Fluor Corporation (FLR) Q1 2011 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Fluor Corporation's First Quarter 2011 Conference Call. Today's call is being recorded. [Operator Instructions] A replay of today's conference will be available at approximately 2:00 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 7:30 p.m. Eastern Time on May 11 at the following telephone number, (888) 203-1112. The passcode of 9118579 will be required. At this time, for opening remarks, I would like to turn the call over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Welcome, everyone, to Fluor's first quarter 2011 conference call. With us today are David Seaton, Fluor's Chief Executive Officer; and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed, and we have posted a slide presentation on our website, which we will reference while making prepared remarks. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on Slide 2 of the presentation. 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 risk factors in our 10-K, which was filed on February 23, 2011. During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are also posted on the Investor Relations section of our website at investor.fluor.com. Now with that, I'll turn the call over to David Seaton, Fluor's Chief Executive Officer. David?

Thanks, Ken, and good afternoon to everyone. I really appreciate you joining us. Today, we'll review our results for the first quarter and discuss our outlook and earnings guidance for 2011. I want to start by highlighting a few of our accomplishments in the first quarter and ask that you please turn to Slide 3 of the presentation deck. Net earnings attributable to Fluor in the first quarter were $140 million or $0.78 per diluted share. Our segment profit totaled $249 million and included substantial positive contributions from all five of our business segments. The Industrial & Infrastructure segment led the way, nearly tripling their profit from a year ago, which is a significant growth in both mining and our infrastructure business lines. Consolidated revenue totaled $5.1 billion, which is an increase of about 3% over the first quarter of last year. Now Fluor also had strong cash flow generation ending the quarter with $2.7 billion in cash and marketable securities after utilizing $246 million for the repurchase of shares. As a clear sign of the strength of Fluor's global market position, new awards came in at a very strong $6.2 billion. This is almost double the amount of new awards we reported just a year ago. That's significant award activity across our diversed portfolio with the exception of Power. Strong Mining & Metals awards were most significant contributor in the quarter, but we also had good contribution from Oil & Gas, Government and our Global Services business. As the results of our strong bookings, our backlog grew to $37.2 billion, which is a new company record. If you would turn to Slide 4, the Oil & Gas segment had a number of awards across upstream, downstream, petrochemicals, as well as our Fluor Ocean Services business line, which is our offshore business line. The quarter included additional scope in West Qurna in Iraq, additional scope for the Kearl Oil Sands Project in Canada and the polysilicon project in China. We are active on numerous front-end programs that continue to track sizable projects in our target markets around the globe. Industrial & Infrastructure segment booked another iron ore expansion project in Western Australia and also booked a sizable manufacturing award for carbon electrode project in the United States. We continue to track a very strong list of prospects particularly for large mining & metals programs. During the first quarter, the Government Group booked $882 million in new awards, including LOGCAP's task orders in Afghanistan, and the initial six-month portion of the Portsmouth gaseous diffusion facility for the DOE. Global Services added $422 million in new awards for the renewals and scope increases on long-term operations and maintenance contracts. As expected, the Power segment that had new -- had a low new award volume, but the unit continues to work on new opportunities primarily involving gas-fired power opportunities and renewable energy, as well as the plant betterment business. I wanted to provide you with a brief status report on the Greater Gabbard project, which is progressing in line with the expectations that we established last quarter. If you would turn to Page 5 of the presentation deck. We installed 36 wind turbine generators during the quarter and now have installed 108 of the 140 total wind turbine generators. The installation of the remaining wind turbine generators is scheduled to resume in September when the specialized jack-up vessel returns to the site. With regard to subsea cabling, as anticipated, we have contracted two vessels, which have been actively engaged in equipment testing and sea trials. We expect cable installation to resume shortly. During the first quarter, we also made progress on the connectivity of the previously installed subsea cabling to the wind turbine generator towers. Overall, project progress during the quarter was in line with our outlook, and the project is now approximately 80% complete. We, obviously, have a ways to go, but I'm pleased with the project that the team is making in line with what we communicated last quarter. In summary, we continue to capture significant new awards, which have contributed to four consecutive quarters of backlog growth. Front-end activity in Oil & Gas is active, and we expect sizable EPC awards as we go through 2011 and into next year. We've talked extensively about our success in Mining, which we expect to continue. We have bids outstanding in Government, which could add to their backlog still this year. And our Global Services business is seeing signs of recovery. With that as a backdrop, we feel very good about our market position and growth potential going forward. Now I'd like to turn it over to Mike Steuert, and he'll review some of the details of our operating performance and corporate financial metrics as well as our financial outlook. Mike?

Thank you, David, and good afternoon. Detailed results for each operating segment can be found in the earnings release and in the 10-Q. I will focus on a few highlights and corporate items in my comments today. Please turn to Slide 6 of our presentation. As David mentioned, Fluor's consolidated backlog increased to $37.2 billion at the end of the quarter. The percentage of fixed price backlog declined to 27%, with the geographical split at 23% in the U.S. and 57% outside of the U.S. I think it's worth noting that 86% of our new awards in the quarter were for projects outside the United States. Moving on to corporate items that are shown on Slide 7. G&A expense for the quarter was $34 million, increasing from $31 million a year ago mainly due to higher stock-based compensation costs. The effective tax rate for the quarter was 33% due to increased earnings attributable to noncontrolling interest, for which taxes are not generally paid by the company. Shifting on to the balance sheet. Our consolidated cash and marketable securities balance totaled $2.7 billion. Cash flow from operations during the quarter was a robust $371 million, including earnings and improvements in our networking capital position. As David mentioned, the company has continued to buy back shares since we increased authorization last year. During the first quarter, we repurchased 3.5 million shares for $246 million. Since the end of March, we purchased another additional 1.6 million shares for $113 million. We have the authorization remaining to purchase up about 4 million additional shares underneath this current program. During the quarter, we also paid out $32 million in cash for the principal balance owed to convertible debt holders, as well as 692,000 shares of preferred common stock for the premium they received on their investment. An additional $26 million in cash of 527,000 shares was paid out in the month of April. Capital expenditures for the quarter were $56 million, which compares with $48 million last year. The majority of this CapEx was driven by continued investment, structuring equipment within our Global Services segment. Depreciation expense was in line with capital spending at about $48 million. Overall, as we said in previous quarters, Fluor's financial condition remains very strong and continues to strengthen. Finally, let me conclude my comments by talking about our guidance for 2011 that is shown on Slide #12. As we have discussed, solid results for this quarter were consistent with our expectations, and we are on track to deliver EPS within our guidance range of $3 to $3.40 per diluted share for 2011. Our guidance for the year assumes sizable new awards throughout 2011 with G&A expense in the range of $170 million to $190 million, capital expenditures in the range of $260 million to $280 million and an effective tax rate of 33% to 36%. With that, operator, we are ready to take questions.

[Operator Instructions] We will take our first question from Jamie Cook with Credit Suisse. Jamie Cook - Crédit Suisse AG: Two quick questions. Just one, the Industrial & Infrastructure margins were quite impressive at 4.6%. I'm just wondering what drove that. Is there anything unusual in the quarter in how we should think about margins as the year progresses? And then on the flip side, if we look at your Oil & Gas revenue and margins, I mean the revenue number is the lowest I've seen in years. Margins, I mean, should we think about that as trough levels if you could just comment on those two factors? And then I'll get back in queue.

Sure, let me try that, Jamie. On the margins, Industrial & Infrastructure, there was nothing I'd say materially significant. They just had a very good quarter, better than most quarters. It was just a lot of things going right that quarter, no unusual items. We continue to guide toward more in the 3% range for margins long term in terms of your modeling and thinking for that business, but they just had a strong quarter. Jamie Cook - Crédit Suisse AG: But was it Mining? Like, which area? Was it Industrial & Infrastructure...

It was both Mining and Infrastructure. Transportation both contributed to the solid margins.

And, Jamie, the second part of your question, I'll try to hit. I do think we're at an inflection point. We're seeing a significant amount of front-end work continue to come in the door. But we're seeing some of the decisions on the EPC value pushed to the right. It doesn't mean they're going away. It's just that the decision-making process is a little bit longer than we anticipated or I think, in most cases, that our customer anticipated. So I do believe we're at an inflection point with regard to energy and chemicals. I mean it's going to bumble around as we go through this year, but I really look at E&C as a major contributor in '12 and beyond.

Jamie, we've kind of guided that margins may stay at trough levels for the first half of this year and then increase as we move through 2011. And I think you see the same revenue burn that we're kind of near the trough on revenue burn, and that will start to increase as we go through the year. Jamie Cook - Crédit Suisse AG: And then, David, just lastly, can you just comment on what's happening that's -- why customers are all of a sudden pushing decisions to the right? Is it unrest in the Middle East just what are the factors driving that?

I don't think it's necessarily anything that has occurred recently. I mean there's some projects where, in the Oil & Gas space, where you have national oil companies and international oil companies in joint venture relationships. And those decisions sometimes take a little bit longer than are expected. I don't think there's anything of a political nature or any unrest or uncertainty that's pushing those decisions to the right. Jamie Cook - Crédit Suisse AG: Okay.

We will go next to Andy Kaplowitz with Barclays Capital.

So just following up on one of Jamie's questions around the revenue in the quarter. Is it right to say that maybe -- I mean you have a big slug of backlog in Oil & Gas at Kearl, and you've just booked a big slug for Santos. It's the winter up there. Is it possible that burn rate on that project was lower in the quarter? And then on Santos, we really haven't ramped up yet, and so those are two projects that can burn more later this year?

Andy, there are so many pluses and minus. We have so many projects. It's really hard to pinpoint and attribute that to two projects. We do have quite a lag between you book a project and really start burning it to a significant degree. And if you model our business, it could be anywhere from a six-month to 12-month lag when we really start to see some substantial growth in revenue as it follows growth in backlog. We're right on track with our expectations in terms of how we're going to see our revenue growth, but we do think we're pretty much at an inflection point in Oil & Gas revenue cycle as David mentioned.

Yes, to your point on Santos, though. We are only just beginning that project, so there's very little burn in the first quarter numbers.

Okay, that's fair. And, David, if I could follow up on the comments around robust bookings. If we think about the overall backlog, it's obviously at a record. And so given it's so large, it's hard to grow it. What do you think about growing it going forward? Can we grow this overall backlog from here? And even if we can, though, certainly, you are confident you can grow Oil & Gas backlog?

I think absolutely. This goes back to what we've talked about previously. I mean I think we have a very robust opportunity list. I think that we're very well positioned both from a customer standpoint, an execution delivery standpoint and a geography standpoint. So I have an expectation that we'll continue to grow backlog. As we've said in the past, it's going to be lumpy. You've heard us say that for years, but I believe that there's headroom as we go through the next few years.

In terms of total company backlog, right, David?

I think, well, you specifically asked about E&C. I think in total company backlog, and I think there's headroom, obviously, in our Oil & Gas segment.

Okay, that's fair. And then just one more quickie. You've mentioned 86%, I think, of new awards outside the U.S. But we've seen a recovery in the U.S. on petrochemical and refining to some extent, yet we really haven't gotten any awards there. Do you expect more awards as we go forward?

Well, I think so. I think you're starting to see that market come back. It's a matter of timing. We're looking at several opportunities that are going to be in the feasibility study in the FEED stage. So as far as that particular piece of the market moving our needle from a backlog standpoint, you're probably in the out-years. But we're certainly seeing much more activity on the front-end design and the study perspective here in the States. Again, in Power, we just need some permits. I think I will kind of go out a little bit past what you asked. I think there's upside potential for us in Power as I mentioned in the comments relative to gas-fired power, relative to renewables and relative to the plant betterment work. We are seeing a lot of opportunities, but they're much smaller in nature than a coal plant like the Oak Grove project, just as an example.

We will take our next question from Scott Levine with JP Morgan. Scott Levine - JP Morgan Chase & Co: So you said you're seeing some signs of life as well in the Global Services business. I was wondering if you could elaborate on that and what gives you encouragement and whether you're any more encouraged about that market than you were maybe three or six months ago?

I'm cautious, but I'm optimistic. I think what we've seen is that group has done a very good job of changing their business model from the shutdown turnaround business that they traditionally had to more of a facilities management offering, and they've done a really good job of growing that business domestically but, also, in looking at broadening their geographic reach to the Middle East, to Asia Pacific. So we've got a much bigger aperture, more opportunity lands in that group, and they've adapted to the changes in that market and are capturing what they're going after. So I think it's going to be a significant piece of our business as we go forward. But I don't think it's going to -- you're not going to see a big spike in that business like we had once before. I think it's going to be a gradual rise from additional market exposure. Scott Levine - JP Morgan Chase & Co: It's helpful. Turning to cash flow deployment, strong cash flow quarter for you guys, 4 million shares up from the buyback. Any thoughts in terms of behavior and maybe when the endpoint is on that? And maybe additional color on where your appetite levels are in M&A at this point?

Sure, we did deploy our free cash flow generation in the first quarter to buy back shares, and we'll continue to look at our share buyback throughout this year as we generate cash flow. It's going to be dependent on our quarter-to-quarter cash flow generation in terms of when we're in the market or not. We don't have a firm deadline for buying back the remaining 4 million shares. We'll just see how our cash flow generation goes throughout the year. Scott Levine - JP Morgan Chase & Co: And M&A, any change in interest level there?

No, I think the M&A remains a priority for us. It's just a tough market to find something that meets our very high standards, and we'll continue to put that high on the list in terms of our cash deployment. But in the meantime, we think it's a good use of our cash. We think Fluor stocks are a very good investment at these prices, and we think it's just a good use of our free cash flow to buy it back. Scott Levine - JP Morgan Chase & Co: One last one Michael. On tax rate a little bit lower than what you're guiding to for the full year or anything going on in the first quarter?

Absolutely nothing unusual in the tax rate. It's a very straightforward tax rate for the quarter. Scott Levine - JP Morgan Chase & Co: Got it.

We'll go next to Richard Paget with WJB Capital.

Wondered if you could comment on your Government Services business. There's been some investor concern about budgets being down and then spending being lower. But it looks like you had decent awards in the quarter. Do you still -- do you have any concern about DOD or DOE budgets impacting your businesses there?

No, not at all.

Or would you say they're growing or is it just stable?

Well, I think it's stable. I think if you look at the DOD business, we continue to support the troops overseas. During the quarter, we signed an agreement with a partner in the U.K. to pursue the Ministry of Defense in the U.K. on a similar basis as LOGCAP. So we see some growth there. But as you can tell, the way that burns, it's not a lot of backlog there. It's all book and burn business. So it gets modeled a little bit differently. We feel like we're doing very well with the DOE. One unfortunate piece is we were notified that we were not successful on ETTP at Oak Ridge. We're looking at our options with regard to that decision, but we're operating very effectively at the other sites. We're glad that we're finally in the transition period at Portsmouth, and there are several procurements ahead of us in the DOE world. Also on the Services side, there's some base operating support contracts in the procurement stages that we also feel pretty bullish about. So I think there's growth opportunity there. It's going to be steady. And as we can tell right now, the programs that we work in, by and large, are not being affected by the budget issues by the U.S. Federal Government.

All right. That's all I got.

We will take our next question from Joe Ritchie from Goldman Sachs.

So, David, you talked a little bit about potential sizable EPC awards in Oil & Gas. I was wondering if you could talk a little bit about timing. Can you see those hit this year? And then maybe even a broader question, as you think about growing your backlog in Oil & Gas, it's still down 40% from the peak. Given what you see in your prospect list today, can you help us kind of think through if and when Fluor can get back to peak backlog in the Oil & Gas segment?

I think when you look at the opportunities that are in front of us, they're pretty diverse both from the business line perspective. As we talked about, I think there are some opportunities in the refining and petrochemical market. But the clear direction is more on the onshore and offshore Oil & Gas, which we're capturing a significant amount of front-end work that leads to EPC projects in the out-years. I don't think I want to signal how -- when and how we're going to get back to record backlog levels in E&C. I would just say that we have a very robust prospect list, and I think we're going to see a consistent improvement as we go into the second half of this year and into '12 and '13.

Okay. Fair enough. And I guess I mean just, specifically, in thinking about your backlog in total now that you're at record levels for the entire company, is the expectation for backlog to grow for the remaining piece of 2011?

Well, as I said, I think it's going to be lumpy, but I think, as we go through the year, there's great opportunity to continue to add to that record number.

Okay. And I guess, just lastly, one specific question on the contracts you booked in the I&I segment. The iron ore expansion project, was that the next phase of BHP or is that a different project?

Next phase of BHP.

We will go next to Tahira Afzal with KeyBanc.

I guess my question is around Greater Gabbard. It seems like some of the installations are going to resume with a bit of a gap. I would love to get some color on why the gap occurs. And as you look out, what potential risk factors you think would be in place for some charges or some risk of cost overrun to that point as you see it right now?

Okay, relative to the gap, that was planned. It's basically related to the availability of the two jack-up rigs we were using to install the generator sets and blades. It was planned for the main vessel to leave last month to go to a different project. And that was anticipated as we put together the changes that we had, that we reported last quarter. So it was well within what we expected. It was part of the plan. And from that standpoint, I really don't see a risk of not being able to continue to set those and beginning in the September timeframe. Relative to risk, I mean there's going to be puts and takes. But, certainly, I'm very pleased with the progress that we made during the quarter. I was very pleased with the fact that there was not an additional charge, but we didn't anticipate that. I think the team has done an outstanding job of understanding where we are, understanding the nature of the claim that we have and are performing I think excellently against the plan that we put in place to go forward.

That's good to know. I guess one other question that I had was in terms of your Oil & Gas segment. You've talked about it in the past and said you have to hit a certain quarterly run rate to really see the utilization pickup and positively impact the margins over there. Obviously, first quarter was light. But as we look to the second half of the year, do you feel even with just the front-end activity that you're seeing, which seems to be picking up, that, that might be enough to start hitting maybe the $2 billion of clips per quarter?

I don't know that we'll hit, from a revenue standpoint -- there's two questions there. One's the revenue burn, and one's the leverage. I'll handle the last one first. I think with the heavy workload coming in on the front-end, we're beginning to see the impact that it will be.

Got it.

And we will take our next question from Michael Dudas with Jefferies. Michael Dudas - Jefferies & Company, Inc.: David, if you could share a couple of, I guess, on how many areas within the organization are you putting a bit more focus on relative to enhancing current business opportunities or looking for areas where they haven't been as great in the past but you think there's opportunities for growth in the future? And are there any that you've kind of deemphasized or stepped back from because either market or company imposition?

I wouldn't say we're focusing on anything differently than we have. I've used the old Gretzky adage of we're skating to where the puck's going to be. And I point to the mining growth that we've seen and the fact that we did in fact anticipate that. And we were sure that we could get to the point we had the people and the talents and the capability to capture that -- a significant piece of that market. I think, as I said in Global Services, their business model is changing. But we kind of knew that was coming, and we made the changes and focus in order to be able to capture that business. So I wouldn't say we're deemphasizing anything. I think we're moving and changing our business model to adapt to the opportunities that are out there. I will say that if you think about our ability to grow in this unstable financial environment that we live in is a testament to that diversity of market, as well as the diversity of geography that we have. So if there's something that we're emphasizing, it's making sure that we have the capabilities, globally, to take advantage of whatever comes down the pike and making sure that we have the ability to have the local content that we need in certain places around the world and make sure we're leveraging the rest of the resources that we have in our portfolio. Michael Dudas - Jefferies & Company, Inc.: And then my follow-up is, how about the opportunities that Brazil presents itself for the industry in general and for Fluor in particular? And how are you going to best take advantage of those opportunities?

Well, I think we're trying to figure out exactly how we make money there. There's a lot of local content requirements in Brazil, and we're looking at different models that allow us to service the clients at the level of quality that we expect and combine that with the local capabilities that's there that are also high quality. But we've got to be able to deliver to our customers. And at the same time, it's got to be a model that produces profitable results. We're not quite there, yet. It's a huge market, but I think there's a lot of people struggling with how do you actually grow significantly in Brazil. And I think we'll come up with a plan that works for us, and we'll capture our fair share of the business. Michael Dudas - Jefferies & Company, Inc.: I appreciate those comments, David.

We will go next to Alex Rygiel with FBR Capital Markets. Alexander Rygiel - FBR Capital Markets & Co.: David, have you seen or noticed your customers change their views on either the outlook for oil prices or the outlook for the broader economic conditions in light of the geopolitical environment that we've been in for the last two months?

Not really. I think that all of them would like to see prices below 100. I think that based on what I've seen in the press and is out there from -- and you name the source, OPEC, API, the individual companies, is that something sub-100 is good and anything over, it starts to change behaviors. I think that one of the dynamics that is changing is the availability of gas and how they're going to monetize gas. I think one thing that I feel is positive to our Power group is we're seeing more opportunities on gas-fired power plants in the United States that's driven primarily by that disconnect now between oil prices and gas prices. But I don't think the political unrest is having a long-term impact on the way the oil companies think about capital expenditures or the speed at which they do capital expenditures. Alexander Rygiel - FBR Capital Markets & Co.: And as it relates to your U.S. Power business, are your customers feeling any more confident today in making a long-term decisions for capital investment? Or are they still cautious and sort of awaiting better clarity from Washington policymakers?

I think everybody is waiting on Washington for clear policy decisions.

We will take our next question from Avi Fisher with BMO Capital Markets.

Don't wait too long or don't hold your breath for a clear policy decision.

I was afraid I made such a strong statement there that I'd be quoted, but I hope you guys would give me a break there.

Sure. A lot of the competition at the E&C space has been talking about or has actually been acquiring into the Mining space. Are you seeing any of that competition on the bids, either directly on the bids or in the pricing or margins?

It's a competitive marketplace. I don't think -- we haven't seen any challenges to the margins that we've been putting back -- any more challenge into the margins that we've been putting in the backlog. It's a very competitive market, and I think we compete pretty well against those. And it's a big market. So I think we've got opportunity to grow in that market, and our growth is going to be geographic and also in the metals in which we're helping our customers extract. So I'm pretty bullish on our ability to continue to grow in that business in the short term.

And following up the last question on certain oil prices, can you talk about the commodity prices? And any pushback from clients on where you think project expansion starts to slow?

Relative to inflation? Or are you talking about commodity?

Commodity prices.

Like steel?

Copper.

Construction commodity? I mean, not necessarily extraction. It's kind of moderated. I think we saw, obviously, a drop from the peak which made some projects more profitable. I think the decision-making process for our customers has become more acute because they want to make sure that they get the absolute best price, and there is a very competitive marketplace both from a commodity standpoint as well as from a cost of delivery. But I'm not seeing anything that's changing customers' opinions on whether they go forward with their capital investments on the negative side.

We will take our next question from Andrew Wittmann with Robert W. Baird. Andrew Wittmann - Robert W. Baird & Co. Incorporated: Most of mine have been answered, but I just thought given the geographic scope and size of Fluor that you guys would be uniquely qualified to talk about the impact of the Japan earthquake and how that might impact the overall capacity absorption of engineering and construction talent, globally. And what that could mean for Fluor and, really, for the industry over the next couple of years, if that's a net benefit for the industry in terms of profitability? Or how you're seeing that today?

Well, I think the Japanese situation is a tragedy, and we -- really, our hearts go out to all of the people there, especially the partners that we have there. We enjoy great relationships with many of our competitors where we partner across the globe. And certainly, we're hoping that we can help in any way rebuild that country. And I've seen, just probably like you, varying statistics of what the cost of rebuilding or repairing is going to be. And one number I saw was $300 billion, which is significant when you think about the global market, but not overly so. I think we will see a tightening of the market from a commodity availability perspective, which will drive some pricing to the north. I also think we're going to see a timing in the market from a labor perspective around the globe. The Japanese are -- deservedly so, very proud people, and they will rebuild their country. And that's going to take a lot of talent and a lot of commodities to accomplish that. So I think it's going to be a moderate impact to a slight impact. But I do think it will present some opportunities for Fluor either in Japan or where our partners and competitors are no longer able to compete because they're busy fixing their country. Andrew Wittmann - Robert W. Baird & Co. Incorporated: And do you feel like some of those spikes in the commodities and/or in the labor market might be significant enough that projects that might otherwise -- today or before, a lot of the reconstruction happens that they would make sense today, but maybe in a couple of years, when we think of rebuilding Japan, that those projects no longer make sense just given the new cost that's associated with them?

No, I don't. I mean it's just not -- I mean it's a huge number, but when you think about the global capital spend, even as big as that number is, it's not really material. Andrew Wittmann - Robert W. Baird & Co. Incorporated: Okay. And then just finally, another kind of big picture question, lots of, I think, positives in the outlook today. Just kind of curious as to what you're watching or if you're not sleeping particularly well at night, what are the risks that you're seeing in the business today that might derail for the positive trends that you're seeing?

I think any longer-term political unrest that changes the face of the globe, I think when you look at the Arab Spring, it could have been a very large event that could have made people, at the very least, take a deep breath before they made these decisions. I think, by and large, that hasn't happened. I think that from a competitive standpoint, predatory pricing I don't think is good for anyone in our market. And I think anything that would be systemically different could be. I don't particularly see that continuing, but I really don't see anything that is in front of us right now that really changes my positive outlook, one way or the other. But there's -- hopefully, God forbid, there's another tsunami that has the same impact to other places around the globe than what we've seen in Japan. But I sleep pretty well at night. I feel really good about where Fluor is, geographically and market-wise. I have great confidence in our management team and project management teams and the folks around the globe. I think we've got robust markets ahead of us. And I think that over the next 2 to 5 years, which is about as far as we can look out, I feel pretty bullish about our ability to capture business, execute it and deliver that bottom line profitability to our shareholders. Andrew Wittmann - Robert W. Baird & Co. Incorporated: Just specifically on commodities, though, I mean given that we have seen so much inflation, a lot of what we've seen in terms of your new awards has been expansions on existing projects, do you feel like some of those expansions might get canceled if commodities were to roll over? Or do you feel like there's enough price support there that you've got some cushion that those investments are going to continue going forward?

Well, I hate to put myself in my customers' shoes and comment on that. They're going to make their decisions on their own. But I would say that if you think back to '08 and '09, we're nowhere near the values that were being paid in those years. And customers, particularly in Oil & Gas, were continuing to make positive decisions relative to capital programs. So I think we're a long way relative to inflation in commodity or even labor before we even get close to changing the business model of the decision making of our customers.

We will go next to Steven Fisher with UBS.

Just coming back to the Oil & Gas margins, again. What would you say is most pressuring them at this point? Is that the utilization or pricing or the timing of procurement? What's the biggest factor at this point?

I would say pricing and timing of decisions are the two main factors.

Okay. And then so when we're talking about improvements later this year, are we talking about getting back into the mid-4s, say, by the latter part of the year?

I'm not sure I want to give you a number on that. I have a feeling that Jamie, probably, put you up to asking me that question. We always have a little pandering back and forth on that subject. I just think we're going to see improvement from where we are today, as we go through the year. I think that, as Mike said, we're at an inflection point, but that inflection is going to take us through a fair amount of this year where I see the improvement really in the '12 timeframe.

Okay, that's fine. And then maybe just on the Gladstone project. How much of the procurement is locked up in terms of being contracted at this point?

Well, from a total dollar standpoint, you got to break it down and take the construction piece out and take the services piece out. But of what's left, I believe we're somewhere around a 50% range of commitment.

And how over what period of time do you expect that remaining 50% to be contracted? Just trying to get a sense of where there could be a risk in kind of pricing or inflation?

It's very soon, before we're out of this year.

Okay. And then just one last one. I know you said the outlook is still positive in Mining with, I guess, the next phase of BHP in the backlog now. What's your visibility on big bookings and mining for the rest of 2011?

I think they got quite a number of opportunities out there around the globe that they're pursuing. So I think they'll continue to book sizable awards as we go through this year.

Not just Australia, but South America and Africa as well.

Right.

We will take our next question from Robert Connors with Stifel, Nicolaus. Robert Connors - Stifel, Nicolaus & Co., Inc.: Dave, you've been around the Oil & Gas industry for some time. And basically, does this client deferral mentality that you speak of and that you're seeing right now similar more to the 2000 timeframe -- 2005 timeframe before awards started to ramp? Or is it a little bit of a pushback on cost that you're seeing right now?

I think it feels more like the early 2000s. And at that time, it was -- the pushback was relative to cost. So I think it kind of feels like that. If you think about the boom in the '06, '07, there was a rush to the market to secure both resources from folks like us, as well as space in the fabrication shops around the globe when everything was really superheated, over heated. So it kind of feels like the early 2000s. Robert Connors - Stifel, Nicolaus & Co., Inc.: And then, just to hammer on the Oil & Gas margin. It's about 110, 120 basis points below the average since 2001. And, basically, how much would you attribute this to just upfront investment that you're doing in this segment before the revenue starts to ramp from the awards that we've seen in the past year or so?

I'd say a significant amount of that. Robert Connors - Stifel, Nicolaus & Co., Inc.: Care to quantify?

No. Robert Connors - Stifel, Nicolaus & Co., Inc.: And then one more question just for Mike. With 77% of the backlog outside the U.S., when do you think we could see the tax rate come down from the 34% to 36% range?

I think you're going to see in that range, at least, through this year. Our current accounting practice is to accrue taxes as if all the earnings were repatriated to the U.S. But I think as we move through this year, you'll probably see it more towards the bottom end of that range. Robert Connors - Stifel, Nicolaus & Co., Inc.: All right.

[Operator Instructions] And we will go next to John Rogers with D.A. Davidson. John Rogers - D.A. Davidson & Co.: Just a couple of follow-up. First one, in terms of the outlook, the G&A expenses that you referred to, Mike, I mean to hit this level, it's a pretty big ramp up over the next couple of quarters. Was there anything unusual in the first quarter? I know that number moves around a lot for you guys.

No, John. It's pretty much as we expected. It was slightly higher than last year. And as you may remember last year, we did ramp up in the second half, especially in the fourth quarter. Our G&A expense is pretty loaded in the fourth quarter of the year. So I have it right on target for the 170 to 180 that we're guiding to for the full year. John Rogers - D.A. Davidson & Co.: Okay. And in your comment on, just as it relates to the earnings outlook assuming sizable new awards, the receipt of those awards, will they have a significant impact on earnings this year?

I would say every year, there is a material amount that we need to book and burn, as we move through the year. That varies quite a bit by business line. As David mentioned, it's very significant in our Government business, with the LOGCAP award, but we certainly don't think there's any risk there at all. We did have a very healthy booking in the first quarter on LOGCAP, and we expect that to continue through the year. And we expect to see some solid new awards in O&M business as well, which is more book and burn. It's less important in our Oil & Gas and other businesses where we have larger long-term awards. The same is true for Industrial & Infrastructure, in both Mining and our transportation jobs. John Rogers - D.A. Davidson & Co.: Okay. But there's no significant upfront bidding costs are being deferred or anything?

No. We actually expense all of our bidding cost. We don't defer any of our bidding cost. It's just a reflection of a very healthy prospect list. And then, we think we're going to be successful on a lot of it. John Rogers - D.A. Davidson & Co.: Okay. And then last thing, Dave, in terms of -- I mean you've, obviously, got a great backlog in terms of size. But are there any other market segments that you're looking at that you need to get into or you really want to get into, especially to position over the 3- to 5-year timeframe that you were talking about?

I'm not sure I want to talk, specifically, about that. We continue to look at markets that are tangential to what we already do and how do we continue to grow our ability to service our customers. I think there's a couple of areas that could be very positive to us in the future, one of which, I would suggest, is in the biofuels arena. We have great experience in those types of programs and projects. And that's just one example of where our teams are continually looking to how to monetize the capabilities we have. When you look at that market, specifically, there's capabilities that fall within our Energy Chemicals Group, and there's capabilities that fall within our Life Sciences group and making sure that we approach it from a one-Fluor standpoint is what's going to make the difference because we do have that capability. So that's just an example of where we're going to continue to grow. As you said -- and we're pretty diversed as it is on a market and geography perspective. But where I see us taking advantage of markets and growth is in growing our capability in existing markets and locations with allowing some of these things to germinate, if you will, through the various groups that have the skill set. John Rogers - D.A. Davidson & Co.: I appreciate it.

We will take our next question from Will Gabrielski with Gleacher. Will Gabrielski - Gleacher & Company, Inc.: Did you give a mix in terms of prospects for the next 12 or 24 months? How do you think it will shakeout between upstream and downstream?

No, we didn't. But I would say that the majority of the opportunities are in that Upstream segment. Will Gabrielski - Gleacher & Company, Inc.: Okay. And then within chemicals, does anything stand out as potentially a bright spot, internationally, and I guess, specifically, in Asia? And then also within polysilicon, it seems like there's some investment talk again in that market and you've been successful in the past?

Yes, I think from the back to the front there, I think that market is starting to have a little bit of resurgence. We do see opportunities in the polysilicon market. I think that when you look at the chemicals market, there are still significant opportunities in the Middle East. And I think we're pretty well placed to work in most of those, and that will continue to be a big opportunity for us. I do believe because of the gas pricing and the differential that I mentioned earlier, there are some opportunities in the States that are being contemplated. So I'm not sure I'd put that on a timeline. But I do believe you're going to see some spending in that sector, and I think we're pretty well positioned to assist our customers there. Will Gabrielski - Gleacher & Company, Inc.: Okay. Within Infrastructure in Q3, that was a big topic last year. What does the pipeline look like? And have you started to really feel the margin benefit from the few that you booked over the past 12 months?

I think we are seeing -- there's a long gestation period on those, and there are several in the pipeline that we're pursuing and developing that will help us as we get towards the back end of this year or early next year. And we're really in the early stages of the ones that were awarded late last year and early this year. So not a lot of impact yet to earnings. Will Gabrielski - Gleacher & Company, Inc.: Okay. Splitting Government, I guess we're starting to get to that point where stimulus money anniversaries. How's that going to look for Fluor when that money starts rolling off some of the DOE sides?

I mean, that's planned in. We expected for the recovery money to go away and normal steady-state to take over. I think the good thing here is that the business and the increase in both the DOE and DOE business that we've had over the last year more than cover the lack of earnings that we have enjoyed from ARRA money. Will Gabrielski - Gleacher & Company, Inc.: So will you being a net adder in Government jobs as your money rolls off or is this something that you're just going to hold in place?

Net adder to jobs, you mean... Will Gabrielski - Gleacher & Company, Inc.: No just your general Federal business. Do you think you'll have more people working there with the growth?

Absolutely.

Portsmouth is going to add to that nicely.

Right. Will Gabrielski - Gleacher & Company, Inc.: And then I guess, within general infrastructure, I think that's the market you guys have talked about wanting more exposure to. I, specifically, think of work that Bechtel was doing on the Delhi port [ph] And things like that. Is that something that's high your priority list right now? Projects of that type in the Middle East and elsewhere?

Sure. We're working for the UAE Government on their Rapid Transit program. We're bidding for several projects out there that are very equal to what Bechtel is doing in Qatar. And I think we've created a pretty good name for ourselves in that region on the infrastructure play, and there's a lot of opportunity out there. But decision-making there sometimes takes a little longer than normal, too. So timing of those kinds of decisions I think are going to be a challenge. But when you look at places like Qatar and UAE and a lot of other places in that region, there's tremendous need for infrastructure. And I think we've got a great capability and a heritage there, frankly, to help our customers. Will Gabrielski - Gleacher & Company, Inc.: And are those markets you'd look to self perform work in ever? Or is that more of a contract construction management PMC role?

It's going to be all across the board. I think the value proposition, I think, we have is being able to manage the big mega programs around the globe, and you don't do any of those by -- no one does all of those by themselves. So there will be partners and local partners that we're going to take into our teams as we execute these programs. Will Gabrielski - Gleacher & Company, Inc.: Great.

We will go next to Yuri Lynk with Canaccord Genuity.

David, can you share with us the thinking of your oil sands clients in Alberta? Because the amount of design work that's going on right now is quite substantial, but the package awards have been slow. I guess is this the same thinking you're seeing globally in the Oil & Gas that you spoke about earlier?

Yes, I think so. I think they're being a lot more measured in their decision-making. Clearly, if you looked at the programs that took place in the last build out, there was increased cost. I think what they're doing is they're being a lot more prudent in the way they're looking at their decision process. And I think we'll be able to perform a little bit closer to their expectations from a cost perspective because of the time they're taking before putting the packages on the street.

And lastly, the shale gas opportunity in North America, does that offer any work for Fluor?

Some. A lot of the work in that particular area is in the down hole technologies, which fits more with some of the other people in our space. People like Halliburton and Schlumberger and the like, a lot of the money is in the frac-ing fluids and the makeup of that. Where I think there could be an opportunity is in water. There's a lot of water used in that and being able to process that water and recycle that water is going to be key to the ongoing operation of those facilities. So I think that presents an opportunity for us. And then I think the distribution systems is certainly in our capability when you look at moving products from point A to point B, pipelines, compressor stations and those kinds of things to fit in our capability.

That's helpful.

And gentlemen at this time, there are no further questions. Mr. Seaton, I will turn the conference back over to you for any closing comments.

Thank you, operator. And I'd like to thank everyone for participating in our call this afternoon. Just in closing, I think you've heard from us that we believe that our strong first quarter results puts us in a good position to start 2011. We're bullish about the future, and we greatly appreciate your interest in Fluor and your confidence in our company. So I wish everyone a happy Cinco de Mayo, and have a good day.

Ladies and gentlemen, this will conclude today's conference call. We do thank you for your participation.