雅各布工程 (J) 2011 Q2 法說會逐字稿

Good morning, and welcome to the Jacobs Engineering second-quarter 2011 results conference call.

All participants will be in listen-only mode.

(Operator Instructions).

If you are listening to this webcast, please note a PDF version of the slides will be under supporting materials.

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions).

Please note, this event is being recorded.

I would now like to turn the conference over to Patty Bruner, please go ahead.

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.

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 actual 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 earnings release, and its annual report on Form 10-K for the period ended October 1, 2010, including item 1-A, Risk Factors, item 3, Legal Proceedings, and item 7, Management's Discussions and Analysis of Financial Condition and Results of Operations contained therein.

And the most recent form 10-Q, for the period ended December 31, 2010, for a description our business, legal proceedings, and other information that describes the factors that could cause actual results to differ from such forward-looking statements.

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

And now I'll turn the call over to John Prosser, CFO, to discuss results.

Thank you, Patty, and welcome, everyone.

I'll briefly go over to the financial highlights for the quarter and then I'll turn it over to Craig Martin, our CEO to give a business overview.

We're on slide 4.

Just the highlights for the quarter.

We did report earnings of $0.63 per share.

That included $0.04 that was a contribution from Aker.

That's $0.04 net of any of the acquisition and due diligence costs that were also incurred in the quarter.

The year-to-date EPS is $1.15, and reflects the same Aker earnings.

The backlog grid isolated in the quarter and we'll talk about that a little bit later, but grew to $14 billion from the reported $13 billion last quarter, and we continue to have a strong balance sheet.

Our Q will be filed by the end of the week, so you'll see the details of that.

Net cash was at $284 million.

That's down from last quarter because of the Aker acquisition, and it reflects the change for the cash that went out, and the debt that was incurred related to that acquisition.

And as we point out in the press release, we have revised the range of our guidance and the new range is from $2.40 to $2.80, which represents taking down the top end of the range by $0.05, which really reflects some of the uncertainty we're seeing, primarily in the public markets, particularly national government markets, as many of our major public clients, the federal government here in the US, UK, are going through some significant budget reviews and budget troubles.

But I think our outlook continues to be very positive, except for that one area of uncertainty.

And Craig will spend more time on that.

Moving to the next slide, slide 5, just a review of our history of earnings.

You'll see that we've flattened, as we look at the trailing 12 compared to this last year of 2010.

But more importantly, if you look at the 10-year compounded growth rate, even with the reductions we've had over the last couple of years, we're still showing that we're meeting that long-term growth rate of 15% that we talk about, as our earnings growth goals.

Turning onto slide 6, which is the history of backlog, as I said, we're at $14 billion in total backlog, up $1 billion from last quarter.

It includes approximately $600 million of backlog that came in from the Aker acquisition.

So even excluding Aker, we still had a nice growth in backlog of about $400 million.

On the professional services line, which has shown a more consistent track over the last few years, it was up to $8.7 billion.

That includes about $500 million of Aker backlog.

Again, even without the addition of the Aker backlog, we had a nice increase of about $300 million.

There were no significant deletions or changes in backlog.

So this was a very clean quarter as far as bookings, and activity in the new business, and represents what we think is a very good trend, as we are going forward through the year.

With that, I will now turn it over to Craig Martin, our CEO, to give the overview for the quarter.

Thank you, John and good morning, everyone.

I'm on slide 7 now, which is titled Strategies For Growth.

These are the same strategies we talk about in these conference calls every quarter.

Nothing about them has changed.

I'm going to talk about 4 of them in a little more detail.

Our business model, our market diversity, our multi-domestic strategy, and acquisitions.

But I don't want to miss the point about driving down costs.

We continue to be in a very competitive market.

A number of our competitors are by no means full-up in their shops.

Cost pressures continue to be high, and we're continuing to aggressively market work to grew our share.

The good news is we're able to get our G&As down and so our cost structure continues to improve, as we go forward through the years.

It's a good news position for us to be in.

Moving on now to slide 8, our relationship-based business model.

I won't spend a lot of time on this slide.

I think most of you have heard this story, many times.

The slide compares our business model with the industry model on the right and let me take a minute to talk about the industry model first.

It tends to be focused on transactional projects.

Those are the big events, the lump sum turnkeys.

For the most part, it is truly global competition based.

So the competitors include the Japanese, the Koreans, the Chinese, it's a large market, with very fierce competition for big events.

When you contrast that with our approach, our approach is very much based on preferred relationships.

It is a repeat business focused model.

We're about 93.5% repeat business this last quarter.

So, that is indicative of how the business is functioning.

About 80% -- 75% to 80% of our business comes from preferred relationships.

The rest comes from discrete projects and a very small slice of the transactional projects.

I think it is the ideal business model for the market that we are entering.

There's a lot more activity in the market now.

It tends to be smaller projects rather than big events, and it tends to be alliance and efficiency-focused in terms of delivery, and those things play well for Jacobs' business model.

I had an interesting meeting with one of our customers last week.

The COO of this customer said, what we find interesting about Jacobs is your competitors are only interested in our big projects.

You're interested in our whole business, and I think that quote really does a good job of summarizing the difference between our business model and some of our main competitors.

Moving on now to slide 9.

This is our pie chart with all of the markets in it.

I will try to talk a little bit about each market, and give you a sense of how we feel about those markets going forward.

I'll start at the top, with the pharma bio business.

We are, and continue to be, sort of the last man standing in the pharma bio business.

It's a very good business for us, and we clearly have a dominant position in the marketplace.

There is a lot of activity picking up in pharma bio.

There's a fair amount of pent up demand that's post merger.

Our main customers have been looking at merger activities, and consolidation, and rationalization, and achieving all of the synergies that they promised the marketplace and that's left the capital projects business a little bit behind the curve, so to speak.

So we expect to see, and are seeing a lot more activity in the pharma bio market than we've seen in the last couple of years.

It's interesting also that our customers are focusing more on buying IP rather than trying to develop it.

They're buying their intellectual property, their products.

That's good news for us, because it tends to drive manufacturing on a much more rapid basis, and these are more immediate.

That's particularly true right now in the insulin and oncology drugs business.

Of course pharma bio tracks the GDP to some extent, and certainly with the GDP improving, we see some improvements in pharma bio there as well.

So a good market, and one that we think has good promise for the next year or 2.

Moving on around to chemicals.

Chemicals is a surprisingly robust market.

There's a lot of activity out there.

It's the best we've seen in a decade, at least.

Plenty of activity derived from lower cost feed stocks and natural gas liquids.

A byproduct of all of the gas extraction in places like the US, there's a lot of NGLs and a very low gas price.

My customers, at least the ones I've talked to recently, are pretty positive about that.

One of the customers said they believe that the advantage that gas prices are giving them in the US is structural, and they have significant plans for investments in the US.

So that's a good news story.

It would be very positive for us going forward.

When you go outside the US, there's a lot of downstream projects, downstream by that I mean downstream of the ethylene, primary olefin.

A lot of activity related to automotives for example, and paints, plastics, polymers, refrigerants, and then we continue to see a lot of major activity in the poly silicon world.

So that business, the chemicals business is quite good for us, and we're also surprisingly strong in the alliances now.

A number of our customers are out getting alliance relationships established, and we're pretty excited about that, because it again plays to our strength.

Moving on to oil and gas upstream.

It's a robust business globally.

Oil price is $112, is what I saw this morning on the ticker.

Drives a lot of investment at that kind of price, and there's a lot of needs for that investment, because there's a lot of replacement to do.

For us, that means oil sands remain strong.

Still the feeds sort of business, early design at this point, and the competition up in Canada is still pretty hungry.

So, the margins are still tight, but the business is growing rapidly, and we've gotten in early, gotten a lot of work.

Our business is very robust right now, and looks like it's going to continue to be so.

On a gas side of oil and gas, there are opportunities on the increase around the world.

This is a strength for Jacobs.

We have pretty good gas credentials, and we continue to pop it from that business, both here and in North America, with the shale gas side and in the Middle East.

Oil production is an area of opportunity where we still are not as strong as some of our competition, and we're looking at ways to strengthen our capability on the oil production side.

We think that could drive some additional growth.

Oil and gas market looks quite good.

It's another great opportunity for Jacobs where we have a small share in a large market.

Moving onto refining, the downstream business.

We don't expect to see any grass roots projects of any major size in the US or Europe.

The major investments will go to the Middle East.

As you know we announced the award of the GES Plus contract to Jacobs.

That's a huge win for us, and represents an enormous opportunity for growth in our Middle East operations.

And a lot of that will be in the refining business and in the upstream oil and gas business.

That's good news actually for both these markets.

There are a lot of small to medium projects in the refining world right now.

And they're all over the place, and so that's another area of focus for us in terms of where we see things going.

Again, refining is probably not as strong as market as the first of the previous 2, chemicals, and oil and gas, but it's clearly better today than it was a year ago, and it looks like it's going to continue to get better for a while.

Moving now to other, the sort of catch all category.

This is pulp and paper, power, high tech, food and consumer products.

That's a pretty good business in lots of ways right now.

The power business is relatively robust, and it's outside the US, the problems in Japan do not seem to have negatively effected nuclear investment outside of the US as much as we thought it might, so that's good news, because that's really one of the places where we're active.

Pulp and paper market is about as good as it's ever been.

Certainly the best it's been in a decade or so.

We're seeing a lot of opportunities for food and consumer products alliances, and we're seeing a resurgence of the high tech business for us, in particular one customer has some very major expansion plans and looks like we will be able to be a part of that customer's expansions going forward.

Moving now to the bottom of the pie, mining and minerals.

You can see that's a little 2% segment.

It's a small percentage right now because it reminds 2 months of the acquisition, plus Jacobs' normal mining and mineral business combined.

So it's 6 months of Jacobs-- or a year of Jacobs, and 2 months of Aker, I think is correct.

It's a very strong market for us.

We see lots of opportunity here.

The main players in the mining and minerals market have a $66 billion CapEx program for next year.

In addition to that, we're seeing lots of activity in the sustaining capital and maintenance arena.

So both of those are real positive for us, and we're looking to see robust growth in the mining and minerals business, partially because we'll get a full year in there eventually, but because mostly we see a really strong market going forward.

Now we'll move around the clock to the markets that have a little more uncertainty in them.

Let me start with infrastructure.

It's a little bit more uncertain than the markets I've just talked about.

The business is fairly weak in the highways arena.

It's stronger in rail and air.

A lot of what's going to happen in infrastructure is going to be a function of what happens to user fees.

So user fees will be a key aspect of investment.

If you look at things like vehicle miles traveled in the infrastructure business, they're down about 2.5% over their peak, so there's a shortfall in the user fees related to the highway infrastructure, transportation infrastructure business, but it's not as severe as we might otherwise believe, listening to the state budget issues.

It just does create some uncertainty.

But there's also going to be a lot of activity and project finance in public and private partnerships.

The water business, which is the other aspect of infrastructure for us, is good.

It's growing nicely.

It's largely driven by user fees and hasn't seen the downturn to the same extent that other state budgets and local budgets had.

It's largely a local business.

We think that's going to be a good business for us.

Those are mostly characterizations of the US market.

We're also a big player in the UK market.

The situation there is a little different.

The UK market is clearly more mature.

They're further down the road of dealing with their budget shortfalls.

We've positioned very well, with in the parts of the market where user fees drive investment, and I'm very optimistic that our UK market position will only improve as we go forward, although I think it will improve gradually.

Moving on now to buildings.

Remember, this is a technical buildings business.

So it's more about buildings that have a high-technical content inside than what's on the outside.

It's not commercial buildings.

It's not office buildings.

It's not multi-family housing.

It's the mission command centers, health care facilities, schools, jails, hospitals.

That kind of work is what drive our technical buildings.

Is affected by what's happening in public sector spending in both the US and Europe, but our segment of the business is probably not affected quite as much as the buildings market generally.

Certainly not having a commercial market focus has been a positive for us.

The good markets, the K-12 business, the health care business, and mission-critical facilities, things like data centers remain very robust in that marketplace.

We see huge opportunities in the buildings marketplace in the Middle East.

So we think there's another great growth opportunity there.

So, not a bad business, just maybe not quite as robust as we would like it to be.

And now on to national governments.

2 sections to our national government business.

One is the aerospace and defense side.

The research and development test engineering, the scientific and technical services end.

The other is environmental management, environmental radiation, sustainability kinds of activities.

Let me take the aerospace and defense piece first.

It is a huge market.

But there is considerable uncertainty.

Well, considerable is an exaggeration, there's some uncertainty, some significant uncertainty about how much money is going to be spent and where.

There are areas where we're pretty confident things are going to be strong, IT is going to be strong, and actually as we look at our proposal portfolio, our proposal portfolio looks pretty good.

But I think in looking at that part of the federal business, it's going to be a game of trying to take market share from our competition.

I believe we're pretty good at that, so I'm not real pessimistic about our position in this market.

I'm looking to see us grow but maybe not at the same rates we've been growing the last few years.

Another area of uncertainty is what is going to happen with NASA, but so far, where we are on NASA looks like it's about neutral to us going forward.

We'll see how things unfold as we get further down the road in the budget cycle.

An awful lot of this is going to remain uncertain until after the 2012 election.

Moving on now to environmental remediation and sustainability.

When we start in the UK there, the work that the Nuclear Decommissioning Agency is doing continues to grow.

Their budgets stayed up through the resolution, and we're a stronger player in that market now with the addition of Aker.

Between the 2 of us, we have a very, very strong position in the nuclear remediation, nuclear clean-up market in the UK.

That business looks pretty good to us.

The US market is pretty flat.

We don't see a lot of new investment in the US market, but I think we do see some pretty good opportunities for us as a Company.

So we think there's going to be opportunity for modest growth in that area.

Overall, if you look at the markets, the national government business is probably the area where we have the most discomfort.

I think it will be an okay business but I don't think it's going to be as robust as it's been in the past, at least not for a little while.

Moving onto slide 10.

Geographic diversity.

As you can see, over the last few years, we've managed to get a pretty broad geographic diversity, particularly now with the acquisition of Aker, and we're going to continue to focus on expanding our geographic diversity, based on where our customers are going with their money.

In addition to the places where we are, we see some significant opportunity in Brazil.

We see some opportunity in Oman and some in the Asian countries.

As you know, we have announced a mining project in Vietnam, and we expect that we'll be doing a bunch of consumer-related projects in Asian countries, particularly Vietnam as well.

Obviously, we'll also continue to focus on expanding our existing businesses.

Our basic principle is get in a market, get established and then sell other services to our customers in those marketplaces to allow us to grow.

Moving on now to slide 11.

This is our acquisitions slide.

You can see, we have got quite a stack of stuff at the top right of that slide that we've done in the last little bit.

This continues to be a very good area for us.

There are lots of interesting acquisitions out there, at prices that make good sense from our perspective.

The aerospace and defense arena, the uncertainty about the markets is driving some fairly attractive pricing in companies in that business.

We think there's some opportunities there.

Infrastructure and buildings business also has some opportunities for the same reason.

We think there's some opportunity to expand our mining and minerals portfolio, and there's some opportunities out there to do that.

In terms of geographies, Asia is certainly very interesting.

South America, China, plus we'll continue to do the niche deals that we've always done to augment our capabilities and expand our resource base in countries where we're already established.

So, I think the acquisition activity will continue to be good.

We've got good solid cash flow to fund that acquisition activity, and I think we continue to add to our earnings growth in the long run through those acquisitions.

Just going to slide 12 now, which is our standard commercial advertising.

We do think there's a lot of reasons to feel positive about Jacobs right now.

Our customer-driven business model is absolutely in its sweet spot.

We are continuing to be able to diversify across markets, geographies and services.

We have got a solid balance sheet to help us drive acquisitions, so we don't think -- there's no reason to think that we can't continue to grow at a 15% compound rate on the EPS line as we go forward.

With that, I think we're ready to turn it over to questions.

(Operator Instructions).

Our first question comes from Jamie Cook of Credit Suisse.

Hello, good morning.

Good morning, Jamie.

A couple of questions.

One on the margin line, your margins improved sequentially to 5% from 4.4%.

I'm just trying to get a feel for how much was your core business, versus what was the Aker acquisition.

So if you could help me out there, and what you're seeing on billable hours sequentially, for your base business.

You mentioned an improvement last quarter.

And just my last question.

Craig, at the end, you said you feel comfortable with the 15% EPS growth.

Does that mean we're sort of at the inflexion point and Jacobs is back to its15% at least for the next 12 to 24 months?

I'll let John start with the margin question, and we'll work our way through the list.

Cool, thanks.

On the margins.

The operating margins were right around the 5%, and part of that is the business mix, because if you noticed, the professional services revenues are growing faster than the construction revenues.

Aker coming into the mix, their net margins were very similar to ours, although they tend to be more heavily weighted to the professional services.

But we did have some of the due diligence and transaction costs that were included in their G&As, that offset some of that.

If you peel that back and the fact they have very little pass through costs in their field services mostly, it's professional services and construction management people and such like that.

If you peel some of these other things back, their margins tend to be a little bit higher than ours, but it's because their model is different.

They don't have the pass-through costs that we typically have on some of our field services activities.

At the moment.

At the moment.

I think as we go forward, that may change as they get more integrated with our field service activities as well.

So I think in comparing that to last quarter, you recall that we had a fair amount of due diligence cost in that, in last quarter that brought that margin down, and without the due diligence cost, the margins were probably closer to 4.8%.

So there is a little bit of change, but not as evident ,or as broad of as change as just looking quarter to quarter.

And I think --

Are you seeing any improvement on just the pricing environment or -- because last quarter you mentioned your core business.

The billable hours increased sequentially.

I'm just wondering if we are seeing any improvement in the overall market.

No, in fact what I was going to say is that change really is almost all attributable to mix, and the little bit higher levels of professional services.

Pricing continues to be very competitive and very strategic.

As Craig said, we're looking to take market share in these downturns, some of our government markets.

Even in that market, which historically tends to be more stable than some of the private sector markets as far as pricing, we're seeing a higher level of price competition than we would in normal times.

So, it is still a competitive market, and we're still focused on making sure that we take market share in this downturn.

Your second part of your question, the billable hours.

We continue to see that slow but steady increase.

It's not robust, but it certainly is going in the right direction and I think with the growth in the backlog of professional services, that we'll tend to feed that as we go forward over the next few quarters.

Are we the old Jacobs 15% forever?

We have never not been 15% forever.

It just a matter of whether it's 15% or not this month or this quarter or this year.

Quickly, to touch one more minute on the billable hours question.

We're seeing a steady increase on billable hours.

We've had net positive hiring for 16 of the last 17 weeks.

I think that's right.

It might be 15 of the last 16, but at any rate, so we're seeing the kinds of things that we would like to see from the standpoint of the business getting better, but to John's point, it's still just a little slow.

In terms of the inflection point.

I believe that we have seen the bottom, and that we are on our way up out of that bottom, and that we will be doing so at an increasing pace over time.

Whether we'll get back to 15% quarter-over-quarter growth -- not quarter-over-quarter but year-over-year growth in the next 12 months, I'm not ready to say that we will.

I think the markets are still pretty challenging, but I'm not ready to say we won't either.

We're just right at that point where we're starting to see the system build some momentum but it's too early to call the rate of change that robust.

Does that answer your question?

That's fair.

Thank you, I'll get back in queue.

Our next question is from Will Gabrielski of Gleacher.

Thanks, good morning guys.

A couple of questions.

One, if you didn't quantify the Aker backlog additions, how did you add that to the backlog number for the quarter?

Are you guys able to quantify that for us?

John?

As I said, the total was just over $600 million that we added into the backlog and of that, about $500 million was professional services.

And that came in, and it was actually about the same when we did the acquisition, and closed the acquisition on the first of February.

So, their sales rate was consistent with the work off of a couple of months.

Okay and I guess just to help me understand the Aker business.

It seems like their backlog coverage of revenue is a little bit lower than what we see from some of the bigger mining companies, and the obvious one is Fluor.

Is there just a difference in mix in project type that we should be expecting?

I don't think it's as much as a difference in the project types as it is it the pass-throughs and construction-related revenues.

One of the things that we bring to the party here in our relationship now, is that a stronger EPC, EPCM capability in Jacobs than what Aker had in its own right.

What you're really seeing in terms of that backlog to revenue situation today, is very much a professional services kind of business.

And I think as we start to bring in construction and we have a longer project duration in backlog, you'll see that ratio change.

But the margins should stay constant with that mix happening ?

Well, as you get pass-throughs in, that will push the margins down, because as I said on the last call, I expect in the long run that Aker margins will be about the same as Jacobs margins.

Okay and I guess the -- you added $0.04 in the quarter net of all of your costs from the deal, and that was for two months of business.

Going forward, you're still taking down the top end of your range and you commented on why.

I'm just wondering if Aker performed in line, better or worse in those first few months than what your original take was when you gave your guidance a few months ago.

Two months is hardly enough to get a trend out of an acquisition.

We're very happy with Aker's performance in the first couple of months, and we think they're going to continue to do well, going forward.

There's nothing about their performance that's causing us to revise our expectations.

Frankly, I think as much as anything, we just don't think it's likely we're going to do $2.85.

You can do the math, and if you take $1.15 from $2.85, that's some awfully strong uptakes in the next two quarters, and it's just not going to happen that fast and so we felt like it was important to take the top end of the range down a little bit and not kid ourselves.

Okay, and lastly.

The Middle East, it seems you're getting some traction.

How are the margins on that work?

They're tough, it's tight.

It's a very competitive marketplace; as competitive as any place we work.

Thank you, guys.

Our next question comes from Richard Paget of WJB Capital.

Good morning, everyone.

Good morning, Richard.

Wonder if we could talk a little bit more about trends in the Aker backlog.

If I look at the P&C backlog historically, it looked like it peaked around 2Q, 2010.

Now, I know it's not exactly apples-to-apples because you didn't acquire the whole business and I'm sure maybe there was backlog translation but that $600 million seems a lot lower than the peak a year ago, so I wanted to get a sense of how things have been progressing and what your outlook for growing backlog in that particular segment is going forward.

A couple of observations.

In the Q2 2010 Aker numbers, is a very substantial lump sum construction business that we did not buy.

And a very high-risk business.

Big numbers on the revenue side.

Small numbers on the margin and profit side.

Like negative numbers, in some cases.

And our view was that we didn't want that business, and I haven't analyzed it because it isn't relevant, we didn't buy it, but I would guess a lot of that backlog was associated with that part of the business.

That's the Longview project, for example?

Things like Longview are a perfect example of that.

Okay.

And so that's part of it.

We see -- as we look at where we are right now with Aker, we see a very good prospect list, we're winning work.

We're being invited into some major projects as a principal contractor, and so I think we'll see nice, steady, solid growth of that backlog.

I think everything we kind of expected this acquisition to do, at least at this point, we believe it's going to do.

Okay, and I know you have some uranium exposure.

Any changes in that market outlook given events in Japan?

Not so far.

That's something we continue to watch and scratch our head about, whether there's going to be an impact or not, but frankly these uranium projects, you have to take a long view.

These aren't five-year projects or three-year projects, they're 50-year projects.

And I think most of the customers who are in that end of the business are taking that long view and so I'm optimistic there won't be much in the way of a negative impact from what happened in Japan.

Finally, I know you took on short-term debt in the transaction.

Is that something you plan on paying down at the end of the year or are you going to keep that on the books going forward?

Well, we'll be paying it down with cash flow.

We're evaluating, certainly there's some tax aspects of what we may want to pay down and transferring money around.

Part of the reason we took the debt on was because of where the purchases were being made versus where our cash balances were sitting.

As we sort that out, we would expect to see the loan balances coming down.

We're not looking at it as long-term debt.

Our base revolver does come up for renegotiation in 2012, and so we'll evaluate that as we look at our needs, when we get to renegotiating our underlying syndicated revolver.

All right, thanks.

I'll get back in queue.

Our next question comes from Tahira Afzal of KeyBanc.

Good morning, gentlemen.

Good morning, Tahira.

I had two questions.

Number one, if you look at the quarter in terms of bookings, could you talk a bit about where perhaps the bookings came in stronger versus your expectations and where they were weaker, and second question, in the past cycle, even though your focus is more on small to mid-sized project which is a base of your business.

In the past cycle, you did book some large projects as well.

Largely on oil sand side but some on the downstream side.

When you look at your prospect list, do you see similar opportunities that do fit within the Jacobs model of risk coming back, or are most of the project opportunities that you're looking at right now more your usual run of the mill business?

Well, first off, in terms of the additions to backlog, if there were areas where we were a little disappointed, we were a little disappointed in the Infrastructure business, in terms of the additions to backlog there, and in the environmental mediation and environmental management area of the National Governments business.

Surprisingly, the Aerospace and Defense piece, where I was concerned at the beginning of the quarter, we had a pretty strong quarter from a new awards point of new.

I think we had eight or so awards in the quarter of some substance.

So, I think from that standpoint, those two areas were where we were a little bit disappointed, but like I say, it was a pretty good strong quarter from a sales point of view.

One of the stronger ones in several quarters, now.

So overall, we felt good about the sales in the quarter.

With respect to the big projects question.

We certainly expect that our profile in the oil sands will be similar to what it's been in the past, and that we will have a number of large projects in our portfolio.

Our challenge up there continues to be, and I think we're doing a good job, of also penetrating that sustaining capital business, because we want to be less vulnerable the next time there's a cycle up there, and there will be one.

We want to be less vulnerable to be in a big projects only position.

We're making lot of progress in that regard and in that part of the world.

We'll continue to see big projects come into Jacobs' portfolio.

Whether we will see the multi-billion dollar refinery expansion refinery projects come into the portfolio is more questionable.

We'll see some of that perhaps in the Middle East, but I would guess we're going to be talking about projects in the $2 billion minus range, for the most part, and we'll see those largely in the Middle East and in Canada.

Does that answer your question?

It definitely does, thank you very much.

Our next question comes from Alex Rygiel of FBR.

Thank you, good morning, gentlemen.

Good morning, Alex.

Craig, could you quantity fire the number of headcount in the Middle East today, and how that's changed over the last two or three years, and how you think it could change over the next two or three years?

I think today we'll -- I'll turn it over to our Middle East expert here, Mr.

Watson has been sitting with me, and he's been pushing that part of the world for us as our head man in charge, so Noel?

Yes, the Middle East headcount has probably been fairly static over the past couple of years as we've gone through a major restructuring activity as we've retooled that activity for the kinds of work that are coming at us now.

We are in a unique position.

I guess we announced the GES Plus win here recently and we are going to get some fairly sizeable activity under that contract, which is going to create a fairly significant growth spurt here let's say over the next -- I would guess the next 12 to 24 months, and that growth spurt is already underway.

We've been assigned some big contracts under that, and we also won a fairly sizeable contract up in the Netherlands, the Luberef group, which we did press release.

And on so our Middle East activity seems on the cusp of really taking off right now.

That's great.

Noel didn't mention it, but we have one distinction, I think.

We're one of the few GES Plus contractors who's already licensed to do business under that contract, and that's a big plus for us, and we think that will accelerate awards for us as we go forward.

And you also mentioned the nuclear market outside the US.

Could you expand upon that a little bit and Jacobs' strategic positioning in that market?

We have chosen to take a position that's sort of not on the technology of nuclear side, but in what I will characterize as balance of plant, and we're working as the sort of balance of plant engineer both for some of the providers of technology like AREVA, and for customers, as the owner's engineer, and we think that positioning makes a lot of sense, given our business model, given our focus on the relationships, and the fact that there's lots of people who know -- not a lot -- there are some well-established players who know how to build a nuclear power island.

So, that's the position we've taken, and we think that's a good spot for us.

It doesn't have the same level of competition in it.

The projects again tend to be a little smaller, and not as attractive to the big players.

And so that's where we are and where we think that our best market play will continue to be.

And lastly, you referenced smaller to medium refinery projects picking up, but you also, I think, mentioned or didn't mention anything about competition.

Can you address competition in the margin outlook for those smaller to medium size refinery projects?

The small to medium refinery market is still over served by the competitors, and so pricing pressure in refining continues to be pretty strong.

I think that we will start to see that moderate, but it will probably be another quarter or two before it happens.

Helpful.

Thank you very much.

Our next question comes from Michael Dudas of Jefferies.

Good morning, gentlemen, Patty.

Mike, how are you doing?

Wonderful, thank you.

Any of your clients -- I guess it's broad question maybe on the private sector side -- been seeing any concerns about either situation in Japan from a supply standpoint or supply chain, North Africa concerns, or some of the cost inflation that people have been talking about it seems like hourly with regard to excess liquidity and rising inflation and emerging and developing economies.

There's been a fair amount of talk about what the tsunami means to Japan and to the supply, particularly in the micro electronics world, but we're not -- most of the customers that I've talked to since the tsunami either aren't affected by that or expect the effect to be price pushes, cost push more so than just no supply at all.

So deliveries will stretch out on things, but the bigger problem is, it will get more a little more expensive.

I think from our perspective, that probably doesn't affect us very much.

The micro electronics business broadly is not a business we serve outside of semiconductor manufacturing, and that only on a limited number of customers.

So, I don't see that as a particularly big issue as we sit here today.

The instability in the Middle East is, I think a number of people have concerns about that.

There was a really good article written by Tony Cordesman that I haven't even finished reading yet, but the first part, I really like, is talking about what is likely to happen and where, but I think as we look at where we're currently working, Saudi Arabia, Abu Dhabi, and Morocco being the three main countries, we think we're in a better position in those markets than maybe some of other markets, Syria, Libya, that sort of thing, but it is an area of concern on everybody's part, and I think it's something we'll have to continue to monitor.

I don't think -- certainly nobody at this table is qualified to predict what will happen.

With respect to that what that means to the oil business.

What I do think it means is it will drive a lot of exploration and production activities in places outside of the Middle East, as people try to assure stable supply.

It's really a big plus in my opinion for our oil sands business, because I think the relative certainly of the oil sand supply will become an increasing positive, and so I think that's good news.

Inflation is -- who knows?

Again, we probably need a macroeconomics person sitting in the room to help us with that question.

We are certainly seeing cost pressure on some projects driven by demand more than anything else.

Whether that results in inflationary impacts that start to affect projects and investment, I don't see that yet.

I haven't heard that from our customers when I talk to them.

But that tends to be something people react to after the fact rather than before the fact.

So, I might not hear from our customers on it.

Does that answer your question, Mike.

It sure does.

I think Noel can answer all of those questions.

He's got prognostication experience.

He's still predicting $20 oil.

I'll leave it at that.

Thanks for your thoughts, gentlemen.

No comment.

Our next question comes from Avi Fisher of BMO Capital Markets.

Hello.

Avi Fisher.

Thanks for taking my questions.

Hello, Avi, how are you doing?

Good.

Good morning.

Could you clarify in your mining work maybe revenues by end market or by types of resource that you do, or roughly within that area?

What are the biggest markets for mining ?

In terms of geography for example.

Either geography or more by the type of resource; copper, gold.

Across the spectrum of minerals, the markets are all pretty robust.

An awful lot of the minerals, processing business is driven by growth in countries like India and China and so you see a lot of activity in copper and gold and the other metals that are related to those.

You see a lot of opportunity in iron ore and in coal as well.

In terms of where the projects what you see mostly is Chile, Peru, for the metals-based projects.

We're seeing some activity in Brazil around coal.

Australia is a broad spectrum of metals.

Particularly uranium, iron ore and coal are very strong.

What are Aker's biggest markets in terms of -- is copper and how much of their business, of what you acquired, how much is copper?

Metals processing is probably their single biggest market from the minerals processing point of view.

Gold, silver, copper and the related projects and the skills are pretty transferable across that spectrum, and so you kind of have to lump that nonferrous metals into one pile.

And that's certainly one of their strengths and the other strength, which is an Australia focus, is on the uranium side.

Aker is primarily metals processing across all the nonferrous metals and then Australian uranium.

Yes.

Is that correct?

That's right.

I just wanted to clarify some of that.

The Aker guys will probably tell you my answer was inadequate but they're the experts and I am not so I'll take the fifth on that one.

If you care to add a little more detail that would be great.

I'm not qualified to add more detail, I'm not a minerals processing guy.

Got you, okay.

You mentioned that environmental remediation was a little bit disappointing, and I wonder if you can clarify where it was disappointing.

Is the DOE slowing spending on the stimulus?

Was it projects slowing down?

Was it competition?

It's two things, I think in two different ways.

In the US markets, it is, the awards had been slower to come than we had hoped.

We're chasing a number of interesting projects that should be good projects for Jacobs.

A couple of those that we thought would have been awarded already and have not been.

Are those government awards, or private awards?

Government.

DOE for the most part.

Do you know why they're slowing?

I think there's a whole -- how do I put it, lethargy in government right now in terms of pushing things out the door.

Things take longer, there's more review cycles, there's more input from Washington, and I think that drags out the process.

Okay.

Is some of that, do you think, impacted by the sort of burn off of stimulus work?

No, stimulus really didn't have much impact there.

Stimulus was much more in the infrastructure and buildings arena.

And there's still some money being spent, but most of that is behind us.

Okay.

In the UK, I think the challenge is somewhat similar.

There's a lot of work to be done.

The NDA has a big budget, but they're slow to push projects and awards out the door, and there, there's been challenges in terms of the solicitations coming slowly, as well as an award.

It's clearly a better market than the US one in terms of its growth potential.

Okay.

So off of a lower base?

Yes.

For us.

It's a good business, but it isn't of the scale of what we have in the States.

And just continuing to answer a little bit more detail and clarity within the oil sands.

I think one of your clients -- I think last quarter you said there was a big project that is gone from you.

I think it was awarded to someone else in the quarter.

What are the other opportunities in the oil sands for you, and can you talk about some of the timing on it?

I'm not sure how to answer that question.

Virtually all of the major oil sands' producers are either are customers of ours or potential customers of ours.

I don't know what project you're referring to that got away, just off of the top of my head.

I'm forgetting off the top my head as well.

I apologize.

But if you go with the Suncors and Syncrudes or the Conoco-Phillips.

All of those players up there have major investments and we have significant roles with virtually all of the major players.

There are customers with two or three investments going simultaneously.

They rarely put all three of those investments in one Company's hands.

So we might have one or two of them and someone else would have the third.

But I really think that we have taken out of the blocks a pretty strong position in the re-energization of the oil sands and probably have the premier position at the moment.

We've certainly staffed up faster than most of our competition.

Our shops are rapidly moving to where we're having to take additional buildings for expansion purposes.

That's a good growing business for us, and our position in that market has never been better.

Is it across the board, is it focused on SAGD still?

We're still pretty focused on SAGD.

There is other work out there.

We're doing some tailings work on the mining side.

We're doing some work on the processing side of the mine expansions.

But we don't get involved at all on the mine itself, and we're not doing any upgrader work of any significance at this point and time.

Okay and then also continuing to get more detail, you mentioned that the national governments was the most discomforting.

Not as robust in the past.

Are you looking back to -- is that a sign that it could be down or is that just kind of flattish.

I think that the spending will be down.

Now the good news about the spending is, even if the spending is down it's still a huge spend, but I think when the spending is down, it's going to make the market more competitive so margins will be under pressure for the big federal job for a change.

Not normally a big factor, and I think you will see issues with delayed funding, projects and tasks being slowed.

Those are the concerns.

We're not seeing that to a huge degree just yet, but we've got a Congress and an Administration that are gridlocked about everything, and a budget problem with a magnitude of our federal budget here in the US, I think you have to be concerned about how much of that spending is going to happen, and how soon is it going to happen.

I think a lot of our folks believe that we're going to operate under the equivalent of a continuing resolution, until after the election, which would essentially be a no-growth environment from the federal point of view, but that still presents opportunities for us to grow our market share.

It will just be a fight.

I appreciate the detail then and finally, on petchem, you talked in the past about, I think you've said in the past that you're kind of focused on the polypropylene side, less on the polyethylene side.

I'm not sure how to read through to say -- Dow is talking about cracking naphtha into ethylene.

Is that an opportunity for you?

Is that a market?

What's your exposure to that market?

The ethylene part of it is not much of an opportunity for us.

We're not a big player in the ethylene part of the cycle and don't expect to be.

There's always other -- balance of plant work and that sort of thing directly associated with the ethylene cracker, but a new ethylene unit puts out -- creates all kinds of derivative units.

Polypropylene, polyethylene, EO/EG.

There's just a ton of stuff.

I don't know what all of those names mean sometimes, but there's a ton of others, what I call secondary olefins and chemicals that ethylene is then made into, and those projects are the ones where we have considerable strength.

Got you.

So the abundance of ethylene creates opportunities for further downstream.

Right, because there's not much you do with ethylene as ethylene.

You have got to make it into something else.

And it's the making it into something else, where we have a really strong market position.

Well, I guess the low price for ethylene is a double-edged sword.

Obviously the clients will be buying it, but will the producers be putting money into it?

Well, it's interesting.

A couple of players like Dow have announced that they're considering major new crackers.

And I'm not -- I don't really look at the ethylene markets.

It always seems like ethylene's in oversupply, and it always seems like people are announcing new projects and building new projects to keep ethylene in oversupply, but I guess our attitude is kind of, as long as there's lots of ethylene there's a lot of secondary chemicals projects and that's what we want.

If you look at the demand side of it I mentioned in my prepared remarks, we're seeing an awful lot of demand in automotive-related things.

Paint, polymers.

Things for tires, rubber.

Those kinds of things and so I think an awful lot of this product is going places that will benefit Jacobs in terms of projects.

Got you.

And two quick questions for John so he doesn't feel left out.

The Aker acquisition, how much revenues were contributed from it?

For the quarter, for the two months, it was about $170 million.

So we can kind of pro-rate that to estimate full quarter?

Should be, yes.

And then there's a question early on, of course, margins and just I want to understand, I don't know how to put this, is there an element to kind of overearning on margins or is this the rate you can get as long as the mix stays in this area?

Well, I think there's going to be a lot of things that will impact the margins.

As we go forward, we'll improve their G&As and we'll also probably -- as Craig said, we'll expand their field services activities so they'll start getting more pass-throughs so the mix will change.

Their revenues and their margins on their professional services are similar to what we would see in our professional services in the process.

Other than, they're in a stronger part of the cycle, and we're in a weaker part of the cycle if you're looking at chemicals and refining.

So, those, the margins always go through the cycles, and so you can't compare a strong -- where they are in the strong cycle versus where we are in a weaker cycle.

I think that the margins, given a similar mix, will be similar.

Got you, and as you expand your reach into the Middle East and your exposure into the Middle East, do you expect or could there be any negative impact on your free cash flow, because some people say they're historically slower paying?

We haven't seen anything significant.

We're dealing primarily again on the professional services side, and that's a pay as you go kind of market, and it tends to be similar to how we get payment in the west.

Got you.

I appreciate your time.

You have to stay on top of it and you have to stay close to your customers, but you have to do that in the west too.

Some of our slowest paying customers are some of our best customers.

Thanks for the color.

Our next question comes from Scott Levine of JPMorgan.

Good morning, guys.

Hi, Scott.

On the field side, so it looks like if you normalized for $100 million addition from Aker in field, it looks like you did have growth in the field backlog in the quarter after several quarters of decline.

I'm wondering whether that was surprising you, whether that signals something, or whether you expect that trend to continue going forward.

Well, I think over the next few quarters, particularly as we see things like up in Canada move from the front end and into the detailed design, but more importantly, into the field, we will see the construction or field services growing.

We've been saying that it was going to be a few quarters before we saw any significant growth in the field, and we would see growth in the professional services first and that's still the pattern.

Quarter to quarter, I think if you take Aker out, we grew less than $100 million.

It's not exactly a robust growth in the field services, but it is an indication of things are starting to move through the pipeline out of the -- some of the things we were doing engineering on are starting to move into the field.

I think it will probably be moderate the next couple of quarters as we move, certainly as we move into 2012 I think we'll start seeing field services activity pick up.

And then as a follow on to that.

Most of the Motivo or all of the Motivo is in field, and while not asking for you to quantify that, could you remind us of the timing of that continual will be so we can get sense of what the growth might look in field into 2012?

About 12 months of Motivo left.

12 months, got it.

And one last one on the SG&A, it's a little bit more color here.

A little bit of a step up in the second quarter, can you give us a sense of what we can expect in that line.

It sounds like you're saying it could come down going forward, but is there anything one time in that line, or how can we think about overhead going forward.

The big step up was related to bringing Aker in.

And ongoing due diligence costs.

In round numbers, that was $29 million, $30 million.

So, I think, as the business picks up there is a little bit of pressure on the G&As up.

We are starting to see salaries, have some increases and things like that.

So, I think we would expect to be holding those in line, but at least this next quarter we'll have Aker in for the full quarter as opposed to just two months and so we'll be a little bit of a step up related to that.

There will be some continuing integration costs and things like that will be unusual.

A little bit more than what businesses usual kind of G&As, but I would expect, and we would certainly focus that these will be, other than the impact of bringing Aker in, that the growth will be flat to very, very moderate.

Got it, but to be clear, on the $29 million to $30 million is that tied to due diligence or one time?

That wouldn't expect to continue?

Most of that is just their G&As of doing business.

Got it, okay.

Due diligence was probably around a couple of million dollars.

Got it, so flattish going forward, it sounds like to slightly up.

A couple million dollars after tax, so it would be a little bit more than that in the G&As.

If you look at a same-store sales basis year-over-year, G&As are down modestly, $6 million or $7 million.

Got it, thanks guys.

Our next question comes from Andy Kaplowitz of Barclays Capital.

Good morning, guys.

Hey, Andy.

So, Craig, you always have been pretty even keeled I think historically and Jacobs has said many, many times that you're not going to have all businesses doing well at once, but if you can have five or six businesses do well, that's what you want to see, which seems like what we have here, and we also have backlog growing in both segments of your business.

I would guess probably a little better than you expected organically.

So why so even-keeled here.

I know you're being cautiously optimistic, but it just seems to me that may be you're being a little overly cautious, versus the turn in your market.

Well, I want you to be right, but I'm not prepared to say that you are.

If you look at everything that's going on in our market, even in a good market, you have to recognize that it's still a little tentative, and so, for example, take the oil sands.

Lots of work being awarded.

We're winning more than our share.

We're doing really well.

But it's all feeds, and feeds -- they don't feed that monster when it comes time to see that 15% compound growth.

That's got to turn into detailed design and procurement and construction or construction management.

That's what feeds the monster on the growth side.

Maybe we're being too conservative, but I think we're still in a time when a little bit of caution is called for, because I really don't think you can say with comfort that the strong markets are going to stay with us, or that the weak markets might not get weaker.

I don't have any certain that they will.

I'm certainly not trying to hang crepe here, but I think it's probably prudent to probably be a little conservative about where things are going, based on what we see in the marketplace.

I think that's fair.

Last quarter, we had talked about sort of comparatively where this cycle is versus the cycle we saw maybe from 2004 to 2008.

Maybe I'll ask the question again, focused on refining.

I mean you did say in your prepared remarks that you thought petrochemical was in the best in the decade in terms of the end market.

Where are in refining for your business right do you think, if you could compare it to that time period?

We're still towards the bottom of the best in the decade.

Let me be clear.

I don't think we're going to see another uptick in refining like we saw from 2004 to 2008, at least not in the relevant future.

I think the refining business is going to come back.

I think it's going to come back in a way that's favorable to Jacobs, frankly, because I think it's going to tend to be smaller projects and environmental-driven work and we didn't talk about that today, but I think there's a lot of drivers for expansion of the refinery business for us that aren't really drivers for some of our competitors.

If you just tried to put on a scale of 2008 being the peak of the market, and last year being the bottom of the market, we're probably somewhere in the scale of one to ten, two or three at this point.

That's fair, Craig.

How about this quarter versus last quarter in terms of biddable work in those two markets, in refining and petrochemical?

Prospects are improving steadily.

There's no question that's there's more opportunity out there this quarter than there was last quarter, and there was more last quarter than the previous quarter.

Got you.

One more if I could.

On the mining market in general, I know you've only owned it for a couple of months.

You mentioned it's in a stronger place then generally oil and gas.

We hear all of the time about scarcity of engineering in that market, which should be very positive for pricing, and therefore margins.

Do you see that?

Is that getting better for you over time?

It's hard for me to judge just yet.

There are lots of reasons to think that would be right.

That we would start to see opportunity to raise margins a little bit, because it's a very robust market, served by a limited number of competitors, and there are some resource constraints, but I think -- we haven't seen it enough to be comfortable with that and I'm ever mindful of David Seaton's comments at Fuller about the margins in mining being lower than their margins overall, and they're a good company, and a main competitor in this business, and so if they're saying the margins are a little tighter, that has mean something for us, as we look at the margins going forward.

That's fair, Craig, but it also has to do with their mix of work, right?

There's no question.

Their mix of work has always had a different -- you see it in the margins for the business, generally.

Their mix of work has always been a little different.

Their way of accounting for construction has always been a little different, and so they always show a little different margin profile.

But relative margin I think would be meaningful, whether it's for Jacobs or for Fluor because we do go head to head on this stuff.

Understand.

Thank you.

Our next question comes from Joe Ritchie of Goldman Sachs.

Good morning, everyone.

Good morning.

So just following up on the margins for one minute.

The gross margins you guys booked this quarter, 15.2%, about the best gross margins we've seen in about three years.

So, given the fact that your business is shifting to more the technical professional services side, even this quarter, it's a greater percentage of your mix.

And we would expect that to continue going forward.

Should we see those margins at least stay steady at 15.2% and potentially improve as we get through the next four quarters?

Well, first of all we would expect to see the field services probably picking up as we get into 2012.

So we don't expect this to be a permanent or a long-term shift, and the fact that the gross margins are the best they've been in a few years is probably tied to the fact that the construction or field services is the lowest level it's been in a few years.

It really is a mix issue, and as that mix turns, I think you're going to see the margins turn as well.

Having said that, I think that certainly over the next couple of quarters, we wouldn't expect any major changes one way or the other.

Other than as it might reflect the mix.

Okay.

And then I guess just following up on Scott Levine's point from earlier on the SG&A and so there was -- I think you mentioned only a couple of million dollars in SG&A expenses this quarter that was one time and so we should then expect the trend to continue over the next few quarters that step up of let's say $26 million to $27 million and then just stay flat as your revenue accelerates over the next few quarters, is that right way to think about it?

That amount was only for two months and so you're going to have the third increase for next quarter, just coming out of the fact that it will be for the full quarter.

Okay, great.

Okay.

And then going forward beyond that, we would -- as we get them on our systems and get them into our structure and such, we would expect to see some improvements.

Great, and then I guess just a follow-up.

Craig, I know earlier you mentioned that on the guidance provision it wasn't surprising us that you lowered guidance given where we are at this stage of the year from EPS standpoint.

I guess my one question is, how come you didn't lower the top end of the range even further, and is there still an opportunity to actually get to the high end of the range?

I think getting to the top of the range will be challenging.

It would take some pretty robust activity in the market.

It's not out of the question, but it's not highly likely, either.

Okay.

Fair enough.

Thanks for answering my questions.

Our next question comes from Robert Connors of Stifel Nicolaus.

Yes, just real quick regarding Canadian oil sands.

As oil and gas producers there look to push off some more engineering to save lower cost centers versus prior cycles, can we see Jacobs capture some of that cost savings, or will most of it flow probably to the client?

Well, we've tried to structure our low-cost engineering center so that we share the benefit with our customers, and we've been pretty successful up to now in doing that.

So, that's what our expectation would be up in Canada.

We would expect that the customers will see the benefit of the low-cost engineering centers.

We're pushing that very hard.

But overall, that won't negatively affect our margins.

Do you find them to be a little bit more amenable to doing that versus a few years ago?

They're certainly more amenable than they were a few years ago, but there's still a fairly high resistance in Canada to doing work anywhere but in Canada with Canadians.

So there's still some resistance.

I think as the resource pool starts to dry up, and it should, based on what we see going forward.

We'll see more opportunities to move work, but there's a strong preference for local supply in that market.

And just real quick to touch up on your comments regarding tightness in the Middle East oil and gas markets, on margins.

Is that sort of overall, or does that also apply to the GES Plus contract, because I would think that with just a few bidders on that contract, that maybe the profitability is a little bit better?

It is a little bit better than past times, perhaps, but it's still a very competitive market, and all of the players know what they need to do to be competitive and you can win a GES Plus contract and not get any GES Plus work if you're not competitive.

Okay.

All right, thanks.

Our next question comes from John Rogers of D.A.

Davidson.

Hi, good morning.

Hey, John.

Just one follow-up.

Craig, you talked about better opportunities for acquisitions in the market.

Do you feel any pressure or urgency to move with some of these, given, if the market is really turning presumably that good pricing won't be around?

No, I wouldn't say that we're feeling any particular pressure.

There are a lot of good deals out there.

The whole deal process is, as you know, is one that's opportunistic.

It's got to be the right company at the right time at the right price.

Even through there's lots of deals out there, that doesn't mean we'll do lots of deals.

But I don't think we're going to see, in most markets, we're going to see a big upturn in pricing in the short-term.

Okay.

Exceptions might if we wanted to add to our minerals portfolio, finding someone to in the mining minerals arena that is as good as deal as we made for the Aker businesses, that might be hard to do.

In oil and gas, as you know, we've been trying to do a big deal in oil and gas forever and we still haven't gotten it done, and that's all because the pricing is never moderated in the oil and gas business.

We're going to be prudent about this.

We can grow organically as well, and so we'll do deals when they make sense.

Should we assume -- you've done acquisitions pretty regularly -- although not on a consistent time line, but is it fair to assume that part of that, your growth plan is still -- I don't know, a third half coming out of acquisitions.

That's absolutely right.

We're still expecting to get roughly a third or a little more, 40%, something like that, from acquisitions on a year-in and year-out basis, but as you look back through the history, you can find years where we made almost no acquisitions and grew 20% a year and 30% a year and you can find other years where acquisitions represented a significant part of our growth.

I think that sort of history is going to continue itself out in the future.

There will be good years and bad years for acquisition and there will be good years and bad years for organic growth.

Okay.

I appreciate the color.

Thank you.

Our next question comes from Steven Fisher of UBS.

Hi, this is [Brendan] in for Steve.

Okay.

I just had a couple of questions related to infrastructure.

I guess you mentioned that the business is uncertain.

Can you also talk about you what think the pace of municipal bond issuance is so far this year means for that business and at what point does that start to concern you?

Well, the pace of municipal bond issuance is as I understand to date is down a bit.

That's usually a two to three-year kind of leading indicator of when the money will be spent.

If that sort of thing were to continue through this year, it would be bad for the 2012, 2013 time frame, but probably not so much for the immediate business of the Company.

Okay.

And related to the, multi-year highway legislation, you mentioned that you expect us to be kind of on a continuing resolution-type budget basis, until the 2012 election.

Does that mean you don't expect new multi-year legislation until after that?

Let me put it this way; I'm pessimistic that we're going to get meaningful legislation from a transportation point of view, with this Congress and this administration.

So, yes, that's essentially what I'm saying.

I think we'll be working on what amounts to a continuing resolution.

Obama's infrastructure budget, I don't believe it will fly, and I think we're kind of going to be stuck in this no man's land for a while.

Okay.

Thank you.

Our next question comes from Rob Norfleet of BB&T Capital Markets.

Good morning, gentlemen.

Most of my questions have been answered, but just a few I wanted to hit on.

In terms of Aker, John, I know you had mentioned obviously we're going to start seeing the amortization of intangibles, some this quarter, more in the third and fourth quarter.

How should we look at that on a run rate going forward and what we should assume the impact to the margins for that?

Well, it's already in this quarter and so for the two months, it will be consistent as we go forward.

It will be in the range of $4 million a quarter and I think it was $2.7 million for the two months.

So, that will be fairly consistent as we go forward.

We're still doing all the studies and such like that.

That's our preliminary estimate.

It should be refined over the next couple of quarters and it shouldn't change significantly from those levels.

Okay, that's helpful, and earlier, you all mentioned obviously, albeit seeing less work particularly on the government side, just because of the budgetary constraints but really going after market share.

Can you elaborate just on some opportunities that you see in that business in terms of going after share, and I guess I would also be curious as to how you would expect, in some case, just gaining share to impact margins.

Would you be willing to give up obviously some margin in an effort to do that.

I'm probably not in the best position to be specific about opportunities right now in terms of that market but to your second question, absolutely.

We are big believers that as you take share, you position yourself best for the more robust cycle of the market.

So we would certainly be willing and able to sacrifice margin in order to expand our market share, and in fact, that's part of our plan.

One of the ways that our cost structure helps us to steal share in these downcycles, is that we have that beneficial cost position.

Craig, you had mentioned obviously it's cautionary commentary on government and infrastructure but we've obviously had the ability to see the preliminary 2012 budget, and clearly we know that can change pretty dramatically, but what are your initial puts and takes when you read through the budget and look at, for example, funding for DOE, and some of the other programs that you have high involvement with?

Without getting into a specific discussion and I haven't spent a lot of time with the budget but several of our folks have.

We kind of say look at this middle case that we think is the most likely outcome, which is essentially for the businesses we're in, relatively flat spending.

Probably not down a lot, but certainly not up a lot.

There are a couple of exceptions to that.

We think the IT side is going to have some upside on it.

And so we're a little bit more positive about that, but there's cases based on what's been asked for, and what we think might happen that range from a fairly significant downturn in spending, 4%, 5%, 6%, 7%, to a modestly upbeat spending cycle.

It's really, the discretionary part of the budget, the way our guys think of it is about $1.3 trillion.

That fits in sort of the general programs that we approach the government and the places where we can compete.

Of that, some additional part of that is inaccessible to us because of the nature of what it is.

But if the spending stays in a range that supports that kind of discretionary spend, that's kind of our middle case.

Does that make sense?

It does.

It does and lastly are we still seeing some flow through of stimulus funding?

Kind of lagging from 2010, 2011?

Yes, we are.

We're probably not finished spending stimulus money for a couple more quarters, but obviously there's no new money coming into that, so it's just working off the backlog.

Thanks for your time and again, nice quarter.

Thank you.

This concludes our question and answer session.

I would like to turn the conference back over to Craig Martin for any closing remarks.

Want to thank you all for your interest.

I think we have a good story.

We're feeling increasingly positive, but cautious about the world going forward, and we look forward to having this conversation again here in about three months.

Thank you all.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect, and have a great day