans has already picked the fix and we are going through the process.

Okay. Thanks, David. I will get back in queue; appreciate it.

Jerry Revich, Goldman Sachs.

David, in US chemicals, in addition to the projects that you listed in the deck, I'm wondering if you could just give us your broad overview on the industry? How many more ethylene and propylene new-build projects do you expect to reach a final investment decision within the next 12 months? Out of those, can you give us a rough sense of how many you are pursuing?

I think there is either seven or nine discussed in the open. I believe by the end of the year there will be four sanctioned. I think in addition to Sasol and Dow and the CPChem one, the other one is Shell-Franklin. I think that decision will be made pretty quickly as well. We feel pretty good about having a pretty high batting average there. We are already betting 500.

Okay. In terms of industrial and infrastructure, excluding mining, I am wondering if you just flush out the bid opportunities you see over the next 12 to 18 months? To what extent can you deliver backlog growth in that part of the business?

I guess you are talking about mining and infrastructure separately -- is that your question?

Yes, so the I&I segment, excluding mining.

I think it's going to be hard to maintain backlog in that segment in the near term. As I said, towards the back half of next year is when mining will come. I think we have great opportunities in infrastructure. We have great opportunities in the manufacturing and life sciences segment. But those projects just aren't big enough to keep the backlog static. So I think we will see some decline as we go through the end of this year and into next year.

Overall, I am pretty pleased with the fact that we have stopped the decline in backlog as a Company. When you think we've burned $7 billion-point-whatever and we awarded $7.2 billion. I think that is a good sign that the oil and gas engine is taking off, but we still have a good robust business in mining.

For mining backlog -- to kind of change to that northerly trajectory -- I think we have to get into next year to see exactly what the mining guys do and whether my prediction plays out or not.

You have had some pretty significant wins that happened recently. Just to clarify the overall opportunity set on pure infrastructure project outside of mining is still as robust as it's been over the past couple quarters? Can you just help us get a rough sense of how deep that pipeline of opportunities is?

It is pretty deep, but it is one of those things where the gestation period on these is pretty long. When you consider you are dealing with municipalities and in some cases states and governments and the like, it just takes a little bit longer. Earlier in the year we were successful at Tappan Zee. We were successful with the Horseshoe project in Dallas, which clearly add to backlog and profitability going forward. They are in the early stages of some proposals right now.

My guess is that we won't see any real big awards in infrastructure until we get into fourth quarter and first quarter. They are working on some really good ones. I'm really pleased with where they are.

Thank you very much.

Steven Fisher, UBS.

On the guidance change, you didn't site the LOGCAP slowdown, which I calculated about $0.04 of headwind. Was there any other offset somewhere in there for that? How surprised were you by that slowdown and how are you thinking about 2014?

Just one last one on the guidance of -- how does the Cerro Verde benefit in 2013 compare against the headwind from Pascua-Lama?

Let me hit the mining one. Pascua-Lama is basically been delayed until we help them get their permit reinstated. Part of that is a water project that we're actually executing right now. I would like to think that the Pascua-Lama will be back on target as we get into next year. I think that Cerro Verde basically replaces what Pascua was doing relative to burn. I think it trades one for another.

Now on LOGCAP, it is pretty consistent with what we thought. I will let Biggs talk about the numbers specifically, but we anticipated that there was going to be troop withdrawal during this year. But holding pretty steady on our ability to -- the headcount that we have is supporting both the war fighter as well as the infrastructure there in Bagram and the FOBs that are there. It is always anticipated that we would go down a little bit, which we are experiencing, but stay pretty stable. Because when the military withdrawals -- if you look at Iraq as an example, they displace military war fighters with people like us until the withdrawal is effected.

I don't believe you are going to see the 100% withdrawal that you saw in Iraq and Afghanistan. I think the administration is saying that there is a fair amount coming home this year and a fair amount next year, but there will be a significant force left behind that will typically be housed at Bagram, which we are responsible for. Whereas it will drop and it will be able a hole we've got to fill up in earnings going forward, it is not the cliff that I think a lot of people anticipate.

Biggs, I don't know if you want to give color to the numbers?

Without going in and literally calculating the variance on a cents-per-share basis, certainly a slower volume on LOGCAP alone would create some reduction in the second half or the first half. There are some other opportunities within government they have to offset that. Also, G&A is running better -- by example, taxes have run better. There are a variety of moving parts when we look at resetting or tightening the reins as to what we considered.

There is probably a pretty good visibility for the remainder of this year on the LOGCAP run rate. I think it is too early to call 2014.

Okay. That's helpful.

Just a follow up on Andy's question on the Bay Bridge. Under what scenario or what's the risk that you have to take a charge on that or that it is a drag on earnings? Then conversely, is there a chance that you'd still have some up side to what you are accruing in earnings right now?

We haven't booked the incentives. We typically don't book those until you get to the point of having cleared all of the hurdles associated with it. So there is no risk associated with that from the standpoint of anything we have on the books.

You asked, was it in our guidance? Explicitly, we don't put any one particular event or won't comment on it at to what is in or out of the guidance, because we look at the prospects across all of our programs at all the potential outcomes in setting a range. You can always say something is there on the range because we have considered it; but it is also our of the range because other things could be there in substitution to it.

I don't see any downside either, because the design and the specification of those was done by the designer, which is Caltrans. We are just the constructor on that. I don't see any repercussions relative to the solution.

Okay. Great. Thank you.

Vishal Shah, Deutsche Bank.

Just wanted to ask you a question on the backlog margin expectations. I know you mentioned that your margin dollars and percentages have increased of the last quarter. Can we expect that trend to continue for the next couple of quarters? Can you talk about some of the different moving pieces in the backlog?

Also, on the I&I segment awards -- excluding this one large mining award, your others were close to $700 million. Should we assume that run rate for the next couple of quarters, or should we expect an improvement in that segment as well? Thank you.

I don't think you can expect to have the I&I segment at $3 billion-plus going forward, but I wouldn't say there would be a substantial drop. I think they've still a lot of opportunities out there, so there is a little bit of a decrease in the short term on their new award intake. Again, I think the projects just aren't as big. From a profitability standpoint, I feel good about where we are headed.

Relative to the increase in margin in backlog -- that's always the good sign for us that things are improving. I do believe that the quality of the backlog margin will improve as we go through the rest of this year and into next year; and it's going to be primarily driven by our E&C segment. I feel pretty good about where we are and the trends we're seeing. I wouldn't venture a specific number of quarters or a specific amount; but just directionally, it is improving and we expect that to continue for some time to come.

That's helpful. Thank you.

Tahira Afzal, KeyBanc.

Good morning, and congratulations on a good quarter.

Thanks, Tahira.

The one thing I wanted to talk to you about was the Power side. We have seen a regulatory impasse and paralysis, but as I hear the utilities' goals and have been monitoring their recent announcements, seems like there seems to be some positive movement on retirements and new launch replacement announcements. Would love to get your thoughts if you are feeling a little better on the visibility on the Power side?

I do think we feel a little better on the visibility, and the projects that are being decided are primarily on the gas side as well as some typical of the plant betterment. You are correct -- the lack of decision on the CSAPR rules put the power generators into a question of how do we comply without clear direction. That does delay any significant work on fixing the coal fleet. I do believe that they will figure that out.

But when I look at the plant betterment piece that we do on the coal fleet, I think there is a pretty good opportunity even without the regulations that are necessary. I am particularly pleased with the Power group's ability to deal with the slowdown and do the right things relative to the organization and maintain their capabilities. A couple of these projects that are ongoing, we are able to train that next wave of construction superintendent, which I think is absolute key to our future. This project that we announced, that we hope will be sanctioned from Dominion, is another example of direct higher construction. They have kind of been beat up, and I can tell you that was in our Company we beat them up on the lack of growth. But I do see some pretty positive signs, like I said. As we get into next year, and if there is a decision on regulation, I think it only increases the size of the opportunity for us.

Great. Just a follow up to that -- you had a nice return to profitability on the Power side this quarter. There seems to be some positive movement on headline news in regards DOE. Any talks on new scale as you look forward, which are incremental?

We submitted our FOA, the proposal, in June, and we are eagerly awaiting that.

The decision will be in September.

The decision is in September. We continue to have dialogue with several potential investors. I think that it's going exactly as we had planned.

Thank you very much.

Will Gabrielski, Lazard Capital Market.

As you guys think about the Gulf Coast and the amount of activity you are tracking there, what are you seeing develop maybe versus three months about potential bottlenecks, whether it's process engineers or craft labor? As you think about your fabricating strategy, are there still holes you want to fill there? Or is the Philippines a real option for Gulf Coast fabrication?

I am and excited about what's going on there. We know how to do this and I love it. The pinch points, I don't think, are going to be project management or engineering. It's like I have said before, it is going to be craft and attracting that next wave of craft employee to our Company and to the industry, frankly. That is why we have stepped out and invested in some training centers, welding schools, and making sure that we're taking advantage of the marketplace there with good, talented people that have worked with us before. We feel really good about our position in being able to execute on our commitments to our customers, even with the tightness in craft. I think that is going to be the pinch point.

Fabrication -- the quick answer to your question is, absolutely the Philippines can be competitive. In fact, some of the programs we are looking at, we utilize that yard that we have in the Philippines. But we are also looking south to the yard that we have got with [Group Ileka] in Tampico that we have owned for 10 years. We are looking at expanding that yard and I think that, as I said, that is going to be the fun part. I feel really good about our ability to deliver on these EPC projects in the Gulf Coast. I am excited about what is going on there.

Okay. Then a follow up in terms of your margin commentary around oil and gas. As you talk about being comfortable with lump sum turnkey work, and at the same time you're talking about projects that might still carry a high level of CFM embedded in the dollars you book, but as that lump-sum work starts to move into backlog potentially here over the next few quarters, should we assume, obviously, you're getting compensated for that risk?

I hope so. It is a trite answer, absolutely.

We are looking at these projects like we should be looking at them relative to the return on investment. I caution you from one perspective -- don't just focus on the percentage. Focus on the earnings dollars that are coming out of those programs.

Okay. Then my follow up to that is -- because you talk about the earnings dollars and not the percentages, but the returns -- I would presume then should also compare favorably to what you have seen historically, even if the percentages are lower, as long as the dollars are up and you are not committing extra capital to these jobs? Is that fair, Biggs?

Yes, I don't see anything different about what will happen in working capital going forward at this point. It ought to stay fairly normal relationships. It'll be close, but it should be normal.

Thank you.

Alex Rygiel, FBR Capital Markets.

Two quick questions. First, how would you characterize the mix shift in mining, from mining into your infrastructure business? Should we think about that as neutral to revenue next year? How should we think about it from a profit-contribution standpoint? Is it neutral or is it modestly, incrementally positive?

It is premature to give guidance for next year, but just in terms of talking about what will drive margins over time, if you look out over a longer period of time certainly mining is a lower margin business. So as we shift more to infrastructure, we do expect a higher margin rate. Of course, once again, as Dave has said many times, we're really worried more about margin dollars than we do about rate. But if you're trying to model it off of rate, you would expect a shift over time.

Having said that, it doesn't necessarily mean that there are some near-term dramatic shifts, because as we close out mining projects and eliminate contingencies, there is also a natural ability to have some improvement in margins if we successfully complete projects. So that will support some higher margin out of the remaining mining activities that are in backlog. And then the higher margin infrastructure activities just kind of layer on top of that.

Well, the only other thing I would add is, it really depends on whether my prediction is correct about mining projects coming back by second half of '14.

Right.

Lastly, on cash flow in the second half of the year and cash uses and possibly accelerating your buyback program -- should we think about the cash sitting on your balance sheet as cash that is not going to be tapped for future uses of buyback program or acquisitions, and therefore think that only future cash flow generation would be allocated towards those uses?

Well, we do base our purchases based upon cash flow; so for the most part we don't go in and tap cash on the balance sheet. There is some amount of flexibility there, but our tradition is to stay conservative and only repurchase based upon cash as it is generated.

The amount of cash on the balance sheet, obviously, has got some different components to it. It's got some amounts to it which is tied up in JVs and some which is restricted for projects based upon the structure of the advance payments we have with some projects. So it is obviously a little complex when you start to dive in and say how much of that is something we're comfortable using or not. Plus, on top of that we like to keep $1 billion or so in cushion for normal ebbs and flows of the business.

I won't say there is zero flexibility there, but our tendency is to base repurchases on cash generated as opposed to what is already there on the balance sheet.

That's helpful. Nice quarter.

Thank you.

Andrew Wittman, Robert W Baird.

David, a couple of your competitors have talked about some of these large oil and gas projects, seeing some push outs or delays in general. I just wanted to get your take on that and some of these other ones that you're working on FEED, or maybe [also] looking at doing FEEDs?

I'd make a couple of comments. One is, the projects have gotten so much larger that companies are taking one more quarter to take a look at things and one more quarter to get the sanctioning from their boards. I would suggest that, even with that, it is in line with what our expectations are.

When I think about the CPChem project that is pending -- they've stuck with their schedule in all cases. Dow, both in terms of the cracker and the PDH plants that we're doing, stuck to the schedule that was originally planned, as far as that schedule sanctioning. I don't think you are going to see any difference in Sasol. I don't think you're going to see any difference in Shell in that first wave. When you think about GTL and you think about LNG -- those projects are on track along the schedules that we saw.

Yes, things have been pushed back, but not in an unanticipated fashion, if that make sense.

Yes. Just maybe your thoughts on the LNG and the approval process that has been going on broadly for those opportunities in the US and with the DOE? What is your expectation for the cadence of those approvals coming out? And how does that affect your outlook there?

I am not sure I would venture a guess as to how quickly the government is going to work. As I have said, Shell Gas has got four uses and the cadence of them is going to be based on product -- petrochemical obviously in the beginning. I think some power work is second. When we think about Dominion and we think about the LCRA project that we are doing in Texas, GTL is probably behind that; and then LNG for export behind that. It is just a timing issue.

When you think about it, the biggest issue is, can they get export licenses? But, they are not going to export anything for four years even if you started the first one today. So, I think they are going to go along their normal schedule, and it is in line with -- as I said in the previous question -- it is in line with our expectations on timing. It's just going to take some time. Again, these are huge investments that these customers are making, and I think that their own diligence is going to drive schedule decisions more so than regulatory decisions.

Great. Thank you.

George O'Leary, Tudor Pickering.

Talk a little bit about the timing around expectations on Kitimat, given your presence on the rework of the FEED there by Chevron? Maybe some more color on timing around Mozambique project as well?

Mozambique -- the schedule on that is sometime in '14 for the decision on who goes forward. That is a competitive FEED that we are doing. It is on track for a decision sometime mid next year.

Kitimat -- I am not sure what that schedule is. We are very pleased to be a participant on that project and in doing a little bit of early works on that. Others have done the same thing. I wouldn't venture a guess on the schedule.

I would make this comment, though, and I think my competitors would agree with this -- these projects are large and in some cases nobody is going to get the whole thing. In some cases they will. I would say when you look at some of the bigger LNG plants and GTL plants, there's going to be several of us successful on significant pieces of those projects. I tend to believe that Fluor is in a good position to do very well, but others will get work in this boom as well. Let's make sure that when people talk about a $10 billion LNG plant, I don't think anybody is going to get $10 billion of any of them.

That makes perfect sense.

Maybe just speaking generally -- if you look outside of the US and Canada and you talk about being at least as equally as excited about the international opportunities, can you talk about what regions are driving that? What end markets within the regions are driving the excitement on the international front?

It is the same dynamics. I think the regions -- we are still excited about what is going on in Canada and we see growth in Canada. The Middle East, we see great opportunity there, notwithstanding some of the political challenges on things like the refinery work in Kuwait. We still see great opportunity there. We continue to see growth in Russia, primarily Sakhalin, and have done very well there.

China is still a good place. Even though you have seen the slowdown from a petrochemical and a refining perspective, they have got to keep up with not only demand but in some cases they have to improve the environmental natures of their fuel if they're going to compete on a world market. When you think about China, you think about Southeast Asia -- Malaysia, Indonesia, Vietnam -- all of these places have growth opportunities for us.

Australia -- it is just kind of interesting; they are taking a little bit of a hiatus on the mining side, but they are also trying to think through some of the dynamics around LNG export. We are very successful in the upstream piece of Santos and I think they will continue. But you've seen people like Shell pull back on projects like Arrow. So, I think there is a little bit of a wait-and-see attitude with regard to Australia, but still I think a significant opportunity for Fluor.

South America -- both in terms of Brazil, Mexico and Argentina -- we see growth opportunities in oil and gas. It is a pretty global business and I think Peter Osterveer and his team have done an outstanding job of diversifying the client base and diversifying the region to where we are not as beholding to a single country or region going forward.

I am very bullish on what oil and gas is doing. I am very bullish on what mining is doing. When you think about it, they went from a full-out run to hitting a little bit of a wall. And I think they have done a great job and doing the right things in managing their business and making sure that they are maintaining the position with their customers. They're making sure that we are there when the crank gets turned again. I think geographically there is really no weak spots, particularly given the petrochemical resurgence in the United States.

All right. Thanks very much.

John Ellison, BB&T Capital Markets.

In regards to M&A, are there any sectors or areas that you would like to expand into through acquisition going forward?

I think there's places within existing markets where we could strengthen our offering and we are actively looking at that. When we have talked about this in the past there was really no consolidating moves that make sense; so I think they will be niche in nature -- some of them small, some of them larger. I don't want to pigeonhole, and the reason I say this is a precursor to the example I'm going to give you.

We bought a company in Mozambique called ServiTrade that has an equipment business, but also owns one of the concrete batch plant -- one of two concrete batch plants in the country. That was a nominal investment to make sure that whoever needs the concrete can get it from us -- as an example.

You're going to see us make acquisitions that give us a foothold in a specific country of growth. I think you'll see us make some acquisitions in places where, from a technical perspective we've got a little bit of a deficit. I think the beauty of Fluor is, we're so diverse, both in terms of market and geography, that we really just need niches to gain that foothold. That's what you can expect going forward.

Okay, great.

My last question -- you mentioned that you're training craft labor down the Gulf Coast, in particular for the Dow Chemical project down there. Is this allowing you to mitigate a meaningful amount of the labor wage inflation? Do you expect that the impact of these programs will allow you to better position for bidding competitiveness?

Absolutely. I think fabrication has a piece in that as well. Part of mitigating the craft risk problem is taking some of the work off the site and into a controlled environment. When you think about the yards that we've got, basically we're mitigating that risk and controlling our own destiny, which is something that I've said in the past.

When you look at owning the craft and owning the fabrication, you have the ability to mitigate a lot the risk on costs that exist, and hence give you better predictability even in a lump-sum environment. So we've done some things really well to prepare for a change in the marketplace, particularly in the United States. We're in a good position to capture that and deliver the expected profitability.

Great. Thank you so much.

Robert Connors, Stifel Nicolaus.

Good morning, good quarter.

Good morning; thank you.

If I recall correctly, a lot of your Middle East pet-chem projects would come as one lump-sum award because the client didn't want to have to go back through NOC and government approval, I'm just wondering if that is the same for a lot of the Gulf Coast crackers? Or are they going to be phased? If so, what parts of the project you are receiving now and what scope expansions we could receive later?

In terms of Dow, that full EPC value is in backlog and we are blowing and going on that cracker. With regard to Sasol, we are in the FEED phase, there is a sanctioning somewhere towards the end of this year, early next year for that full EPC to be released. The CPChem job -- we are awaiting decision, or the information on that. That would start into -- that would be basically a full EPC award. I think the Franklin project for Shell follows the same model. It is upon us. I think the next big piece in oil and gas is the release of some of the FEED work on the GTL-type projects in the Gulf Coast. We are kind of into a long-term growth spurt that really fits us well.

Okay. Great.

Then, it was sort of hinted at before, but with possibly a little bit more lump sum being awarded in the oil and gas segment, I was just wondering if the earnings profile changes the traditional oil and gas, where we could see it more like a power and infrastructure, where some of the earnings are back-end loaded of a project?

That would be my expectation.

Okay. All right. Thanks.

Mike Dudas, Sterne Agee.

That's it, I am all set, guys. Thank you. I am all set,. All of my questions have been asked and answered. Thanks, guys.

Hey, Mike -- go Cowboys.

All right, now here is my question -- how come you didn't get the naming rights for the new stadium? (laughter)

I think AT&T is in a much better position to do that than Fluor,

It was a good sound economic decision for us not to go in pursuit of that. (laughter)

I think your shareholders agree. (laughter) Good luck to you.

Okay. Thank you, Operator, for managing that for us.

I really appreciate everybody participating on the call this morning. Overall, I think we delivered another solid quarter from both in earnings and a new award perspective. I'm really confident with regard to our market position in things like petrochemicals, but I don't dismiss mining and some of these other businesses that we are equally well positioned. In the case of E&C, I do see significant upside and additional EPC wins as we go through this year. We will continue to win the FEEDs on many of these programs. As I think I indicated, I am pretty excited about the LNG export facilities that we are pursuing, as well as the gas-to-liquids market here in the United States as avenues for growth.

Finally, I think we have a strong slate of international projects. It is interesting to talk about the United States again, because it has been such a long time since we have significant economic development in the US. Our international prospect list is just as long, and I continue to be very encouraged by our opportunity to grow the Company.

With that, again, I really appreciate your interest in our Company as well as your confidence in Fluor. I hope everyone has a good day, and goodbye.

Again, that does conclude today's presentation. We thank you for your participation.