雅各布工程 (J) 2011 Q4 法說會逐字稿

Good day, and welcome to the Jacobs Engineering fourth-quarter and fiscal year 2011 conference call.

All participants will be in listen-only mode.

(Operator Instructions).

Please note, this event is being recorded.

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

Patty Bruner.

Ms.

Bruner, the floor is yours, ma'am.

Thank you, Mike.

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 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 Discussion and Analysis of Financial Condition and Results of Operations Contained Therein, and the most recent Form 10-Q for the period ended July 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.

And now I'll turn the call over to John Prosser, CFO of Jacobs.

Thank you, Patty, and good morning everyone.

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

If you turn to page 4 of the slides, you'll see the information that was also contained in the press release that went out this morning.

We did have a good quarter, with diluted EPS of $0.74, which was on earnings of $94.3 million for the quarter.

For the year, the earnings were $2.60 per share and the net earnings were $331 million.

Backlog grew nicely both from the quarter, prior quarter and from prior year, to $14.3 billion, and I'll touch on that in a minute.

We continue to have a very strong balance sheet.

Cash continued to grow, with our cash balance over $900 million.

The net cash also grew by over $100 million to $337 million.

We are initiating guidance for our fiscal 2012 in a range of $2.80 to $3.20 per share.

Turn to slide 5.

This gives us back to the history of our earnings over the last 10 years and I think the two points I'd like to make on this slide is one, that this year we did show a turnaround after a couple of years of decreasing earnings, we've now picked back up, and this represents the third best year in our history.

I think just as importantly, as we talk about our long-term growth prospects and such, that even with this recent downturn and now a period of recovery, we still are delivering better than a 15% compounded bottom line growth rate, which is something we've had as a target for a long time.

Moving on to slide 6, looking at our backlog.

It was a very good sales quarter.

Our net bookings were over $3 billion, bringing our total backlog to $14.3 billion.

That's a little more than 2% increase quarter-over-quarter, and a little over 8% increase from last year.

Even stronger growth we saw in the professional services side, where we ended the quarter at $9.1 billion.

That's up from $8.7 billion last quarter and from $7.6 billion a year ago.

So year-over-year growth is about 20%.

And actually, this represents the highest professional service backlog that we've ever reported, so I guess we can claim a record in that category.

Moving forward -- that kind of wraps up the financials.

I'll just now turn it over to Craig to talk about the overview for the quarter and for the year.

Thank you, John.

Good morning, everyone.

Thank you for being on the call.

We're going to go through our presentation pretty much as usual.

I'm going to talk first about our strategies for growth, and then explore each of those in a little bit more depth.

Our business model, our market diversity, our multi-domestic strategy, all key aspects of how we grow as a Company.

I'll talk more about those in a moment.

Managing costs is also very important to us.

I'm not going to talk about that more, so just let me make a couple comments here.

Competition in our industry is still pretty intense.

Many of our competitors are not full and are aggressively trying either to defend their market position in certain geographies, or just to get work in their shops, so there's still a fair amount of price competition out there, and I don't expect that's going to turn around for a while yet.

In addition, price is more of a factor in the public sector, as the challenges of available work in the public sector drive competitors to be more aggressive.

So overall, there's some challenges out there in the market, and our focus on keeping our costs down has done a really good job of keeping us in the competitive position, and allowing us to win work and expand our market position.

One good news aspect, however, is it's fairly clear from our perspective that unit margins have stopped declining.

And I think that's a positive in terms of what the market might be doing going forward.

Then I'll also talk about acquisitions before I wrap up today.

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

We continue to run our business differently than most of our competition.

If you look at the industry model on the right, our competition continues to be focused on big events and transactions, lots of lump sum turnkey work, projects that are far away, and frankly, projects that are vulnerable to a significant amount of global competition.

So it's not just the big US and European E&Cs, it's the Chinese, the Koreans, everybody has a pretty big focus on these giant projects, and the competitive nature of those projects.

So transactional projects tend to drive the industry, although everybody in the industry also does discrete projects on a cost reimbursable or lump sum services basis, and everybody has a few preferred relationships.

But if you look at our model, the graph on the left, our focus is almost entirely on preferred relationships.

We get more than 90% of our business from customers we have worked for in the previous year, so we're very heavily focused on repeat business.

About 80% of the business we get comes from these preferred relationships, and around, just a little less than 50% of that, comes from a very small group of core clients.

We have almost no activity in the transactional events side of the business, so that's one major contrast between us and the competition.

And of course in the discrete projects area, that's the opportunity for us to build additional preferred relationships, and the good news about that part of our business is there's a lot more activity and increasing number of opportunities in the discrete projects arena.

Now, turning on to number 9, slide number 9, our revenue by market.

Let me walk you through the various markets and give you a sense of where we think things are.

I'm going to start up on the upper right with national governments and work my way around the chart, counter-clockwise.

Let me begin with National Governments.

As you'll recall, that's a two-part business for Jacobs.

There's an environmental part and then there's a research and development, test engineering, scientific and technical services piece.

There's also an IT piece.

I'll talk about that in a broader context in a minute.

On the Environmental side, the US market is good.

It's flat, but there's plenty of work out there.

And there are a number of unique opportunities that have come up in the market that I think Jacobs may be particularly well-positioned to take advantage of.

So I think there's a positive for Jacobs in the US environmental market.

The UK market, which is one we've had a lot of confidence in for a long time, remains fairly strong, one of the few markets that has not suffered significantly from the funding crisis in the UK.

We've had a number of good wins in the last quarter, and we expect some more going forward, because the prospect list remains pretty good.

The environmental market is not spectacular, but it's certainly not terrible.

On the Research and Development, Test Engineering and Scientific and Technical Services side of the business, the Research and Development, Test Engineering market is what I would characterize as steady.

I don't think there's a lot of growth there, but I think we're holding our own quite nicely.

We have a number of long-term contracts that we continue to win re-competes.

An example of that was the US Special Operations Command work last quarter.

There's also a lot of contracts being diverted to Multiple Award Task Order Contracts.

In one sense, that's bad, when they convert one of our long-term contracts to a MATOC.

We tend to use a little share, but what it is allowing us to do is open up more potential markets, and the net effect of that, I believe, will be to allow us to continue to gain share in this market.

So overall RDT&E looks like a pretty decent business, but not spectacular business going forward.

I'd have to characterize the national government's business for Jacobs broadly as just mixed, not a big positive, but not a negative either.

Moving on now to the Infrastructure market.

I would characterize infrastructure as also mixed.

In the US, we're seeing a lot of clients with revenue, so those that he depend on the user for funding having a lot of activity, and we're doing pretty well in participating there.

We're also starting to see a trend in the US that we've seen in the UK for some time, which is around the outsourcing of historic government services in order to save money.

The recent Sandy Springs award for Jacobs, which we press released last quarter is an example of that.

It's been a very strong business for us in the UK for a number of years.

We're an industry leader in that kind of outsourcing, and we think as that develops in the US, it will be a big positive for Jacobs.

And then, of course, you have an increasing focus on design/build and public/private partnerships, private finance, as vehicles to deliver infrastructure that the government can't fund on its own.

That business tends to be more price-sensitive and of course, given Jacobs' low-cost posture, that makes us a very attractive partner for those kinds of projects.

And we continue to see good growth in those markets.

Just kind of thinking about some of the other geographies, and I'll talk about more this in a minute.

UK, the rail business is good.

We are seeing a lot of water and wastewater work because of the user funding issues, and then of course our position in outsourcing is a positive for us.

I might mention the CES situation at this point, talk about Indian infrastructure.

We're doing a good job of the integration of CES, but at this stage, it's still a lot of rupees to make a dollar, so I don't expect any to be a big contributor in the infrastructure business in the near term.

There is also across the board, in infrastructure, in all the geographies we serve, a bright spot in airports, and we think that is likely to continue.

Moving on now to the Buildings business.

The Buildings is at least good, and maybe better than that.

The whole schools business, what we call K-12, healthcare, research and development facilities, airports, as I mentioned on the infrastructure side, all good.

These tend to be those technical buildings where Jacobs specializes.

Remember that our business is centered in the buildings world on technically-complex buildings.

We're t not much into office buildings or retail complexes or apartment, multifamily apartment.

We're focused on data centers and the complex technical projects.

And to that event, one of the things I'm very excited about is our terrific position in IT and cyber-security related facilities, both on what's on the inside of those facilities, and what's on the outside of them, thinking both of the structure and the contents.

The KlingStubbins acquisition is a huge step in that direction.

We are now clearly the preeminent player in the IT data center, cyber-security space, better credentials and more track record and more scale than anybody else in the industry.

There's going to be huge spend in these areas as we go forward, and bluntly, we have what we think is a very superior position now that we've added the KlingStubbins team, and of course it's nice to note that KlingStubbins will be accretive from the get-go.

Moving on now to the bottom of the pie chart, this is what we've characterized as the industrial section.

Let me start with Pharma.

Pharma is steady or maybe a little bit better.

We've seen an uptick in some business, particularly in emerging markets as our core clients go there to invest.

They're looking to invest with people that they have a relationship with, who know their business, who can deliver their projects, and that puts Jacobs in a key position because it's our core clients that are headed to these emerging markets, and we really are, to use the phrase, last man standing in the industry.

There's really no major competitor with a strong position in the Pharma market.

So that business, while it's probably not growing rapidly from a CapEx point of view, represents a good, solid market for Jacobs going forward.

Moving down to the bottom of the clock, Mining & Minerals, you can see we're continuing to grow rapidly in that space.

It is very, very hot market.

There's major CapEx everywhere.

Interestingly enough, the clients, as we're getting to know them now after the Aker acquisition, have very, what I will characterize as Jacobs-friendly behaviors.

They reward strong relationships.

They reward continuous improvement.

They reward a focus on what's good for them.

And those are all things that Jacobs brings to the party that I think will help us rapidly increase our share of their CapEx.

We had a pretty good quarter.

We have lots of unannounced awards, beginning to think that this industry may be like one or two of our others.

You can win lots of big work, but you can't ever tell anyone about it, so you may just have to see that in the results, not in the press releases.

Particularly strong are things like copper and iron ore, and we continue to have a good position in both of those.

We expect that market to be a significant growth market for Jacobs over the next couple years.

Then our sort of other category, Power, Pulp & Paper, High Tech, Food & Consumer products, all active markets.

They're mixed.

Some are good, some are not, but in the aggregate, this market's certainly better than okay.

We're seeing good growth in Pulp & Paper.

I think I have said before on this call that we're seeing more investment than we've seen in 10 or 15 years in the Pulp & Paper industry.

We're seeing some new semiconductor work.

Our consumer products companies, their spending is a little flat but that seems to be a very positive area for alliances and we continue to expand our alliance relationships.

There's a lot of new projects in emerging markets that are a positive for us.

And then on the Power side of that, we're very active in what I'll characterize as supporting cast work.

By that I mean, we're not so much focused on the Power island as we are on all the work that goes on around these facilities besides that, everything from substation and grid work to utilities and off-sites to support these facilities.

This is a particularly strong area for us in nuclear new build, and the UK's probably the strongest market for that as we speak.

But another positive element of that group of markets.

And then finally, turning to the process markets, starting with Refining.

It's improving, but I would characterize it as still a mixed market.

We are definitely seeing a pick-up in the number of projects, not only a pick-up in small cap and revamp work, but some major projects as well.

Big spending in the Kingdom of Saudi Arabia, and India, in South America.

A lot of projects around diesel conversions as diesel becomes a more desirable fuel than gasoline.

But also, we're starting to see a new series of environmental projects driven around 10-part-per-million gasoline and some of the new EPA vapor pressure rules that we expect will drive another environmental slug of projects.

As you know, that's an area where Jacobs always does very well from a projects and awards point of view, because of our relationships.

Moving into the upstream side of Oil & Gas, another very, very strong market.

In the oil sands work, particularly SAGD, where Jacobs is very strong, the market itself is very strong.

We continue to win feeds in a market where he we have a lot of feeds already under our belt and we're starting to see projects moving to detailed design, helping to drive up our pro service awards.

We think there will start to be construction awards in that area during fiscal 2012 so that should be a positive for us as we go forward.

Overall, oil sands should be a big positive for Jacobs, as long as we see oil prices remain relatively constant in the $70, $80 range or above.

Onshore gas is another area of Jacobs' strength and there's a tremendous amount of activity, very active.

We see, just in the US, a $30 billion investment in developing, particularly, tight gas and so that will be a place where Jacobs plays particularly well.

We have the strengths to take advantage of that market and be successful there.

The real opportunity for us on the upstream side is that we remain a relatively weak player on the oil production side.

So that's an area where I think we can continue to grow our business, and we'll continue to look for acquisition opportunities.

Finally, moving to the Chemicals business.

Clearly, the best market we've had in 15 years.

Shale gas is going to drive huge investments in the Chemicals market, both in terms of the availability of gas as a feedstock and a lot of natural gas liquids that are coming off the gas extraction.

There's also a significant strategy for value-added in places like the Middle East and India and if you -- I'm sure you can see, our trailing 12-month revenue here is up almost 20% year-over-year.

So it's a high value chemical business.

It's hot, and that's a JE strength.

But even in primary Chemicals, there appear to be at least thee new crackers that may get done and that will drive, also, a bunch of secondary chemicals work.

Again, one of our strengths.

As we look around the markets, frankly, the markets are way more good than bad.

Talk now slide 10, our geographic diversity.

I'll just quickly try to run through the geographies.

North America, we see a lot of oil sands work.

I talked about that.

On the technical side, particularly the IT side of Government is showing real promise for us.

Infrastructure remains under pressure, but we're seeing some places where there's some opportunity.

And then we continue to see Pharma & Bio and Food & Beverage work, particularly in Mexico.

So that will be a good thing going forward.

Moving down to South America, that's a Mining & Minerals play for us today.

But we are exploring opportunities in Brazil in Oil & Gas, Food & Beverage, Consumer Products, Pharma Bio.

I think that market's one that will be interesting.

That's another area where we're thinking about what we might do in the way of acquisitions to help our growth.

Moving on to Europe.

The issues in Europe are challenging, certainly infrastructure spending is being impacted.

But there are some bright spots in the Nuclear arena.

There's some bright spots for us in the Defense world, and we are seeing a lot of sustaining and small cap projects in the Oil & Gas market as people try to get the last dollar out of their investment in that part of the world.

Just adding Africa for a moment, our relationship with OCP in Morocco continues to blossom and expand, and we have a very powerful opportunity, we think, to grow a mining business in South Africa.

Moving on over to the Middle East, lots of activity in the Middle East.

It's a very robust market for us.

In addition to the traditional Oil & Gas, Refining and Chemicals business, which are very strong, there is also a set of opportunities in the Infrastructure world, the Buildings business, that we think we'll be able to capitalize on.

In particular, GES Plus has been a bright spot for us.

We've had a number of awards.

The awards are continuing to come.

There are more prospects out there under GES Plus.

There are now two companies, as I understand it, who are licensed to do this work, and have been awarded GES Plus contracts that they can act on.

And frankly, it appears that we're the big winner in that context so far.

Moving over to India.

The Infrastructure business, we're picking up a lot of work.

As I said, it's a lot of rupees to make a dollar.

Our historic position in Chemicals, Oil & Gas and Refining in India continues to be one we're expanding significantly.

And, of course, India remains an important leverage point for us across the globe, in terms of high-value engineering.

In China and southeast Asia, we continue to see good opportunities.

The acquisition of the operation in China that came to us with the Aker deal has leveraged our position in China very nicely.

We expect a number of opportunities to come to us there.

Our Singaporean business continues to be quite strong and we are seeing opportunities throughout the rest of Southeast Asia; Thailand, Vietnam, some places like that, where I think we'll be able to help core clients grow their business.

And then finally, Australia is a very hot market from an Energy, Oil & Gas perspective, but for us probably even more importantly from a Mining & Minerals perspective.

We're doing very well there and as I mentioned earlier, our relationship based-approach seems to be giving us a fair amount of leverage.

We also have always had a National Government of Defense business in Australia and that business is actually quite strong right now.

Moving on to slide 11, this is our sort of growth through acquisitions market.

I talked about KlingStubbins, it's a really powerful acquisition for Jacobs.

Probably a lot more leverage in it than the scale of it would suggest.

We continue to be interested, as you see at the bottom of the slide, in expanding our geography outside the US, and in the markets where we think there's significant growth that we don't have a huge presence in or could augment our presence, Oil & Gas, Mining, IT, even Power.

We'll also look at niche additions to our capability in our existing markets.

What I find interesting about this is that you see we've done a number of acquisitions in the last couple, three years.

But the pipeline for acquisitions remains very strong.

There's some really interesting potential deals out there, and the pricing actually seems to be improving a bit.

So the deals are not only good, they may be a little more attractive financially.

So that brings me to the commercial at the end, what we call investor appeal.

I believe we continue to have a customer-driven business model that's attractive.

We have a diverse, multi-domestic approach to markets, geographies and services.

As John pointed out, we've got a very strong balance sheet.

I think we continue to demonstrate that our acquisitions work to drive our growth.

We've always said that when our markets were more good than not, when we had five out of eight cylinders, or in this case, six out of nine cylinders these days, we could grow well, and we believe that's the position we're in today.

We continue to target a 15% compound growth rate over time.

And I believe we'll be able to deliver on that.

So with that in mind, Mike, I will turn it over to you, and let you open up the call for questions.

(Operator Instructions)

The first question we have comes from the location of Jamie Cook of Credit Suisse.

Please go ahead.

Good morning, gentlemen.

It's actually Peter Chang in for Jamie.

I just had a quick question on the guidance.

If you take an annual run rate of your back half 2011, it gets you to about $2.90.

And how should we view that?

I know you don't usually give guidance within guidance, but is it fair to say that if business activity is flattish to down, then we're going to see your $2.80?

And then, if we think about that in the context of Aker for the high end, what kind of organic growth are you expecting to get to that $3.20 high-end number?

You're correct, we don't give guidance within guidance.

I guess you've listened to these conference calls long enough.

We are still in the middle of uncertain markets.

While things are looking positive in many of the markets, timing is still issues, and there's still things that are causing short-term disruptions.

Just hiring people is starting in some markets to get a little more difficult than it was, say, six months ago.

And so timing of how we bring people on and how we ramp up on these projects can affect the quarter-to-quarter run rate.

Clearly, we think that the prospects for the full year are strong, and that, like I've said before, as we give guidance we tend to give fairly broad, but we feel most comfortable usually in kind of the middle part of that range.

But I think we might not have as nice and smooth quarter-to-quarter kind of growth as we used to demonstrate when we were having some consistent growth.

Might see a little bit more of a quarter-to-quarter volatility, particularly in the first half, and then we'll maybe more consistent strength as we move into the second half.

Okay.

And then if I could have one follow-up on the operating margins -- you had a record amount of Technical Professional Services in your backlog.

I understand it sounds like the first half of 2012 could be a little bit choppy, but as far as how we should be thinking about margins, should we be expecting margins to be higher as you burn through that TPS backlog, as we roll through the year?

Or higher in the first half of 2012?

I would expect margins to be similar to what we saw in the fourth quarter.

They were up a little bit from the third quarter.

Some of that is more from things like working overtime; and as we ramp up on people and such, has a little bit of impact on our G&A, but has a stronger impact on our gross margins and such.

The real key to the margins, particularly the gross margins, are going to be just when we start seeing some of the construction activity picking up.

Because as we continue to ramp up and see close to 60% of our revenue coming from Professional Services, we should have margins in the range we are seeing now.

As we start seeing the construction come in and that mix getting back more towards the traditional, say, 50/50 or 55/45 kind of mix, you'll see pressure particularly on the gross margin.

But even some pressure on the operating margin, because, as we've said before, the Field Services tend to have significantly lower gross margins but a little bit lower operating margins when all is said and done.

All right.

Thank you.

I'll get back in queue.

The next question we have comes from Richard Paget of WJB Capital.

John, getting back to guidance, and with the disclaimer you don't give guidance within guidance -- but you mentioned that you're keeping guidance relatively wide; but if I go back to 2007, the guidance range was about $0.30, and then as things got a bit more uncertain, it got a little bit wider, a little bit wider.

In 2010 the range was $0.60 from top to bottom.

Last year it contracted a little bit more to $0.50, and now it's $0.40.

So is that an indication that you have more confidence in the markets going forward?

Is it something that has to do with mix?

I'm just trying to get a sense of what at least your trends of guidance are signaling.

I think it represents a little bit better confidence.

As we've said, with backlog growing, that certainly gives us a little bit better confidence.

But we've intentionally kept guidance fairly wide because we can.

All right.

And then on the tax rate -- it's been trending a little bit down.

Does that have to do with international mix, and what should we expect going forward?

As we said earlier, I think last quarter, with where Aker is, and picking up a little bit of bigger contribution from outside the US, that's having a positive impact on our tax rate.

There's always -- because of mixes from quarter-to-quarter, you'll get a little bit of fluctuation quarter-to-quarter, but we would expect to see the tax rate ongoing somewhere in the around 35%, 35.5% range.

This was a little bit lower than that, but certainly it wasn't a wide variation from what we'd expect.

Thanks.

I'll get back in queue.

The next question we have comes from Andy Kaplowitz of Barclays Capital.

Please go ahead.

So, Craig, you've generally been cautiously optimistic over the last year for this E&C recovery.

You've called it the bathtub analogy before.

I know you're going to tell me you're still cautiously optimistic, but it seems like maybe the E&C recovery is starting to accelerate for you guys, and engineering utilization is starting to tighten here, and we're all distracted by the noise of your peers here, and still significant competition out there.

But I just want you to characterize along that frame.

Is it true that maybe things are starting to accelerate for you?

Well, let me start with doing what you expected to tell you I'm still cautiously optimistic.

Okay?

But yes, I think it is true that we're feeling a little better about the markets.

We are more optimistic about our sales prospects and our ability to grow our sales.

We see, like I said, two-thirds of our business has pretty good markets now.

And so you have to think that we're more upbeat even today than we were a quarter ago, and certainly more upbeat than we were a year ago.

I do think there's still a lot of uncertainty in the marketplace out there.

In many ways for us, I think it's become an imponderable.

I just can't tell you what some sort of horrific Greek default will do to our business, so I'm not going to lose any sleep over it.

We think that marketplace we're in is a market in which we can continue to grow.

So if this sort of not great but not worse market continues, you're going to see the kind of growth out of Jacobs that we've been able to deliver historically.

And I guess that's part of where my optimism comes from as well.

I love having conversations when the trajectory of our earnings is up, and I pretty much don't like the ones when they go the other way.

Okay.

That's -- me too.

So Craig, just on the margins going forward -- I'm sure John will chime in too -- so your margins have picked up, John mentioned over time and this quarter.

How much of this is, as the business swings toward Heavy Process versus Government, the margins can go up, because generally the margins are maybe a little higher in that particular Business versus the Government Business?

It's actually the opposite.

The margins tend to be -- we're talking about gross margins here -- the margins tend to be a little higher in the government market than in the private sector.

Private sector buyers are just more sophisticated, and there's more competition and there are fewer barriers to price competition in the private sector than there are in the public sector.

On the other hand, there's a lot to be said for scale economies and there's a lot to be said, as John pointed out, for being on the part of the growth curve where you're adding resources -- people -- but not having to add computers and office buildings, and when you're adding to overtime.

And all those things help drive margins to expand.

And I think for the next period or so -- period meaning in the next three or four quarters -- we're going to get some of that benefit.

So that's part of a positive for us.

Professional Services, as John pointed out, also clearly carries a better gross margin line by quite a bit than the Field Services Business does, although they get a lot closer together when you get to the bottom line.

So those things are all going to be factors in what happens to the margin numbers as we go forward.

But even things like the effects of the holidays, in this upcoming quarter, will have impacts on margins, as both billable hours and labor G&A are affected by how much vacation gets taken by whom, and where.

So that's one of the things that contributes to more uncertainty in the first half than in the second half of the fiscal year going forward.

Does that answer your question?

I think so.

It's kind of a utilization issue also, in Heavy Process Business as it gets better?

Absolutely.

Okay.

Thank you.

The next question we have comes from Matt Tucker of KeyBanc Capital.

You mentioned that in some markets, it's getting a little more difficult hiring people.

Could you give a little more color in terms of what markets, and if you're referring to different end markets or different regions?

Yes, sure.

It tends to be in a couple end markets.

The Heavy Process end market and the Mining & Minerals end market; and it tends to be in those areas where there's been very significant CapEx.

So you're talking, in Mining & Minerals, Australia, South America.

And in Oil & Gas, largely you're talking the Middle East.

So the challenge is to identify resources to do those programs and projects that are in those regions when there's lots of investment going on and lots of demand.

Another area you're going to see that is the oil sands in Canada, for the same reasons.

These are the hot markets.

The good news, frankly, from a Jacobs perspective -- with the exception of the oil sands in Canada is, we're a relatively new player in the market and we have the ability to bring resources to projects that perhaps some of our competitors have already brought to projects from their inventory, so to speak.

But it is going to be a hiring challenge.

It's going to be a retention challenge from a people point of view.

The good side of that is, we've proven to be very effective at getting people into the Company, and getting people in the Company to go where we need them to be, to help foster our growth; and I think we'll be able to continue to do so.

I think I mentioned on the previous call that we had, 28 of the previous 30 weeks, we had headcount growth.

That's continued all through the previous quarters.

So our business continues to grow nicely in terms of our ability to recruit and add people independent of those that come from acquisitions, which are also a source of talent to support some of these expansion areas like Australia.

Does that answer your question?

Yes, it does.

Thank you.

And then on the oil sands, I have a couple questions.

One, are you seeing cost inflation there that could start to impact the timing of some of these construction awards, in your view?

And then, two, with the delay of the Keystone Pipeline, do you think that could pose some risk to the timing of the construction awards you're expecting in fiscal 2012?

And also, do you think that could spur increased investment on the upgrading side?

Let's see.

I think that's a yes to all those questions.

Let me try to work my way through that.

I do think we're seeing a little bit of cost pressure, but it's relatively mild at this point.

Most of the new investment is still in the design, development, or detailed design stage, and hasn't moved to construction.

So pricing pressures on the construction side are still relatively okay today.

But logically, you could see as this stuff -- all this stuff moves into construction, that's going to create pressure and pricing will become a challenge.

I would say, though, the customers are more sophisticated today, have a better understanding how to manage that process; and I think it will result in less lumpy behavior than we saw in the previous cycle.

So by that I mean -- (technical difficulty).

This is the conference operator.

We do apologize for the interruption.

The conference will resume in just a moment.

Thank you.

Okay, sir, you may go ahead and restart.

Matt, how much of my answer, if any, did you get to hear?

I think I heard the beginning.

We were talking about cost inflation.

And then you were talking about the activity being a little lumpy going forward?

Yes, I actually was talking about the fact the activity is less likely to be lumpy, because the customers are metering out the work in smaller packages as opposed to big events.

And so I think the maturity of the customers in Canada, their decisions to be a little more measured in their approach, probably means that cost inflation will be better controlled, although there clearly will be some; and that it's less likely you'll see projects go from full speed ahead to canceled, as we go forward.

The second aspect of your question was about the Keystone Pipeline.

My answer was basically that I believe that something, some pipeline, Keystone-like, will get done, notwithstanding the President's unfortunate decision.

And I think the customers in Canada are sufficiently long-range minded that they'll look beyond this immediate issue and continue to make investments with the expectation that there will be a pipeline.

If that's wrong, then I think to your third point of your question, which is, was there an opportunity for more upgrading -- I think the answer to that would clearly be yes, there will be opportunity for more upgrading.

But I think that's a 2014 kind of -- 2015 kind of conversation, not anything that's going to have an immediate impact.

My view is that the customers will continue to invest.

They will invest in a measured way, and the immediate issues, the Keystone Pipeline, are more short-term than long.

Appreciate the color.

Thank you.

The next question we have comes from Steven Fisher of UBS.

Please go ahead.

Just to follow up on Peter's question earlier on the guidance -- at the midpoint, are you assuming organic revenue growth for 2012 in the single digits or the double digits?

We don't focus a lot on revenue growth, because a lot will depend on just when construction starts kicking in and such.

But to get to a 15% bottom-line growth rate, we do not necessarily need to have a 15% top-line growth rate.

We would expect probably something in around the 10%, 11%, because that's kind of the increase we would expect to see at the margin level, as long as we can control our cost level and keep that moving at a lower rate than what our margins are.

I think that -- that's the model we've kind of always used and anticipated, so I would say that probably we'll not see as high a top-line growth as what we'll see in the bottom line.

Okay.

Seems like one of the bigger uncertainties is the federal budget.

Can you just discuss what assumptions you're making for DoD outlays, broadly, I guess, over the next year, on a year-over-year basis, specifically as it relates to the RDT&E?

Well, broadly speaking, we see that some form of across-the-board cuts is likely to take place.

We think that Defense will probably bear -- assuming you can get our Congress and our Administration to agree on anything -- that DoD will probably take a little bigger share of that reduction than the federal budget in general.

But when we look at our particular positioning in RDT&E, and what we see in terms of opportunities to take share as a result of this movement toward Multiple Award Task Order Contracts, I don't think that's going to have a significant negative impact on our business.

I think the challenge in the federal technology space -- so, research and development, test engineering, scientific and technical services, and IT -- is positioned where the growth spaces are; and to continue to control how much market share we take.

And if we can do that, I think we could even get a little bit of growth out of that business as we go forward.

Does that answer your question?

Yes, that's helpful.

And then I know you mentioned you're not losing sleep over Greece, but curious what impact you think Europe overall will have on your business?

Last quarter I know you talked about it kind of being neutral.

I wonder if that's still your assumption.

Yes, I think, when we look at it, the part of our business that is private sector, user fees funded -- so that's a public sector piece that's user fee funded and the private sector piece -- is not likely to be affected very much.

The part of our business that is Southern Europe, public sector in particular, I think that will be a challenged piece.

But in the aggregate, I honestly think it will continue to be neutral for Jacobs.

Now, of course, I'm not throwing into that a doomsday scenario.

None of our conversation today or our outlook are based on some sort of end of the world kind of collapse of the financial markets.

Frankly, I don't think there will be one.

But if things go as it appears that they will, I think we'll be okay.

Okay.

Great.

Thanks a lot.

The next question we have comes from Scott Levine of JPMorgan.

The moves in TPS versus Field were a little bit more pronounced than we expected.

Field looks like up 20% backlog, or TPS and Field down 8%.

How much difference in directional movement can we see in an extreme situation within those two segments?

Or does Field need to come back at some point to follow TPS?

Any observations you have with regard to TPS versus Field backlog trends during the year, and maybe some expectations that we could see in 2012 there?

I'll start and I'll ask John to weigh in if he'd like.

I think we're going to see continued TPS backlog growth throughout the fiscal 2012.

I don't really see a reason why we shouldn't expect that to continue to grow.

I think, as I said, I expect to start to see new construction awards in fiscal 2012 as well.

A little murky yet, what -- I can't point to a quarter, but increasing, as we move to the second half of the year, certainly.

So I wouldn't expect Field Services backlog to accelerate right away, certainly; but I think it will start to show some growth as we get into the latter part of 2012.

It's all dependent, of course on when projects go to the field, and in what form.

So there's always a little bit of uncertainty about the timing of those issues.

But I think for 2012, you should look for good backlog growth in the Professional Services side, and an expansion of the Field Services backlog as the year progresses.

Got it.

Can you remind us -- the status on Motiva, or effectively are we done with that in the first half of fiscal 2012 there?

For all practical purposes, yes.

Got it.

It will continue to work off through mid- 2012.

Mid-2012, got it.

Mid-fiscal 2012.

As a follow-up -- on the Mining, you guys sound very optimistic on what you're seeing there in general, so I'm guessing you haven't seen any pullback on the part of customers during a period of dislocation coming out of the summertime.

And your expectations for that Business are at least as optimistic as when you bought the Aker business late last year.

If you could verify that, maybe add some color there?

I don't think I could say it better than you just said it, Scott.

What you described is exactly the perspective we have.

Got it.

Thanks.

Nice quarter.

You've got to remember, a lot of the activity's in the Southern hemisphere, so coming out of the summer up here is going into the summer down there.

The next question we have comes from John Rogers of D.A.

Davidson.

Craig, if I could just go back for a second -- when you went around the pie chart and you talked about the various end markets, some of the ones that you highlighted -- Mining, Chemicals was larger -- but upstream business -- they're smaller portions of your business.

But I'm guessing you're expecting them to be bigger contributors in 2012, and I know this is a 12-month look-back -- but could you give us a sense of how important these markets are right now?

I'm guessing the Mining Business must be -- what?

8% to 10% of your revenue now; and Chemicals is up over 15%.

Well, I can't give you instantaneous numbers, just because I don't have them at the moment.

Certainly, Mining & Minerals is one of those areas that we expect to grow.

We still don't have a full year of Aker in the numbers.

Right.

So that's part of it, all by itself.

And of course, we're growing that business as we speak.

So I think if you were to look ahead to what the trailing 12 would look like in 12 months, Mining & Minerals would be a more significant contributor than the 4% or 7% or so that shows up today, by a considerable margin.

I think Chemicals is showing a lot of growth already.

I think there's every reason to think that's going to continue.

So we've gone from 11% to 12%, to 13%, to 14% of revenue as revenue has grown; and I expect that trend will continue in Chemicals.

I expect Oil & Gas will expand.

Right now in the Oil & Gas Businesses that we're in -- and this is without acquisition -- we're very much in the engineering cycle, and I expect that we'll be moving, as I said a minute ago, into the construction cycle.

So the apparent growth of that chunk of the Business will also be pretty high.

Refining, probably, isn't going to change a lot.

We'll get some growth out of it but I think the mix is probably the mix.

And so those three big process markets, plus Mining & Minerals, I think that's kind of the outlook.

Does that answer your question, John?

Yes, that helps a lot.

And secondly, if I could -- in terms of acquisitions, you mentioned the pricing was hopefully getting a little better, and I think it was being a little more responsive.

Is there a significant change in the end markets that you're looking at?

That would distort these ratios?

You talked about geographically.

I'm just trying to think about other markets that you're not in as much.

Let me start with the markets that we are in, but we could be in, in a much bigger way.

Top of the list of those two would be Oil & Gas and Mining.

We could use a lot more capacity in Oil & Gas and still be a very minor share player.

And so that, in terms of what we're looking for, that's still very high on our list.

That is probably the one exception to the rule, however, in that we haven't seen much movement down into a rational range for pricing.

Mining & Minerals -- we have great capabilities to serve a significant part of the Mining & Minerals market.

But there's lots of the market that we could serve with new capabilities, so that's another high priority for acquisition.

And I think there's a fair amount of opportunity there to make acquisitions to do that.

If you go then on to other markets -- again, I think I made it clear earlier, we're very upbeat on the IT cyber security space.

And I think there are opportunities for us to make acquisitions.

The market view that working for governments is a bad thing is probably the perfect time to make acquisitions in the businesses that work for governments.

Because I think the pricing will be very attractive.

And then as always, we have an interest in the Power market.

We would like to be in that in a way that's consistent with our business model, and so that would be the fourth category of market, and that would be relatively speaking, a new business for us, if we were to find the kind of acquisition we would like.

Okay.

Great.

Thank you, appreciate the help.

The next question we have comes from Andrew Obin from Bank of America-Merrill Lynch.

Please go ahead.

Most of my questions have been answered, but just in terms of talking about two areas -- upstream, outside of Canadian oil sands, could you talk about the progress you're making in that market?

And on a relative basis, where is it right now ex-Canadian oil sands, and how big do you think you can get it in 2012?

Start with the progress we're making -- I am very happy with the progress we're making in o-shore gas.

As I think I've told you all before, that's a business where we have a lot of qualifications, a lot of strength.

We've done work in that category, not only in North America but in the Middle East, so we're very credible on projects in any size, from our traditional small-cap stuff up into the $1 billion range.

And so I think that's still a burgeoning business when you think about US oil -- US gas, particularly, particularly shale gas.

That's a business really just starting to get traction.

So while it's a small business today for us, I think the growth opportunities for Jacobs are particularly significant; and I would expect us to be able to take share relative to the competition in that business because of our business model and our geographic diversity.

We talk about geographic diversity in terms of country terms, but if you look at geographic diversity in terms of US diversity -- where we have offices, vis-a-vis where our major competitors have offices -- we are much more geographically diverse; and for the kinds of projects that are represented by the Marcellus or the Eagle Ford, to a lesser extent, or even the Bakken oil, Jacobs has a better geographic position than our competition to take advantage of that.

So I expect that business to grow from a small base relatively rapidly.

And I think that will be a contributor, in addition to our growth in the oil sands, both from an expanded design work, plus construction.

Does that answer your question, Andrew?

I guess what I was trying to get at, when things were pretty gloomy, your point was you are very successful at getting the share of your customer's wallet; and even if some of your traditional end markets, like North American downstream, will remain depressed, you will be able to grow over time because you will be able to take share in different areas as your customers continue to do business with you.

What I'm trying to get at -- this has been a very nice quarter, after a long time; and I'm just trying to understand how much of it is just end markets actually recovering, versus your core strategy of going after different businesses within your customers' business mix is actually succeeding -- whether it be North American gas, whether it be Middle East and Saudi.

I guess that's what I'm trying to understand.

I would attribute the majority of the positive results to us actually sticking to our strategy and expanding our share.

The markets are good.

Some of them are quite good.

But we're getting the majority of our growth by frankly grinding away with our core clients and expanding our share of their wallet.

And that's where I expect our growth will continue to come as we go forward.

We're also benefiting where the markets are good.

And if you were to qualify how much of next year's growth will come from sort of grinding this market share away versus the end market recovery?

And that will be my last question.

Thank you.

I couldn't get to a number, but I'd say the majority of our growth will come from taking market share.

Terrific.

Thank you very much.

The next question we have comes from Justin Hauke of Robert W.

Baird.

I just wanted to ask a quick question on the balance sheet.

And obviously your commentary on M&A -- I would say it's probably more positive than it's been.

You've always talked about acquisitions.

You've clearly done some acquisitions.

But with some of the unique pricing dynamics, it seems that would be your primary focus of balance sheet deployment today.

I guess two questions.

One, just wanting to confirm that's true; and then, two, I guess how much cash capacity do you see on the balance sheet to be able to deploy comfortably here?

Well, that is true, we still have a very strong focus and primary use for our cash; and the strength of our balance sheet is to grow the businesses through acquisitions.

We currently, as I said, have $900 million or so of cash.

We do have some debt that we still have scattered around the world, but related to the acquisitions we've done this year.

But it still gives us a very strong position to continue to do acquisitions.

And I think, as we've said in the past, we would not be afraid for the right deals or right deal to be in a position where we were even, say, up to $1 billion in net debt.

So that would not overleverage our balance sheet.

I would still say that we had a very strong balance sheet, and with our cash-generating capacity, would be something that we could pay down fairly regularly.

Great.

And just as a housekeeping -- what was cash flow from operations for the quarter?

I don't think you disclosed it.

It will be out -- the K will be filed the end of the week or beginning of next week, and we'll get into that detail then.

But clearly our cash balances were up by a couple -- net cash was up by $100 million.

The cash flow was positive.

Okay.

Thank you very much.

The next question we have comes from Avi Fisher of BMO Capital Markets.

I don't know if you said this -- what was the acquired revenue in the quarter?

We didn't say it.

Wonder if you would tell me.

We didn't have any new acquisitions in the quarter.

Aker hasn't anniversaried yet, has it?

We don't break that out.

Normally, I would assume if it hasn't anniversaried yet, it's considered acquired.

We don't tend to break out acquisitions except for maybe the first quarter or so.

And they were positive for the quarter, just like they've been since we acquired them.

And understand, Avi, part of our business model is rapid integration of these businesses.

So the business that was Aker P&C has been broken up into five or six different parts and merged with Jacobs' operations in those parts of the world.

I don't recall what we ended up reporting in the K, but it's not a number that I even think about at this point in time, because, like I said, there isn't a residual Aker.

There's not an Aker number that I look at.

Okay.

Could you tell us at least, then, how much backlog we expect to get from the KlingStubbins acquisition that goes into the quarter for next quarter.

It will be a relatively modest number.

I'm going to say it's almost not material.

It's a 450-person pro-services only kind of business.

Revenues are -- don't hold me to the exact numbers here -- but plus or minus $100 million.

So you're going to see backlog.

It's a short burn kind of business.

You're going to see -- I don't know what you'll see exactly for backlog, but it won't be a big number.

The SG&A line, you've held it flat 3Q to 4Q.

Should we just think about ability to continue to hold it flat around these levels, even bring it down for the first half?

I think you'll see the effect of the holidays on G&A, SG&A in the first quarter.

Holidays are on a weekend this year, yes?

What's that?

Holidays are on a weekend?

What we end up is huge amounts of holiday and vacation time around both Thanksgiving, Christmas, and New Year's.

And it's enough to impact both SG&A, and more importantly, enough to impact billable hours in a significant way.

And so this quarter's always a little bit on the tough side compared to other quarters for -- if you're trying to draw a linear growth line for the Company, the first quarter is the most likely not to be on that line.

As a percent of revenue.

SG&A in absolute dollars might be down, and percentage dollars might be up.

When you talk about the oil sands, I wonder -- and you talk about the opportunities there -- I wonder if it's possible to break out the way you view the opportunities between the SAGD and the big integrated refining projects.

Are there opportunities on both sides?

Is it weighted one towards the other?

There are opportunities both on the upgrader side and on the SAGD and on the mining side of oil sands.

The business is dominated by the bitumen recovery, whether it's SAGD or mining.

Upgrading is not a, by any means, majority, or even half the value of projects that are going on up there.

This is get the bitumen out of the ground and off the sand, much more so than it is convert the bitumen into something else.

In terms of the Middle East, obviously you've been getting a lot of great exposure there.

Kind of two questions there.

First, was wondering if you could talk a little bit about what got you the big EPC award this quarter?

Was it price?

Was it terms and conditions?

Was it client relationships?

All of the above.

I was worried you were going to say that.

Middle East pricing is still very competitive.

Frankly, I think there are a number of our competitors who would really like to try to freeze us out of the Middle East, because of our ability to take share.

So they're aggressive in their pricing, and we're being aggressive in return.

And so you have the relationship side of it, coupled with aggressive pricing, resulting in some nice big awards.

Our GES position also is relatively unique, and that's resulting in some nice awards.

And that's more the pure relationship side of the equation than anything else.

So it's a mix, as it always is.

But I think we're rapidly building a strong position from a relationship perspective with key customers in the Middle East.

And in that regard, you've almost gone from a slow trot to longer and bigger strides, and you're hitting your stride in the Middle East after starting out in 2007 with the acquisition there.

Right.

Would you characterize India as the same sort of path where you were in 2007 in the Middle East, or is it a little more nascent there?

I think India's a completely different example.

We probably started where we were in the Middle East in India in the 1993 kind of time frame, 1995.

And we've moved through the phase of growing presence to where we are today in India, rapidly becoming the dominant engineering Company in India.

And so I would have to say India is well ahead of the Middle East on that curve, if I understood your question right.

Okay.

Thank you for the color.

Thank you for the question.

The next question we have comes from Joe Ritchie of Goldman Sachs.

Please go ahead.

My first question is really around your operating margins, and in relation to the revenue mix this quarter, didn't really look like your revenue mix changed much from TPS versus Field this quarter, yet your margins were up pretty dramatically.

So and so I'm wondering, has there been a shift in mix within TPS that's going to essentially generate the same type of margins over the next couple quarters?

Well, as you said, the mix stayed about the same.

I think some of the improvements came from the other factors we talked about -- the fact we are adding people, we're adding margins without having to add the space, and all the sundry G&As in this first part of the growth.

We get a little extra benefit because we do have some idle space and such.

So I think that we saw some of those benefits.

But I would say that there will always be a little bit of variation from quarter-to-quarter, and I would say that going certainly through the first half of next year, we would expect to see the mix stay about the same and the margins relatively stay about where they were for this quarter, plus or minus a little bit.

Okay.

And then -- that's helpful.

You guys have mentioned also, for 2011 the Mineral piece of your Business is about 4% of your Business, but you did see some significant growth in backlog attributed to that Business.

So I was wondering if you could quantify what portion of your backlog increase or new award increase this quarter was focused on the Minerals Business, and what that means for margins longer term?

We don't traditionally break down backlog by individual market sectors.

I think what we're seeing is that there's a strong market there and it's a growing market.

The 4% that we're showing for the year is -- you've got to remember, is only eight months of Aker, so it's a little stronger if you just look at it for each quarter.

And by, once we get annualized on Aker, we'll be a little bit higher than the 4%; we'll probably be closer to 6%, plus some growth.

But I think that it is a market that we see a lot of growth in.

Aker traditionally has done more Pro Services than construction.

They've done construction management, but they haven't had a lot of field labor that goes through their books and such like that.

So their mix tends to be more heavily weighted toward the Pro Services, and as we get more involved and bring our construction capabilities there, you'll probably see a pick-up in the construction opportunities in that market that go along with their traditional markets.

Let me add two observations to that.

One is that sometimes we get work in a joint venture situation, where the revenue recognition gets -- essentially, the revenue falls in a hole.

An example of that, without being specific, is we had a couple, three major awards last quarter from a company in the mining business, mining & minerals industry, but none of that revenue will go through our books.

And so we'll see the benefit of some services income and the profit line, the fee line; but you won't see the revenue line, and so it didn't go into backlog for the same reason.

Another example, sticking in the Mining & Minerals business, customers awarded us a feed on a major investment, north of $1 billion.

I believe, and I have a lot of personal confidence that we'll get the detailed design and the construction of that facility.

However, the client is, like some of our clients are, going to release it phase by phase, and until we have the confidence that we're going to get the next phase, we don't put it in backlog.

So that's the sort of award I get excited about winning the feed there, because I know we'll execute well, and we'll get the rest of the work, but it doesn't end up going into backlog.

Got it.

That's really helpful color.

I guess one last question.

Was there any kind of material impact from FX this quarter on your backlog?

It goes up and down every quarter, as currencies change, but I don't recall that there was anything really significant.

I mean, there's always pluses and minuses, but we just -- we don't usually use that as an excuse or as a benefit.

Okay.

Thank you very much for taking my questions.

The next question we have comes from Robert Connors of Stifel Nicolaus.

Can you guys provide some color on the degree of outsourcing for your private end markets?

It looks like with the weakening of the rupee as of late, it seemed to have helped some of the TPS bookings.

I think if the question goes to high-value engineering kind of outsourcing, i.e., where we're taking private sector projects and outsourcing a significant part of the engineering to India or places like that -- that is clearly growing as the markets grow.

It is also a significant leverage point for us relative to some competitors, particularly the mid-sized, local competitors.

And so that part of the business is growing at a dead run.

Movements in the rupee are probably not really the significant issue there.

I mean, it impacts our P&L a little bit.

The bigger issue is what the customer is willing to pay, or what we can convince them to pay for that Indian engineering hour, relative to what they pay for a US or European or Australian engineering hour.

And right now, the leverage is pretty significant, so that's another real positive for us.

Okay.

And then, miscellaneous income has been relatively volatile this year versus some previous years.

What drove that in the quarter?

And then do you think your outlook for 2012, miscellaneous income?

It's not something we forecast, it is things that go up and down and involves asset sales and other things.

I know the number was up a little bit, but I don't have a breakdown of the detail for the quarter.

Okay.

And then most of the energy related awards, that was within the TPS segment for the quarter?

There were some that were both, but certainly the TPS segment was the stronger of the two.

Okay.

All right.

Thanks for the clarity.

The next question we have comes from Brian Konigsberg of Vertical Research.

Good morning.

Most of my questions have been answered.

I'm just curious -- on the strength of TPS versus Field Services, looking back at your commentary in previous quarters, I guess I would have anticipated a little bit of stronger activity in Field Services at this point.

Is it developing a little bit slower than you anticipated, and is it a reflection of perhaps a little bit of conservatism amongst your customer base as far as proceeding to that point of the project?

I have to say, I don't think so.

As projects progress into detailed design, they're moving relatively smoothly into construction.

But we are coming off a long period of limited investment, and a lot of what I'll call circular studying; and so the real energy -- or surge, I guess I would call it -- behind the TPS backlog is, I still think a precursor to a good, strong Field Services backlog.

And I don't think it's because of project delays or uncertainty for the most part.

Got you.

And also, you touched on --

And I think in -- excuse me -- in prior quarters, we've been pointing more towards 2012 as a year when we start seeing the construction side, the Field Services side, of the backlog improving.

And also, you kind of touched on your opportunities in shale gas going forward.

It seems quite robust.

I'm curious -- do you see -- I guess there's a lot more discussion going on today about tight oil.

How do you see opportunities in that market?

Are you positioned well to pick up some business on that end of the industry?

We think the answer to that question is yes.

We think we are positioned to pick up some business, in a lot of cases for the same reasons that I outlined earlier about tight gas.

But it is certainly a little behind on the development curve for us, compared to the tight gas side.

Thank you very much.

The next question we have comes from Stewart Scharf of S&P Capital IQ.

Regarding billable hours, I know that you tend to focus on that as a trend indicator, and I was wondering if there's any color you could add to quantify billable orders and trends in recent quarters going forward?

And any possible breakdown by segment?

Or at least the overall trends broken down of what you see in billable hours going forward?

Not really in a position or willing to get into the details of billable hours by line of business, or anything like that.

The problem, that gets into pretty competitive data.

I will tell you, though, that the overall trend in billable hours continues up.

The trend line is steady up, and has been steady up for some time now.

I just updated my own personal forecast of billable hours going forward, and the trend line remains steady up.

So I think, like our hiring, those are good indicators of the general direction of the business.

Okay.

And also, regarding the customers' budgets that they use for Oil & Gas projects, or the oil side.

The past tends to be more in the $65 to $70 range, and you mentioned $70 to $80.

Has that changed, or do you still see that would continue budgets in the lower price range than the $70, $80.

I didn't mean to imply that there's been any significant increase in the threshold oil price for CapEx in the oil sands.

I think it's still in the same range it's been now for a while.

But again, of course, as you know, a lot depends on the quality of the reservoir that you're dealing with, and extraction costs, and those kinds of things.

So it's probably, what's $60 oil for one customer might be $80 oil for another customer in a different location.

I didn't mean to imply that I thought the threshold had gone up.

I don't believe that at this point.

Okay.

Thank you very much.

The next question we have comes from [Michael Erskine of Warrant Advisors.]

Just wanted to turn to the balance sheet for a second.

What were unbilled receivables at the end of the period?

Yes.

Yes, just want to turn to the balance sheet.

I saw the working capital had declined year-over-year, and just wanted to know what unbilled receivables were at the end of the period?

Primary driver for the overall working capital declining is the borrowing and the acquisitions we've done, because right now that debt is all sitting short term.

We have seen an increase in our receivables, and part of that is in the unbilleds in the mix, but that's something we're focusing on.

Until we actually release the details, I'm not going to get into the specific numbers at this point.

Okay.

And then on the other side of the balance sheet, have you seen any increase or decrease in billings in excess of cost?

Again, it's trended up, but we'll wait until the actual numbers are out before I comment on those directly.

Okay.

Excellent.

Thank you very much.

The next question we have comes from Rick Johnson of Tygh Capital.

I don't know if this has been asked previously, but how do you define the differences between a discrete versus a transactional project?

What are the key metrics that differentiate those?

I wouldn't necessarily call them metrics, but discrete projects tend to be projects for customers -- at least the way we define them -- for customers who we know and have worked for before.

They tend to be -- the selection process tends to be amongst a limited group of competitors, and generally both the qualifications of the competitors and price are considerations.

But they generally do not involve construction risk, lump sum construction.

They generally are services-based more often than anything else.

And there's usually a fair amount, as I think I pointed out, of repeat business in that customer set.

If you compare that to a lump sum turnkey competitively-bid project, that would be transactional.

Construction risk, unknown customer, unknown location -- not unknown in the sense you don't know where it is, but not where you've worked before, or where you have limited experience working, or where there are logistic or other challenges to successful execution -- tend to be more on the transactional side.

For example, in working in the Middle East, it might well be that for a customer in Saudi Arabia, the feed work and possibly some parts of the detail design, early parts of detail design, could be awarded as a discrete project.

The actual completion of the design, construction, and start-up of that same facility would be bid out as a transaction.

And that's the way we draw the distinction.

Transactions quite often are characterized by lowest price wins.

And they're also often characterized by, we have a set of bidders who we think are all equally qualified, so after that, we don't care, whoever has the best numbers, even if they've made a mistake, quite honestly, gets to do the work.

Does that help?

Yes, thank you.

The next question we have comes from Will Gabrielski of Lazard.

Thank you.

It's Will Gabrielski.

You guys have talked a lot in the past about winning work on price by controlling your cost, and then they never deliver that price.

I was just wondering over the past year, maybe going forward, what you guys are doing to continue to improve that cost position, and how much is left for to you shake out of the cost structure given that some of these markets may be a little more price-competitive.

We continue to try to find every opportunity to keep our costs at the lowest possible level.

We run a pretty tight ship as it is.

It's not like there's billions of dollars to be gotten out of our cost posture.

We continue to find opportunities to make improvements, to centralize our support of our operations, to buy in quantity.

And so we continue to see the relative strength of our cost model compared to our competition's cost model.

But it isn't something where we will get dramatic reductions.

It's something where we're in a spirit of sort of continuous improvement, will always get a little better; but it's a little better from a pretty good performance level to start with.

And then, on the national government business, and specifically in the US, have you seen any delays in projects being awarded, or any uncertainty causing just a longer bidding period, particularly as we're moving into this Super Committee process winding down?

I don't think the Super Committee in and of itself has any impact on that.

We have certainly seen extended acquisition periods.

We've seen more protests from incumbents if they lose the recompete.

We've seen the same issues with respect to releasing task orders under awarded contracts.

So there is some delay and drag-out in the national governments arena, and particularly I would put that in the US Federal Government.

Okay.

What it means is, you've got to chase more and expect that it will show up a little later, but it doesn't mean -- we've still been able to continue to make our business function even in spite of that set of delays.

And then when you look out over, historically, you guys have booked full value on your government contracts.

In the past, you've had to take some backlog out because of that.

I know you don't give us the percentage of backlog by end market, but have you scrubbed that sufficiently at this point to see how much risk might be in that backlog based on some of the potential cuts that have been out there?

We scrub it routinely and we think that the backlog that we've reported is the right number, obviously.

I think as we sit here today, there's both good news and bad news.

One of the folks in the room here was reminding me that there's another side to this extended procurement process; and that is, where we're the incumbent, they're delaying recompetes, and we get the benefit of the extended period of performance because of the delays in recompetes.

So it's not always a bad news story that these things are delayed.

But I do think we reflect in our backlog what our expectations are.

In some cases, that's the full value.

But it's always tempered with what we really expect to obtain from that contract at the time that we're awarded it or the time it goes into backlog.

If we find out our expectations were wrong, we make the appropriate adjustments.

Sometimes it's up.

Sometimes it's down.

Then lastly, on GES Plus -- I thought those were pretty set terms that the GES Plus qualified contractors would be working under.

You talked about price competition.

So I was wondering if the price competition you're seeing is on projects outside of GES Plus in Saudi Arabia, or if there is in fact price competition within GES Plus itself?

No, it's outside of GES Plus for the most part.

Great.

Appreciate it.

It appears that we have no further questions at this time.

We will go ahead and conclude our question-and-answer session.

I would now like to turn the conference back over to Management for any closing remarks.

Not much to say in closing that we haven't said already.

I do think the news in our Business is generally good.

I think we are back on that track to grow at double-digit rates.

So I think the Business is in the kind of position that makes us proud to be on this call and have this conversation.

And I look forward to having a chance to talk with you all again.

Thank you all.

We thank you, sir, and to the rest of Management for your time.

We thank you all for attending today's conference call.

It is now concluded.