雅各布工程 (J) 2005 Q4 法說會逐字稿

Good day and welcome to the Jacobs Fourth Quarter Earnings Conference Call.

This call is being recorded.

Today's presentation will be available for replay at 2 P.M.

Eastern through November 10, 2005 at midnight.

You may access the replay by dialing 1-800-642-1687 and entering the pass code 1220436.

Again, the number is 1-800-642-1687 and pass code 1220436.

There will also be Web cast of this teleconference which can be accessed by logging on to www.jacobs.com.

Slides for today's discussion maybe accessed at www.jacobs.com. (Operator Instructions).

At this time, I would like to turn the call over to Patty Bruner for the forward statement.

Please go ahead.

Thank you, Cynthia.

The Company requests that we point out that any statements that the Company makes today that are not based on historical fact are forward-looking statements.

Actual results may differ materially from the forward-looking statements.

For information concerning factors that could cause such differences the company requests that you read its most recent annual report on Form 10-K for the period ending September 30, 2004, and the most recent Form 10-Q for the period ending June 30, 2005, including in each case the management's discussion and analysis of financial condition and result of operations contained therein.

The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

And now John Prosser, Jacobs' CFO, will begin today's discussion.

Thank you, Patty.

Good morning.

I'll go over the financial highlights and then I'll turn it to Noel Watson to talk about the current business outlook and our growth strategies.

Going to slide 4, our financial highlights.

Obviously, we're all very pleased with the results of the quarter and the year.

We had record earnings per share of $2.57 which is up over 14% from last year.

The quarter at $0.72 is also a record.

It was up 35.8% over the same quarter last year.

The net earnings of 151 million is up 17.1% from last year and the fourth quarter earnings of 42.8 million were up 40% -- over 40% from last year.

So all in all, it was a very good year.

Backlog continued to grow, ending the year at 8.6 billion, which is up about 16% from last year.

We continue with a very strong balance sheet.

Our net cash position grew up to 143 million, almost 144 million at the end of the year.

It was 88 million at the end of the last quarter, so we've had a strong growth in this last quarter.

Talking about our outlook for next year just for a minute, we do believe that for 19 -- for 2006 we will continue on our historic 15% growth rate before the effects of 123(R).

Now we all know that that will come into play for us next year, and so I'd like to just take a minute and talk a little bit about what those effects might be.

If you look at the last few years -- or the information we put on our footnotes, the dilution from stock based compensation has averaged just below 12%.

For 2006, we have made some modifications particularly to the stock purchase plan to get that within the Safe Harbor, so it will no longer have an impact on the dilution.

So what we will see going forward is mainly dilution only from the stock option plans.

If you look at that historically it's been about 8%, and we believe because of some other modifications we've made, that our trend will be slightly below that going into 2006 and beyond.

The calculations do have a number of variables in them, and obviously they will be impacted by things that are -- some of which are outside our control, some of which we have control over but that's kind of our best estimate at this point.

Moving on to the next slide, this is a curve that we're very proud of.

We would like to see this tick up next year, we'd like to be able to wipe out this last year's flat period, but certainly we're getting back onto the track that we would talk about.

And you look at the five-year compound growth rate -- in 2005, we're back over the 15% growth trend.

Looking our backlog at 8.6 billion, up 1.1 billion from last year.

The professional services are up to 4.3 from 4 billion last year.

So all in all a very strong growth.

Very good bookings for both the quarter and for the year, which supports our outlook for 2006 and beyond.

With that I will turn it over to Noel Watson to discuss our growth and strategies and our business outlook.

Thank you, John.

Good morning.

I'm on Slide 7, if you're following on the Web cast.

Slide titled "strategies to maintain 15% growth."

And the first thing we'll talk about is the business model.

We've talked about it before but it's worth reminding everybody.

Even though we're in a market that is very strong right now, we intend to remain committed to our relationship-based business model.

Our relationship model is basically founded on preferred relationships with long-term clients.

We believe very strongly that if we can continue to work with clients on a continuing basis, the company will be more profitable, the work we do with the client will be a lot better because we understand how they work, and they understand how we work.

And so it becomes a win-win for both sides.

About 80% of our business comes out of these preferred relationships.

Another almost 20% of our business comes out of what we call "Discrete Projects".

These are projects for clients for whom we may or may not have worked in the past, but with whom we do not have a long-term relationship.

It also is a way of growing our business and bringing clients into the preferred client status.

You have to work with clients several times before they ever come into the core client status.

And we need to learn to work with each other.

So we always have about 20% of our business in what we call "Discrete Projects".

We have another small piece of our business in transactional projects, and we define transactional projects as when you competitively bid lump sum construction work.

It can be an engineering construction work, can be pure construction.

We define that as transactional.

We do very, very little of that work in the Jacobs' model.

If you go look at the industry model, which is on the right-hand side of this chart, you can see that the industry in general does a lot more transactional work.

Everybody has a few preferred relationships, and of course everybody has a group of discrete projects.

We believe we differentiate ourselves from the industry with our model because we really focus on the preferred relationships and the discrete projects.

We believe it is more profitable for us to do it that way, and certainly we control the risk a lot better because we're always working for clients that we know and know well.

The next thing that I'd like to talk a little bit about is focus on selective market diversity, and that's discussed on Slide 9.

These are the markets we are in.

These are the revenues that came through those markets in the trailing 12 months at 5.6 billion.

If I start with the petroleum market which is been our hottest market.

It has been 35% of our business in the last 12 months.

It's very strong, it's very strong on a global basis.

Today, we participate primarily in the downstream, which is the refining part although we do have a significant piece of upstream activity going on in both Canada and in the Netherlands.

This market is very strong.

It is driven by a variety of issues, but it has been driven for most of this decade by clean fuel programs.

Today it actually is being driven by capacity shortages that you see when you go to the gasoline pump.

We actually have a nation that's fundamentally out of gasoline and needs to add gasoline capacity.

So this market has been very strong for years and it's gotten stronger in the past 12 months.

If you move around the pie chart we have the High Tech market.

It is a small market, we focus on a couple of individual clients here.

There is some opportunity emerging in this market as we speak.

Infrastructure and buildings and I tend to lump those together because in both cases we do a lot of work for government.

These businesses had been trending up all through '05.

A lot of that is due to the fact that the governments of the world, both in the US and elsewhere, just have more money to spend.

Our Federal programs market is very robust.

It splits down into a couple of different pieces, we've got a big environmental component in there.

We do a lot of test and evaluation work and we also do a lot of fundamental research work for both the Air Force and for NASA.

And that Federal Government program market is very strong as we speak.

The pulp and paper market as we continue around the chart is not doing well.

Our customers if you look at their earnings they are very spotty and they are up and down.

While we continue to have some work and in our business is actually growing a little bit, nobody would call it robust.

The PharmaBio market came off a very high peak in '02 and '03, flattened out considerably in '04, but is rebounding as we speak.

We do have a long list of very solid prospects.

It is very interesting that we have been moving from one group of core clients to another group of core clients.

And what we see with these clients is they spend as the drugs get developed and so as their research pipeline strengthens and weakens it dictates the amount of capital they are going to spend.

And we are now seeing very significant group of prospects come out of clients who have not spend a lot of money, say in the last three to four years.

And then I continue to move around and I'll close with the chemicals market.

There has certainly been an uptick in the chemicals market, there is no doubt about that.

We've even got some polypropylene work on the books now.

This probably will be a different cycle in the chemical market.

There is going to be a lot more offshore than onshore, both in the US and in Europe.

And so we're going to see different demographics as this capital gets spent going forward.

But there isn't any doubt this market is strengthening.

It is plagued, of course, by the high feedstock prices.

And we're not sure how all that's going to play out in the long run.

But at this point in time, the chemical companies have been able to pass the feedstock cost on through the customers.

Let's move to the next slide, which is our multi-domestic strategy.

And what you see here is in the blue where we were in 1994 and the dark blue and where we have expanded since to over to period of last decade and there has been a fair degree of geographic expansion for Jacobs.

The reason we put this slide up is that we want everyone to understand that we aren't doing projects for one-off clients in faraway places where we don't have operations.

We basically do very little work outside of where Jacobs has operations.

So we -- 99% of our work is being executed where you see the blue coloring.

We are not doing projects of consequence in Africa, we're doing any projects of consequence in South America, and we're not doing any projects of consequence in Russia.

And we aren't in those places.

We charge our people to make money in the local market.

And then our global strategy comes when clients move from continent to continent, we are set up there to do work for them and we can do that on a profitable basis and we can serve them well.

But each of our multi-domestic operations is charged with making money every day in their local market.

And that's our fundamental geographic strategy.

Couple of other comments, we continue to be on the acquisition trail.

We have not had any major acquisitions since we did Babtie about a year ago.

We have been very active in this role.

Our targets have been both in the upstream oil and gas and in the infrastructure market.

And we continue to plow ground on those markets with discussions all the time.

But we have not made any, nor are there any hot on the burner at this point in time.

The last item I want to talk about a little bit is with our relationship-based business model, it is an imperative that we keep our costs under control.

And we talk about this continuously at this company, but we need to be very careful when we're moving into what is going to be a very strong market for the next few years that we continue to keep our costs under control because strong markets tend to evaporate over long periods of time and we want our costs as tight five years from day as they are today.

And so we put a lot of effort into keeping our cost down.

We keep our costs down in several different ways.

We just do it by brute force, we do it by sharing work electronically among offices, and we move a lot of work from offices that have too much to offices that don't have enough.

That's the G&A control.

We also control our costs for our clients by moving a fair amount of work to low-cost engineering centers.

And we do that electronically and if you look at the oil and gas business on the Gulf Coast of the United States almost every major project we have there has an offshore outsourced component on the engineering side, primarily to our operations in India.

So we work very hard on keeping these costs under control even in very strong markets.

If you move on to Slide 11, these are kind of the fiscal year 2005 highlights.

We made the Babtie acquisition a year ago in August.

It has gone exceedingly well.

We've been very pleased with this acquisition, the profitability of this unit is very solid and it is growing.

We have an embryonic nuclear business in the UK.

We already are very large in the UK, but we have expanded into the both construction business in the UK for some nuclear facilities, not power plants, and also the cleanup.

We won a contract that you saw in our press releases working on the Magnox, which is the decommissioning and cleanup of a bunch of old nuclear reactors in the UK.

So while our nuclear business is embryonic, it is starting and we're starting to put a lot of emphasis on that.

You might have recognized from the map that we have also an embryonic effort going on in the Middle East.

And we do have a presence in Saudi Arabia with about 100 people there.

We're operating in a couple of joint ventures.

But we do have about 100 people in the ground there, trying to develop long-term relationships with our relationship model with some of the major producers in that part of the world.

Our NASA relationship flourished last year.

We won the big Johnson Space Center, just about a year ago, now.

We also won the rebid on our Huntsville program.

So our NASA relationship is strong and flourishing and we continue to be the one of the largest service suppliers in NASA.

As we look ahead, our prospect list at this point in time, is long and strong.

Going to the last slide, which is number 12.

We will continue to focus on our business model even though our prospects abound, and there are probably prospects out there that might generate a little more profit for the company over the next couple of year.

But we are focusing on the long-term and we are going to continue to drive at our core clients using our relationship model.

We will continue to diversify both on markets, our geographies and our services.

We have a very solid diversification now.

We intend to continue that diversification.

And that diversification is a great source of strength and stability for this company.

As John talked about, the balance sheet is solid.

And we fully continue -- we fully plan to continue our 15% annual growth rate.

That's what I have to say in the prepared remarks.

What I'd like to do is turn it open to questions now.

Thank you. (Operator Instructions) Your first question comes from Alex Rygiel with FBR.

Thank you very much.

Two quick questions.

First your direct costs looked a little a bit higher than what I was looking for but your SG&A was a little bit lower.

Is there any type of reclassification or shift mix in the quarter that might have caused that?

John?

No. there wasn't.

The main change is just in the mix.

We did have a little stronger growth in the Field Services, which tends to have a higher cost at the gross margin line, but there wasn't any fundamental changes or reclassifications or anything like that.

And secondly, with regards to the hurricanes that impacted the Gulf States, can you comment on how that impacted your September quarter and also comment on how that could impact your 2006 outlook?

The impact was nominal.

We had some office closures.

We lost some billable hours.

And so let's say in the quarter it was a net negative, but not a big one.

Moving forward, our view is that there will be a lot of effects coming out of Katrina.

We actually are doing some work.

But we don't look at it as being a big deal for Jacobs.

We are in helping some of our refining customers try to get some of their issues sorted out.

We are working for the General Services Administration on some of their buildings and we're working for various other people.

But we don't think the Katrina issue per se is going to have a significant effect going forward on Jacobs.

Perfect.

Thank you.

Your next question comes from Sanjay Shrestha with First Albany.

Sanjay?

We lost him.

Did we lose everybody?

Mr. Sanjay has withdrew his question.

Okay.

Your next question comes from Richard Rossi with Morgan Joseph.

Good morning, everybody.

Hi, Rich.

Couple of things.

Could you give us a little update on the prospects in Canada, whether they have -- I know they've been good -- are good, but is there any shift, are they getting better, is there any trend change up there?

Craig?

I'd say that they're very strong and probably staying very strong.

It's really hard to describe it any other way.

There are lots of people interested in that part of the world because they can produce a really high quality crude at a very attractive price in today's $60 oil kind of market.

So the business is good there.

Is it better in terms of quarter-over-quarter or year-over-year?

I don't think you could say that, but it is very strong.

Okay.

Looking at '06, I know you're not going to give us any kind of a detailed forecast, but if I look at '06 I'm presuming that your field work is going to continue to build in terms of revenue flow relative to the total.

How much of an impact -- I mean, should I be expecting a material impact on margins as well because of that?

In terms of - well, let's talk about -- the field work will continue to grow; that's the answer to that.

Let's agree with that.

Okay?

Right.

The field work will continue to grow in '06.

When you talk about margins, are you talking about percentages?

Yes, percentages.

I mean I'm presuming profit is going to rise.

The profits are going to rise, the percentages and the gross margins are going to dip.

I can't sit here and tell you how much.

Actually we spend so little time in the revenue stream Rich, I can't tell you how much, but the gross margin on a field service dollar is nowhere near to the gross margin on a home office dollar.

Now, obviously, in the home office dollar I've got a lot more G&A expense.

Right.

So we get a shift in where the costs are --

But the absolute gross margin numbers will drop.

The percentages will drop because the field service revenues are going up.

But the profits are going to increase.

Looking at your backlog, a sense of how much of that plays out over the next 12 months versus, let's say, the next 24 months.

Well, we just finished our planning cycle.

And about between 60% and 65% of the revenue -- of the margin stream, excuse me -- the margin stream for next year was in backlog as of October 1.

And that's pretty normal.

So you can say -- if you want to say revenues and margins, they have the same percentage which is about the only way I can answer.

We've got 60 to 65% of the revenue margin in backlog starting on October 1.

Okay.

And that's very normal for this company.

Okay.

You mentioned improvements in the chemical environment, both here and in Europe.

Obviously, Asia is also a large marketplace.

Your position there is relatively small.

Should we be looking for you to be pushing hard to participate in the Asian chemical market?

Are your clients moving over there?

Are they asking you to do more work?

I know you've got some position there now.

Well, our Singapore office is growing pretty nicely, but it isn't going to be a barn burner anytime soon.

We only got about, what, 300 people, Craig?

Got about 300 people in Singapore right now.

I think our thrust in chemical business probably is going to be US and Western Europe, and this Saudi initiative which has kind of got a Middle East flavor to it and I'm not talking -- we're not just about Saudi with this Middle East initiative.

We've actually diverted a group vice president and a very senior sales lead to work with Saudi -- the Middle East issues.

And where we'll participate in Asia will be primarily in Singapore and in India where Reliance is one of our very large clients in India.

All right.

And one final thing.

I know in the past we've talked about in these conference calls about engineering capacity questions.

I'm sure there are still issues.

But could you give us a better sense of how much of the engineering capacity is flexible enough to move from, let's say, energy markets to chemical markets?

Are the government markets so distinct that the capacity you have there really can't move over just in terms of flexibility?

Well, there is a certain degree of inflexibility between the public sector and the private sector markets.

And the guys that we got working the big programs at Huntsville and Eglin and Tullahoma at Arnold Development Center down there, those folks probably aren't very mobile into, let's say, oil and gas market.

But if I take the oil and gas guys and then take the pharmaceutical guys and then the pulp and paper folks and the chemical folks and people like that, probably 20% of those project teams are very specialized in what they do, but probably 80% of them have some mobility.

We certainly can move easily back and forth -- the chemical and the oil markets are very synergistic and the same players do both.

As you move into the pharmaceutical business there is less synergy, and the pulp and paper business probably has quite a bit of synergies with things like the chemical markets.

You probably can't make oil boilers out of the pulp and paper guys, but certainly we do a lot of work in our Greenville office in the chemical business.

So there is flexibility in the work force, but it's not universally flexible, Rich.

And just a follow-up on that.

Let's say your Indian office -- Asia is growing, there's more national effort on the part of those countries to do some of the work themselves.

Are you finding things tightening up in terms of engineering availability in that office?

Well, I think what we would say to you is that we're tightening up in Bombay -- in Mumbai, excuse me -- I've got to use the new words.

We're tightening up in Mumbai.

We got about 1,000 people, 1,100 people in Mumbai, two offices.

The transportation problems in Mumbai are quite difficult.

And so we're probably nearing our peak capacity there.

We also own our own building up in Delhi with 150-odd people up there, and we certainly got lots of expansion room up in Delhi.

And we're probably going to network around a couple of other offices in India.

There's still a lot of resources there, but we are getting pinched in Mumbai, primarily because the size of the work force we're going to need and the travel and congestion that exists in one of the world's large cities.

But we are on a plan where we're doing work up at Barodo.

We've got an office up in Ahmnebad.

We will have a network operation in India, and I think we'll be able to tap the resources there very effectively.

Do you sense that your clients are in any way beginning to speed up moving forward on trying to get some commitments in place because of just the general industry tightening of capacity?

There are isolated clients who seem to be more concerned about the labor supply issues and are moving a little more aggressively to try to tie up resources.

The other clients who really haven't changed their behavior except to the extent that they just have more work planned than they are accustomed to doing.

Their issues tend to be how are they going to staff their end of the project as opposed to how we're going to staff our end.

Okay.

Well, thanks very much.

Thanks Rich.

Your next question comes from Sanjay Shrestha with First Albany.

Good morning, guys.

Hi, Sanjay.

I had to stop.

I guess we had a little technical glitch there.

Just couple quick questions here.

First one, you guys have talked about the acquisition on the upstream side for some time, and obviously we haven't heard anything yet.

But are you guys potentially maybe even looking at building the capabilities in-house given the opportunity in that market right now and the fact that we have not been successful in closing a transaction there?

Yes, we have, and we continue to work to build the relationships with the customers and build their confidence.

The challenge with a bootstrap operation in that business is that you tend to get very small projects, and let's see how you can do.

So the process takes more time.

Okay.

But we're still interested strongly in finding the right deal.

We're continuing to work that.

We're still optimistic we're going to get something done.

But in the meantime, we're taking a slow and steady route just in case.

Got it.

Okay.

So you guys did mention about the nuclear cleanup opportunity in the UK and it's at a very early stage at this point in time.

Could that be an area of potential acquisition for you guys to maybe even grow rapidly than the way you might end up growing it gradually?

Could that be a possibility on the acquisition front?

Certainly, it's a possibility Sanjay.

It'd depend on the deal and the size of it.

But the good news about what's going on in the UK right now is frankly they're looking for the skills that have been developed in the US.

They've got a $50 billion plus problem in terms of nuclear cleanup.

Yes.

And their belief, correctly, I think is that the skills and experience to do that are in the US, which is 10 to 15 years ahead of them on the cleanup cycle.

So our US capability is very marketable, and when you couple that with the fact we're a large player in the UK market generally --

Sure.

-- and we've got a lot of leverage without having to do a deal.

Got it.

Okay.

One another quick question if I could, I guess maybe to tie it together.

This time around, when you guys are talking about your end market, it sound like it's really only the pulp and paper that's not doing well.

But other than that, every single one of the market seems to be doing pretty well.

And obviously, you guys are thinking about that 15% growth more from a longer term standpoint.

But looking at this, I mean, is it fair to sort of assume that maybe the growth would be higher here in the near-term and you can probably even sustain that 15% for next couple of years without an acquisition?

I mean is that the right way to think about it?

I think the way we look at it right now, certainly there are years that we get 15% with no acquisitions.

And the market today looks strong enough that maybe that could go without an acquisition; it's hard to say right now.

But the market is robust.

There is no other way to put it, though we are going to continue to look hard on these acquisitions, and particularly on the upstream and the infrastructure.

We'll have to see how it plays out, markets are coming down, Sanjay --

I agree.

But the markets are robust right now, there is no doubt about that.

Okay.

One last question.

Have you started to see with -- kind of follow-up on Rich's question about the labor capacity in the industry, has that started to impact the overall margin for the engineering and construction firms where you're seeing the broad base margin trend up in this industry?

Well, there is a couple of advantages to our relationship based business model and there are some disadvantages.

And the one disadvantage is that we don't get a chance normally to raise our prices dramatically in a strong market.

That's true.

Yes.

There is no doubt they will move up, but we will not raise them dramatically and none of our customer will ever accuse us of price gouging.

We get the same protection in the down-market.

We don't have to be quite as down and dirty in the down market because we got long-term relationships and in many cases we got long-term contracts.

But there isn't any doubt that margins are not moving up.

I mean if you look at our historical margin to build up a lot or anyway you want to measure it, it is moving up as we speak.

Okay.

Okay.

That's great.

Thanks a lot, guys.

I appreciate it.

Your next question comes from Jamie Cook with CSFB.

Hi.

Good morning.

Good morning, Jamie.

My first question relates to two things.

One, are you seeing any spending yet from the transportation bill or even the energy bill that was signed in August 2005?

Well, what I said before is I don't see anything coming out of the energy bill.

I don't quite see how that affects us in any long kind of way.

The spending we're seeing is basically -- the spending we're seeing over and beyond the clean fuel spending, which you know we've talked about for several years, is all driven by capacity issues.

And there is a lot of people both starting to pass the issues and then crude slate mix issues.

How am I going to position my refinery to deal with the most effective crude I can buy over the long-term, and we've got a lot -- several of our big clients there in the middle of front-end work on modifying their crude slate.

As far as the transportation bill goes, there isn't any doubt that in the business that deals with infrastructure, both the prospects and win rate is better.

And whether that is driven by the transportation bill or not, I just don't know, Jamie.

But there isn't any doubt that market has stepped up.

And then my next question, Noel, as we look to 2006, if you look at our backlog growth, I guess, in '05 it was very strong.

Are you seeing any change in bidding activity or I guess should we expect while business is strong, should we expect the rate of backlog growth to moderate or decline just because we're coming up on tough comparisons?

Oh, that's a hard question Jamie.

The change - we're seeing some changes, our customers are a little more flexible with us today than they used to be.

They're not in quite the dominant position they were a year ago.

And I don't mean that in any negative way with the customers.

But, when we say, well, we got capacity in Houston -- in Baton Rouge but not in Houston can we bid it out of Baton Rouge?

They'd say yes, go ahead and bid it out of Baton Rouge.

A year ago they'd say no, we want this work done in Houston, that has changed.

But beyond that we're not seeing a lot of change going on there Jamie.

I think things are pretty much business as usual.

Okay.

Great.

Thank you very much.

And Jamie just a follow-up on that.

The backlog we've always said, it tends to be -- can be very lumpy, and so while we've had a pretty good consistent growth this year, I just caution you that it can also come in lumps and be up and down quarter-to-quarter as well.

Yes.

But I'm just talking for the full year '06 versus.

I understand it could be lumpy quarter-to-quarter, but in total if we looked at the full year -- at the end of '06 versus '05 would you expect a similar growth rate in backlog?

Well our plans are the backlog -- let's put it like this, our plans are to add plenty of backlog this year so we can may -- and our sales plans are out there and being worked as we speak, to add enough backlogs this year that we can effectively get the kind of growth rates we're talking about.

And how that translates into absolute backlog additions it's a little harder to predict but there isn't any doubt we're going to increase the backlog solidly in '06.

Whether we get the same rate we got this year, I don't think we know.

Okay.

Great.

Thanks guys.

Your next question comes from Mike Dudas with Bear Stearns.

Good morning, everybody.

Hi Michael.

John, in the quarter were there any significant orders that impacted or any scope changes that we should be aware of?

There was a lot of broad-based growth -- a lot came in obviously in the oil and gas and other the strong markets.

We actually did make some adjustments downward and talked about 150 million out of a couple of federal projects that were ongoing just as we reevaluate those periodically.

But there was no single big win I think that would say, this was really a major contributor.

And what's that type of number for a big win for you guys these days?

It's getting bigger.

Yes, I know it is.

Probably a couple of 100 million or more.

Okay.

John, with free cash flow looked very strong this year.

Anything that would cause that to change meaningfully positive or negative through 2006?

Acquisitions.

Yes.

I would say we don't anything that would be a significant change, obviously there's always -- our biggest contributor or drag on that is our receivables and we focus a lot on keeping those in line and current but we don't -- we would see that we wouldn't expect to see anything significant change.

Regarding the market for acquisitions, are you guys thinking a little bit more -- upstream and infrastructure?

Have you thought about other markets to add to the pie or especially with some discussion about emerging technologies and BTU or energy conversion or those thoughts.

Are any of your clients thinking along that line is that going to drive you to maybe go into other markets, other geographies, other regions than the ones you've been talking about?

Well, on the - in the emerging technologies market and now I'll admit my age, we went through that in the '70s and we got all wound up in solar energy and things like that and windmills, and the answer is, we're probably not going to do anything at this time.

That seemed like a lost cause in the '70s, kind of looks that way to me right now to be honest with you.

As far as the geographic expansion goes, we are actively looking at a couple of small acquisitions that might expand our geography a little bit into potential new markets, but they aren't first and foremost on our list.

They're kind of just well, maybe if we do this, this will happen, or maybe we have to crack this client here.

So there's some conversations going on like that.

But we've put, I would guess 90% of our effort in the last year on the acquisition business has been in both the upstream and the infrastructure.

How much you think from a year-ago have the asking prices changed in those markets?

I think they're up, but they're not up dramatically.

I think the infrastructure guys have always, the private companies always put a fairly high price in the company until they're ready to sell.

And then maybe we get to be realistic at that point in time.

But there isn't any doubt they're up some.

If we listen to our investment advisers, they are counseling us that they are up some let's say 10% if you want a number.

Is that fair?

Do you guys agree with that?

Yes, that's about right.

And if maybe the acquisition pipeline doesn't get taken care of this year, or the acquisitions are smaller and we have this cash build, what's the Board's thought about some of the excess cash that may be accruing on the balance sheet and how that could be deployed elsewhere other than acquisitions?

Well, I tell you what.

We've only gotten into this $100-plus million excess cash here in this last quarter.

And we haven't had a lot of discussions at the board level on it because they're fundamentally making the assumption we will make acquisitions.

And, of course, we a management team are fundamentally making that assumption.

And so we haven't looked at alternative strategies, whether it's going back to the stock buyback program or something like that.

We probably won't get into the dividend business, I wouldn't think.

I think that's still probably not a smart deal for us, although we do review it every couple of years.

And so our primary drive is to put this money into acquisitions.

And our whole thought is, we will continue to do that, and frankly, we're not worried about the cash right now to be honest with you.

Sure --

It's kind of nice to have.

Of course, thank you very much, gentlemen.

Okay.

Your next question comes from Tom Ford with Lehman Brothers.

Thanks.

Good morning guys.

Hi Tom.

Good morning.

Few question for you.

Number one, John, I wanted to go back to your comment about the federal backlog.

You said that there was an adjustment down of $150 million?

Yes.

And just curious as to what was driving that, is there a consistent element to it or is it just the normal course of reviewing what you think you'll do as opposed to where you are?

It's just the normal course.

We review that every quarter and look at the outlooks of all the projects and as we book -- the scope on some of these task orders and as we get through them, we find that they're either using different funding vehicles or they - it doesn't appear as that they're going to get up to the level or we -- we bring him down.

On other cases, there are times when we move them back up.

We only book them partly up to a capacity that looks like we are going to exceed.

But --

Okay.

So there was nothing unusual in this particular quarter related to those adjustments.

Do your contacts in the federal side say anything at all about an indirect impact from the hurricanes in the sense that Congress - we're not really sure how serious they are about it, but you hear a lot of rhetoric about no net new spending.

So if we're going to spend on Katrina then it's got to come from somewhere else.

Has anybody mentioned anything to you guys at all about that as an issue?

Well it's obviously an issue, Tom.

And it has to be an issue.

I mean we worry about that a lot with our military programs and with our NASA programs and our environmental cleanup programs.

And I guess we're still under a continuing resolution --that hasn't changed.

So we're still operating under a continuing resolution in Washington.

It's got a couple of hurdles in it that basically means -- until they get the new budgets set, they're going to spend at the same level this year as we did last year.

But it doesn't seem like this administration or this Congress maybe -- pick whom you want to and shoot at them - either this administration or this Congress is worrying is much about the cutbacks in existing programs to fund either the war, which still has a big ongoing cost --

Right.

-- or the Katrina activities.

So we're not getting that.

I mean you've obviously read the conversation that had gone on between Don Young and the press about shouldn't we take some of this transportation bill and send it to the hurricane victims.

Right.

And I don't know if you've seen his response to it but it was kind of like not no but H no.

Okay?

Yes.

And there doesn't seem to be a mood in the Congress to do that, right now, I mean, if anybody would have tackled any thing, I think, it would have been the transportation bill and clearly --

Right: I mean there was a lot of commentary after it was passed about the level of fat that was in it.

So, that's why I thought that that would be the primary fatted calf.

But, you hear a lot of rhetoric, you just don't know.

That's why I was just curious, if the folks that you know internally, are making any kind of comments to you about what they would anticipate.

But it doesn't sound like you're necessary hearing that.

We're not hearing that.

In fact, I'm in Washington with the week after next, and I'll go listen again.

But we're not hearing that.

Okay.

John do you know -- I'm sure it will be in the K -- but I am just curious about Baptie amortization costs in fiscal '05?

The same as what we've been running, it's about $2 million a quarter.

Okay.

That goes on for the first 8, 10 quarters and then -- before it come down.

Okay.

So it's not going to drop down notably in fiscal '06.

No, no.

Okay.

The last half of '07, we get to the first step down I believe.

Acquisitions have become a long game, you don't surely spike your profits with acquisitions these days.

Sure, sure and I understand.

One other question I had was on the field bookings in the quarter.

Was that -- was that clean diesel or -- or let's just say broader refinery or was it oil sands, migration to field or was it a combination?

All of the above.

Okay.

I guess you don't want to add anything to that, Craig?

Most of the clean diesel is now, in terms of construction, is now in backlog.

Okay.

We're starting to see some of these crude slate things move into backlog on the construction side and certainly the tar sands is sort of a continuing activity in terms of thing moving into backlog on construction.

But, it's hard to point at any one thing and say that the -- that's the responsible factor.

Sure.

No, I was just wondering when I saw that step up, I just wondered, if it was one or the other or just a combination.

So, that's helpful.

Thanks.

Last question I have is, I guess it's more of a comment because I was trying to think about to formulate it in a question, I really couldn't come up with that.

So I'll just let it fly and I guess you guys can make a comment if you want.

But, I mean, if you just take the 4Q earnings number, which I assume there's nothing unusual in it, , that's going to put you at about a 12% earnings growth rate for fiscal '06 if you just flat line it out.

So I'm just wondering, is it an element of conservatism?

There are variables that you're not sure about in the terms of timing?

Just wondering if you could highlight maybe, some issues or risks elements that you see in terms of thinking about earnings in fiscal '06?

Well, we thought somebody would do that.

So at least we anticipated the question.

No, I think, it can maybe you don't know where there is an element of conservatism or not.

That's what the numbers look like.

There isn't any doubt that people like us sometimes tend to under-forecast when you've got a strong tailwind.

But these are how the numbers come out, and you've got to remember we've had a big bump up to this position in the last 12 months.

We've gone from a quarter that was what 53 a year ago or something like that to 72.

I mean, we've had a huge step up in terms of both revenue, margin flow and profitability.

And I think to sit here and say it's going to continue on that trend, it just isn't, by the way.

And so then the question comes down to is the 15% growth a realistic target.

And the answer is yes we think it is.

We don't think that we grossly missed this number by the way.

Okay.

And the other question that always comes up is that the market is fickle.

And while we're overrun with the prospect list right now, will the customers really spend, and all kinds of things can happen.

We feel good about the number.

Will we beat it?

We might.

We're certainly going to try.

But we do have the issue with all this refinery expansion going on which is driving it and then the federal government spending, you heard the question about -- you got a question about will they really spend at the federal level that they plan on an.

And, there certainly is uncertainty out there.

Okay.

Well, one thing I was curious about was whether the 15% growth number implied that you guys were thinking about making a lot more investment in call it people or assets -- not acquisitions but more investment in the business, in essence, to plan for growth further down the road.

And that was just something that we necessarily wouldn't be aware of until we'd start to see the numbers come through.

Well the answer is, we're going to put a lot of effort on the people issues next year and probably for the next several years because as people move into shorter supply, we're going to have to put a lot more effort in it.

But you're not going to find it in the numbers.

Okay.

Great.

Thank you very much.

Yes.

Your next question comes from John McGinty with CSFB.

Good morning.

Hi John.

Hi.

Just one clarification to start.

When you took 150 million out of backlog adjusting for government, was that been and the technical or was that all field services?

I believe it was a mix.

I don't have a breakdown.

It was a mix because it was under the work contracts, so yes it was a mix.

It was a mix.

Okay.

And then, John, could you just -- you kind of went over the impact of FAS 123, and you said it was -- it had been running 8% but you thought it would be below that.

So are you I mean can you quantify that?

Are you saying 7% -- would have a negative 7% and assuming it's less then 8, 7 is less 8 I mean so is 6 and 5 but let's just say 7 as a starting point --

Good for you, John.

Okay. but are you saying that is -- that that would -- that earnings would be reduced by, if it's 7% hit earning will be reduced by 7% or is there a different way to look.

I'm just trying to understand exactly what's your saying?

Just two things.

You're looking at it right.

We're not going to give you an exact number of what that reduction is.

It's some - it's going to be less than 8 % that's been the historical rate on the options, it's not -- we just need - there's too many variables to pin it down anymore than that.

Can you give us a better than - in other words less than 8 but more than four, or can you -- can you bracket the other side or zero, can it be as low as zero?

No.

We would doubt that it would be less than 5.

Okay.

So, somewhere between 5% and 8%?

Yes.

Okay.

And if earnings were going - in other words is that a 5% to 8% reduction in earnings then.

I mean I just want to make sure I'm understanding that.

No.

Earnings per share.

so another word if we are at 2.57, which is what you've reported and you go up to 15%, that you that you said your target that's 2.96.

Then we take 5% to 7% of that?

Yes.

So 80 to 2.80 to 2.75 or whatever, just want to make sure, just want to make sure I was doing the math.

Of course to do the comparison you have to also take the effect off of this year too.

But you know nobody is going to do that.

I mean, come on.

Okay.

On acquisitions, let me ask the question a little bit differently.

If we go back to the problem year, when earnings were flat, when Lily canceled all of the plants and then you also didn't do the acquisition.

One of the things you said at that point was that you had expected the acquisition to -- and then it didn't get done.

So, it was one of reasons that was contributing to the earnings not showing the growth rate.

The question is, is the inherit market that you're looking at over the next couple of years strong enough that we shouldn't worry that you haven't done an acquisition by a certain period of time?

Because, always historically, you've had to do one every several years, in order to sustain the 15% growth rate.

At what point should we worry that you haven't actually done one?

Okay.

Let me answer that because that's a legitimate question.

First of all, you got to remember the Baptie numbers are only kicking in at this rate at about half what they will.

Okay.

So, with today's accounting routine, it takes three years before we will get the full effect of an acquisition.

All right.

So take that into account.

The second issue is, the market is a lot stronger today than it was in '04.

Right.

In fact, I guess, Craig and I would say there's no comparison.

Is that fair?

That's fair.

Okay.

So, I would not worry this year if we do not do an acquisition, although we probably will.

But, I would not worry about that, because we're sitting in the face of a very strong market.

This year being '06, really.

Yes.

Yes, okay.

And then, final question.

Can you -- your slide on the multi-domestic, can you put any meat around that?

In other words, in the past whenever we've said can you breakdown your business outside the United States versus inside, your answer has always been based on the number of people and I understand that.

But, can you give us any kind of a sense of what portion of your revenues are actually outside of North America and how they break down just so we can, kind of, track that as we watch, as we go forward over time?

Those numbers are in the K.

They are?

Okay.

And will be because we break it down by geographic region in the K. We don't have those numbers, right now.

But, they've been -- I think, last time we looked at them it was about 35% of the revenues that came from outside the U.S and 65 that came from inside.

Just going by my memory.

But that's US, so Canada would be in the outside, in that calculation?

That's right.

So, that's how we kind - I mean, we do break it down in the footnotes on the K.

Okay.

Thank you.

Your next question comes from Andrew Obin with Merrill Lynch.

Hi.

Good afternoon and good morning.

Hello.

Just a follow up question, when you talked about the outlook for pharma spending, I guess, we're worried about the fact that the Vioxx ruling put a kibosh on big pharma projects.

So, are the facilities that your clients want to do now ,are they, sort of, smaller facilities?

What is different about the people who are spending now versus your fears that these -- with the demise of these mega drugs there will be less spending?

Well, there are couple of differences today from what we saw in the heyday sort of past.

The projects are smaller.

There are a few billion-dollar, new campus kind of, drug projects out there.

But, there tend to be more of them.

So, while they're are smaller, there is little more total project activity.

They also tend to start them a little later in the drug cycle, s that there's more certainty to the investment.

There was a lot of thinking out there at one time that if you we had a blockbuster drug, that the most important thing was just to get the -- get plant built and have it ready to go just in case because you were going to have 17 years of profits.

And now people are so optimistic about how long the drugs might last.

So their focus is to start the project a little later and control the costs little better, which in some ways plays to our strength in the pharma market.

We've always been very good at small projects - that's kind of how Jacobs get its reputation in the industry to start with.

So in some ways what's happening has been good for us.

Some of our competition has a much bigger project orientation and they struggle a little when the project sizes go down.

The second question just on what you said on nuclear, and it seems that right now we're sort of dipping our toes a little built, but, if we start building nuclear facilities in the US 10 years from now, is that an area of interest for the company or it just going to remains to be seen category?

I guess, I'll answer the question.

I think 10 years from now is probably optimistic, but assuming 10 years from now is right, eight years from now might be very interesting to Jacobs.

Okay.

It's too far in the future for what we can see in terms of new nuclear power build, to be something that we'll put in any real energy into.

Sure.

And just a last question in terms of -- what was the options if you were to expense options this year, what would the number be for '05?

Just so we can do the comparison on apples to apples basis?

It's been a little bit higher - it'll be a little bit higher in '05 than what is the historic tracking that I - it's about a 13, 13.5% dilution including.

That includes the stock purchase plan which won't be - have an effect going forward

Okay.

So but when I do the math, is it fair us to take the first three quarters of the year and then just assume that the fourth quarter on -- I guess what I'm looking for just the fourth quarter number which you guys haven't disclosed.

Well, for the whole year, it will be about the 13.5% id the number.

Okay.

And what is the stock purchase plan this year?

Just --

The stock purchase plan is about 6% of that.

Okay.

Fantastic.

Thank you very much.

Thank you.

Your next question comes from John Rogers with DA Davidson.

Hi good morning

Good morning, John.

I was just curious in the past couple of calls, it seems you've talked more about the infrastructure markets, and I -- just especially on the acquisition front, is that still something that you look at and want to get into more?

You bet.

It's clear to us that that's going to be a strong market for a long time because there is just a limit to how much tolerance there is for the kinds of problems our infrastructure represents.

And it's true here, in the rest of the developed world and in all of the undeveloped world.

So we're very optimistic about that being a very strong, very long-term market and we want to get to the point where we're a dominant player in that marketplace globally like we are in the UK.

And Craig, presumably you would have to do acquisitions, but would those -- I mean at this point would you look at opportunities in Europe as well in the US?

Oh absolutely.

I mean the outside of the UK?

Absolutely, our interest is in finding those opportunities where they make sense and I think as we've said many times, acquisitions are an opportunistic business.

You can't make them happen.

They happen when they're ready to happen, and so good opportunities might come along, like Baptie anywhere in the word that we've being looking out.

We do have still a strong interest in getting more critical mass in US, so that get a lot of intention but we would not ignore - in fact quite contrary, we would be excited about other opportunity.

Okay.

And then on the nuclear business bringing that up, would you look at power plants?

I guess, it depends on awful lot on how the market develops, where it is, and who the players are, to determine whether that's something that makes sense for us.

In the long run, if that business represents a market that's compatible with our business model, than overtime we're going to have an interest in it and we're going to tend to grow into it.

If it doesn't, then we won't.

So it kind of depends on how the nuclear market place goes, in terms of, who are the customers, where are the projects, what are the terms and conditions of their construction, what are the risks of doing that business, and unfortunately today it's just speculation, right.

We're just talking about news.

So it's hard to answer the question beyond that.

Okay.

And the rest of the power plant market?

The same answer applies.

I believe personally that in time there will be a segment of the power market that makes sense for Jacobs.

But the market still tends to be today a lump-sum turn key, very transactional business.

And that's not where we're going to go.

Okay.

Great.

Thank you.

Your next question comes from Gilbert Van Warden (ph) with Wachovia Securities.

Good morning.

Good morning.

My question is on the refineries.

We hear a lot about the need to build more, or at least modernize them so they can handle the high sulfur-crude and the heavy-crude.

Do you look at that for the company as a significant opportunity and will be involved?

Well, let me make a couple of statements.

Whether there is any grass roots refineries built in North America or not is very problematic.

Right.

What we do see happening though, we do believe there will be significant capacity expansions to deal not only with capacity issues, but with the differing crude issues and that is a very exciting market for Jacob.

It plays right into our strengths.

And so we expect to be involved in that market both in the US and in Western Europe, and maybe in other locations.

We've certainly been involved in India in that market.

Okay, you answered my question.

Thank you.

Your next question comes from Tom Mayer (ph) with Lord Abbett.

Hello?

Hello Tom.

Oh, sorry.

I couldn't hear you guys.

Two questions, one just we're quickly on the tax rate for next year.

What should we expect?

And then my real question is that you mentioned something in the high-tech, I don't know if that was something customer specific going on or if you are seeing any sort of trends in high tech in terms of what you do.

Thanks.

The tax rate we would expect it to be in-line with where we are this year, which was 36%.

Okay.

High-tech.

On high-tech our business is focused on a very few number of customers, so it's very much focused on what those customers are going to spend.

So your comments about stuff happening as we speak means that, perhaps, some of them are thinking about significant projects that you guys would be involved in

Yes.

Very good.

Thanks.

Your next question comes from David Yuschak with Sanders Morris and Harris.

Congratulations, gentlemen on a good year.

Question I got for you that, earlier you had commented about some of your other your customers are beginning to open up their purses and look at projects.

And one of the things that I'm seeing in this space is balance sheets by owners that are the best submitted 15, 20 years as far as ability to spend.

That's right.

So the question I got for you is, as you look at those who are thinking about spending, is that a sizable pool of opportunity there, for you right now, particularly, as that kind of relates to your top 20 customers?

Obviously, this guys aren't in your top 20, and I'm just wondering what that potential is out of that segment that isn't there, as well as maybe give us a profile of what the current top 20 looks like as far as potential changes from year ago, as well as what you might think as changes for the next 12 months?

Well, let me -- first of all, except for our pulp and paper clients, who some of them -- they are struggling to some degree, our customers all seem to be in very solid shape.

And their balance sheets -- we know what happens to the oil guys, but even when you go look at pharmaceutical guys - the folks like that, big pharma companies are still generating really solid profits.

They have lots of cash coming in.

So generally, all of these clients look like they are in very solid shape right now.

And they certainly have -- all of them have the ability to spend.

Even if we move down to let's say, our core clients and then we move a notch below that, we go to the clients that we have targeted they could be core clients.

Generally, they are in very solid shape too.

We basically work for Fortune 100, or Fortune 150, or Fortune 200.

We work for the very largest corporations in the world, because they're the only guys that have the kind of spend that can keep our business going.

So we are working for large solid corporation to begin with.

And the folks we're working for are very solid right now.

Across the board except like I said -- and it's not like the pulp and paper clients are a disaster I don't mean to make that but the stocks start doing very well and their P&Ls have been spotty.

As you look -- as you discuss the opportunities with them, are they seriously thinking about ramping up spending pretty dramatically, or what's kind of things may needed to put these particular customers who haven't been spending to spend more?

Well, the pharma customers remember spend with the drugs as Craig said a few minutes ago.

So those that have a solid pipeline of drugs coming at them, they will be spending.

As Craig said, they're not spending as early as they used to.

And they're not gambling not quite as much they used to, if that's the right word, and it's probably a bad term -- the pharma companies would object to that.

But they're not making their investment decisions as early as they used to.

But they are very solid and they are coming out.

And when you talk about the big oil companies, all those guys increased their spend plans.

I think you said earlier in your prepared comments you have like 100 people in the Middle East right now.

Do you think that's adequate for what you see in opportunities at this point in time or what may you need to do in the way of adding additional resources to capture more business out of there.

Because obviously, that does look like it could be, I hate to use the word hotspot, but it certainly looks like in everything you're confident about, we're seeing in the way of attention coming out of that region but spending is going to be pretty on robust?

We have to two offices in the Middle East at the present time, one in Saudi Arabia and one in Abu Dhabi.

The total headcount for the two offices probably closer to 200, maybe little over that.

But our real strategy for serving our Middle Eastern customers isn't a strategy about a whole bunch of people in the Middle East doing the work.

It's a strategy of supporting the customers in the Middle East with a good solid team and exporting to our centers of technical excellence to do PMC and feedwork.

So it's not like we need thousands of people in the Middle East to be successful.

We do think that operation will continue to grow and over time it will get to double or triple its size, but we don't expect it to be something that dwarfs some other operation in the company.

Okay.

If we were to -- and maybe this is another way I'm asking in compare to what others may have asked same question.

But if you take a look at your backlog at the end of the year and you project out the end of next year.

You kind of have to get to maybe a $2.4 billion or $2.5 billion run rate.

You know, you guys did a nice job jumping from 1, 1.2 to 1.718 here right now.

And what do you see as opportunities to get you to a 2.4 rate on bookings?

A 2.4 rate on bookings?

Yes.

On a quarterly basis.

Well, on a quarterly basis I think John said it best.

It will be lumpy.

And so this year we're are running at an $8.6 billion backlog or whatever the number is we have out there.

It is going to be steady growth it's going to get us there.

Now whether we grow to -- our business model in the way our numbers run is to get a 15% after-tax bottom-line growth, we probably need to get about 10% growth in the margin side and we keep our G&A in 3, 4% rate in fact give us our growth.

And that's the formula for the company.

So our backlog and margin stream probably doesn't need to go up more than 10% a year to feed the 15% growth.

But we don't see any huge jumps coming at us.

What we see is a -- the curves we've shown you, we can extrapolate off of those, and that's what we expect to see coming at us.

But if our run rate this quarter -- if the revenue line was 1.5 billion and I think that's right number.

That will go up.

But it isn't going to go up 25 or 30%.

It's just going to go up at a very steady pace is the way we look at it.

It may go up a little faster in the next few quarters than it has historically only because we'll have a lot more field service revenue going through the books.

Okay.

And then one last question.

There was an interesting survey I think in the ENR (ph) here recently about a conference you guys had in New York, and out of it, one of the issues 65 out of 187 chiefs cited ownership transition as a big issue.

Certainly, you've talked about that in the past as far as it being a kind of long term strategy, a lot of the private companies having problems in that space.

Is that becoming because of the strength in the business today and maybe look at an exit strategy on a -- on more -- any more in an environment of more positive business conditions, is that becoming more sense of urgency and it's becoming more sense of what price do I pay for that sense of urgency?

No.

I don't -- I did not read what you're quoting, so I'll speak from ignorance and I have no problems with that.

What we're seeing in private companies, I think all these private companies come to a point in time when succession and ownership issues become an issue.

I don't see any greater sense of urgency going on for these guys to solve the problems today that I have the last 10 -- do you Craig?

And we know almost all of these people reasonably well.

So I didn't think there has been any significant change, but there are always transition issues.

When the founder comes and goes is the first big transition issue.

And do they survive the founder's loss?

And lots of them don't.

And those that do then go on, and then get at some point in time or issues emerge for whatever reason, they have to do with ownership structure, the cash draw, it can have to do with the level of profitability, not being able to take out the retiring guys and bring in the new people.

But I don't see a lot of change in that.

Okay.

That's all I got.

Thanks.

Your next question comes from Stewart Scharf with Standard & Poor's.

Good morning.

Good morning, Stew.

I was wondering in the past you've given us comparisons by segment going back about 10 years.

What would you foresee the breakdown over the next 5 or 10 years especially with your focus on increasing infrastructure?

Do you have any vision that you can give us as far as what the new breakdown would be by segment?

Well, let us look at that and see if we can answer that.

Let me if I can try and find what you're talking about as I just did(ph).

I guess a couple of things we would say is if you look at this chart, and it's Slide 9, we got petroleum and chemicals being almost half of our revenue stream.

And we sure don't want to see it any bigger than that, which means we're going to have to be very aggressive on the left-hand side of that pie chart and continue to grow and make acquisitions, because we do not want to get dominated by any one business.

We've had a very good run here in the last couple of decades because we've been very diversified and so we certainly aren't go to marry any single line of business -- that just not on our strategy.

So it has to say the left hand side of this chart is going to get a lot of effort

Well, the other thing is always strike goes around cycles.

So right now, we are in a very strong petroleum market as these other markets start going through their maybe as up-cycles or stronger cycles, petroleum you know -- all thing is given.

I don't think it's going to dip but it may slows down the growth there.

You'll see just the natural movement of the percentages.

I think right now, it looks like a number of these markets will be growing absolutely, and it just depends on their growth rate or what percentages there will be of the total pie.

Okay.

Fair enough.

Is there anything specific that you would foresee as far as like infrastructure percentage, what that would be in five years?

Well, we certainly would like to make that infrastructure percentage quite a bit larger.

I can't be precise on that because it's going to take acquisitions to do it, if we're sitting there at night and lump buildings and infrastructure together for me if you will.

That's 15% of our business right now.

At some point in time, I would expect that to be at least on a margin basis as big as the oil and gas business, right?

Yes I agree.

Well it'll will have to look bigger on this chart with because of the revenue factor.

But when we get to margin line, we want our infrastructure business to be as big as anything we have.

Okay.

Thank you very much.

Okay.

At this time, there are no further questions.

Mr. Prosser are there any closing remark.

Noel?

No, we thank you for your attention.

We had a good year.

We're pleased about it and we're going to try to keep these things running at 15% a year on the bottom line and thank you.

Thank you for participating in today's Jacobs fourth quarter earnings conference call.

This call will be available for replay beginning at 2:00 PM Eastern Time through November 10, 2005 at mid night.

The pass code for the replay is 122-04-36.

Again the pass code for the replay is 122-04-36.

The number to dial for the replay is 800-642-1687 or 706-645-9291.

You may now disconnect.