Fluor Corporation Q2 Earnings Call Transcript

123jump.com Staff
20 Aug, 2009
New York City

The engineering and construction management company second quarter revenue dipped 8% to $5.29 billion and profits fell 19% to $176.4 million aided by a big one-time gain. Earnings per share were 93 cents as against $1.12 in the year ago quarter.

Fluor Corporation ((FLR))
Q2 2009 Earnings Call Transcript
August 10, 2009 5:30 p.m. ET

Executives

Kenneth H. Lockwood – Vice President of Investor Relations
Alan Lee Boeckman – Chairman and Chief Executive Officer
D. Michael Steuert – Chief Financial Officer

Analysts

Andrew Kaplowitz - Barclays Capital
Chase Becker for Jamie Cook – Credit Suisse
Graham Mattison - Lazard Capital Markets
Steven Fisher - UBS
Michael Dudas - Jefferies & Co
Mark Thomas - Simmons & Co
John Rogers - D. A. Davidson & Co
Will Gabrielski - Broadpoint AmTech
Joe Ritchie - Goldman Sachs
Barry Bannister - Stifel Nicolaus

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Fluor Corporation’s second quarter 2009 conference call. Today’s call is being recorded. (Operator Instructions) At this time all participants are in a listen-only mode. A question-and-answer session will follow management’s presentation. 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. A web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. Eastern Time on August 16 at the following telephone number. That number is 888-203-1112. Pass code of 2913140 will be required. At this time for opening remarks, I’d like to turn the conference over to Mr. Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Kenneth H. Lockwood – Vice President of Investor Relations

Thank you operator. Welcome everyone to Fluor’s second quarter 2009 conference call. With us today are Alan Boeckmann, Fluor’s Chairman and CEO and Mike Steuert, Fluor’s Chief Financial Officer. Our earnings announcement and 10-Q were released this afternoon after the market closed. We have posted a slide presentation on our website, which we will reference while making our 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. 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 25, 2009. During this call we will discuss certain non-GAAP financial measures. Reconciliation of these amounts with the comparable GAAP measures are reflected in our earnings release and are posted on our website at investor.fluor.com.

With that I’ll turn the call over to Alan Boeckmann, Fluor’s Chairman and CEO.

Alan Lee Boeckmann – Chief Executive Officer

Thanks Ken. Well, good afternoon everyone and I want to thank you for joining us. Today we’ll be reviewing our results for the second quarter and providing an update on our current business outlook along with guidance for 2009. I’m going to start off by covering the highlights of our financial performance for last quarter. You’ll see those on slide 3. The second quarter was a very solid one for us. Net earnings attributable to Fluor for the second quarter were $169 million compared to $208 million during the same period last year. And that period included a pretax gain of $79 million from the sale of our equity interest in the Greater Gabbard Wind Project. Earnings per diluted share were $0.93 for this quarter, and that compares with $1.12 for the year ago quarter. And as I said, that did include on an apples-to-apples basis a $0.27 per share gain on that wind farm transaction.

Segment profit for this quarter was $309 million compared with $392 million in the second quarter of 2008. Both the Oil and Gas and Government segments had good profit growth over last year. Segment profit margin overall rose to 5.8% compared with 5.4% a year ago, when you normalize the 2008 to exclude the Greater Gabbard gain. Revenue declined 8% to $5.3 billion. That’s down from $5.8 billion in the second quarter of 2008, driven by decreases in the Oil and Gas, Global Services and Power segments.

Now moving to slide 4, Fluor’s focus on near-term prospects and its diversified end markets have once again allowed us to record substantial new bookings in a very challenging economic environment. Project awards for the second quarter were $6.8 billion compared with $6.4 billion in new awards a year ago. This quarter included $2.9 billion in Oil and Gas awards, $2.2 billion in Industrial and Infrastructure awards and $866 million in Government awards. After the end of the second quarter, our Government group was notified that it had won the LOGCAP IV competition for northern Afghanistan. I have to say this was a tremendous win for us, and the program has the potential to be a very significant one for Fluor with a total contract value of potentially more than $7 billion over five years. Consolidated backlog at the end of the second quarter was $30.9 billion. That’s up $1.8 billion sequentially from $29.1 billion in the last quarter, but it was down 6% from a year ago, primarily due to cancellations and scope reductions in Oil and Gas projects during our first quarter. We had no material cancellations during the second quarter. With regard to our markets and prospects, it obviously varies by business line, but in general our clients continue to express uncertainty about capital expenditure plans. And as a result, we do expect to see variability in the volume of new awards going forward. Let’s talk a little bit about the markets that are represented in each of our segments.

I’ll start with our largest market, Oil and Gas, and ask you to turn to slide 5. This segment had a relatively strong quarter from a new awards perspective. As expected, over 80% of the new awards were for international projects with the largest award for upstream work on Imperial Oil’s new Oil sands Development in Canada. In downstream, while the U.S. market has slowed considerably as we expected, we do continue to target international opportunities which we think are developing over time. In petrochemicals there are a few large prospects in the Middle East and Asia, and in this quarter we booked additional scope at the Saudi Kayan Petrochemical Facility. Finally in upstream we continue to see client budgets shift towards expansion of oil and gas production. As most of you will know by now, we bid the (6:36) Havisham Five program but in fact we lost to a competitor who bid a substantially lower price. We will continue to pursue large projects on a selected basis where we believe we have a competitive advantage and an effective strategy to win that includes adequate risk protection.

Fluor recently won a nice FEED contract for Santos for the preparation of an execution plan and a cost estimate for the engineering, procurement and construction of the upstream facilities required to deliver coal-seam gas from Santos operated coal-seam fields in central Queensland to a proposed liquefaction facility to be located at Gladstone. We have also announced the formation of a consortium with Global Industries to pursue offshore projects in the Middle East and North Africa. The combination of Global Industries with Fluor’s offshore solutions business will allow us to offer a full service model to our offshore clients.

As I move on to Power on slide 6, this market remains relatively lackluster, given reduced demand and the lack of a clear U.S. energy policy. In Natural Gas, we booked a fire rebuild project to repair a gas fired plant in Italy, and we’re tracking various gas prospects in the U.S. and Europe. In nuclear we continued our support of Toshiba on NRG’s south Texas project which will be one of the first plants to receive a CLL, and to participate in DOE’s Loan Guarantee Program. New coal projects continue to be rare, but we did receive a limited notice to proceed for a 960 megawatt coal plant for the Tenaska Trailblazer project. This is an interesting project in that they plan to include carbon capture and sequestration in the plant design, and a key part of our scope is to select the technology to achieve this. On the environmental betterment side, we were selected to conduct FEED work for a nitrogen oxide reduction program at Fiddler’s Ferry Power Station in England. Fluor is currently performing preliminary engineering and construction planning services for selective catalytic reduction of emissions at Scottish and Southern’s four unit coal-fired power plant, as well as providing client technical support and project cost estimation.

In Industrial and Infrastructure, our backlog grew again this quarter with the award of a large mining project. We also see additional mining opportunities that will close during 2009. This is certainly an area where our diversification is bearing tremendous fruit when other markets are pulling back. In Infrastructure we continue to focus on select road and rail opportunities in the U.S. and Europe, mainly those that are conducive to a PPP model structure or a design build advantage that we have. As always, these prospects require long development periods and often require financing. The next big project in the queue is the I-95/395 Interchange in Virginia, which appears to be moving out into 2010. We recently submitted a proposal on a mid-sized road project in Texas and we expect to have the client make that decision in the third quarter of 2009.

Moving to the Government segment on slide 7, this group is having a very strong year. During the quarter the group recorded over $800 million in new orders, including approximately $600 million at Savannah River from the American Recovery and Reinvestment Act or ARRA. This is stimulus funding and $160 million for LOGCAP task quarters were also booked in the quarter. On the LOGCAP IV award in north Afghanistan, we are working with the Army to develop a transition plan which will likely span over the next 90 days and will give us more visibility into how work under this contract will roll out and on what schedule. New awards will be recognized as the specific task orders are incrementally approved and funded. Our Global Services segment is unfortunately seeing some fairly significant weakness in the Operations and Maintenance portion of its business. Our customers are deferring scheduled maintenance and discretionary spending to a greater extent than we had anticipated. And while we believe that long-term contracts will sustain this segment at its current levels, we do not expect results in this segment to pick up materially until the broader economy improves.

In summary, Fluor had a good, solid quarter with strong EPS, a substantial $6.8 billion in new project awards, and maintained a significant backlog. So with that, let me turn the call over to Mike Steuert to review additional details on our operating performance and other financial information. Mike?

D. Michael Steuert – Chief Financial Officer

Thank you, Alan, and good afternoon. First let me provide you with a brief recap of the results for each operating segment. Please turn to slide 8 of the presentation. Fluor’s Oil and Gas segment reported second quarter revenue of $3 billion, which is down 9% from a year ago. Segment operating profit increased 7% over 2008 to $181 million. New awards in the second quarter were $2.9 billion, including the $1.3 billion award for the Kearl Oil sands project in Canada and a sizable petrochemical award in the Middle East. This brought ending backlog to $15.8 billion.

Moving on to slide number 9, Fluor’s Industrial and Infrastructure segment reported revenue of $998 million, which was 9% higher than a year ago. Segment profit was $34 million, down from the $121 million reported a year ago when we recorded the $79 million gain on the sale of our stake in the Greater Gabbard project. Segment performance for the quarter was impacted by lower margins on certain projects due to the higher content of construction activity. Segment new awards were $2.2 billion for the quarter compared with $2.4 billion a year ago. Backlog at the end of the quarter was $9.8 billion, a 38% increase from a year ago. Revenue for the Government segment was $479 million for the second quarter compared to $300 million a year ago. Segment profit was $34 million, up threefold from $11 million a year ago. Improved results in the quarter were primarily due to contributions from the LOGCAP task orders, FEMA task orders and the favorable outcome of a claim related to a completed project in Afghanistan. New awards for the quarter totaled $866 million and ending backlog rose to $974 million, a substantial increase in the backlog of $316 million a year ago.

Now moving on to slide number 10, the Global Services segment reported a 35% decline in revenue to $452 million. As Alan indicated, this decline was a continuation of what we started to see late last year, with lower levels of small cap projects and delays in turnaround and shutdown activities. Segment profit for the quarter was $34 million compared to $66 million a year ago. New awards were $533 million for the quarter, with backlog declining modestly to $2.6 billion from $2.7 billion a year ago. Fluor’s Power segment reported revenue of $335 million, a decline from $522 million in second quarter of 2008, as our large coal-fired project in Texas progressed closer to completion. Segment profit was $27 million, up from $25 million a year ago. Segment profit and margin improved due to favorable achievement of milestones on certain projects, and a greater mix of higher margin engineering and front end projects. New awards were $192 million, and backlog for the segment was $1.8 billion compared with $1.9 billion a year ago. Again as Alan mentioned, Fluor’s consolidated backlog at the quarter end rose to $30.9 billion. About 76% of this total backlog value was cost reimbursable, but about 59% of the total backlog comprised of non-U.S. projects.

Now let me turn to corporate items on slide 11. G&A expense for the quarter declined to $42 million from $62 million in the second quarter of 2008. This improvement was primarily due to lower compensation expense and the impact of our cost reduction efforts. For the year we continue to expect G&A to be in the range of $180 to $200 million. We had net interest income of $3 million for the quarter, down significantly from $12 million in the second quarter of last year. This decline is mainly the result of lower rates return on invested cash and securities as our focus remains on preservation of capital. Tax rate for the quarter was 37% as expected.

Shifting to the balance sheet, cash plus current and non-current marketable securities totaled $2.3 billion at the end of June, which compares to $4.2 billion a year ago. We declared a normal quarterly dividend of $0.125 per share, which is payable on October 2, 2009. Our debts to total capital ratio was a very modest 4%, down from 11% reported a year ago. Capital expenditures for the quarter were $121 million, down slightly from $127 million last year, with the majority of these expenditures attributable to our continued investment in our equipment services business. Overall, Fluor’s financial position remains extremely strong, with minimal leverage, substantial liquidity and good access to capital based on our solid A rating.

On slide number 12, in regard to our outlook for this year, given the strength of our results to date the company is maintaining its earlier 2009 earnings per share guidance at the range of $3.80 to $4.10 per share.

With that, Al and I would be happy to respond to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The question-and-answer session will be conducted electronically. If you’d like to ask a question, please do so by pressing the * key followed by the digit 1, “*1” for questions, and we’ll pause a moment to assemble the queue. We’ll take out first question from Andrew Kaplowitz with Barclays Capital.

Andrew Kaplowitz - Barclays Capital

Good evening guys.

Alan Lee Boeckmann

Good evening Andrew, how do you do?

Andrew Kaplowitz - Barclays Capital

So, one thing I think that’s noticeable is that, you know despite your revenues coming down a bit over the last couple of quarters your margins really haven’t. And so, you know I know that some of this is looking at backlog that was booked last year, but some of it isn’t. And when you mention things like Global Services weakening a bit but the margins are still pretty good, so the question is as we go forward here, what kind of pricing pressure are you actually facing? Maybe it’s a little less acute than you thought and, where do we go from here in margins?

Alan Lee Boeckmann

Andrew, it depends on, you have to again look at the segments of our markets to answer that question. I think in general everybody is seeing more pricing pressure, but where it really shows up is in the lump sum bids, as evidenced by our recent experience on the Havisham Five proposal. Where we’re doing program management, where we’re doing front end FEED work, where we’re doing an overall EPC on a reimbursable cost basis, we just haven’t seen that much of a degradation in our margins. Global Services still is maintaining good margins. It is just, their revenue is down. So while I think we’re going to continue to stay at good healthy margin levels, we’re going to be very careful about getting into lump sum again. That was a pretty surprising result on the Havashun Five bid.

Andrew Kaplowitz - Barclays Capital

Maybe I could ask it this way, could you still book the Oil and Gas business the way you like it and maintain margins that are close to where we are now?

Alan Lee Boeckmann

Again it depends on the scope, Andy. If you have a lump sum bid for an EPC of a process unit, that scenario I think is where margins are definitely going to suffer. If you’re on a sole source award from following on from FEED to EPC I don’t think we’ll see that much of a degradation. There is usually a preference for either technology experience or the project team or in more of an alliance setting with our clients.

Andrew Kaplowitz - Barclays Capital

Alan, I feel like I ask you this every quarter but I’m going to ask you again. I mean I know you talked about the lumpiness of backlog in your notes. You expect it to be more lumpy going forward. The backlog obviously was good in the quarter. The new awards are very good in the quarter. Can we see backlog sustain itself so close to these levels for the rest of the year?

Alan Lee Boeckmann

I think we can, Andy. I’m going to clearly reverse to my lumpiness comment because I just don’t know. We did have one project cross over into this quarter that we thought would be a third quarter award. I think if you remember three months ago we were signaling that we might have actually a down second quarter. So they do move. This happened to move in the right direction. I don’t see any what I call real elephant projects in the upcoming quarters, but I see a significant number of fair sized projects that I think will hold us in good stead.

Andrew Kaplowitz - Barclays Capital

Got it, so without Havishun you could still come close to where we are in backlog right now?

Alan Lee Boeckmann

Yeah I think we’re going to be, we’ll be over 30 or in shouting distance of 30 by the end of the year in my estimation.

Andrew Kaplowitz - Barclays Capital

Great thank you very much.

Operator

We’ll go next to Jamie Cook with Credit Suisse.

Chase Becker for Jamie Cook – Credit Suisse

Hi good evening it is actually Chase Becker in for Jamie. I had a quick question just in terms of your recent announcements with Global Industries. Wondering if you could expand a little bit on your expectation for that and specifically how you’re thinking about managing risk going forward?

Alan Lee Boeckmann

It’s a good match-up between us and Global Industries. Our skills are very complementary. This allows us to really do a much more thorough job of canvassing and covering the offshore oil and gas business, which has been a strategic intent of ours. Certainly risk projects will be handled in a manner that doesn’t put us into a high risk situation, competing against a lot of companies on the same bid. We’ll target projects fairly specifically and try to go in and limit the competition so that we can have a clear field and be able to mitigate the risks. We won’t be changing our selectivity process for this.

Chase Becker for Jamie Cook – Credit Suisse

Okay that’s helpful and then just switching over to government very quickly, you had a nice award on the Afghanistan side but wondering what you’re hearing in terms of some opportunities going forward in Iraq.

Alan Lee Boeckmann

Well, the Iraq work will be re-competed. I think you’ve heard that from some of other of our competitor’s conference calls. The Iraq contract currently there will be re-competed. Again because of the way LOGCAP works the three contractors, ourselves, KBR and DynCorp will be the three that are bidding for that. So we intend to be in the hunt for that. I think we have a great position on it. I think our track record for execution under LOGCAP has really differentiated us there.

Chase Becker for Jamie Cook – Credit Suisse

Okay great. I’ll be back in queue, thank you.

Alan Lee Boeckmann

Thank you.

Operator

We’ll go next to Graham Mattison with Lazard Capital.

Graham Mattison - Lazard Capital Markets

Hi good evening guys.

Alan Lee Boeckmann

Hi Graham, good evening.

Graham Mattison - Lazard Capital Markets

Just a follow up question on the tie up with Global Industries, are you currently bidding on any projects together? And then is there potential that this will expand outside of the region that you’ve talked about so far?

Alan Lee Boeckmann

The answer is yes. We are pursuing some opportunities with them as we speak, and are hopeful that those will be successful. It is intended to be. We’re focusing now on certain projects and we want to get those right, but it would be our intent as it goes forward to maximize its exposure throughout the globe.

Graham Mattison - Lazard Capital Markets

So sort of look at this as sort of a trial run for the tie up and then expand it from there if it’s successful?

Alan Lee Boeckmann

I’d call it more than a trial. We have great expectations for its success. But obviously when you’re working with a partner like this and just starting off, you want to get your combined processes down, and we’re going after a couple of prospects right now and then we’ll expand that as we go forward.

Graham Mattison - Lazard Capital Markets

Okay great and then just turning to the Infrastructure side, are you seeing any benefits on the Infrastructure side from stimulus money or is that still yet to hit?

Alan Lee Boeckmann

Well, we’ve had a very nice award in the stimulus funding. It didn’t really come in what I’d call the Infrastructure side. It came on our Government side. So to answer your question, I don’t think anybody is really seeing significant awards of any nature coming out of the stimulus funding. Most of it went into very small project and prospects in a lot of localities, very few very significant prospects or projects. We were half lucky and I think fortunate to get one of those.

Graham Mattison - Lazard Capital Markets

Okay great I’ll get back in queue. Thank you very much.

Operator

We’ll go next to Steven Fisher with UBS.

Steven Fisher – UBS

Hi good evening. Related to M&A would you say that you’re more optimistic or less optimistic now about getting some deals done than you were three months ago? I mean others are commenting that valuations are still becoming more attractive but other than today it seems like kind of market multiples are still expanding again.

Alan Lee Boeckmann

We still are pursuing an M&A strategy. We’re not in shouting distance of closing one out at this point in time, but we still maintain the strategic intent to go after acquisitions in our four major strategic areas.

Steven Fisher – UBS

Okay and then on the Power side of things, you had a nice result on the margins there from the Texas power plant. Which quarter do you think you’d expect to see the margins peak there as a result of that project?

Alan Lee Boeckmann

It’s hard to pinpoint a certain quarter because that project is in phases, but I would say anywhere from fourth quarter on to end of the first or second quarter of next year.

Steven Fisher – UBS

Okay and do you think it ramps up from here to that point?

Alan Lee Boeckmann

Again it’s hard to say. There are some unique events in there, so timing is going to be difficult to pinpoint.

Steven Fisher – UBS

Okay and then just lastly, could you just comment on how the construction is progressing on Greater Gabbard? I think it was supposed to move into the construction phase over the last few months.

Alan Lee Boeckmann

It has moved into the construction phase. We have modules that have shipped out of China. Our lay barges are in place and we’re expecting a shipment within the next week that will be going into installation.

Steven Fisher – UBS

Okay great, thanks a lot.

Operator

We’ll go to Michael Dudas with Jefferies.

Michael Dudas - Jefferies & Co

Hi good evening everyone.

D. Michael Steuert

Hi Mike.

Alan Lee Boeckmann

Hi Mike. There is intense interest in your name.

Michael Dudas - Jefferies & Co

Thank you very much, wonderful, that you keep remembering. My first question, Global Services has been a real champ and a powerhouse as a contributor over the past few years. Do you anticipate this being just again general GDP related volume? And maybe give a little bit more color, coming out of the other side in 2010 and ’11 is there an opportunity for Global Services to get back to where it was and maybe even gain some more revenue and sheer visibility, given the fact that your backlog and client list has maintained pretty healthily over this time period?

Alan Lee Boeckmann

Yes, Mike, that’s exactly right. We are very bullish on Global Services long-term. Right now and this is particularly in our O&M business, is seeing a tremendous drop-off in what I call discretionary capital spending. Turnarounds, shutdowns, non-preventative maintenance, most companies are pulling back on their expenses and its affecting us across where I think you’ve heard that from some other competitors in this arena. We are absolutely maintaining our client base. There’s not been any cancellation or losses in that arena. It’s just strictly the pulling back fraud on spending at the local plants. So again this is an area where we’re going to continue. We’ve made acquisitions in this area. We’re going to continue to do so. We regard this as a significant, strategic thrust for us.

D. Michael Steuert

Hey Mike, we really think these reductions are for the most part deferrals and we think a lot of the spending will come back in the future.

Michael Dudas - Jefferies & Co

Sounds that way thank you, my follow up, Alan, is 12 months from now do you think that contractor capacity will be starting to fill up again, assuming the world gets back into a more reasonable growth mode and energy prices stay relatively stable?

Alan Lee Boeckmann

I think a couple of things have to happen, Mike, for that to occur. I think we’ve got to see more expansion in capital spending, and for that to happen we’ve got to get a lot of the uncertainty out on commodity prices, on currency exchange, on legislation. I mean the U.S. is not alone right now in terms of some of the legislation that its considering that would have a significant impact on business. So I think a lot of the uncertainty has got to come out of the equation as well. I do think, though you’re going to start seeing in 2010 a recovery that does start to find its way into increased capital spending. And at that point in time I think you’ll see contractors able to get back on a little more balanced equation.

Michael Dudas - Jefferies & Co

I appreciate, thank you gentlemen.

Operator

We’ll go next to Mark Thomas with Simmons & Co.

Mark Thomas - Simmons & Company International

Good afternoon guys.

Alan Lee Boeckmann

Good afternoon.

Mark Thomas - Simmons & Co

Alan, you mentioned that new awards are going to be lumpy going forward and that’s understandable, but could you just update us on current backlog and what you’re hearing from customers on the cancellation front, and if any projects are being delayed at this point in backlog?

Alan Lee Boeckmann

Like I said in my prepared remarks, we didn’t have any material cancellations in the second quarter. Right after the quarter closed we did hear on our USEC project, the uranium enrichment project that the DOE had turned down the loan guarantee and so that project was put on hold. That’s being re-thought and there is a hearing, a re-hearing of that decision that will be hopefully decided in the next month or two. So we’re hopeful that that will come back. But that’s the only thing that’s out there right now that we’ve seen where we’re having any impact.

Mark Thomas - Simmons & Co

Okay and then just touching back on the Global Industries front, the project and the timing, are those 2010 events?

Alan Lee Boeckmann

Yes, most of them would be 2010 before you would see any revenue coming into our books.

Mark Thomas - Simmons & Co

All right, thank you very much.

Alan Lee Boeckmann

Thank you.

Operator

(Operator instructions) Ladies and gentlemen if you do have a question or comment *1 for questions, we’ll pause a moment and assemble the queue. We’ll go next to John Rogers with D. A. Davidson.

John Rogers - D. A. Davidson & Co

Hi good afternoon.

D. Michael Steuert

Hi John.

Alan Lee Boeckmann

Hi John.

John Rogers - D. A. Davidson & Co

First of all, Mike, you talked about the cash balance and setting aside acquisitions for the moment, given the market conditions, how much cash do you want to carry?

D. Michael Steuert

That’s a good question, John. The first thing you have to look at is our client advances, and they’re a little over $1 billion. And you take that out of our free cash. From an operating point of view above that, we’d like to have $400 or $500 million of operating cash on hand to feel comfortable, especially in these current liquidity situations. But our cash balance obviously is very healthy and in part it has grown because of our client advances. A more normalized level, though, is perhaps $500 to $700 million.

Alan Lee Boeckmann

John, I keep reminding Mike that a certain part of those client advances is going to be ours when we finish the project anyway.

D. Michael Steuert

Hopefully a very large portion.

John Rogers - D. A. Davidson & Co

And then Alan you’ve touched on this a little bit, but I know it’s a short timeframe especially from an investor’s point of view but are you noticing any change in client attitudes as we move into the current year? I mean are clients more comfortable now with the economic environment that they’re going ahead with some of the work or moving it ahead relative to how we started the year?

Alan Lee Boeckmann

Marginally so, John. I still see a tremendous amount of unease out there in our client base, specifically around what they can expect on commodity prices going forward.

John Rogers - D. A. Davidson & Co

Okay and your sense is that’s what they’re keying on now?

Alan Lee Boeckmann

Absolutely. Each of them have a market and each market is a little different, but there’s been a tremendous amount of capacity installed in quite a few of the markets around the globe. So, the ones that are out investing today are the ones that have very healthy balance sheets and are very convinced of the strength of their future markets.

John Rogers - D. A. Davidson & Co

And just given your hook up on the offshore project DV it seems that you’re still pushing pretty hard on the Oil and Gas side, I mean in terms of the opportunities over the next couple of years.

Alan Lee Boeckmann

Yes, absolutely. We’ve stated really now for the last couple of years our strategic thrusts are going to be in offshore oil and gas, infrastructure, global services and in what I’ll call the alternative energy forms of power including nuclear.

John Rogers - D. A. Davidson & Co

Okay great, thank you. I appreciate the color.

Operator

We’ll go next to Will Gabrielski with Broadpoint AmTech.

Will Gabrielski - Broadpoint AmTech

Thank you, guys. Great quarter, question for you on your comment about lump sum and trying to avoid that market, does that preclude any of the other opportunities in Abu Dhabi that we may have been paying attention to? And is there a difference between lump sum turnkey on an EPC contract versus a program management contract with how you’re viewing that?

Alan Lee Boeckmann

Yes, I’m glad you asked that question. That allows me to elaborate. We’re not going to avoid lump sum. The lump sum we’re going to avoid is going up against five bidders on a bid slate for a lump sum project. In that market today that’s just, I mean it’s a crazy market out there with people buying market share. And the companies that we lost to in that recent bid were for the most part Asian companies that bid incredibly aggressively. So we’re not going to go into that kind. However, we will continue to go after lump sum projects where we have a small competitor, a group, where we know we have a competitive advantage and we know we can mitigate the risks. So that would be certainly in very selected sections of energy and chemicals where we’ve done the program management and are bidding lump sum on the off sites for example, or in our Infrastructure business where we do a lot of the development work ourselves, or go after design build projects where we know we have a competitive advantage. I wouldn’t say that we’re going to avoid it. If I said that, that was my mistake, but we are going to be very careful about competitive lump sum bidding.

Will Gabrielski - Broadpoint AmTech

Okay thanks for the color and with Global relationship, I was just curious. I don’t think there is a real fab capacity between the two of you for fabrication outside of what you do in Mexico. Have you guys given any thought as to how that would be structured when you’re bidding on a piece of work?

Alan Lee Boeckmann

Well they do have fabrication capability and we have the Mexico capability, so I think we have the capability to handle projects we’re currently bidding on. To the extent that we require more than that we will bring other teaming partners or subcontractors into the mix.

Will Gabrielski - Broadpoint AmTech

Okay classification, you said limited notice to proceed on the Tenaska project. I was curious. Does that mean FEED has been completed at this point or are you still in the FEED phase on that?

Alan Lee Boeckmann

FEED has been completed. We’re still doing some up front engineering to prepare for the incremental permits.

Will Gabrielski - Broadpoint AmTech

Okay and then one last housekeeping, the burn rate for I&I in these new awards, I noticed the burn rate was lower in the quarter. Is that going to be the trend here on some of these new projects, the way they’re structured? Or has that just been an anomaly in the quarter?

Alan Lee Boeckmann

I think it’s a little bit more of an anomaly in the quarter. It’s going to continue to grow, but not dramatically.

Will Gabrielski - Broadpoint AmTech

Okay thank you guys.

Operator

We’ll go next to Joe Ritchie with Goldman Sachs.

Joe Ritchie - Goldman Sachs

Thanks good afternoon everyone.

D. Michael Steuert

Ho Joe.

Alan Lee Boeckmann

Hi Joe.

Joe Ritchie - Goldman Sachs

A quick question on Havisham Five, is it possible for you to comment on how much of a discount was actually seen on the winning bid for the gas processing plant?

Alan Lee Boeckmann

We don’t have exact numbers. We just know that it was rather significant. It’s hard for us to get color into each of the segments of it.

Joe Ritchie - Goldman Sachs

Okay and I guess on future new gas processing plants that could be bid over the next couple of quarters, do you expect then to see the same type of pressure you saw on Havisham?

D. Michael Steuert

I think we can expect it. We are currently taking under advisement the bidding of the next project and the next string of projects.

Joe Ritchie - Goldman Sachs

Okay and I guess lastly, in your Government segment obviously nice win on the LOGCAP order. Two questions, do you have a sense for the timing of the first task order? I believe it’s supposed to hit backlog in 3Q and the size of the booking?

Alan Lee Boeckmann

We’re currently in discussions with the Department of Defense and the Army on the roll out of that. Keep in mind this is in a battlefield zone, so the hand over and transition and the detail planning for that is very exacting. We’re reviewing transition plans with the Army right now, and then based on their assessment of our transition plan they’ll be communicating the timing of that to us here fairly quickly.

Joe Ritchie - Goldman Sachs

Okay but it’s still uncertain or do you think it’s going to happen sometime in the next couple of weeks or?

Alan Lee Boeckmann

I just don’t know. They reserve the right to set that schedule. I’m pretty confident it’ll be during this year. I’d like it to be in the next couple of weeks obviously.

Joe Ritchie - Goldman Sachs

Okay great thanks so much.

Operator

(Operator instructions) Ladies and gentlemen as a reminder, if you like to ask a question press”*1”, “*1” for questions or comments, we’ll go next Barry Bannister with Stifel Nicolaus.

Barry Bannister - Stifel Nicolaus

Hi, if I look at the quarterly revenue as a percentage of the backlog, it’s just a different way of handling the burn rate issue. The long-term average since ’01 was about 20% or 21% of backlog, and for the last seven quarters it had been rising back towards the mean, but suddenly dropped this quarter and revenues were about $500 million below the street. What sort of lumpiness or trend direction can we derive from that?

Alan Lee Boeckmann

I’d hesitate to drive a trend direction, Barry. Again on one data point it’s hard to comment on that. I mean if you look at our last four quarters of new awards, they’ve been $8.8, $4.2, $5.5 and $6.8. So it is just incredibly lumpy. Backlog tends to be a little bit more linear because of the way it rolls out. So drawing a comparison on one quarters’ data would be very difficult.

D. Michael Steuert

On revenues.

Alan Lee Boeckmann

On revenues.

Barry Bannister - Stifel Nicolaus

Okay and then I want to go back to that first week of March when the S&P and Fluor stock were making a bottom and I noticed on the SEC filings that you, Alan, had sold about 72% of your shares and Mike Steuert about 56%. And I want to get into the psychology that existed then, because it’s not my view that we backslide to that kind of an abyss in terms of the economic view, but did you just have an options expiration or was there something peculiar about that time that caused you to feel like the game may be up, for backlog growth for the engineering cycle and for capital spending. What motivated all of that?

Alan Lee Boeckmann

Give me the date again, Barry.

Barry Bannister - Stifel Nicolaus

The dates I have are March 2 and March 6.

Alan Lee Boeckmann

Of what year?

Barry Bannister - Stifel Nicolaus

2009.

Alan Lee Boeckmann

I don’t recall selling shares at that time. What we do is, we do get, it shows insider trading on the reports because we all get restricted stock grants that are earned and then they vest over a timeframe. And so every time they vest, a predetermined formula sells off shares to pay for the taxes and the rest go into our account. And it shows off as insider selling when in fact it’s just covering the tax burden of the shares. The last time I sold any shares was on a 10b5-1 program in 2008, which was announced and had to do with capital gains more than anything else.

Barry Bannister - Stifel Nicolaus

Okay and then just lastly I suppose as a little bit of a clarity issue, I noticed last quarter that I&I bookings had surged and had noted that the operating margin in I&I is historically half that of Oil and Gas, so the profit booked was less. Would you say that the I&I higher construction content this quarter is going to result in the continuation of a somewhat lower margin because of the higher construction content?

Alan Lee Boeckmann

Yes, again typically that’s probably a good way to describe it. We obviously get our real up ticks in earnings as we close out these projects, or when we get a success fee on development. And there were no significant awards or completions in the quarter.

D. Michael Steuert

No, but I&I has a real mix of business than some of our lower margin businesses like mining and some of our highest margin businesses like Infrastructure, Transportation.

Barry Bannister - Stifel Nicolaus

Okay thanks a lot.

Operator

We have no further questions in the queue. For closing remarks, I’d like to turn the conference over to Mr. Alan Boeckmann.

Alan Lee Boeckmann

Thank you operator and I’d really like to thank all of you for participating on our call this afternoon. You know as evidenced by our strong results to date, I truly believe that our strategy of industry and geographic diversification is working well. It also enables us to deliver considerable value to our shareholders. Consider this, we just had the strongest new awards second quarter in the company’s history. We’ve maintained earnings guidance, the mid-point of which beats our record 2008 performance for EPS. I think this performance makes us incredibly unique in our space and as we go forward we’re going to move to continually drive our competitive advantage in this area on behalf of our shareholders. We greatly appreciate your interest in Fluor and your confidence in our company. Have a good evening.

Operator

Ladies and gentlemen, this concludes today’s conference. You may disconnect.