Fluor Corporation (FLR) Q1 2010 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Fluor Corporation's First Quarter 2010 Conference Call. [Operator Instructions] A replay of today's conference call will be available at approximately 8:30 p.m. Eastern time today, accessible on Fluor's website at www.fluor.com. The Web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. Eastern time on May 16 at the following telephone number: (888) 203-1112, the passcode of 9182654 will be required. At this time, for opening remarks, I would like to turn the call over to Mr. Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Welcome, everyone, to Fluor's First Quarter 2010 Conference Call. With us today are Alan Boeckmann, Fluor's Chairman and CEO; David Seaton, Fluor's Chief Operating Officer; and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed. We have also posted a slide presentation on our website, which we will reference while making prepared remarks on today's call. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on Slide 2. During today's call and slide presentation, we will be making forward-looking statements, which reflect our current analysis of existing trends and information, and there is an inherent risk that actual results and experience could differ materially. You can find a discussion of those risks factors in our 10-K, which was filed on February 25, 2010. During this call, we may discuss certain non-GAAP measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our current earnings release and are posted in the Investor Relations section of our website at investor.fluor.com. Now I'll turn the call over to Alan Boeckmann, Fluor's Chairman and CEO. Alan?

Thanks, Ken. Good afternoon, everybody, and thanks for joining us today. I'd like to review our results for the first quarter, and at the same time, provide an update on our business outlook for 2010. So let's start by looking at some of our first quarter financial highlights, and you'll see these on Slide 3. Our net earnings attributable to Fluor for the first quarter were $137 million or $0.76 per diluted share. These results are in line with our expectation for the quarter, and as expected, reflect lower contributions from the Oil & Gas segment. Our consolidated segment profit for the quarter was $243 million, comparable with $332 million a year ago. Segment margins were 4.9% in the quarter, and this compares with 5.7% a year ago, which at the time, was very near a historical high point for the company. Revenue for the quarter was $4.9 billion, and that's down from $5.8 billion a year ago. Overall, results reflect lower revenue and profit from Oil & Gas and also from Global Services, and that's partly been offset by growth in the Power, Government and Industrial & Infrastructure segments. Let me refer you to Slide 4. First quarter new awards of $3.4 billion were diversified and included $1.4 billion in Oil & Gas, $1 billion in Industrial & Infrastructure and about $400 million in both Government and Global Services. Backlog for the quarter ended at $25.7 billion, which was a modest decline from the $26.8 billion we reported last quarter. So to summarize at this point, I think our end market diversification has enabled us to deliver good for profitability, despite lower new award levels in the recent quarters and the trailing impact of a significant reduction in spending by our Oil & Gas clients. Now I'd like to ask David Seaton, Fluor's Chief Operating Officer, to provide an update on the markets in each of our segments. David?

Thanks, Alan. I'll start with Oil & Gas and then work my way through the segments. Turning to Slide 5, Oil & Gas had a good quarter, with the award of the jetty boil-off project for Qatargas. This is a strategic upstream win for us and is a great example of a project that's been pending for many quarters, and has finally progressed to an award stage. It's also characteristic of the current oil and gas market, although we do see signs that other key prospects could begin to move forward. In downstream, our ICA Fluor joint venture was awarded two clean gasoline projects for PEMEX during the quarter. We also see downstream prospects in Asia and Middle East and in South America. In the U.S., we are making good progress on the remaining of the large refinery projects we currently have in backlog. In the petrochemicals market, orders have slowed considerably over the last year, as we expected, but we did buck an incremental award for the expansion of project in China, and we continue to view China and the Middle East as the most likely areas for future awards. However, this market is clearly between cycles and will take some time before it picks up materially. As we have discussed in the past, the majority of capital investment, going forward, will be focused on the upstream projects. There is a substantial investment plan to the Middle East, Russia, Australia and Canada. I mentioned the award in Qatar, and we also booked two strategically important FEED contracts for offshore facilities located off the coast of Abu Dhabi. We also had incremental upstream awards in Russia, Kazakhstan and in Canada for the first quarter. We are strengthening our position on the offshore side in particular, to complement our depth of onshore oil and gas capability. With regard to major oil and gas markets, we're seeing numerous FEED opportunities, which is a positive sign for the future. We also have some large EPC prospects that will be awarded during 2010, and we are investing to position the organization to enable us to quickly respond to this business, as recovery begins. If you'll turn to Slide 6 now, let's talk about Power. We booked a strategic win in the first quarter, with the award of the three-year site services contract driven by an ongoing maintenance modification and outage craft services to the PG&E Diablo Canyon nuclear generating units 1 and 2. Looking ahead, we continue to attract prospects in U.S. and in Europe, including gas fire and power, solar, wind renewable energy and environmental betterment programs. We're also progressing on several FEED programs, involving application of CO2 capture for coal plants, which could lead to EPC project opportunities in 2011. We continue to support Toshiba on NRG's STP 3 and 4 nuclear project. Project donors are working very diligently to move this project forward, with the goal of receiving DOA loan guarantees prior to the eventual award of a construction operating license by the NRC. In Industrial & Infrastructure, awards in the quarter were broad based, with key wins in transportation, biologics and mining. As we've discussed over the last year, numerous mining prospects continue to progress into sizable EPC awards. The pipeline of projects in South America, Asia and Australia is robust, and Fluor continues to capture significant share of that market. We expect to book several large programs across a variety of metals during 2010, further growing the strong backlog that we already have there. As you may have read, the Saudi Arabian Mining Company, or Ma'aden, recently issued letter of its intent to us and others for their new aluminum refinery, smelter and rolling metal facilities, and we expect to book our scope in the second quarter. In Infrastructure, we booked the extension of SH 161 tollway here in Dallas in the first quarter, and we continue to focus on the short list of road and rail opportunities in Europe and the U.S. This market still faces some challenges, from a financing standpoint, given the overhang created by the global credit crisis. With regard to offshore wind development, we are making great progress on the Greater Gabbard project. During this quarter, we installed over 50 of the transition pieces that sit atop the monopiles and expect to begin the installation in the first turbines this summer. Moving to Government segment on Slide 7. This group had another strong quarter, with awards of approximately $400 million in the LOGCAP IV task orders for Afghanistan. Transition to the north of Afghanistan is going very well, and we expect to complete this process during the summer. We also continue to execute under separate task orders in Southern Afghanistan, as well as in Iraq. On the DOE side, our work at Savannah River, which includes the American Reinvestment Recovery Act fund, ARRA funding, is progressing and we are getting good feedback from our client, relative to our performance. Overall, the Government group is performing very well and is pursuing a number of new opportunities that would help enable additional growth in the future. Of all our business groups, the Global Services segment is one hit hardest, in terms of impact of the economy. They continue to experience fairly substantial reduction in discretionary maintenance and small capital activities of our client base. From a sales standpoint, in the first quarter, we signed a five-year contract with IBM to provide facilities management to more than 300 sales, administrative, data center and corporate facilities throughout the United States. As part of the joint venture, the group also signed long-term maintenance and service contract with Qatar Shell Gas-to-Liquids Limited for it's Pearl GTL project in the industrial city of Ras Laffan. In general, we expect the market for maintenance and turnaround services will continue to be under pressure for the next several quarters. That's a quick summary of the market highlights. I'll turn it back to Alan.

Thanks, David. I think the key message that we would like you to take away from these comments is that all companies got hit by the downturn in backlogs that was precipitated by the global economic issues in 2008. But we are now very encouraged by our significant prospect list, and we believe, in fact, that we're having an inflection point, which allow us to increase Fluor's backlog, as we move through the second quarter and on in through 2010. Now I'd like to turn the call over to Mike Steuert and have him review some details on our segment operating performance and summarize some of our corporate financial metrics. Mike?

Thanks, Alan, and good afternoon. First, let's start by going over a brief recap of the results for each operating segment. Please turn to Slide 8 of the presentation. Fluor's Oil & Gas unit reported a segment profit of $92 million for the quarter, which is down from $201 million we reported in the first quarter of 2009. Revenue was $2.1 billion, reflecting lower new awards and a declining backlog over the past year. Margins in the first quarter were lower, due to a combination of reduced engineering man-hour levels and the retention of key resources, in part, to support increased bid and proposal activities. As we continue to invest in our Oil & Gas businesses, given the opportunities in front of us, we expect margins to average 4% to 5% for the remainder of 2010. New awards for the segment totaled $1.4 billion, including a $700 million upstream award for the gas processing project in Qatar, ending backlog was $10.9 billion, a reduction of $900 million from last quarter, as work performed exceeded new awards in the segment. Moving on to Slide 9, Fluor's Industrial & Infrastructure group reported segment profit of $32 million. This is up 13% from the first quarter of 2009, and primarily reflects the strong growth we've seen in the Mining and Minerals business line. Revenue for the segment also improved, rising 6% to $1.2 billion, driven by increases in mining and metals and infrastructure. New awards of $1 billion a quarter contributed to a sequential increase in backlog of $10.5 billion, which is a 31% improvement from a year ago. The Government segment posted a profit of $35 million in the quarter, a solid increase from $28 million reported last year. Improving results continue to be driven by growth in the LOGCAP IV task orders. Revenue for the quarter was up 79% to $663 million. New awards were $249 million (sic) [$429 million], and backlog increased from $574 million a year ago to $829 million this quarter. Now turning to Slide 10. Segment profit for the Global Services segment was $27 million in the quarter, down from $47 million a year ago, as large industrial customers continue to defer discretionary operations and maintenance, as well as small cap activities. Revenue for the quarter was $339 million and new awards for the quarter were $385 million, including a new long-term contract with IBM, which David just mentioned. Backlog improved by $400 million from a year ago to $2 billion. Fluor's Power group reported a doubling of first quarter segment profit to $56 million on revenue of $534 million, which was a 16% increase over the first quarter of 2009. Quarterly results reflect strong contributions from ongoing projects and a benefit of solid strong profit performance on Oak Grove, which is nearing completion. New awards for the quarter in Power were $157 million, and backlog was at $1.5 billion. Regarding this segment, I'd like to call your attention to reporting change we made this quarter. Beginning as of January 1, 2010, we moved the Power Services business from the Global Services segment to the Power segment, and all the comparative financials, including revenue, segment profit, new awards and backlog have been recast to reflect this change. As Alan discussed, Fluor's consolidated backlog was $25.7 billion, about $1.1 billion lower last quarter. The percentage of fixed-price backlog now stands at 23%, with 37% of total backlog in the U.S. and 63% outside of the United States. Now let me switch gears here and move on to corporate items. As shown on Slide 11, G&A expense for the quarter was $31 million, which compares to $25 million last year. This increase was the net result of various items, including marginally higher stock-based compensation costs, severance costs and foreign-currency related losses in 2010, partly offset by overhead reductions. Effective tax rate was 34%, a slight increase from 33% in the first quarter of 2009. We expect the effective tax rate, on a comparable basis, to average 34% to 36% for the full year. Shifting to the balance sheet, the consolidated cash and marketable securities position was $2.3 billion, which compares to $2.6 billion last quarter. The reduction in consolidated cash is mainly due to an increase in working capital in the Government and Industrial & Infrastructure segments. During the quarter, we repurchased approximately 380,000 shares of Fluor's stock. We also declared a normal dividend of $0.125 per share, which is payable on July 2, 2010. Capital expenditures for the quarter were $48 million, roughly comparable to the $58 million of last year. And overall, Flour's financial condition remains very strong. Finally, let me conclude by talking about our outlook, which is shown on Slide 12. Looking at some key parts of Fluor's diverse global portfolio, prospects in mining continue to show particular strength, while operation and maintenance remains weak. Fluor's oil and gas markets are still in transition, but they're indications that a limited number of meaningful projects will be released this year. Overall, while Fluor's new award prospects are substantial, it is important to note that the marketplace for engineering and construction services remains competitive. This will likely impact the company's overall margin profile, especially when considering the growth in mining prospects, which typically carry a lower-than-average margin. As Alan mentioned, we are encouraged by the potential for increasing bookings in the coming quarters and are reaffirming our 2010 guidance of $2.80 to $3.20 per diluted share. With that, operator, we are ready to take questions.

[Operator Instructions] And we'll now go to our first question from Michael Dudas with Jefferies. Michael Dudas - Jefferies & Company, Inc.: First, really following up on your comment about limited amount of meaningful projects in 2010 for bid, can you calculate a little bit by market? Is it primarily oil and gas driven? And do these projects -- are they more project management, EPC? And where do they fit, relative to your skill sets and your competitive advantage? You've recognized -- you mentioned about this excess capacity in the market.

I think, primarily, the projects that we're pointing to are in the Oil & Gas business and the Mining business. And when you talk about the competitive advantage, they are generally large EPC projects, Mike, where the size and the scale of them, the logistical and technical challenges with them give us an advantage, and bringing with that, our project execution capability. Michael Dudas - Jefferies & Company, Inc.: My follow-up question is maybe moving on towards a little bit more specific on the Mining, I'm sure everybody's quite aware of the super profits tax proposal put forth by the Australian government last week. Maybe you can characterize your first blush of what you've been hearing from some of your major clients, Alan, and is that something that could impact maybe six- to 12-month-type opportunities for Fluor, or are we talking a little bit longer term in nature? And could this accelerate development elsewhere from your customers outside of Australia that you guys could be well positioned for?

Obviously, we certainly are well aware it. The proposal by the government is a proposal. It's not law yet. In fact, it hasn't even formulated legislation. It's a recommendation from, basically, a committee looking at how to accept taxation, going forward. It's not very popular, as you can expect, within the government in Australia or within the public. And I think, there's going to be a significant amount of resistance to it because it's a pretty dramatic increase for all of the resource industries. I don't believe that it would have an -- even if it was legislation, it wouldn't have an immediate impact on ongoing projects, but it could have an impact on projects that are getting ready to go into the planning stages that would be released. In our case, probably anywhere from 18 to 24 months from now. But I think there's a lot of things that will occur in Australia before that becomes a fact, and I don't think it's a play to complete [ph] (29:02).

Our next question is from Jamie Cook with Crédit Suisse. Jamie Cook - Crédit Suisse: One, the Oil & Gas margins in the quarter, the 4.3%, I think you guided to 4% to 5% for the year. But I guess, I'm surprised by the magnitude of the decline sequentially. I'm just trying to get a feel for how much of that was -- you mentioned sort of competitive and lower engineering relative to the other thing hurting margins with higher bid and proposal costs. So given your enthusiasm on new awards, I'm just trying to get a feel for how much that helped margins during the quarter? And then, I guess, my second question is related to your guidance for the full year, the $2.80 to the $3.20. I guess, for the first time, I'm surprised we're not taking numbers to the lower end on that basis. So if you can help me think about -- I think, last quarter -- how we think about what you're assuming for the low end versus the high end? I think last quarter, you said to meet the low end, you'd have to assume orders sort of stay where we are. Is that still the case? Sort of how do we get to low versus high end?

I'm going to let David answer the first question on E&C margins. Jamie Cook - Crédit Suisse: Sure, within Oil & Gas, specifically.

I'd say, you kind of put it in three buckets, the pressure there. One, I think, Mike spoke of, which is the competitive nature of what we've won over the last probably two quarters. And that explains part of it. I think another bucket is moving from an engineering -- on a reimbursable basis, the engineering scope into the construction scope is part of that. And then also, part of that is our continued investment in that business and to make sure that we've got the talents and skills that we need to be successful in the future, so that it's kind of in three buckets there. But I think there are significant projects out there that we feel comfortable about that will start to build that backlog back up and will also be the front-end engineering types of work to, typically, on a reimbursable basis, carry higher margin. Jamie Cook - Crédit Suisse: So then you're assuming that margins should theoretically improve as the quarters progress, but will say within the total 4% to 5% range? I mean, is Q1 the worst quarter, in terms of margins? Or are we bottomed on margins, I guess, is a better question?

I think you're going to hear me answer it the same way we've answered it before. It's going to be lumpy.

Yes, it's going to bounce around, Jamie...

What I think, Mike's comment is, from his statement, is still good.

It really depends how we invest in overhead on a quarter-by-quarter basis, keeping our staff in place to really leverage the new opportunities coming.

That's the big swing factor. I think, it's just that last subject on what we do to maintain capability. From what we see, is a significant new orders inflow coming over in the next several quarters. And so we're positive enough on that, that we are maintaining significant capability that we might not otherwise have done. Jamie Cook - Crédit Suisse: And then, I guess, just to -- I mean, last quarter, I think you sort of said you hit the low end of the -- I guess, to hit the low end of the range, we assumed awards would sort of stay in the $3 billion to $4 billion range. Are you still comfortable with that, given the first quarter performance? Or do we need to see -- I mean, and how should we think about orders progressing throughout the year?

Well, Jamie, I think we're confident we'll hit the range. I mean, that was the purpose of the range. So I'd probably not like to parse between the upper and the lower end of the range in the discussion here. But I do believe we are extremely confident of some fairly significant new awards going through the quarters. And the fact that they're happening in the second on through the fourth quarter, they won't have as much impact on 2010 earnings, as they will on future income. So we're confident enough hitting the range in the $2.80 to $3.20. And what we're going to be seeing, as we go through the next several quarters, is building up for 2011 and beyond.

Right, and we're not saying that we expect new awards staying at $3.5 billion range at all.

No, no. We didn't, and I hope we're not signaling that. Jamie Cook - Crédit Suisse: What you state, you're not signaling to stay in the $3 billion to $4 billion, but do you expected it to improve?

Correct.

Correct. Jamie Cook - Crédit Suisse: But to be -- okay, so you expect it to improve even with the low end of the range?

We expect -- yes, I think the -- we're going to be in the range. And we're going to build backlog, as we do that.

Our next question is from Scott Levine with JPMorgan. Scott Levine - JP Morgan Chase & Co: I think, on the last call, you kind of suggested when you lowered guidance that you are seeing some slippage in the timing on the EPC conversions. Outside of the larger projects that you've highlighted, would you still say you're seeing that trend? Or should we assume that the operational guidance and sort of the comments that you've made suggested that, that trend is stabilized or perhaps is improving your perspective now versus say, in early March?

Well, I think, clearly, we saw things move from '09 into '10, and even into the latter part of '10. I think there is still some of that, but I think we've seen, particularly, the large ones and the prior ones sort of solidify. And I think we're seeing more certainty in the markets, as we go forward. We're seeing more front-end awards, I think, was David's comments, which is also very encouraging. And we've seen that trend increase over the last several quarters. Scott Levine - JP Morgan Chase & Co: And I think on your last call you had indicated that you expected the tax rate for the year to be a bit higher than you're saying it is now, is that correct? And what's driving the change in outlook there?

Well, that is partially correct. I think what you need to do is get offline with Ken and Jason. With the new presentation format of our income statement now, the tax rate is going to look lower than it did in prior accounting periods because of the change of how we're doing some presentation. So it looks like it's low. Actually, the guidance we're giving is from a fairly consistent tax rate of what we've seen in the last couple of years and what we expect, going forward. Ken and Jason can take you through that change in presentation and how that impacts our tax rate. Scott Levine - JP Morgan Chase & Co: Can you elaborate maybe a little bit more on the working capital outflows in the quarter? I think you said they were related primarily to two particular segments. And maybe without giving guidance for the year, elaborate the thought process in cash flows as 2010 plays out?

Sure. We did build working capital in the quarter. As I mentioned, primarily in Government and Industrial & Infrastructure. In Government, most of the capital buildup was related to our LOGCAP IV activity. And in Industrial & Infrastructure segment, most of the working capital buildup was related to the Greater Gabbard project. We do expect, as we move through 2010, to see some meaningful collections in the LOGCAP program and see that working capital liquidate. But I do think the working capital investment in Greater Gabbard will be there, will continue until we resolve our dispute with the client.

Our next question comes from Graham Mattison with Lazard Capital Markets.

So I knew you just had a question on Global Services. I know you mentioned that, that market's probably going to stay weak throughout 2010, but when do you think you might be able to see a turnaround of that market start to recover?

I'm hopeful that it will start recovering by the end of 2010. But it's been kind of a moving way for us over the last 18 months. We just are seeing clients to be consistently prudent in their discretionary spend at these sites. And so if they can put off investments, they're doing that. But that does catch up, and I think we're going to start to see turnarounds, and so forth, start to occur in the latter part of the year.

And is that division seeing the same sort of margin pressure that you're seeing across other segments? Or is that something that we should be looking for and modeling it out?

A little bit, but not as much on a preferential basis because it's more services thing that's on long-term contracts. The contracts have pretty much been set its releases against those if they happen on a regular ongoing basis or in our case, not as often as we like.

And then just a question on the SG&A. Do you still see the outlook for 2010 about $200 million for the year?

Yes, it could be slightly lower than that, but that's our current -- typically our first quarter is one of our lowest quarters, and we don't have a lot of large items in the first quarter as we move through the year and especially in the fourth quarter. We have a lot of fees for IT maintenance. We have a lot of fees for other activities and things like that, that don't occur in the first half. So, the $31 million to $25 million last year is pretty much in line, last year's a little wider. We came in at about 180 versus 200 this year, and I think that guidance is still good.

Our next question comes from Barry Bannister with Stifel, Nicolaus. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Could you help us understand a little bit better the change in the cash in the quarter, the portion that was attributable to LOGCAP IV versus the Gabbard portion? Our understanding is the Gabbard receivable had been about $163 million. Did that change meaningfully up?

It went up somewhat in the quarter. We had a fairly sizable investment in LOGCAP in the quarter, more than I would say roughly half the increase in working capital is due to LOGCAP, the government section. Barry Bannister - Stifel, Nicolaus & Co., Inc.: And you said the increase in costs related to carrying overhead for Oil & Gas was a differentiating factor in the margin, but also pricing the factor? By our calculations, the Oil & Gas margin was about 120 basis points below what it should have been. And I heard your guidance for the year. Could you break it out roughly as to what was pricing related? What would have been a greater pass-through share of revenue? What would have been the overhead that you've been forced to carry pending success?

All right. I don't think we'll be able to give you hard numbers on that. All three were a factor. I think, truly, the one that we controlled was the overhead. When we made a decision there that was, on a discretionary basis, that we wanted to invest in the maintaining capability for some of the projects coming up. And had we not done that, we would've had a higher margin in Oil & Gas. We clearly have had pressure margins in terms of new awards, but I don't think, even though that's been an effect, the one that we controlled and the one that was probably one of the bigger part of that was in fact the decision to hold on to people and capabilities. Barry Bannister - Stifel, Nicolaus & Co., Inc.: So going forward, it sounded like about half of the effect was holding on to the people and the other half might have been other factors related to the market?

And there will be some of that, without a doubt, in this next quarter. We're in it already. And so we are still maintaining some capability for some of these new awards that we see coming at us. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Lastly, are there any special power bonuses or I&I [Industrial & Infrastructure] spikes in margins, that would make it possible to get beyond the low end of the range, if indeed just do a 4.5 margin in Oil & Gas? It's hard to break out of that low end.

There are some. We've got some projects that have incentives on them through the year. Barry Bannister - Stifel, Nicolaus & Co., Inc.: So the margins in I&I based on the mix, the mining and bonuses as well as some of the Power business could be how you get that estimate up and did not have to change your guidance despite the fairly weak guidance in Oil & Gas margins of 4.5% or so of margins?

Well, yes. We believe, like I said to Jamie, we absolutely have confidence that we're going to be in the range. But again, it's just the end of the first quarter. We thought at this point in time, it was too early to make any modifications in the range to the extent that when we get through the next quarter, so far we may look at tightening that up.

Our next question is from Steven Fisher with UBS.

There's a lot of unusual things going on in macro environment these days. So can you just give us a little color on what you're seeing that gives you the confidence that, that backlog is going to increase, and then particularly as it relates to the second quarter on that inflection point?

Well, I wish we could talk about some of the projects. But we don't have real issues to do that, but what the confidence is our position on those projects. In a number of cases, we already have awards, just not announcing them yet. But the other is we're in a strong position in the final analysis or final evaluation with our clients. We feel very strongly about the ability to raise our backlog as we go on through the year. So, the fact that on all these projects, we're in direct contact and discussions with each of the clients and have a very strong sense of where those projects are and what the certainty of their award is.

Was there anything seasonal about the Global Services margins? And how much margin impacted do Power Services move have on that Global Service margin?

No, that wasn't a lot seasonal. Typically, there isn't a lot of turnarounds and stuff in the first quarter. In any case, those tend to appear more in the second quarter and spring outages in the Power segment. And those have been delayed. So I wouldn't see much in seasonal. It's more of a just a general effect. To answer your second question on the move on Power Services, I don't think that had an effect really on the margins in that...

Not meaningful, no.

How much did you actually move out?

The revenue was $120 million in the quarter that we moved out, and the segment profit's $8 million to $10 million range.

And was there backlog that was transferred?

[indiscernible] transferred as well as ongoing revenue.

We're going to have all the details with that shift in our investor book.

How should we think about the Power margins after Oak Grove finishes? I mean you've got FEED [front-end engineering and design] work and maintenance, and does that how should be good margin works? So does that point to, say, upper single-digit margins or even maybe better?

Well, again it's a mix. FEED work typically brings higher margins because it's service revenue only with the procurement or pass-throughs in it. So to the extent that we're doing more FEED work, then those margins will be higher. I'd rather do a large EPC project with a lower margin.

We'd rather have a large volume revenue.

I'd like to get a nice big new coal plant.

But on lower revenues, it sounds like you'd still expect some decent margins.

No, but typically on lower revenues, the margins are higher.

Our next question is from Alex Rygiel with FBR Capital Markets. Alexander Rygiel - FBR Capital Markets & Co.: First, could you comment on whether or not you think new awards in Oil & Gas or I&I are going to be greater this year? Secondly, can you comment on the potential of I&I margins to go to the 3% to 4% range over the coming 12 months? And lastly, can you provide a little bit more color on the South Texas Project and given the possibility that loan guarantee is announced within a month or two, what's the likelihood of an EPC contract getting signed would be in 2010?

Well, to your question on Oil & Gas and I&I, you meant with respect to 2009? Alexander Rygiel - FBR Capital Markets & Co.: Correct.

Yes, I think clearly, I&I will be larger in 2010 than it was in 2009 in new awards. I think there's a good chance that E&C will as well. But I think overall, from a total corporate standpoint, we clearly, I think, expect to book more revenue in 2010 than we did in 2009. Alexander Rygiel - FBR Capital Markets & Co.: And margins?

Well, margins, your question was specific to I&I, right? Alexander Rygiel - FBR Capital Markets & Co.: Yes.

I don't know. Mike, what do you think?

I think given the fact that most of the awards are going to be in the mining area, the margins are probably going to be pretty comparable year-to-year.

I think that's probably true. I don't see a big change in the I&I margins. Alexander Rygiel - FBR Capital Markets & Co.: And South Texas?

Well, South Texas, you probably saw the earnings announcement that the project labor agreement was signed on that project a few weeks ago. We think that pretty well paved the way for the loan guarantee, and I think, our client is more on the direct discussions on that than we are with DOE. But your last question on the contract, yes, without a doubt, a contract will be announced on that in 2010.

Our next question is from Andrew Kaplowitz with Barclays Capital.

So if I look at the Oil & Gas new awards, I see a good progression from 4Q to 1Q. But Jetty Boil is half of the new awards, and I think, PEMEX is worth a few hundred million, correct me if I'm wrong. And so basically, that puts the small Oil & Gas awards still quite low, and I know you guys have talked about a bunch of FEEDs, but I guess my question is what's going on with the small stuff? Is it still muted by the recession? Or are we going to cede better small results going forward? That's the question.

I think that the FEED work is starting to come back. I believe that for the first time in two or three quarters, we have gotten multiple prospects that start with a B [ph]. And that has not been the case for a while. So that kind of talks to the upper end of that. But we think that a lot of the spending decisions are being pushed off, but at the same time, those front-end projects are starting to come in. I think the two offshore FEED projects are indicative of meeting a strategy around offshore, but also indicative of where those projects are going to emanate from. So I mean I see the Middle East is still a continuing strong point for us and we'll continue to grow the small projects and the FEED projects.

In the Government business, slowly or quietly, really, the Government revenues have continued to rise. So my question is, does that continue or are we going to level off soon? I mean, obviously, we know it's getting injected with more LOGCAP work, but generally, the performance has been good in that business and its relatively good margin. So maybe an outlook on that business?

I think we're but very pleased with the increases in that business and provide some stability to the organization. I think the team has done very well with the contingency ops business and part of that continues to grow. But it's really dependent on what the U.S. Government and other governments are doing around those types of deployments. But I'm encouraged about our prospects during this year and in the next. I think we're also improving dramatically our performance on the DOE side, and we're hopeful for some prospect awards during this year or early next year that would continue to grow that DOE business.

But David, is 1Q generally a good run rate to use for the rest the year in Government?

I think so.

Our next question is from Andrea Wirth with Robert Baird. Andrea Wirth - Robert W. Baird & Co. Incorporated: I'm wondering if you could give us a little bit more color. You had mentioned you are looking to strengthen your upstream capabilities. Just curious, where specifically you're looking to improve your capabilities there? It's just generally some commentary on your thoughts on acquisitions and your propensity to want to do larger deals?

The first part of that, we continue to invest in people and systems and tools in that market. And that reflects some of, as part of an answer to the margin question, we see offshore Oil & Gas as a big piece. And I think the FEED projects that we won is indicative that we're being successful in that organic growth of our talents and skill sets. Obviously, onshore gas production in the Middle East in the U.S., we're preparing for the Barnett and Marcellus Shale developments to see what part of that market we can participate in. But clearly, it's an Oil & Gas recovery in production, both onshore and offshore. And I think we continue to grow organically that capability and talent.

And Andrea, we continue to be vigilant and proactive in looking for opportunities to acquire to build capability. Our focus hasn't changed there in terms of the markets that we're looking at. It would be in the offshore oil and gas industry, in the infrastructure design industry or in the nuclear markets.

Our next question is from John Rogers with D.A. Davidson. John Rogers - D.A. Davidson & Co.: I just want to follow up very quickly on the Power comment. Outside of the South Texas Project, what are the big prospects in terms of the U.S. and Europe buy end markets? Are these coal plants, gas plants?

It's a mixture. I think we're doing the front end on a coal plant here in Texas that will be using carbon capture or the environmental action group should have withdrawn their protest against it because of the carbon capture. So we're hopeful that could be a big coal award in the next year. We think gas plants are going to grow in numbers based on the availability and price of natural gas. And we still think that particularly in Europe and other areas, we're going to see a push towards renewables in both wind and solar. And we have different positions in each of those markets. The other market that's out there is nuclear and of course, we have STP here in the U.S. We're looking at other potential opportunities here and abroad as well. And it's a fairly diversified market set. We have a pretty good position in each of those. We like to increase our capability certainly in the nuclear side, but we think we're very strong across the board and to not [ph] in working almost any fuel source. John Rogers - D.A. Davidson & Co.: Are there opportunities to book major awards in nuclear for Fluor this year, outside STP?

Well, you have to understand our booking philosophy, which has been pretty consistent and is conservative. We won't book full EPC on a nuclear plant until that operating license is issued and we get full notice to proceed by our clients. In the interim, we may book some of the services work and start supporting that licensed development and any possible early action design that the client decides to enter into. But the bulk of the big revenue for nuclear plants, we won't be booking until that license is issued. That's probably going to be 2012.

[Operator Instructions] Our next question is from Chase Jacobson with the Sterne Agee. Chase Jacobson - Sterne Agee & Leach Inc.: I was just wondering if you could comment on the mix in the backlog, especially as it relates to Oil & Gas and I&I. We've seen a pretty big shift over the last few years. It's evened out between the two. I was just wondering if you can comment on how you expect that to play out going forward and maybe it goes back to what it was like in 2007 or if you have a target on how you'd like the mix of your backlog to be over the next couple of years?

Well, it will be how the market develops for us. We keep a pretty strong focus on each of those markets so we can see what prospects are developing. And clearly, the resource industries of mining have been the strongest in our new awards complement for the last couple of quarters. We think that they will be over next couple of quarters as well. However, we have some significant awards coming in Oil & Gas. So I would -- honestly, I think if you fast forward another three quarters, you'll see a pretty similar ratio as to what we have in this current quarter. Chase Jacobson - Sterne Agee & Leach Inc.: Okay, and then you mentioned that you'd like to see a large coal award in the near future. Can you just comment on your involvement with the plant in Washington and Georgia?

With regard to... Chase Jacobson - Sterne Agee & Leach Inc.: I believe they were issued a permit about a month ago and I know Fluor was listed as a part of the development team?

Yes, that's on the plant betterment side. And it's ongoing. If you're talking about plant McDonough. Chase Jacobson - Sterne Agee & Leach Inc.: I believe it's plant Washington, but we could follow up.

We'll have to -- we're aware of certainly of the McDonough work which is betterment.

Our next question is from Will Gabrielski with Broadpoint.

So the comment you just made and you've made a few times, significant oil and gas awards coming, can you go a little more into detail on your conviction there? How does it compare to say last year when maybe you're looking at IGD [Integrated Gas Development] and South Ferry [ph], highly convicted of that, that was a high probability Fluor award versus where you are today? And do you have a good look at who else prequalified in some of these projects and how you stack up competitively and what your concerns would be around competitive pressure?

Yes. I think if you go back to that award, I guess what nobody foresaw was the bidding conditions that we're going to be prevalent at the time that, that award finally came out. If you recall, from the time that, that first started as a competition, our market was incredibly hot. Resource short and plants were having a hard time getting the bid list. By the time that, that award was made, the whole market have turned topsy-turvy and it became incredibly competitive. We have a situation now where the markets have settled out, the clients have done forward with some of these awards. We've been involved in a number of them on the front end and/or have gone through the competition already where we're in discussions on final terms and issues with our clients.

And some of these projects were such that it's only a pretty small competition slate that we're dealing with.

So as opposed to that particularly one with Gasco, we feel we have a lot more riding on than just one project. That was if you recall, that was a major, major project that was, on its face value, it could have been something over $4 billion. These are more they're big ones, but there are more of them and that work that we're looking at. The other thing, it's interesting that you mentioned that one. In that conference call we had after we lost the project, I made a comment that based on the competitive bidding, we thought we would see a return to program management services being necessary in the Middle East. And on that issue, we received the EMC award for the Shah gas development project in this last quarter.

So from that standpoint, you would say you have a higher degree of conviction as it stands today?

We do.

The WorleyParsons JV for the aluminum project in Saudi Arabia that has been in the news that you guys have won, it's also in the news that you guys won several packages in that project. Can you maybe give a little more color on what scope you'll have there? Can you talk about that yet?

Yes, Ma'aden has actually had a release. Fluor has the overall program management for that project. We're in joint venture on the aluminum refinery with WorleyParsons on a 50-50 basis. But Fluor has, on its own, the rolling mill as well as the off sites and utilities, the infrastructures to support the entire facility. And Bechtel was awarded the smelter.

So if you put all that together, you're looking at in excess of $1 billion in work out, I would presume. Was that fixed-price work? Was it more competitive than maybe you would have expected or how did that shake out?

It's a reimbursable contract, and it was about what we expected from the competition given where we are. And again, when we look at our selectivity cede [ph], it also has who we're competing against. And in those cases, we're competing against companies that price things the way we do.

I think there's some competition going on right now. Can you maybe give some color on what your opportunity is there still on Phase I, and when the FEED for Phase II maybe commence?

Well, we think that we will roll into Phase II. And some of the competition that's going on right now is for some of the packages underneath our overall program management responsibility.

Okay, so there are or there aren't packages within that, that you'd be bidding on?

We will continue to manage. We've got what we're going to do and there's a lot of different pieces and parts that will be bid and managed by Fluor.

On the Government side, have you guys seen RFPs yet for Pantex, Y-12, Portsmouth any of the other sites that may be coming up for bid over the next 12 months?

No.

Well, I think -- you've mentioned several opportunities are there in very different market segments of the government. Pantex, no, we're not in that business but the Portsmouth, we are.

Y-12, no. We didn't mention, but yes, we've competed for that and are awaiting decision by the DOE.

And our next question will go back to Barry Bannister with Stifel, Nicolaus. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Guys, you mentioned the increase in Oil & Gas pipeline. Could you talk a little bit about whether there's been a meaningful change in the fixed-price portion of Oil & Gas backlog in the quarter? And what percent of the Oil & Gas pipeline would be fixed price?

I don't think it's really changed from previous years. I mean there's obviously a lot more fixed-price work in the marketplace, but it depends on where it is and who the customer is, but we're still focused on our key customers. They're still having a fairly robust amount of reimbursable work particularly on the front end and the program management types of scope that Alan mentioned earlier. There will be select fixed-price projects that we look at, but again, it's going to be based on our selectivity sieve [ph].

But there were none in the past quarters. Barry Bannister - Stifel, Nicolaus & Co., Inc.: And then you mentioned CCS project. But to my knowledge, I don't think anyone's ever built a utility scale CCS? And you also engaged in the Gabbard wind farm, but also to my knowledge, I don't think anyone had ever built a offshore wind farm of that size and sees that rough. So I'm trying to gauge the risk trial profile of the company as we you after some of these next round of mega awards. Can you talk about your propensity to take those kinds of risks on -- it's never been done before, Fluor's going to do it, we're-going-to-do-it-fixed-price kind of approach?

Well, I think you have to segment, Barry. If you look at the Greater Gabbard, yes that was lump some and yes, nobody had built one that large before. But actually absent the dispute that's ongoing, which we feel pretty positive on, we're progressing extremely well on schedule for that installation. We've set the final and will be putting generators on during this next season. So I think we feel pretty good about that. We knew if that was a risk that we could manage. The CCS we're talking about, again, you have to segment. There are certain parts of that project that will be at risk. There will be some parts that aren't. I can tell you from a process standpoint, Fluor is not likely to take on first-of-a-kind process guarantee. That's just not something that we will be doing. I could send to the two hard bucket.

And we've also done carbon capture on the back of many process plants around the globe. So the technology is something that's very well known to us, and the application to a coal plant is different but not that much different from what we've done in the past. Barry Bannister - Stifel, Nicolaus & Co., Inc.: Lastly, has there been any meaningful change in the settlements of past change orders or any liquidated damages that may have cumulatively added up to being a meaningful amount both in Oil & Gas and in other segments that affected the quarter?

I think we're pretty proud of the fact that the estimates we put together on disputes and so forth. We have a pretty good track record of being very close to the actual result performance. So when we put those numbers out there, we put a lot of thought and get a lot of third-party backing on those estimates and making sure that we're given the best estimate possible.

That concludes our question-and-answer session. Mr. Boeckmann, I'll turn the conference back over to you.

Thank you, operator, and thanks to all of you for participating on the call and for the great questions. But you know, as we discussed today, I think you get the sense that we're very encouraged by the strong list of 2010 prospects and are in fact expecting our backlog to increase beginning in the second quarter. We are, without a doubt, the most diversified company in our industry. We think we've done a great job weathering a very tough period, and we remain particularly well positioned to take advantage of an upturn in the business environment. We look forward to continuing improvements in the economic picture, and in fact, specifically, the benefit that Fluor will then derive is these markets recover. We really appreciate your interest in Fluor and your confidence in our company. Have a good day.

This concludes today's conference. Thank you for your participation.