雅各布工程 (J) 2011 Q3 法說會逐字稿

Good day and welcome to the Jacobs Engineering third quarter 2011 earnings conference call.

All participants will be in listen-only mode.

(Operator Instructions) 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.

Good morning.

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 in its annual report on Form 10-K for the period ended October 1, 2010, including Item 1A, Risk factors, Item 3, Legal Proceedings and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation contained therein; and the most recent Form 10-Q for the period ended April 1, 2011 for a description of 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.

Now, let's turn the call over to John Prosser, CFO, who will begin the discussion of results.

Thank you, Patty.

Good morning, everyone.

I'll briefly go over the financial highlights for the quarter and then I'll turn it over to Craig Martin to do the business overview.

If we turn to slide 4, that's the highlights for the quarter.

We did report earnings per share of $0.71 for the third quarter; that was on earnings of $90.7 million.

For the year-to-date, diluted EPS was $1.86 on earnings of $236.7 million.

Backlog was right at $14 million (Sic - See Slide Presentation); that was flat with the prior quarter and up from a year ago.

We continue to show we have a very strong balance sheet.

Our cash position continues to be very positive at $773 million.

You're looking on a net cash basis, we have about $222.6 million.

A couple big uses of cash this quarter where the -- or more significant uses of cash were the acquisition of the building that we -- one of the buildings we occupy in Houston as we bought out the end of the lease there and the closing and purchase of CES in India.

And also as was contained in the earnings release, we have continued our guidance for the balance of -- or for the fiscal year at $2.40 to $2.80 per share.

Turning to slide 5, this is just the track of the history of our earnings and I think a very good sign is for the first time for a few years, we've actually turned up and the trailing 12 is above the results for last fiscal year.

I -- more importantly, as you look at the bars that are underneath the graph which gives our 10-year compounded annual growth rate, it shows that we still are exceeding that 15% target even over the 5 -- the 10 years even with the downturn of the business that we've experienced over the last couple years.

So I think it's a positive sign that we are starting to grow out of that bottom.

Turning to slide 6, backlog, we -- backlog as I said, was flat quarter-over-quarter but up by about $500 million when you look at it year over year.

I think with the increasing revenues we had this quarter, the sales rates at $2.7 billion was a positive sales result even though the resulting backlog still is flat.

I think in a growing period like this -- and we do have projects that tend to be lumpy at times and I think it was a good sales quarter even with the backlog being flat.

And with that, I will turn it over to Craig to review the business overview comments.

Thank you, John, and good morning, everyone.

I'm going to start with slide 7, our strategies for growth.

They're the same five strategies we've always had and I'm going to spend a little more time on the top three than the bottom ones.

So let me just comment here on the fourth bullet, drive down costs continuously.

As we sit here today, competition in many of our businesses remains pretty intense.

Many of our competitors are not full and there's prices are still a factor in many competitions.

Price is more of a factor today in the public sector markets than it have been, but there is a bit of good news.

It appears that unit margins are starting to improve, particularly in the private sector.

We'll see if that really reconstitutes a trend, but at least you can say with some comfort they're not getting worse or at least they don't appear to be.

So that is a positive and it's a positive for our position in terms of having a good solid [cost] position and being able to be competitive.

Turning now to slide 8, I want to talk about our relationship-based business model and I'll talk first about the industry model on the right.

This continues to be our idealized view of our competitors who are largely focused on big events in far away places on lump sum turnkey competitions and they compete globally.

So they're a competition that not only includes US and European companies, but the French, the Chinese, the Japanese, a broad slate of competitors on these transactional projects.

That results in pretty aggressive pricing and some other challenges and it's a business that we think is fraught with risk and doesn't represent the reward that we would like to see for it.

Everybody in the business has a set of customers that are relationship-based and they do a bunch of discrete projects as well, but if you look at our model on the left, you'll see that our model is almost the reverse of what we think most of our competitors focus on.

Our focus is on preferred relationships and repeat business.

In quarter three, 92.5% of our business was repeat business, work for customers that we would work for in the past year.

80% roughly of that business came from these preferred relationships and slightly less than 50% of our business came from a very limited set of core clients.

We think that is a strong business model going forward.

The big spend will come from these preferred relationships and these core clients as they move ahead and we'll be able to work with those clients on an alliance and relationship basis that very significantly reduces our risk as we go ahead.

We think the model has a lot of strengths compared to the industry model in the long run.

Turning now to slide 9, I'll just go around the wheel here and talk about a little bit about what's going on in each of our markets.

Let me start at the top right with the Chemicals business.

Chemicals is a very robust business right now.

It seems to be driven by low and abundant feedstock and by desire a lot of our customers to convert lower value products into higher value ones.

Activities are very high in the Gulf Coast, in the Middle East and in Asia and the focus seems to be on what I'll characterize as high value chemicals.

That plays directly to our Jacobs' strengths in the Chemicals business, both from a know-how and a technology point of view.

Alliances continue to be key and we continue to find opportunities to enter into large, long term alliances with our customers.

As you can see, the business is up quarter-over-quarter by a nice amount.

I happened to run across this statistic that I was proud of that I just thought I'd mention.

Out of the last 49 competitions in the chemicals industry, Jacobs won 35 of those.

So we had a 71% win rate of the jobs we chased and I think that's a nice [kudos] to our sales team.

Moving on around to Oil & Gas, the upstream business; it's a very robust business.

It continues to be very robust.

The oil sands are very strong.

What I like about what we see in the oil sands is two things.

We're continuing to see more FEED work coming from our customers as they look at new projects, but we're also starting to see projects moving toward the execution phase; lots of discussions about detailed engineering, construction at this stage and it looks to me like those things will be moving ahead pretty much on the time line that we've discussed.

So we ought to start to see some pickup in detailed design and construction as we go to the next couple, three quarters.

Gas projects are also big.

That's a strength for Jacobs.

Onshore gas is something we know a lot about and have a lot of experience with.

That continues to be an area where we think we'll be doing -- going well going forward.

The weakness we have in this market still remains on the oil production side.

We'll talk a little bit about what we're trying to do in that regard as we move ahead in the acquisition discussion.

Moving on now to the Refining business.

Major investments in the Middle East and we're right in the middle of those; lots of small cap activity everywhere.

In addition, of course, the GES Plus contract which covers both Oil & Gas and refining is just getting started.

It looks like the scope for Jacobs will be investment costs in the multi-billion dollar range.

So we see that as a very positive thing for us going forward.

Refining Gulf Coast margins and Refining are quite good.

That's also a plus for us and will support a small cap, the minus $200 million project range as we go forward.

So we see Refining as coming back, at least for us, as a positive not only in the Middle East, but around the world.

Moving on now to the other category, it's really unfair to call it other, but got to group it somehow.

That's Power, Pulp & Paper, the High Tech business, Food & Consumer products, a lot of strength in these markets individually.

Pulp & Paper is quite strong.

There's been a fair amount of consolidation in that industry.

It makes for stronger customers who are now making investments and it's driving projects pretty significantly.

Aker broadens our base of delivery for the Pulp & Paper industry which I think is another positive.

Food & Consumer products is also very good.

We continue to see opportunities for major alliances with customers in that industry on a global basis and we see that as a long term opportunity as we go forward.

You saw our Unilever alliance announcement here about -- actually Unilever made the announcement themselves maybe about four months ago.

That's typical of the thing we're seeing and the opportunity that it represents and we're seeing a lot of activity in the High Tech industry as well for a few key customers.

We're pretty positive about what that means in terms of business and we'll see how that goes going forward, but investment seems to be coming back in that regard.

Moving now to the bottom of the pie, Mining & Minerals, this represents five months of the Aker acquisition coupled with Jacobs' historic Mining & Minerals business, so it's a growing business as we add a full year worth of data -- the number, very, very strong markets.

Investment levels are $60-plus billion a year and we still have a very small share, relatively speaking, of that market, so there's tremendous opportunity for us to grow.

We think we're going to see a terrific position there, particularly in some of the geographies that are new to Jacobs through the Aker acquisition.

Moving now to PharmaBio, we continue to be the last man standing in the domestic market in North America.

That's a positive for us.

There really isn't the level of competition that there once was in that industry and so we're benefiting from that quite clearly.

We're also benefiting from the consolidation that's taken place in the industry.

There's been a fair amount of rationalization going on and customers are spending money to get the best possible effect of their product portfolio.

Still a lot of activity in vaccines along with some activity in things like insulin and oncology drugs; in some cases, drugs that are big customers are acquiring from smaller companies and then implementing very -- fairly quickly.

So we think the Pharma business is going to be good and again, it's a market where we have a greater ability now to serve our customers in some new geographies.

That pretty much deals with the private sector.

Let's switch now to the public sector markets and we'll start with infrastructure.

The infrastructure market is a huge market globally and one where Jacobs still has an insignificant market share, so there's a lot of opportunity for growth.

We look at that market right now, things like rail, airlines -- airports, air transportation, water and wastewater are all very good.

The highway business is a little weaker in the developed countries, but still there's a lot of opportunity in the developing world on that side.

User fees seem to be driving a lot of projects, so where the money for projects comes from user fees rather than taxes, we're seeing lots of good project flow.

There's also a lot of money now starting to show up for private sources like private/public partnerships and private finance initiatives.

We're also seeing a fair amount of design build work.

All of that's good for Jacobs in the context that it is not only a business we're good at, but it's one that has some price sensitivity in it and obviously, Jacobs is able to compete in those markets at a very, very attractive price ratio compared to some of our established competitors.

The international opportunities for infrastructure are also very exciting.

The CES acquisition is driving a lot of opportunity and we see tremendous opportunity in the Middle East.

Moving on now to the Buildings business.

Remember that for Jacobs this is technical building, so it's things where there -- the complexities of what's inside the building are what drives the project.

Several of those markets remain quite strong, mission critical facilities -- that's things like data centers and security centers, healthcare facilities, hospitals and related facilities are both quite strong and those are particular strengths of Jacobs.

So this is a pretty positive market for us in that regard.

The Education business is also strong, surprisingly, and we're taking advantage of that in a number of different ways.

The weak markets in the Buildings business tend not to be the ones that we focus in.

This is another area where we're seeing a lot of international opportunity in, particular in the Middle East and we think we'll be able to capitalize on some of that opportunity as we go forward.

Now turning finally to our National Governments business, you'll recall that business really has two parts, the first part is the Environmental Remediation Clean-Up, that thing.

It's a good market in the US but flat.

There are a fair number of recompetes going on out there and also, there's a fair number of contracts that are what's called MATOC, that means multiple award task order contract.

The good news for multiple award task order contracts is that they tend to, again, allow a little more price competition in the scheme of things and they let us penetrate customers and locations where we might otherwise not be able to compete on a historic basis.

So I think it creates some opportunities for us that we haven't had before in that market.

In addition, the UK investment in nuclear clean-up in particular continues to be very strong and we continue to benefit from that business very nicely.

So that's, all in all, that's a positive.

On the other side of market this is our RDT&E, research, development, test, and engineering; SETS, science, engineering, and technical services and IT business.

Again, what's interesting about that market is an increasing opportunity set as a result of converting a lot of contracts to these MATOCs and that means we have the opportunity to compete for more work in more locations.

We think we'll be able to leverage that into a bigger share and that will help sustain our growth in what's otherwise not going to be a very growing market.

I set aside IT from that.

I think IT business will see continuing growth and that will be an opportunity to both take share and expand as a result of the growth of the market.

NASA continues to be a little bit of a cloudy spot.

It's certainly not clear what's going to happen there.

However, directionally seems to be going positively for us.

I think I'm certainly more optimistic today than I was last quarter about what's going to happen to NASA.

So I think we're going to see some improvements for us, but it will be a challenge and then we think defense spending is going to be relatively flat, but again because of this move to the MATOC-style contract, I think we can benefit by taking share.

So that's pretty much how we see the markets around the world.

Flipping now to slide 10 in terms of geographic diversity, you can see that we have managed to diversify the Company geographically pretty broadly and there are fair activity in all these markets that I think is interesting for us.

Certainly in North America, we see a lot of activity in oil & gas, chemicals, pharma, selected infrastructure markets and the IT world.

We also see a fair amount of activity in what we've characterized as other.

So that's that pulp & paper, food & consumer products, all of that.

South America is pretty much a mining opportunity for us.

In Europe, we see a lot of activity in pharma, chemicals, and nuclear & defense.

They're all good businesses for us as we go forward.

Moving on across now to the Middle East, that's pretty much everything except aerospace & defense.

It's just a robust market for almost anything you can think of.

In India, we see infrastructure, chemicals, refining, and oil & gas as fairly strong markets.

In China, it's buildings, chemicals and pharmaceuticals.

In Australia, it's largely a mining play today but as we go across the globe, there's a tremendous amount of activity and opportunity in our geographic markets.

Turning now to slide 11, growth through acquisition, we just looked at the last few years, last couple years' worth of acquisitions and gave you a sense of what they were and what they were about.

You can see clearly that our focus has been to grow outside the US for the most part and to target key markets, key places where we can expand the business in the US.

As we go forward, we're looking at geographies like China, Australia, Brazil, the ASEAN countries, and then, of course, we'll continue to look at niche opportunities in our established markets.

In terms of the geographic or customer markets, we mean oil & gas, mining, IT services and power are all areas of interest to us.

So when you sum it all up, turning to the commercial on slide 12, we think we've got a great business model.

We've got great and increasing diversification in every regard, markets, geographies, services.

The balance sheet is solid.

We continue to believe that we can grow 15% on a compound basis forever more.

So that's a positive.

We've had a good, good set of sales quarters, four in a row now that are record levels for the last two years or three years and we're feeling pretty positive about what's going forward, but with the obvious cautions that it's not all roses out there just yet.

And with that, I'll turn it over to Sue for questions.

We will now begin the question-and-answer session.

(Operator Instructions) Our first question comes from Tahira Afzal of KeyBanc.

Please go ahead.

Good morning, gentlemen, and congratulations on a good quarter.

Good morning, Tahira.

Thank you.

I had my first question is in regards to your implied fiscal fourth quarter guidance.

You've been very positive in your commentary and it's reflected in [besides] your end market segment contributions, all seem pretty solid in the fiscal third quarter, but can you help me reconcile all these positive results and commentary with a fairly wide guidance that you've offered for the fourth quarter?

Well, we've had a policy now for at least a few years of keeping our guidance fairly broad and but within the range that of probabilities and such.

Clearly, as you get out to either end of the guidance the probabilities fade if you look at it as a bell curve and we just felt that things that, well, were on a positive outlook.

They were in line with what we'd been expecting and so there really was no reason to change the overall guidance.

It seems like every time we fiddle with the guidance even if we think it's positive, you guys take it as a bad sign.

So we just left the things the way they were.

Okay.

(inaudible) Second question is in regards to you've been hearing about and probably following everything on the debt ceiling and limits and potential cuts.

How should we look at that right now?

What are your initial thoughts on that and as you see your private sector markets nicely pick up, do you, at the moment, at least see this as more than offsetting some potential pressure on the public sector side?

I think that what's going on with the US Federal Government will have some negative impacts on the business and I think it will make it more challenging to grow than it would otherwise.

But with a few exceptions, our market share of the Federal Government business is still relatively small and so I think our focus will have to be on taking market share from some of our competitors on some of these key businesses.

That probably implies some pricing challenges in terms of more aggressive pricing, but certainly, that's something we're in a position to do.

I think as we've said for many years now, when we can get two-thirds of our markets, five out of eight, six out of nine, relatively positive, we should do okay and I think that's the position we're in today.

We've got good strength in some markets, not so strong in some other markets, but on a net basis, I think we've probably got a net positive working for us absent some severe breakdown in government spending.

Thank you very much and I'll hop back in the queue.

The next question comes from Yuri Lynk of Canaccord Genuity.

Please go ahead.

Hello, good morning, guys.

Thanks for taking my question.

Good morning.

You mentioned early in the call that unit margins had ticked up.

Which markets specifically are you referring to there and is it possible to quantify it at all?

It isn't really possible to quantify it and I'm looking at the numbers on an aggregate basis.

I really haven't made any attempt to break it down.

I always look at unit margins on a Jacobs-wide basis and that's what -- that's with the basis of my comment.

Okay.

But did you just mention something about it was in the private -- on the private side versus public markets?

If I did, I didn't intend to.

Okay.

And last quarter you had an interesting stat about headcount additions.

I think at the time you said 15 out of the last 16 weeks.

How have the headcount additions evolved into the -- your fiscal third quarter?

Increasing headcount in 28 of the last 30 weeks.

Okay.

And more than the two weeks where headcount was down, it was down very, very slightly.

These aren't giant increases in headcount on a week-over-week basis, but they're just indicative of the overall positive trend in our business.

And last one for me, on the GES Plus, any further color on when exactly you expect to see some results from the program and will these be awards that -- are they going to be big enough so that you will be press releasing them or are they -- is it going to be smaller type of impactful work?

Well, I have both of our Middle East experts here in the room with me.

Let me turn that one over to Noel Watson.

Noel?

Well, some of the work coming out of GES Plus, we will have a press release and it will be big.

I think that's about the answer I can give you right now.

I think if you folks follow the literature, we still are the only GES Plus contractor registered in the kingdom to do the work.

That will change with time, obviously, so we've had a very nice head start.

So we expect some of the material coming into GES Plus to be significant.

I probably shouldn't say any more than that right now.

That's helpful, but how do we think about the program in the context of one of your major US competitors being rumored to be the front runner on a large Saudi Aramco Award and they're not a GES signator yet?

Well, I think what we'll have is a GES Plus is set up for a wide variety of programs trying to drive the work in country and they will still continue to spend money outside the country with other engineering firms, including Jacobs Engineering, I might add since we have numerous projects around the circuit that are not through the GES Plus.

But the GES Plus is designated to score some very real work as the kingdom tries to drive work in country and get more and more of the work done in country and so GES Plus from the Jacobs perspective and from the kingdom's perspective is a very long game.

Got it.

Thanks for the color.

I'll turn it over.

Thank you.

The next question is from Richard Paget of WJB Capital.

Please go ahead.

Good morning, everyone.

Morning, Richard.

Craig, on the last call, you characterized some of your tempered optimism due to you weren't sure if the strong markets were going to get stronger or the weak markets were going to get weaker.

And I wondered if you could help put some of the end markets in that context whether mining is stronger than you thought from three months ago or chemicals is a little bit better and then the flip side, it seems like maybe some of your commentary on the public sectors isn't necessarily as uncertain as it was three months ago.

I think you characterize my remarks correctly.

Let me just comment on some of the individual markets.

The chemicals market is, as I think I said, very robust.

It's every bit as good as we thought it was going to be, maybe even a little better.

The oil & gas market is also very robust and so I would also give it the double plus.

Refining is better, but it's not robust by any means yet.

The other markets are pretty robust, but about where we thought they would be.

I wouldn't characterize them -- get too carried away about those.

We always said mining & minerals is a huge opportunity.

Nothing about that has changed in our mind and PharmaBio is good but not great.

So as you go through the private sector markets, there are probably four that are truly upbeat and three that are just doing better.

In the public sector markets, I think there is the uncertainty about our federal government.

You'd have to put a concern there that's maybe I'm not quite as concerned as I was a quarter ago, but it's not -- there's still a lot of reasons to be concerned.

Buildings business is actually okay, probably not a plus but not a minus either and infrastructure business, I view the same way, probably not a plus but not a minus either.

So the biggest uncertainty still is the federal government.

Like I say, I'm a little less concerned about the NASA part of that than I was, but there -- we don't seem to have clear leadership in Washington and so it's difficult to predict where they're going to go.

And so you just have to -- I'm not smart enough to guess where those guys are going to end up.

So I'd have to put a question mark on that business still.

Okay.

But if I net everything out, it does sound like you're relatively more optimistic than you were three months ago; is that fair?

More, yes, maybe -- I think this is one of those things where I get incrementally more optimistic.

So I was a little bit positive last quarter.

I'm a little more positive this quarter, but I'm not running around declaring victory just yet.

All right.

And then with your work for the FAA with the work stoppage, now I realize your contract with them is over several years, but is there any material impact there?

Does that contract have any provisions for reimbursing you guys?

There is no material impact of any kind.

I mean it's -- the part of the work that they have suspended is work where we had a very, very modest involvement as a monitor and observer of the work being done by others.

So while the capital numbers were large, I think there was $370 million reported; the impact on our Company is not material.

All right, thanks.

That's all I've got.

The next question is from Andrew Kaplowitz of Barclays Capital.

Good morning, guys.

Morning, Andrew.

Craig, I just want to follow up on one item about the markets.

And that -- last quarter you had told us that refining was a 2 on a 1 to 10 scale.

Is it better than that now would you say?

How would you rate it?

It's probably moving up to 3.

I had a feeling you'd say that, okay.

So moving on to the Middle East, maybe this is for Noel again.

Obviously, this is a very large project, [Jebel] or [Sudera], whatever you want to call it.

How do you feel about total contractor market in the Middle East?

Could this actually help to tighten the market and what has been probably the most aggressive oil & gas market?

And then there's been rumors of Jacobs winning a big piece of that project.

I'm -- you probably can't comment on that, but I'll throw it out there anyway.

Well, I think what I'd say to you on that is certainly the kingdom through Aramco is spending a lot of money and the continued spending seems to be there as far as the eye can see, particularly when you consider it seems like oil that permanently launched itself away from the $20 level there in the early part of the decade into some number that's, who knows where it is, but $70, $80, $90, $100, but maybe a lot more than that.

Who knows?

So there's a lot of money being spent.

There is a lot of activity going on, not only going on with what's going on with Aramco, per se, but going on through a bunch of the joint ventures that Aramco has with other companies.

And we're involved in several of those so there's going to be a big spending up there.

Yes, Jacobs is rumored to going to have a nice big piece of it and we're not going to comment on it as you say, but those are all rumors that are prevalent in the market but through the GES Plus contract plus the other work that we have with Aramco, there will be a lot of Middle East work in the Jacobs' house as we look out here towards the end of year.

Okay, that's fair.

So I mean, I guess the characterization is it's been a very difficult market for western contractors.

I know you've come up quite quickly off a small base, but now you're competing for the larger projects.

You would say that maybe it's a little easier to win work now than it was maybe six months ago.

Is that fair?

I don't think it's ever easy to win work when you're in with the competitors we face, but we do have some advantages in being in kingdom on the grounds and recognized by the Aramco folks as being the folks that stimulated all this, have given us a leg up in certain areas.

I think that's just factual.

Okay, that's fair.

If I could shift gears just to mining for a second, Craig.

As you get your feet wet with the [Aker] business, you see some of your primary competitors still winning very large jobs and it's hard for us to get visibility on whether Jacobs will win large jobs.

So how should we look at that over the next 6 months to 12 months?

Is there a possibility that you'll announce very large jobs or is it still small, mid-size type work?

Well, as you know, we're going to continue to focus on our base business of the small cap, mid-cap, medium-size projects.

That's always going to be our priority because there's also more of that work and it's steadier than big events, but we are very well positioned in the mining & minerals market to win big events as well.

I have with me today Gary Mandel, who is our EVP, who has most of the Mining business reporting to him.

Gary, do you want to comment?

Good morning.

As Craig mentioned earlier, there's over $60-plus billion in investments on the horizon with our top clients.

As you may know, most of this spend gets started with studies and there's a project life cycle from studies to EPCM execution and these take 3 years, 4 years, 5 years and we see a large pipeline of studies.

We're involved in a number of studies.

So there's a solid pipeline of capital projects and we are now starting to even focus on the sustaining capital opportunities where we hadn't in the past.

We're leveraging Jacobs' know-how and approach to sustaining capital opportunities.

So we see solid opportunities in North America and South America and Australia and we're resourcing up for them.

That's great and is it fair to say that you're growing backlog pretty significantly, even sequentially in the business because it's -- we can't break it out anymore, so we don't know what's going on in that business?

The problem with particularly these studies don't really do much to grow backlog if you know what I mean.

Yes, yes.

So it is -- the growth in backlog in this business, if anything, will be more lumpy than some of our other businesses and, of course, because of our policies about press releases, you may not see it in the backlog any sooner than you see it in the press release or vice versa.

But I do think we gave you a long winded answer to a question that says yes, I think you'll see some significant additions to backlog for major projects as we go forward.

We may or may not be able to press release those.

If we are able, we will and if we aren't able, you'll see it in the numbers.

That's fair.

Thanks, guys.

The next question is from Scott Levine of JPMorgan.

Good morning, guys.

Hello, Scott.

Question on the margins here.

So, these last couple quarters, you have been running 15% -- in the low 15% range on growth versus more like the low 14% a year ago and my guess is that's consistent with the greater growth in the [TPS] business.

I was wondering if you can agree with that and maybe comment on price trends within the business so we can think about what to model in the out years there.

Yes.

At this point a lot of the changes in both the gross margin and the operating margins are being driven by mix.

A little bit, as Craig said, is starting to creep in some -- a little bit of price improvement, but that's still creeping in.

It's not a major contributor.

I think going forward, certainly over the next few quarters, we would expect the strength in the professional services side to continue, but as some of these things, particularly up, say in the oil sands and other opportunities move from the study phase and the detailed engineering phase into the field, you'll start seeing a trend in backlog pick up on the field services side as we've been talking about now for a few quarters.

That will have a dampening effect on margins because -- particularly gross margins because the gross margins from the field activities tend to be significantly lower than the -- they are from the professional services.

So I think you'll see some of the benefits of price improvement as a positive, but in the mix shift as you go through '12 you'll see that as a dampening effect on the price increases just in the relative mix, but, of course, with the construction revenues as that improves, those tend to be a lot bigger dollars.

So you'll see the revenues growing a little bit faster as those construction revenues start coming in.

Makes sense.

And then you highlighted the SG&A controls in the press release as well.

How should we think about the dollars there going forward?

Can you hold these levels or as you see growth in the top line, does that need to pick up on an absolute basis?

Well, we have a strong history of controlling our G&As and certainly since a lot of our professional services is driven by people and that does have some impact on it, the G&A growth tends to lag the revenue or the activities.

So as we put people and put them to work, the G&A part of it doesn't grow as fast, particularly in the early part of this where we had some a little bit of excess capacity as far as office space and workspace and such.

In some markets, like up in Canada, there's -- where we're growing a little faster than others, we might see some, a little more pressure on G&As just as we have to incrementally maybe add some space and such.

But even with that, you'll tend to see the G&As growing a lot slower than the revenue or the margin growth and that's part of the leverage strength that we get, so to get that bottom line 15% growth.

And I don't know if I missed this, John.

Did you mention the $3.2 million in miscellaneous income during the quarter?

Did you indicate what that was or could you comment?

That results from an accounting adjustment with the acquisition of CES.

Since we owned a piece of CES before we bought this, we owned 15%, we added 55%.

Accounting literature requires you to go back and revalue the piece that we owned before for the price that we paid and so that is what's in that other income.

Got it.

Thank you.

The next question is from Jamie Cook of Credit Suisse.

Please go ahead.

Hi, good morning.

Hi, Jamie.

A couple questions.

Craig, back on the -- what you mentioned earlier, the uptick that you guys saw in unit pricing, it sounds like you said it and then you wanted to take it back when asked a question.

Is this the first quarter you've seen this because I feel like you've been talking about this for a quarter or so and I'm just trying to get a sense of whether or not I would guess on a very small basis whether the ramp is accelerating or not or whether it's just stayed steady?

And then I guess my second question is to you, John.

It sounds like more markets in general are going up versus not and I'm just trying to get a feel for it.

We've done the acquisitions on a run rate basis.

Should we -- should Jacobs now be back on its targeted traditional 15% EPS range?

Let me take the first question, Jamie.

What we saw in this quarter is that unit margins improved very, very slightly.

It's the first time in several quarters where that was true and my optimism comes from coupling that with my comments earlier about steady increase in staffing, unit margins up very slightly for the first time in many quarters, and a billable hours trend, which I haven't mentioned, is also positive.

So I add all those things together and I hope, I guess, maybe is a good way to describe this that we're starting to see the bottom from -- we've seen the bottom from a unit margins point of view then we'll start to see margins improve.

That will be a very slow process because it still involves our competition starting to load up with work and the pricing pressure coming off.

So it's not to say that, that we aren't still challenged from a margin point of view.

I just think it's a little bit of good news that we haven't seen for a long time.

Have you gotten the benefit yet on the utilization just because you've been hiring people, too, right?

So sometimes it that takes a while for that to work itself out.

Have you gotten that benefit yet or no?

Is that being reflected in the margins?

We're getting some, yes, and it is being reflected, but it's not so much -- what I'm talking about here is not so much utilization driven as it is pricing.

Okay.

But the utilization should come as well, I guess is -- so we're getting unit price but as these big projects come, you're going to get the double benefit with utilization as well is what I'm trying to point out?

Yes.

I don't know if it will be quite double, but yes, that's right.

Well, not double but extra --

Two different aspects, yes, two different aspects and they both count --

And then, John, we're not going to let you get off the hook on the 15% EPS.

Well, at this point, we're not giving any guidance for 2012.

Our guidance is for '11, but I will confirm that we still have the 15% growth as our target and I'm just not going to confirm when we're going to get back to that exactly.

But obviously, next quarter when we finish the year, we'll be giving guidance for next year and you'll -- we'll see where that is.

Okay.

Then just, sorry, last follow-up, I don't think I missed this, but did you give how much Aker has contributed in the quarter on a revenue EPS or operating, whatever you're willing to share in the quarter and year-to-date --

We did not and we're not.

As our past policy is, once we get them in, we're just going to stop talking about them as a separate unit because they've already are starting to be put into the various units.

Obviously the big part of Aker went in -- the majority of Aker went into mining & minerals, but they also -- in fact, the other in pulp, paper & power and they affect chemicals.

And some of the projects that we've been talking about and you guys have heard about were joint wins that were contributed to by not just Aker folks or Jacobs folks, but the ability to build those teams, but having said all that, they're right on target to what we expected and in line with where we expected them to be coming out of the last quarter where we had two months and into this quarter where we have the full operation.

All right.

And then just, sorry, last question, back to Tahira's question on your guide, last quarter you alluded on the call that the midpoint was more likely, right?

It sounds like the midpoint is more likely, but what miracle has to happen for us to hit the higher end?

Or is that -- do we not need a miracle?

Am I missing something?

I would say that your characterization of a bell curve that the midpoint is the most likely is very good and beyond that, we're not going to go to all the pluses and minuses that could happen to get anywhere to the outside, just it has -- after the extremes, the probabilities are pretty low.

Got you.

All right, thanks.

I'll get back in queue.

The next question comes from Steven Fisher of UBS.

Hi.

Good morning.

Good morning, Steve.

You just discussed how the quarter unfolded in terms of bookings and billings on a month by month basis and just going back again with the guidance unchanged here.

I'm just wondering if there was some particular deterioration that occurred with the macroenvironment as the quarter went along and maybe you could just comment on the pace of bookings and billings in July to date.

Well, let's see.

I really don't have -- I'm really not in a position to respond on a month by month basis, but there's nothing about our guidance that was based on some trend that developed during the quarter and in terms of July so far we're very happy with what's happening.

Okay.

So there was no particular deterioration as the quarter went on, anything that makes you cautious about narrowing or anything?

Steve, looking at the guidance, it's the same as what it was, so we're basically on track with where we were and so it met where we expected.

Okay.

Now in terms of, I guess, how would you compare the potential margins and risks in the upcoming Middle East work versus what you've had in oil & gas in the last few years?

In the Middle East has been the strategy that you guys have been working on for a long time now and it's finally coming to fruition, but in a sense, it's still a first of a kind as you do these really big projects that are up and coming.

So how should we think about the margin and risk potential there?

Noel?

Well, you've got to look at what we're doing in the Middle East.

Okay, we're doing FEED, we're going to do PMC, we're going to do EPCM, we're going to do all of the above.

We're not taking big lump sum risks and the customers there understand that.

So the risk probably will not be a lot different from the normal place of Jacobs' work, probably is the best answer I can give you.

And from a potential profitability or from a margin perspective, any color there?

Well, I think what we have to look at is you got to remember the Middle East is a global market and the idea is the projects are going to be wildly profitable does not exist, okay?

It's very competitive out there as I said earlier.

It's going stay very competitive.

So the margin flow from individual projects will be comparable probably to what you're getting on other global projects around the world.

Remember we're not taking big lump sum risks.

So there's no wild-eyed profits coming at us, but there's not a lot of risks coming at us either.

The risk will be on the performance side.

If we do good work out there, all these projects will be nice and profitable.

Great.

And then just last one, it's maybe for Craig, can you just talk about Europe overall?

You have an exposure in a variety of markets and regions, when you aggregate it, what impact is it having on your business?

I think Europe will be at best, slightly positive and more likely to be neutral.

It's a pretty much a complete mini-Jacobs in the sense that we serve almost every market that Jacobs serves globally, we serve in Europe.

So we have the same situation vis-a-vis the markets but we just don't have the intensity of investment in Europe that we do in some other parts of the world, even the Gulf Coast of the US if you get into the process business.

So it's not going to be a strong geographic market for us.

I don't think it will be a drag, but I don't think it will be a strong market.

Great.

Thanks a lot.

Next question comes from Will Gabrielski of Gleacher & Company.

Thanks.

Good morning.

Hello, Will.

Just a couple of follow-ups on G&A.

You guys highlighted your cost controls.

Is this a fair number or how can we think about cost savings coming out of that going forward?

I think we'll continue to achieve some cost savings from the integration of our recent acquisitions.

I think there's some money to be saved there, but because we are on a growth track.

We're going to start to see investments to support our growth office space, computers, desks, all that stuff is a part of our business going forward.

I'm pretty happy with where we are.

We -- if you start taking out acquisitions, we've held the line on G&A really well for quite a long time now.

So I also expect to see some pressure on things like wages as we go forward.

Once we start to see, it will come with the pricing.

So we're in the zone, but I think you should expect some incremental growth going forward.

Okay.

Oil Sands, there's been a few announcements of contractors winning some bigger construction projects.

Have you guys lost any bigger construction projects you've been on yet?

I'm not aware of any.

Okay.

On GES Plus, you made a good point.

You guys are the only Company that's ready to go on that.

From what I've read, though, every company needs to be in a position to bid on that work before they can officially award GES Plus contracts.

Is that true and, if so, how has that affected the GES Plus ramp?

I don't believe that's true.

I'll ask Greg Landry to respond.

Greg?

No.

That's not -- at this point in time, they have the GES Plus awarded to Jacobs, but the historical GES contractors are still getting some work from the old program.

So at this point in time, the answer would be no at this point.

Yes, there's no -- we've already been awarded work under GES.

Yes.

That's a program we're working under.

Okay.

Then lastly, past due revenue came down pretty sharply quarter to quarter and that's a good thing, I guess, but I was a little surprised maybe the margins wouldn't have picked up a little more and if you ex out the past due revenue, actually margins declined on an operating basis quarter to quarter.

Is that just a timing issue on or is there anything more we should know about that?

You're talking about year-over-year quarter?

Well, quarter to quarter, it dropped --

It dropped a little bit, it dropped -- but it had, a lot of that is the continued ramp down of [Motiva] as we go through that and also the completion of a couple other larger projects that we continue to work on.

That goes in line with the construction revenue continuing to drop a little bit, but we don't look at margins ex [factors] because that does involve volumes and such.

I really can't comment on margins ex [factors] because that's not a metric that we really follow.

Okay.

That's it.

Thank you so much.

Thank you.

The next question is from Brian Konigsberg from Vertical Research.

Good morning, thanks for taking my question.

Good morning, Brian.

Just -- most of my questions have been answered already.

Just quickly on M&A, you talked about the markets and the regions that you'd be interested in.

How could we think about the capital you're willing to deploy at this point?

You said you had about $230 million of cash on the books.

How much more leverage are you willing to take on?

I think we'd be comfortable taking substantially more leverage.

I don't think we'd be bothered if we had $1 billion of debt on the books given the size of the Company today and our ability to leverage these acquisitions.

So we've got a lot of runway out in front of us.

Also remember that the Company generates lots of cash and so as we look at acquisitions and look out into the next 4 years, 5 years, in fact, I've been looking at a new cash flow analysis just recently, we don't see any limitation on our ability to make acquisitions as part of our growth strategy.

Got it.

And separately, you had talked about some environmental remediation projects slow to come to market last quarter particularly both in the US and the UK.

You said it was about flattish but still a decent market.

Have things changed there?

What would you say the incremental move has been since Q2?

There hasn't been a lot of incremental improvement.

I think we're getting better at how we approach these MATOC contracts that I mentioned earlier and that's a positive going forward, but it is -- the market is still not what I would characterize as robust.

Got it.

Thank you very much.

The next question is from John Rogers of D.A.

Davidson.

Hi.

Good morning.

Hello, John.

Just one follow-up.

In terms of the acquisitions that you've completed and I know, John, you that said you wouldn't comment on their actual contribution, but can you tell us are they generally hitting your targets and your expectations?

Because I was under the impression that really the incremental significant financial benefits then come in the subsequent years, but as long as things are tracking.

I would say that the ones we've done, particularly the ones that's [scattered] over the last 2 years or 3 years have pretty much tracked where we expected it to and that they have made the contributions that they expect.

And Aker's the biggest one and it's -- even from looking at last quarter, it's positive but it will get more positive as we go forward I think both because of as you work off some of the amortization intangibles, those things.

But also just because that market and the market contributions that they have will be good [adders], but I think the other acquisitions that we talked about were -- are a lot smaller.

So they're a little harder to see incrementally by themselves, but as we look at follow-up and they seem to be on track and doing what we expected them to.

Okay.

Thank you.

The next question is from Andrew Wittmann of Baird.

Morning, guys.

Hello.

I just wanted to dive into the backlog just a little bit more.

Since the quarter end, you announced Aramco and the Northwest Redwater Project.

Just to be clear are those not in the backlog that you've reported and would be in next quarter's backlog?

Aramco was awarded after the quarter end so it wasn't.

Redwater, as we said, I think if -- right now what we're doing is mainly owners engineering support.

So there is some in the backlog, but it's just those earlier pro services and also if there is additional awards or different expansion of the scope, it will get added when they get it, get awarded.

Got it.

One of the things I think last quarter, Craig, you may have said is you didn't expect a whole lot of projects over $2 billion in places like Canada or the Middle East; I think this may be referring to refineries.

The Redwater project looks like it could and I guess according to their own website is suggestions of $5 billion project.

Was the fact that you're participating in this project a bit of a surprise to you or are we reading that a little bit --

Well, I'm cautious about these projects when they're announced until they're fully funded and we're fully engaged.

Redwater wasn't a surprise in terms of our engagement in it.

Whether we're going to see $5 billion worth of revenue out of Redwater remains a very open issue.

So it's not to say there aren't bigger projects, but our view continues to be that our focus is on the medium-sized projects and down and when bigger projects come up, that's great, but things north of $2 billion really aren't our focus.

Doing good work for clients and applying our know-how, that's the focus and Redwater really comes out of our strong capabilities in the technologies that are involved in the project.

That makes a lot of sense.

Just to which -- I'm just curious as to getting that first phase of Redwater funded.

What's your view on the necessity or the need for the Keystone XL pipeline as a catalyst to drive further investments?

Do you feel like the stuff that you're bidding on now or looking at doing now are -- is contingent on that pipeline getting approved and might be delayed and/or canceled if the pipeline doesn't go through?

I have Tom Hammond with us.

Tom's got the responsibility for Canada.

I'll let him comment and then I might add some comments as well.

Tom?

Well, I think the necessity is that something needs to be done with the pipeline and how fast that happens and exactly what form it takes I'm sure you guys know as much from the literature as I do, but certainly we're looking -- we're seeing that there is interest in the [bichmin] being produced in Canada by other parties like China.

And I'm sure that if for some reason delivery to the United States was nixed totally that others would step in and some delivery mechanism would be found to ship the [bichmin] to Asia.

Okay.

Then just I guess --

We don't see it affecting anything on any short term basis at all.

I mean this is not a 6 month or 9 month or 12 month conversation.

Okay.

I guess my final one is then for John.

I think last quarter you mentioned that you expected that in 2012 that you'd see a little bit more construction activity.

I guess I've heard you allude a little bit to that today.

Is that still your sense of the cycle progressing into next year seeing more meaningful construction activity?

I think that would be our outlook now just because of the projects we're doing -- the engineering, the front end on scale that would, as they go through their phases and such, that you'll start in '12 seeing some of that moving into the field or getting ready with the field and you'll see those phases being awarded.

So probably show up in backlog first and then will show up in the field service revenue.

Okay.

I'll leave it there.

Thank you very much.

The next question is from Alex Rygiel of FBR Capital Markets.

Thank you.

Good morning, gentlemen.

Good morning, Alex.

Pass-through was about 17% of gross revenue in the current quarter.

About two years ago, it peaked out at 39%.

What portion of your backlog is pass-through?

We don't break that out.

It's just all in our contract revenue and most of it's in field services, I would guess, because our field service backlog is coming down that like the pass-throughs working through revenues are coming down.

The pass-throughs are in the backlog have probably come down proportionately.

And again --

When you talk --

We track our contracts as what's going to go through our books and the backlog of what's going to go through our books and we don't spend a lot of time breaking it down between pass-throughs and others.

So we just don't monitor those numbers.

The other thing to recognize, Alex, and we said this before is that the composition of backlog doesn't change rapidly from quarter to quarter.

So what's in backlog tends to be reflective of what's in revenue and they move together relatively speaking.

So I think you can take some insight from that.

Definitely.

Do you see a pick up in field services backlog in the fourth quarter or is it going to be more of a 2012 event?

I think it's more of a 2012 event.

Lastly, just to circle back to guidance, any thoughts or suggestions as to what the variables are between the low end and the high end for the fourth quarter?

You keep wanting me to give guidance within the guidance.

I think that -- I mean we've talked about a lot of them, everything from governments, the economy to world markets and such like that.

I think beyond that we just go back to it's a bell curve and the most likely scenario is somewhere in the middle of that bell curve and as it goes out, it gets lower probabilities and those probabilities are affected by a lot of different variables.

And we can spend another two hours just talking about all those different variables and we're just not going to do that.

Thanks, Craig and John.

Have a good day.

Thank you.

The next question is from Joe Ritchie of Goldman Sachs.

Good morning, everyone.

Hello, Joe.

Good afternoon now.

The -- quick question I had regarding and I'm not going to try to have you focus on guidance, but just thinking about your 15% EPS growth over the next couple years, I want to make sure I'm summarizing everything correctly.

If I think about your private sector markets, I guess I would expect to see high single digit revenue growth, your public market's probably flat.

You obtained some type of SG&A leverage as revenues start to accelerate and you have some inorganic growth as well through your acquisitions.

Is that how -- is that the right way to think about 15% EPS growth over the next couple years?

Certainly we're able to get 15% EPS growth without getting 15% revenue growth and for exactly the reasons you've outlined because we're able to leverage the revenue line and the gross margin line against the SG&A line.

So that's the model and it's a combination of revenue growth organically plus what we can do inorganically through acquisitions that's going to drive that 15%.

Okay, fair enough.

One of the things that you mentioned earlier, Craig, is you were talking about how the MATOC contracts could potentially benefit you going forward.

Help me understand how it's going to allow you to bid for potentially more work, but the pricing could be a little bit more competitive.

So help me understand the puts and takes of that type of work.

Just quickly what's happening here is that -- there are a lot of contracts including some of ours that were single award, single company contracts and it was very, very -- if the incumbent was performing well, there was no chance of winning that work when recompetes came up.

Now that they've changed the number of those contracts into multiple award task order contracts, we're able to win a seat at the table relatively easy.

It ain't easy, but it's relatively easy.

Once you get a seat at the table taking a 20% or 30% share of the business of that contract is something we're very good at doing.

So on the one hand, we're exposed on our own contracts where they get converted to MATOCs, but we've been pretty good at defending our share.

But we get the opportunity in much larger base of contracts to try to take share of what was other people's fiefdoms and that's actually where the positives of the MATOC thing fall for us.

I got George Kunberger here who is head of sales for Jacobs.

You want to comment, George?

No, Craig, I think you characterized it perfectly.

And another way of looking at what Craig said, you can view that as an opportunity to take a broader market share in a period of time where these MATOC contracts are in place because basically we were expanding our base of customers that we before maybe were or were not, at least segments of customers that before we were not working at.

So not only is it an opportunity to grow a baseline business, but it's an opportunity to grow our customer base broader than it is today as well.

So it actually has two benefits right now.

That's a good point.

Okay, fair enough and that's very helpful color.

I guess, then, if you're thinking about the next 12 months, would it then surprise you given this dynamic if your revenue from the federal segment and backlog from that segment today declines?

Absent some big federal problem, I think we'll be able to maintain a steady backlog in the federal business.

It may be up and down from quarter to quarter but I have a lot confidence in our ability to win work in that marketplace.

Now I can't predict what our government's going to do as we said earlier.

So that could -- all bets off could be off in that regard.

Okay, fair enough and I guess one last question is you mentioned earlier your win rate on the chemical side of your business being north of 70%.

Are there any specific projects or targets that you see over the next 12 months that could be sizable wins to your backlog?

Well, there's always projects like that.

I could probably think off the top of my head of a half dozen potentials that would have some significant impact on backlog, but remember for the most part we're not trying to chase the multi-billion dollar events.

So when I say all those could be good additions to backlog, I'm not talking about adding $1 billion to backlog in any case.

Okay.

But one follow-up, I guess, are you focused specifically in North America or are we talking globally?

Globally.

All right.

Thanks for your help.

The next question comes from Avram Fisher of BMO Capital Markets.

Hi, good morning.

All my questions have been answered, thank you.

Thanks Avi.

The next question is from Robert Connors of Stifel Nicolaus.

In the past, you guys had talked about how field service had some better cash flow characteristics for its TPS.

Can you just compare some of the cash flow characteristics by end markets, i.e., like public versus private?

Go ahead, John.

Generally, the public market tends to be a little bit longer paying.

Their terms and conditions tend to be a little bit longer on payment terms and in the construction field services we tend to have less of that in the public market.

So you don't get even the benefits of some of the better payment terms in that market on when you do it because we just don't do as much of that construction.

What we're seeing as the professional services increase, then those tend to have a little bit longer payment terms even in steady markets and right now, we are seeing customers that are pushing back a little bit on the terms and, where 3 years or 4 years ago we were getting -- being able to negotiate better payment terms on -- in particularly the private sector.

Now that's turning around and they're pushing them out, but we're talking about from 30 days to 45 days or from 45 days to 90 days, those things and the effect as the construction, we, more often than not we get some zero-based funding or favorable funding on that.

So and because it is a lot of cash flow our pass-through to contractors and such, we hold the payables and pay when pay type of a thing.

So you do get positive, better cash flow out of the construction.

And then you had already addressed miscellaneous income/expense line, but even before that for a few quarters it was running in the slightly positive versus usually running in a few hundred million dollars negative range, just wondering if structurally something's different on that line.

And then also regarding tax rates, it looks like you'll probably be more so international focused, so could we see just going forward the tax rate come down from the 36% traditional Jacobs rate?

Well, I think what we're -- I'll answer both those questions.

First on the miscellaneous income, other than this one impact this quarter I don't think there's any structural change in that.

It's plus or minus every quarter depending on just a lot of different things, but it's miscellaneous income, but on the tax rate we are seeing some benefit of some of the mix in revenue particularly with Aker coming in.

Majority of their business comes from South America, Australia.

They have a little bit better tax rates than here in the US.

So that really -- we expect to see the range improving -- the improvement we saw this quarter to be just structurally there going forward as well.

Okay.

Thanks a lot for the clarity.

The next question is from Stewart Scharf of Standard & Poor's Equity Group.

Hi, there.

Hello, good morning.

I was wondering could you talk a little about the opportunities in shale gas?

Sure, not exactly sure how to say that.

What we see is tremendous investments starting at the wellhead and then going through gas gathering and collection, gas treatment, liquids removal, transmission.

It's not -- I guess it's not different than any other gas business except when you get downhole and there the technology issues are different, but for us, it's, this isn't a from above the ground from the wellhead up business and it really involves understanding how to design and deliver the wellhead and everything that connects to it.

So with the investment levels that people are talking about, there's going to be a tremendous amount of opportunity in that business and we are capitalizing on it and we expect to.

There's even -- it's interesting, there's even a whole infrastructure of the development that we also are able to capture because of the nature of our business and the diversity of it.

Okay.

I don't know if that answers your question, Stewart, but I'm --

Yes, that's fine.

Okay.

And looking out say 4 years or 5 years, how do you envision your pie -- market pie chart?

Is there any area where you could see a significant shift?

Well, I think Mining will be a lot bigger than it is on the current pie chart partly because we'll have a full year's revenue in there, but also because the growth we expect to get.

So it will be a significant factor.

I think Refining will probably be not any bigger as a percentage of revenue because I don't expect to see that much growth there.

Oil & Gas will get bigger, clearly, but I think the proportions around most of the rest of the curve will vary as the markets go up and down without any long term shifts.

Those two, I think, will be more long term shifts in the share and some time, we'll add a slice of Power to that wheel as well.

Okay.

And regarding the cost centers, in the past you've spoke a little about India and I was just wondering if you're expanding anywhere else, or what's the status of that?

The high value engineering center in India is still more than adequate for our needs.

We still have lots of opportunity to grow India both as a market for us and as a resource for the rest of our business is one of the real bright spots as we go forward.

We're now the largest engineering Company in India by quite a little bit and we expect to grow aggressively on that base.

The challenge with India obviously is it takes a lot of rupees to make a dollar and so you've got to have a lot going on in India to contribute meaningfully to the bottom line.

Okay.

Thank you very much.

The next question is from Sameer Rathod of Macquarie.

Hi.

Thanks for taking my question.

Just going back to your pie chart graph, it seems like a lot of your end markets are moving in the right direction.

How do we reconcile this with the fact that backlog was flat and new awards seemed like they ticked down in the quarter?

Thank you.

As I think we've said many, many times, backlog is lumpy and some quarters are flat, some quarters are strong.

If you look at the trailing '12 on backlog, our trailing '12 sales are the best we've had in -- since the second quarter of '09.

While flat sounds bad, we don't see it as bad at all and we continue to feel like that our business is improving and expect to see continuing improvement in that trailing '12 sales number.

This concludes our question-and-answer session.

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

I just want to thank you all for your participation, your interest in the stock.

I think things are clearly getting better for us and that the outlook is more positive.

I still think we need to put a little caution on that positiveness, but overall it's a business that's improving every day.

Thank you all.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.