雅各布工程 (J) 2007 Q4 法說會逐字稿

Great day, ladies and gentlemen and welcome to the fourth quarter 2007 Jacob's earning conference call.

My name is Katina, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Ms.

Patty Bruner.

She will read the forward-looking statement.

Please proceed.

Good morning.

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

Although such statements are based on management's current estimates and expectations and currently available competitive, financial and economic data, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause the results of the Company to differ materially from what may be inferred from the forward-looking statements.

For a description of some of the factors which may occur that could cause or contribute to such differences, the Company requests that you read its most recent annual report Form 10-K for the period ending September 30, 2006 including item 1-A, risk factors; item 3, legal proceedings; and item 7, management discussion and analysis of financial conditions and results of operations contained therein; and the most recent Form 10-Q for the period ending June 30, 2007 for a description of our business, legal proceedings and other information that describes the risk factors that could cause actual result to differ from such forward-looking statements.

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

Now, John Processer, CFO of Jacobs, will discuss FY '07 and fourth quarter results.

Thank you, Patty.

I will briefly go over the financial highlights for the quarter and the year and then I will turn it over to Craig Martin, our CEO, to review our strategies and business overview.

If you are following on the slides, go to - we are on slide 4, financial highlights.

We had a very strong quarter and year.

The earnings per share for the year were 235, for the quarter $0.68.

Both the record amounts for us, strong backlog.

The backlog flows at $13.6 billion.

We continue to have a strong balance sheet and with a net cash position of $572.4 million, and we are issuing our or initiating our guidance for 2008 in the range of $2.70 to $3.10.

That's above our traditional 15% guidance, but coming off of a strong year, the outlooks for next year are good.

That guidance is a range of 15% to 32% growth.

Going to the next page, slide 5, this just recaps our earnings growth over the last decade.

Obviously, the last two years have been very strong and in fact above our traditional 15% guidance with the five-year compound of rate of return or rate of growth coming in just over 24% through '07.

Next slide, our backlog, again a record backlog is $13.6 billion, $6.2 billion of that is in the technical professional services backlog, you know, both very strong growth on year-over-year and quarter-over-quarter.

Included in the backlog this quarter was the significant booking with Motiva.

We did have part of that in the backlog before this quarter but this quarter, we added $1.9 billion related to that one project alone, but even without that project, bookings and backlog growth was significant.

With that I will now turn it over to Craig Martin to comment on the - on outlook and overview of the business.

Thank you, John and good morning.

I want to take a few minutes to talk about how we are going to try to keep this business growing at 15% or better forever more and there are about five subjects I am going to try to cover and then I am going to cover a few highlights on fiscal '07.

The five topics are our business model, our market diversity and our multidomestic strategy.

We will talk ability those in more detail in a minute but we will continue to be focused on acquisitions as a part of growth strategy.

We made several acquisitions in fiscal 07 and one just in the beginning here of fiscal '08.

I will talk about those as part of the highlights slide, and acquisitions have continued to be a part of our strategy because we think we can get a third or so of our growth on the long-term from acquisitions.

We also continue to focus on keeping our cost down.

We think that's particularly important in a marketplace like the one we are in today, where there is a lot of opportunity to build up structural cost that will be hard to get rid of when the market turns down.

We do not want to be on that position, so we are working hard to keep our cost under control.

Let me go to our relationship based model.

I am on slide 8 now.

I want to contrast that against the industry.

We do this all the time.

Many of you have heard this more than once but Jacobs focuses on a different business model than the industry does.

The industry focuses on transactions.

A lot of these transactions are big events in far away places and many of our competitors are driven by the big elephant kind of sales that they see out there.

Our business model is different.

Our focus is on long-term relationship with our customers and as we have said here today, we still get something over 75-80% of our business from customers with whom we have long-term preferred relationships.

We also do a little bit of discrete project work.

That's with customers we know but haven't built that long-term preferred position and occasionally we will do a transactional project although that's not the key part of our business.

The difference we believe is that the preferred relationship gives us steady base load work and then allows us to layer in major projects as well, so we can participate in growth in the upside but have a solid base of business in the downside of the marketplace.

We think that model works best if you are trying to grow 15% or so on a steady basis year in and year out.

Turning the slide now, this is our revenue by markets for the 12 months ending 09/30 and I will take this - a minute with this slide, just to talk about what's going in the markets.

Let me start with the oil and gas business upstream.

It remains a very robust market particularly in the places where we were positioned.

That's in the oil sand up in Canada, that's along the north sea, in the gas business, and a growing business for us in the Middle East.

There's lots of activity there, lots of major project - lots of project needing support.

We continue to see good drivers for that.

Obviously, $90 oil does a lot for the interest revel in the oil and gas business upstream.

Our customers are flushed with cash and frankly, they're spending that to grow and that means lots of capital projects for us.

So, that's a solid business and looks to remain so for the foreseeable future.

Switching to the downside of the business, this continues to be a very good business for us.

There continued to be a fair number of projects.

They are related to cleaning fuels activity, things like nonroad diesel are driving the business today.

As we look out in the future in cleaning fuels, we have got benzene removal from gasoline, we've got taking the sulphur out of bunker fuel, all of that will drive an additional major investment that's regulatory driven and therefore a very positive thing regardless of the oil price and on top of that, refining margins are good and there are people spending significant amount of money to expend capacity.

Obviously, our (inaudible) booking last quarter was a good example of that.

That will be along the first real grass roots scale refinery expansion in the United States in 30 years, and it is indicative of the strength of that marketplace.

It is strong here in North America and it is strong in Northern Europe.

It is strong in Singapore and obviously, it is very strong in the Middle East.

Capital expenditure plans for refining and downstream side of the business in the Middle East are very significant and we expect a long-term flow of good projects from that business.

Going on to chemicals, it continues to be a good business, particularly polymeric chemicals.

Polymers like polyethylene and polyprophylene, Jacobs has a particularly strong position in those businesses and we are seeing significant investment both in the form of small capacity expansion in North America and in Northern Europe, and major programs in the Middle East.

Many of our customers on the chemical side have concluded that they're going where the feedstocks are cheap, that is the Middle East, and we are seeing a number of very sizable programs explore chemicals expansion in the Middle East.

We think that will put us in a good position to build a base load business in the Middle East downstream.

Going on to (inaudible) paper high-tech food and consumer products, essentially our other category, there is not much of a story there.

Those markets are not particularly strong but there is activity for us.

It is a good business, it is a steady business and we will just stay with it.

Pharmabio is the next market I would like to talk about, another market that is driven by different factors than the ones we have discussed.

This one is driven entirely by drug discovery.

As I mentioned many times, a new drug equals new plants, new plants equals major capital expansion.

There continue to be a number of customers with good pipelines on the drug side.

They are major customers of Jacobs.

We have preferred relationships, so we see a good steady flow of business on the pharmabio side driven by a biotechnology and by vaccines business as the primary areas of investment.

The national government side is really two business, as you recall.

One is our research and development test engineering, scientific and technical consulting business.

That is a business that is strong for us in the U.S.

Now, we have some business in Australia.

We have a growing business in the UK.

All of that businesses around the science of space exploration, the science of weapon systems, aircraft, testing and evaluation of various components for the army, the navy, the air force.

It has been a good business for Jacobs.

It continues to be one where we are uniquely positioned in that we are one of the few services providers in that business who has no conflict of interest.

As you can imagine in test and evaluation situations, the preference would be for a contractor who has no conflict of interest in testing the equipment that's involved.

So that's been a good business for us.

We have won several major assignments this is quarter and in this year, and we were pretty pleased with the way that business is going.

It continues to go.

We are starting to penetrate the UK, so we see some potential for significant expansion there as well.

The other half of that business is essentially environmental clean up, another good business for Jacobs; the one we have been in for a long time.

The U.S.

business is relatively flat.

There's a steady flow of projects and opportunities out there but the market itself is not growing, so on the U.S.

side, it is really a market share game.

Can we take market share as these opportunities come up?

But there continues to be a huge program and huge opportunities in the UK for expansion.

The Nuclear Decommissioning Agency is embarked on a major clean up program on the nuclear side.

The budget at Tier I is something like $150 billion, give or take, and we see lots of opportunity for growth there, not only as a Tier I contractor but a Tier II, Tier III and Tier IV.

The market is unfolding pretty steadily a little slower than we thought it might originally.

The government sorts out what to do and tries to foster additional competition but overall, that market remains a huge opportunity and one who are U.S.

contractors like Jacobs have a clear preference.

We think we are particularly well positioned there because we not only have that strength from our US experience but we are the largest player in the UK market with some 7,000 employees in that marketplace.

That brings us around to the buildings market.

Remember that for buildings for us it is the complex, kind of technical buildings.

It is not the high-rise office building or the apartment complex.

It is buildings where the technical content is really the critical factor in deciding who does the work, so it is things like high-energy physics facilities, jails, courthouses, hospitals, all very good businesses for Jacobs right now, and we are particularly enthusiastic about the hospital market.

We are a dominant player in the US hospital business, particularly in secondary and tertiary care, teaching hospitals.

We are also a dominant player in the UK, in France - becoming dominant player in UK, a dominant player in France in the design of these big hospital programs.

So, Jacobs is particularly well positioned in the healthcare world and that looks to be an area where there's going be significant growth.

It is part of our aging population issue worldwide that we are going to see a lot of ongoing investment in healthcare and we think we will continue to benefit from that for a very long time.

Finally, it brings us around to infrastructure.

This is a predominantly today a transportation-related infrastructure business.

So it is surface air and water transportation, roads, bridge, port, airports, that sort of business.

A very good business for us with good steady continuing growth.

We are positioned both in Europe and in the U.S.

and continue to try to position ourselves around the globe for this business because frankly there's going be a lot of it for a very long time.

We have seen recent estimates of infrastructure needs just in the transportation arena that go globally over the next 10 years in the $75-$750 billion range range, $75 billion worth of investment a year.

Most of us can experience the need for additional infrastructure just by trying to get to work in the morning.

It takes a little too long to get there and people are getting tired of that amount of delay.

So we are seeing lots of investment not only at the state and federal level but at the local level as well, counties passing budgets to fund transportation initiatives in the county that are resulting in additional billions of availability in the marketplace.

We see infrastructure as a growth market for a very long time and we are aggressively trying to expand into that business.

So when you sum it for the markets, the markets are very good for us.

This is probably as good as it gets.

As we have said repeatedly, this is as good as market as we have been in, in 30 years, and right now, it seems like it continues to be very strong across the board.

Moving to slide 10, our multidomestic strategy.

There is not much that has changed about this slide but it reinforces again Jacobs' approach to the business which is to be local to our customers, so we want to be where our customers are, day in and day out.

We want to understand how to make money in the local marketplace, supporting our local customer base and then we want to be able to deal with the big event projects as they show up geography by geography.

Our big push right now is to build our presence in both the U.S.

in the infrastructure business, get more capacity, and to continue to try to grow in the Middle East and build a long-term in-country presence in the Middle East, and we are making good progress in both those areas.

So, our multidomestic strategy continues to be an area of focus for us as we go forward.

That brings me to slide 11 which is our - sort of highlight slide for the year.

I guess, we always have to talk a little bit about the highlights on the year.

We made four really good acquisitions although one of them we just announced last week, so it is technically an '08 acquisition.

Leonard Associates is an upstream oil and gas business on the golf coast of the U.S., a nice little addition to our business, nice opportunity for us to grow, and we are starting to see the leverage that comes out of that acquisition.

Edwards and Kelcey was our first acquisition in the U.S.

on the infrastructure side since further up in '99, just about doubled our presence in the infrastructure market place and that is - we have that acquisition in placed now about seven months going very well, good growth, good integration of the businesses, lots of opportunity being built there.

John F.

Brown is an airport consultancy, particularly well-known in helping customers figure out how to finance airport expansions.

This is typical of our consulting business, where we try to get in high and early with the customer and have a long-term relationship that starts when figuring out what to do and goes all the way to getting it done and maintaining and operating it.

Then the acquisition most recently announced is Carter and Burgess, 3200 person infrastructure and buildings business.

A very good acquisition for us, particularly because it expands our geography nicely.

With Edwards and Kelcey and Jacobs combined, we were heavy on the east coat.

Carter & Burgess is heavy south and southwest, and so we have got a good geographic distribution in the business and now have between buildings business and the infrastructure business something like 7,000 people who can deliver on that marketplace, a good addition.

In addition, we hired about 4700 people more to help grow the business.

I know we have all been concerned year in and year out about being able to get the people but our team continues to be able to demonstrate the ability to get the people we need to get to grow the business.

Obviously, we are pleased with our backlog growth and are particularly pleased with it because it comes in the kind of backlog that we would like to have as a company.

Let me talk about some of these programs that I mentioned down at the bottom of the slide.

We had some major event projects, things like Motiva's [crude] expansion and Petro-Canada is working the oil sands but the real key was we also built the base load business out, for example, the NASA Stennis facility operation services and the (inaudible) program down at Fort Walton Beach, both represent stead, long-term multiyear businesses for us and those additions will help build that stable business for the long run that we think is so important to our growth.

So, we are able in this time as well to add not only some big event projects - the bigger projects, I should say, but also to continue to build our base business with a steady kind of backlog that has been out there for a very long time.

That brings us to slide 12 which is kind of our commercial for the Company.

We continue to have what we think is a fairly unique customer-driven business model.

We have managed to diversify and continue to diversify the Company and markets, and geographies and services.

We certainly have a good solid balance sheet and we are continuing to demonstrate, I think, that we can grow this business 15% or better for the very, very long run.

We believe we are in the position to continue to that here.

So, with that, I will turn it over to the operator and we will take questions.

Ladies and gentlemen, if you wish to ask a question, please press *1 on your touchtone telephone.

If your question is answered or if you wish to withdraw your question, please press *2.

Questions will be taken in the order received.

Please press *1 to begin.

Your first question will come from the line of Andrew Kaplowitz representing Lehman Brothers.

Please proceed.

Hi.

This is actually (inaudible) in place of Andy Kaplowitz.

How are you doing?

Hi.

Good morning, guys.

Nice quarter.

Thank you.

My question is on the Carter & Burgess acquisition.

Can you give us a little more color in terms of how you (inaudible) value the company, how are your financing the acquisition and if the acquisition is slight accretive or dilutive to that of '08 EPS.

Correct me if I am wrong but from what I am seeing, C&B has a nine-year revenue kegger of around 16%, and do you see that run rate continuing on next couple of years?

And just overall, should we expect the same kind of operating margins in line with the rest of your business?

Well, to answer the easy one first, we paid for it out of existing cash so there was no financing and -

So, it's all cash?

Yes to include a little bit of stock in the purchase price in the overall mix but for the most part it was we paid cash out of our existing cash balances.

So, next quarter you can expect to see the cash balances down a little bit but after all that's what our cash is for.

Yes, the Carter & Burgess, you know, going forward in 2008 because of purchase price accounting and such, we anticipate that they will be slightly additive and the emphasis on slightly, and that is already included in our guidance, so it is not something addition to what we have already talked about this morning.

So but you know, we believe the infrastructure or the building business are going to be big and be strong, you know, up into the future.

And you know, one reasons we're, you know, holding - growing that business internally and focusing our acquisition activity on that business, as we believe it has the potential of growing at or above, you know, our growth rates in some of our other businesses.

So, yes, we would expect to continue to see the combined companies, you know, combined activities in that marketplace to continue to grow.

As you know, historically, we don't keep companies as portfolio investment, we tend integrate and get the synergies out of those so, you know, as we move forward and move units together and get the benefits of the strength of both Carter & Burgess in our existing operations, you know, we will not be able to and we will not be answering well how much is contributed by Carter & Burgess, how much is contributed by this or that.

We just don't go there.

So (inaudible) any post margin as we go forward but, we expect this to be, you know, on a cash flow basis, we would expect them to continue to have the cash flows they've had in the past, you know, and the margins but from a reported P&L because of the way you have to handle the amortization of intangibles and the purchase price allocation, the P&L impact and thus, the margins that would come from that business in the short run will be below the historical trend rate because of that amortization.

Okay.

And you mentioned the strong demand in the infrastructure business.

You know, obviously, with your Carter & Burgess acquisition and Edwards & Kelcey back in March, what kind of growth rates are you actually seeing there?

I mean, are you seeing better growth rates than, you know, oil and gas or chemical and polymers that you mentioned before?

Breakdown the growth rates that specifically, obviously overall the growth rate in the business is good.

You can see actually, you can figure out that right now, the oil and gas business particularly the downstream is growing faster, you know, than any of the other areas, just by the fact it is becoming a bigger part of our overall revenues but some of that has to do with the mix between field services and home office services that, you know, with all the construction that you see in the refining business, but we would see - we would expect that certainly the growth opportunities out of the infrastructure and buildings businesses are at or above our historic trend line.

Okay.

And the last question, you mentioned that the growth on all of the state and local spending, private sector and federal spending.

Can you just give us a little more color on that?

What's fueling that in market that?

Is it new legislation on a federal and state local level or is it, you know, increased private sector spending?

Is the health of the state and local economy?

Well, are you speaking specifically with respect to infrastructure or generally?

Infrastructure, transportation.

What we are seeing for the most part is public-sector spending driven.

Okay.

And it's at three levels.

Perhaps you could use the U.S.

as the model.

You have got the federal transportation related expenditures, you know, the ice safety lieu and ice tea and all of those kinds of things, and then you have state level initiatives, for example, California's $20 billion transportation-related initiative and then you get at the county level and you are having sales tax issues and bond issues passed that are in the range of 500 to a billion dollars per county.

So, if you look at say Southern California in the five county area, about $3.5 billion of new sales tax issues to support bonds or infrastructure were passed in the last election.

Almost every county passed some kind of a program either $500 million or a billion, some small number like that.

When you add all of these things up, they make for a very robust spending market and for good solid growth.

You pointed out what Carter & Burgess has been able to do in that marketplace and we think that's the kind of growth that the marketplace in general is going to have r for very a very long time.

Okay.

Private sector spending is not so much a factor in the infrastructure business until you get outside of the developed world, and into places like India and then private sector spending becomes a bigger factor.

Okay, I see.

It is just too small in the larger picture.

Yes.

Okay.

Thank you very much.

Congratulations on the quarter.

Thank you.

Your next question comes from the line of Michael Dudas representing Bear Stearns.

Please proceed.

Good morning everybody.

Good morning, Mike.

Hey Mike.

Three questions.

First, maybe if Tom is in the room or whoever can handle this, relative to the downstream spending this year and what you are looking at the next 12-18 months, can you give a sense how much you think of the potential [awards] will be regulatory driven versus capacity/upgrading feedstock flexibility driven, and how are you positioned in one or the other or both?

We are thinking.

I can hear it.

( Laughing)

You know, I can't say that we are looked at it that way.

So I will try to generalize a little bit.

I will ask Noel to weigh it as well.

Tom is not with us this morning.

Okay.

From the standpoint of the markets, I think it varies a little bit depending on the physical location of the assets.

So I think that U.S.

spending, for example, will be dominated by regulatory versus capacity.

Even though the capacity numbers are big and there are some big projects out there, there's a lot of regulatory spending.

So, you know, when I say dominated more than half will probably be regulatory driven in the U.S.

as compared to expansion of capacity.

Okay.

When you move up into Canada, it will be just the opposite.

I think you will see a lot more capacity expansion, very little regulatory driven spending although carbon is an issue in the oil sands as we speak.

Northern Europe is again probably going be more regulatory and small kind of creep capacity work, very little in the way of major new capacity.

In the Middle East, it is the complete opposite.

It is going to be dominated by new capacity.

In all the statistics you see about the proposed spending in the Middle East, just in Saudi Arabia alone, the numbers are enormous.

And so, you know, the Middle East is clearly going to be dominated by new capacity and a lot of that new capacity it will come on with the regulatory requirements baked into the plan.

So, you know,

Sure.

You don't build a refinery today that can't produce low-sulphur gasoline.

Of course.

So you know - how that - what does that mean to the global situation?

Probably the global marketplace right now is weighted toward capacity expansion and growth more so than clean fuels or regulatory driven.

So it is probably on a global basis more new capacity than anything else.

But, you know, I think it is going to vary by market, you know individually and it is going to vary in some cases by customer.

And overall would that be a help to Jacobs in the revenue visibility and potential returns in that mix?

Or does it matter?

You know, both kinds of projects have pretty high visibility and I don't think, which is which makes a big difference.

Sure.

You know, I understand that for the most part when you start talking about tens of billions size programs, we will be looking at pieces of those programs anyway, not the whole thing.

And so, you know, it really comes down to, a whole series of plans that are you can boil in down into individual events and we can see what those events are.

Noel, do you want to comment?

No.

I have nothing.

That's fine.

Second question action relative to Western Canada and oil sands activity, any sense from your customer base relative to royalty changes and the potential thereof?

How, you know, the infrastructure bursting at the seams - do you sense there could be, maybe a plateauing or a pausing up in that world despite oil going to, you know, 100 plus a barrel and how have you been - how are you been seeing that relative to your work?

Hi.

This is Noel.

I just spend some time in Canada.

The oil (inaudible) situation created a lot concern out there.

It seems like Premier came down with a type of a compromise.

I don't think there's any doubt that in Canada, some of the enthusiasm for some of these marginal sands projects probably has diminished.

I think that's a given.

Okay.

As they say up there, there's good dirt and bad dirt and the bad dirt projects are probably going to go away.

That doesn't change the fundamentals that we have a lot of majors up there, including all the integrated oil companies plus the guys, as you know, they have specifically tied themselves into the sands that have a real dedication to that resource.

So I think the spend as good going to continue at a high level.

Some of the projects probably will disappear, they, maybe they should have disappeared.

I don't know.

That's not for me to say.

But we look at the tarr sands - excuse me, the oil sands as a huge opportunity for this company for as far as the eye can see.

And my third question is, relative to, I think John's initial comments about I guess relative to overhead and keeping the cost low, you were able to do it pretty well this year on a percentage basis, how are some of the things you are looking at given that you probably are going to have continued building home office and other regions?

What is the - do you anticipate that the rate of growth will continue at these levels?

Or do you need to bring it down?

And is that possible given the robust market that we have?

Well, I think our focus is on making sure that it is not institutionalized G&A.

Okay.

With that, I mean what we are looking at is making sure that we it comes time to shed this cost, we can shed them quickly and so our - you know, our focus is on making sure we don't take on labor cost that we can't easily shed or facility cost that we can't easily shed more so than the idea that the rate is an issue.

Okay.

Because our, you know, our growth is driven and our expenditures in G&A are going to be driven by what we have to get done.

It is going to be driven by the revenue and gross margin line and getting the people, all of our G&A is people-related for all practical purposes.

So, you know, in the near term you get people and you build the G&A necessary to get those folks and then a find place just to sit and all that sort of thing.

In all your term, you just need to be sure you can shed those cost when the time comes and that really where are focus is right now.

I appreciate your thoughts.

Thank you.

Your next question will come from the line of Ian Macpherson representing Simmons & Company.

Please proceed.

Hi.

Good morning.

Very nice quarter.

Thank you.

I guess the first question would be, you talked about how happy you are with the content of your backlog and, I guess just looking at the way it evolved over the past year, your field service has increased from below 50% to closer to 55% of your current backlog.

I just wonder if you could just expound on the drivers behind that and does that really portend anything with regards to your - the margins embedded within the backlog going forward over the next year?

You want to start.

Well, yes.

We have certainly been talking the last few quarters that the way project have been coming in, you know, more likely to come in phases in such all the work, engineering work we are doing particularly in the refining - excuse me, in the upstream markets are, you know, evolving through that front end engineering, the detail design and we would expect to see the construction field services part of our business and the backlog growing as we went into 2008 and that will eventually translate into, you know, bigger percentage of revenues coming from field services as we get later into 2008 and into 2009.

Obviously with that, the gross margins will come down, and I think we will also start seeing you know, maybe more of a moderation in the operating margins as, you know, the gross margins - you know (inaudible) margins coming in from construction and field services, you know, come in.

Typically, historically, we have always said those two are about the same, but we've had such a run off the professional services side on the margins, you know, over the last 12-18 months that the construction margins haven't caught up quite as much and I think as we get into the construction and see that pick up, we will see that same kind of impact on some of the field services margins down the road a little bit but initially, there may be some moderation in the operating margin growth and certainly, we are at record high levels for operating margin percentages and you know, I don't see we are not talking about - that they will tumble dramatically but certainly we won't see the upward growth in them that we have seen over the last 12 months.

Okay.

I appreciate that.

If I can just maybe ask a follow up on the acquisition strategy, it would seem that one of the biggest opportunities just from a broad bucket of businesses standpoint would be the growing eastern hemisphere of Middle - specifically, Middle Eastern NOC demand for downstream work and I was wondering if I could just get your perspective on how you see the opportunities set for acquisitions there?

Is that going to be difficult to grow through acquisitions for - you know, how do you think the challenges - what challenges you might see in that arena going forward?

Well, we certainly think acquisitions if that arena make sense and we are aggressively pursuing those acquisitions in the sort of petroleum space in particular.

The challenges in some of the countries like the Middle East tend to be long issues of regulatory approvals and the challenges of getting those things done.

There are ownership issues for particularly for professional services firms that have to be managed, so it's more complicated than doing a deal like Carter & Burgess in the U.S.

but there's nothing we see that prevents us from continuing to grow by acquisition as part of our overall strategy to become local in these marketplaces.

We will continue to work to do that.

Okay.

Are the acquisitions going forward, going be dictated more by the opportunism of evaluations you see?

Or is it more mandated by where your [capacity] in specific areas?

We are continuing to stick to fundamental philosophy that says that we have a strategic interest in an acquisition either for the geography or for the capability for the niche that they happen to be in.

We will continue to do acquisitions at least we think for the most part that are relatively small compared to Jacobs in terms of scale, probably will be private company acquisitions or subsidiaries of public companies.

I do not think we have any interest in a public company to public company deal.

And we will look at evaluation in terms of what market evaluations are but we are not - we don't believe we have to rush out and pay a big premium to get a deal done in any given time frame.

There are plenty of opportunities out there to find good businesses, sometimes it is slower than it likes, some times it happens opportunistically or sometimes we just get something over [at random] but regardless of the source, there's to real need as we see it to pay any kind of major premium for these deals.

All right.

Well, thank you very much.

Your next question comes from the line of Jamie Cook representing Credit Suisse.

Please proceed.

Hi.

Good morning and congratulations.

I guess first can you talk a little bit when you think about or when you look at the type of projects that you are bidding out there?

Can can you just talk about the size?

I mean are there a number more, for example, the Motiva crude expansion refining or a number more of those project opportunities that you see out there, are they getting larger in scope, I guess?

Well, Jamie, I think there are lots of that size projects out there particularly again in the Middle East and certainly a few of those that are for our core clients that we are, you know, involved in one way or another.

Either look at the feedwork or GMC kinds of roles for them, we were working in a, you know, on a piece of the work.

And some of those things have very big numbers associated.

Well, there certainly are project out there with numbers like $12 billion associated with them but that's really not going to be our focus.

There's plenty of work in our view that ranges in the, you know, $200 million, $100 million, $50 million, $1 billion kind of scale, and we are going to continue to focus on that kind of work because it gets closer to the base load of our business and puts us in a better position, we think for that long-term, you know, we're in there steady day and day out kind of role, but there is a ton of big projects out there.

There's just also a ton of not so big projects and the pipeline is really good in both respects.

All right.

And then as you think about feedworks that you are doing, can you just contrast what you are seeing about the number of projects going on on the upstream side versus the downstream side?

And I guess my last question, any incremental interest to get into the power business or to grow your business within certain niches within the power business that would meet sort of the Jacobs lower-risk profile?

I guess first to the fee question, you know the feed activity remains pretty good.

There continue to be a good steady flow of projects today that are going to be in the feed stage, that will lead to, you know, major EPC kinds of opportunities downstream.

So, that part of the business remains pretty robust and it mains pretty robust on both the upstream and the downstream side.

I would say that the stronger downstream side right now is in the Middle East on the feed side.

Upstream it is more distributed.

Okay but on the feed work on the downstream side, are those levels deteriorating versus where we were before.

There was no evidence of they're deteriorating on either side.

Sorry.

One last question for John because everyone is asking a margin question, a different way and it depend on whether we are doing the front end or back end or whatever but John, I guess, if I just look at your margins on a net income basis which sort of, you know, backs out everything.

Your net - your net income margins over the past three quarters are finally reaching, you know, sort of the highest 3% range and I haven't seen that range in a long time.

Is there any chance or what would any factors limiting you from actually getting to 4% net income range going forward?

And if so, what would be the factors limiting that?

Well, as I said earlier, I mean as we move back into more field services.

I think you are going to see, you know, the moderation of, and leveling off of the margins and I think that, you know, we'll hit a very strong market right now.

I guess I am not very smart because I have been saying we will moderate off the last few quarter and we have continue to ---

That's why I am asking the question.

But I think that this quarter we saw the, you know, the revenues, you know, pick up.

We are seeing a lot more of the field services revenues coming in, the backlog will start working themselves off next year.

So, you know, I am not going to say never, and we don't forecast margin percentages and things like that or give guidance on those.

But, I think we are getting pretty close to the top of where we would expect to see and certainly over the next, you know, couple of years, most of the bottom line growth is going to be in line with the top line growth.

Did you guys ever answer the question on power?

No.

You asked a second question before Craig could answer.

I am sorry, Craig.

(Laughing).

I am all over the place this morning.

Well, I don't want to leave the power question unanswered.

You know, we continue to observe the power business.

I think that's the kindest way to say it.

We are trying to understand the business and what is going on, but it is not anywhere up on your priority list.

You know, if we get to the point where we are confident that's an opportunity for real growth, let us start talking to you about acquisition strategy in that area just like we did with up stream oil and gas and likely with infrastructure.

We are not there yet but it doesn't mean we don't participate in some of the business as a company but it is very much the on - more on the inside defense cogent kinds of businesses and isolated power project, than it is any sort of a business strategic thrust force at this point.

All right.

I will get back in queue.

Thanks guys.

Your next question comes from the line of Steven Fisher representing UBS.

Please proceed.

Hi.

Good morning.

Good morning, Steven.

I know you will give this on your [K] but can you give us the sense of the international mix in your revenues and where do you think that is heading?

And I have noticed that a large percentage of press release is over the last few quarters haver been for more-like international projects but you now add Carter & Burgess, it that going to swing the balance back to domestic?

Carter & Burgess is, well is a nice size acquisition for us.

It is not all that big as far as revenues because it is all professional services.

The, but the, you know, right now, on this year, I don't have the exact number here, but it is 40% or so of the revenues that are coming from overseas a little more than that.

Okay.

And on, Carter and Burgess, you know, will affect that, you know, a little bit but not dramatically.

Okay.

Great.

And it sounded like you painted a pretty healthy picture for the transportation markets and state and local budgets, are you expecting, as we get into 2008, any of this turmoil in the sub prime and housing markets to spill into the availability of funds at the state and local level for transportation projects domestically?

You know, it will have some impact, I think among other things it will gong certainly affect the part of the business that's private financings and design build, finance-own operate kinds of projects because of availability of capital for those is going be significantly damped.

I think it may affect some degree people's willingness to approve future bond issues.

The one that is have been approved, that money is committed, and that will drive work for, you know, a few years.

And so, I think you are looking at a long cycle business with a short cycle problem, but it will have some impact in some locations and it probably will vary a little bit by in terms of how the local business or how the local infrastructure is getting funded.

If you don't have a bond issue, a sales tax issue passed today, it might be a little harder to pass one going forward.

Right.

I got you.

So, it probably doesn't have an impact whatsoever in the private sector business.

I agree to that.

What is the mix of the transportation infrastructure business domestic and international?

Well, probably the easiest way to describe it would be to say that it is probably 60/40 as we sit here today, 60 U.S., 40 outside the U.S.

Okay.

That's helpful.

After Carter & Burgess.

After Carter & Burgess, because, you know, the last couple of years it has been bigger overseas because of our presence in the UK.

Right.

This balances out a little bit.

Okay.

Great.

Nice quarter, thanks a lot.

Thanks.

Thank you.

Your next question comes from the line of Alex Rygiel representing Friedman, Billings, Ramsey.

Please proceed.

Thank you.

Good morning, gentleman.

Good morning.

To follow up on the last question, if in 2007 about 40% of your business was coming from international markets, how does that mix look in your backlog right now?

I don't even have those figures in front of me.

It is not something we really look at that closely as far as backlog mix.

When you look at the mix of people, you know, that is, it is probably in somewhere in that range.

So, I would expect - We are going to see big swings one way or the other.

It has been evolutionary certainly as we have - over the last few years with the acquisitions that we have done and the growth in the UK and the infrastructure business there and the going back to Canadian acquisitions and the growth in Canada, those have driven some of the international growth from our, you know, where we were a few years ago, 25% up to where we are now at 40%.

But, you know, it is not something we sit there and say, "Gee, we are driving this to X percentage.

" You know, It is the way the market is and that's one of the strengths of over diversity, as we are in many different markets and those have all some different cycles and even sometimes in the same industry, you know, the market will be stronger in one geography than in another.

And can you refresh my memory, is there any of your cash balance that is actually advances from customers?

There's always a little but there is nothing that's restricted.

None of your cash is restricted by client or anything like that.

And lastly, as you look out into 2008, thank you for the guidance, can you attempt to quantify the earnings in that guidance associated with the acquisitions that you completed in '07 that are going to roll over into 08 and the most recent Carter & Burgess acquisition.

We don't break down our guidance, you know.

We give a broad range of guidance and we don't give guidance within the guidance but, you know, the acquisitions particularly the '07 acquisitions in Carter & Burgess, as I said on Carter & Burgess, you know, it will be slightly additive but the emphasis on slight.

All of these acquisitions, you know, most of them are small.

Edward & Kelcey, you now, was as I think we have said at the time will be slightly positive but it takes, you know, a good two or three years to work off some of the, your early, the shorter term amortization, so you really don't start seeing other than the growth that we get out of the synergies, you know, just being hopefully growing on top of what we are acquired.

You are not seeing the base business contribute much until you get through two or three years because of the front-end loading and the short-term loading on some of the amortization of intangibles particularly as it relates to contracts and backlog and things like that.

Great.

Thank you very much.

Your next question comes from the line of John Rogers representing D.A.

Davidson.

Please proceed.

Hi.

Good morning.

Good morning.

I wanted to follow up a little.

If you look back in 2008 now, how much of the improvement is due to better pricing?

We have looked at that some, and frankly we are getting about what we said we would get.

We are getting a little bit of expansion because we are getting a little better pricing, we are getting a little bit of expansion because of higher wage rates and we are getting a little bit of expansion because we are generating fees on the construction side.

So, you know, there's - there's several things that are contributing to why margins are a little bit better, but it is frankly, it is little bits.

Right.

But as you look out then into 2008, are you as, based on what you have booked in your backlog already, I assume there has been some additional little bits of price increases that are in there.

Is that fair?

We would like to think so.

And is it your sense that will continue as long as the markets, for people in resources, is as tight as it is?

You know I think the opportunity to improve pricing in this marketplace will continue to exist.

For us, it will be very modest because, again, our business model is the long-term contracts.

We have just gone through several renegotiations of longer-term contract and you know, the kinds of improvements you get are 3/100 of a point improvements.

I mean were are not talking about big numbers here.

So, you know, while I think we are will have an on going opportunity to do that, I don't think it is going to be anything dramatic.

The other thing I think you are going to see is we will layer in more construction dollars, so revenues will tend to grow faster than our proservice business revenues growth, and it will have some impact the other direction.

We will see lower gross margins but lower cost to serve.

And that will impact the numbers a little bit as well.

Okay.

Okay.

But, I mean I guess you sort of answered that but given your model, I mean you don't see the dramatic project leverage that somebody doing that solely in discrete project business would see?

That's right.

That's absolutely right.

On.

Great.

Thanks and congratulations on the quarter.

Thank you.

Your next question comes from the line of Tahira Afzal representing Keybanc.

Please proceed.

Good morning, gentlemen.

Hi, Tahira.

Good morning.

Just a couple of questions on the refinery project, the Motiva project.

When remodeling in the $1.9 billion over the next three years or so, should we assume a progressive ramp up with the ramp [railing] up near the end or should we assume that it is sort of you know an equal spread over the three years?

No, projects like this one have a sort of a slow, low steady ramp up as the engineering work gets done and then it starts to a little more rapidly because you are doing the procurement, starting to buy stuff and then it ramps up relatively quickly as you get into construction and go into the field.

It peaks in the field some time in the middle of the construction period and then it declines over time as you wrap up the construction and two into commissioning and start up.

So it is not at all a linear or evenly distributed kind of number.

So in a sense it seems that 2009 would be the peak year for the contribution.

Certainly, 2009 will be bigger than 2008 and bigger than 2010 in my mind.

Okay.

Great.

Thanks.

That helps out.

In terms of your oil sands work, if you look at your backlog, how much of the backlog does it currently account for?

We don't break our backlog down by the end markets.

You know, It is probably, you know, in line with the revenue but maybe a little bit higher than but we don't - you know, it is just all part of the mix.

Okay.

And just following up on the earlier comments, it seems that is most of that backlog exposure would be with the major sponsors versus marginal sponsors.

Are you talking about in the oil sands?

Yes.

Yes.

Okay, so that remains fairly good.

And in terms of just going back to the acquisition and the backlog and intangible amortization, should we assume a similar trend back into what we saw with (inaudible) acquisition in terms of the wind down.

It will probably be close to that.

Okay.

Great.

Congratulations on a good quarter and that's all I had.

Thank you.

Thank you.

Your next question will come from the line of [Bobby Fischer] representing BMO Capital Markets.

Please proceed.

Hi.

Good morning, thanks for taking my call.

You talked on prior quarters and alluded today about the slow transition from technical professional services to field services, I was kind of surprised by the strength of the field services this quarter.

Does some of that represent a catch up from prior quarters?

Should we expect to see another lump in the field services next quarter, as well?

Can you talk about that?

You're talking about in terms of additions to backlog?

Correct, additions to backlog.

You know I think there continue to be projects coming out of feed and going into construction where the construction phase is getting authorized and therefore those projects go into backlog.

You know, I think, we will see some additions to backlog like that as we go forward, but we are also as I pointed out earlier seen lots of feed activity, lots of new project programs.

So, I wouldn't necessarily consider this quarter to be a new bell weather or new sign post for how the quarters are going to go.

Okay.

That's exactly what I was asking and just related today that, do you expect to see the same level of trends on the feed side specifically in the process consulting?

Yes, I would say so.

Okay.

And despite your reluctance, you know, to enter the power generation business, I was wondering if you could talk on your exposure to the nuclear power generation if you have any?

Thanks for taking my question.

We have almost no exposure to nuclear power business as we sit here today.

Almost all our exposure to nuclear power is on the atomic weapons side or on the nuclear clean up side.

That's not to say some of those skills wouldn't be applicable to a new power bill but not much so.

So, I think, as we sit here today we don't see ourselves as a major player on nuclear side in terms of new build outside of environmental kind of work, and in some of the nuclear materials handling experience.

All right.

Well, thanks very much.

Ladies and gentlemen, as a reminder if you wish to ask a question, please press star one on your touchtone telephone.

Your next question will come from the line of Barry Bannister representing Stifel Nicolaus.

Please proceed.

Good afternoon.

If you guys were to look at this margin question again in a different way, and maybe just rank for us in descending order of importance, how important was contract structure, mixed shift within the type of work or pricing to have helped boosted that gross margin as much as you did?

That would be great.

Well, I am not sure and we haven't done this enough analysis to give you any definitive answer.

I think more of it has come from things like that certainly over the last 12 months more of it has come from you know, the increasing wage rates and the overtime and the, you know, the efficiencies and such like that that have come from price increases.

I think as we see going forward, as certainly, if we go out a ways and we start seeing some moderation of the salaries not that it is going to happen here in the short term but then you will see more impact maybe from those price increases that we have baked in, you know, over the last, you know, six months and hopefully the next six no months but I would say, right now if you ranked them, the bigger contributor has been the, you know, nonprice increase, you know, side of the business and the price increase has been more moderate.

John made a good comment but I neglected to mention when I responded this question earlier which is the effective utilization on things like overtime is very powerful in our business, and we, you know, have gone - we have gotten extensive overtime in a broad spectrum of our offices now, so that helped our numbers a lot.

At some points, you run out of overtime and you got to add new space and new people and that becomes, you know - that kind of takes things the other direction.

It is interesting, would you say though that the mix shift toward hydrocarbons, which traditionally have a pretty good margin, has helped boost this gross margin as well?

No, actually I wouldn't say that at all.

I don't see the hydrocarbons business as having traditionally higher margins.

Okay.

When I think of the TPS work.

The salary increase ---.

And the feed component of that work and all of the work that you are doing prepositioning yourself to get ready for the refining activity, you are saying that margin wasn't just a positive delta over the past mix?

Well, I think mix issues could create a positive delta but the proservice side of our business is one where sort of almost regardless of where you are in the design process, the proservice side of our business has pretty steady margin, net margins in particular.

So the mix drivers tend to be more field services versus proservices then they do what kind of proservices we are delivering.

Okay.

Just lastly, to clean up, there's a bit of a mix when I look at the public companies actual reported revenues and what ENR says are the revenues, and so just to help us out since you acquired four privately held company, do you have a sort of a run rate on annualized '07 revenues that you acquire, so as we carry forward to '08 we have some remote idea of what these companies are going to contribute to the top line?

We don't break down the revenues that way.

I know.

I am fishing, but I am just asking in terms of.

You have the wrong fly, Barry (laughing).

All right.

So, we can just go with what the industry sources say and build them in.

Now, as far as what you acquired, did you dispose of anything that would alter what the public reports say?

On any of the four companies, did you dispose of any significant parts that would alter what the public records say?

No.

We don't - generally, we don't buy things that we think we're going to have to sell pieces off.

The way our business tends to work, if there's some small piece of the business that doesn't make, it may disappear over time, but for the most part, you know, we're buying businesses that are like ours and our businesses we want to be in on the long run.

Certainly, that's been true with the acquisitions in this last year.

Thanks.

So, if they disappear like Forestry that's one thing, but it's more of a market force than your decision.

Correct.

This concludes the question-and-answer section of today's call.

I would now like to turn the presentation back to Mr.

Craig Martin for closing remarks.

I don't have much to add.

You know, we had a good quarter.

We're happy with it.

We look at '08 as a pretty good year, and I think we've given some pretty positive guidance compared to what we normally start these things, but it is still a market out there that has all kinds of factors going in and it could be more volatile than any of us think.

That having been said, we're pretty excited about it.

That's it.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes your presentation.

You may now disconnect.

Good day.