Aug 11, 2008
Executives
Kenneth H. Lockwood - VP, Corporate Finance and IR Alan L.
Boeckmann - Chairman and CEO D. Michael Steuert - Sr.
VP and CFO
Analysts
Jamie Cook - Credit Suisse Andy Kaplowitz - Lehman Brothers Michael Dudas - Jefferies Curt Woodworth - J. P.
Morgan Securities Inc. Alex Rygiel - Friedman, Billings, Ramsey Graham Mattison - Lazard Capital Markets Andrew Obin - Merrill Lynch Brian Chin - Citigroup Robert Connors - Stifel Nicolaus Barry Bannister - Stifel Nicolaus Steven Fisher - UBS John Rogers - D.A.
Davidson & Company Mark Thomas - Simmons & Company
Operator
Good afternoon everyone, and welcome to Fluor Corporation's Second Quarter Conference Call. Today's call is being recorded.
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 will be available at approximately 8:30 PM 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 PM Eastern Time on August 18th at the following phone number; 888-203-1112 and the pass code 7006477 will be required. At this time for opening remarks, I'd like to turn the conference over to Ken Lockwood, Vice President of Investor Relations.
Please go ahead, Mr. Lockwood.
Kenneth H. Lockwood - Vice President, Corporate Finance and Investor Relations
Thank you. Welcome to Fluor's second quarter 2008 conference call.
With us today on the line are Alan Boeckmann, Fluor's Chairman and Chief Executive Officer; and Mike Stuart, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed and our 10-Q was also filed today.
We have posted a slide presentation on our website, which Alan and Mike will reference during their prepared remarks. Before getting started, I'd like to read our cautionary statement on slide 2.
In discussing certain subjects, we will be making forward-looking statements regarding projected earnings, market outlook, new awards, margins, tax matters and other statements regarding the intent, belief or expectations of Fluor and its management. These forward-looking statements reflect our current analysis of existing trends and information and there is an inherent risk that actual results and experience could differ materially.
These differences could arise from any number of factors and information concerning these factors that could cause actual results to differ materially from the information that we will give you, is available in our Form 10-K filed on February 29th of 2008 and which is available online or upon request. The information in this conference call related to projections or other forward-looking statements may be relied upon subject to this cautionary note as of the date of this call.
The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or for any other reason. Also during this call, we will discuss certain non-GAAP financial measures.
Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and will be posted on our website at investor.fluor.com. And finally, just to remind everyone, I also want to point out that all earnings per share figures in today's report and conference call reflect the 2-for-1 stock split that was effective on July 16th.
With that, I'll now turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, good afternoon everybody and I would like to thank you for joining us on this call. Today, we will be reviewing our results for the second quarter, our market outlook and we will be discussing our guidance for 2008, which we have increased this quarter.
As you've seen from our release, our second quarter was very strong with revenues, earnings, cash, new awards and backlog; all increasing substantially from about a year ago. Most importantly, we are well positioned and we remain confident that strong demand in our key markets in the U.S.
and around the world will continue to drive substantial growth for our company. As you turn to slide 3, I'd like to provide some highlights of our financial performance for this quarter.
Our net earnings rose 119% to $209 million. That represents $1.13 per diluted share, and that compares with $96 million or $0.53 per diluted share for the same period last year.
Operating profit for the quarter more than doubled to $392 million compared with $187 million in the second quarter of 2007. All business segments contributed to this positive result by posting solid growth and profit over the last year.
Second quarter results included a pre-tax gain of $79 million, translated into $0.26 per diluted share from the sale of our joint venture interest in the Greater Gabbard offshore wind farm project. Details of this transaction will be released in May.
Our operating margin rose to 6.8% and that was up from 4.4% a year ago, reflecting improvement in all segments, and of course the Greater Gabbard equity sale. Revenue rose by 37% to $5.8 billion, up from $4.2 billion in the second quarter of 2007, driven primarily by significant growth in the oil, gas, and power segments.
Moving to slide 4, we posted another quarterly record for new awards with new project awards for the second quarter totaling $6.4 billion, which compares with $5.8 billion a year ago. The quarter included a $1.8 billion award for the Greater Gabbard offshore wind farm project in the United Kingdom, which will provide carbon neutral renewable electricity for more than 415,000 homes.
Other large awards in the quarter included refinery upgrade projects in the U.S., which had a combined value in excess of $1 billion. Consolidated backlog rose to another new company record of $33 billion.
That is up 28% from a year ago and up $1.5 billion over the prior quarter. This represents our 11th consecutive quarterly increase and another new company record.
You turn to slide 5, I'd like to make a few comments on our markets and our key prospects. Overall, we continue to see very strong demand across many of our markets including oil and gas, infrastructure and mining.
We're seeing the market for power pick up as well. Looking first at the Government segment, we will be booking a new award for the first year of our contract of Savannah River in the third quarter, with Fluor's share expected to exceed $300 million per year for the duration of that five year contract.
The 90-day transition period there is now complete. Separately, we are awaiting the award of the liquid waste contract of Savannah River which we expect the DOE to announce later this year.
As for LOGCAP IV, past quarter bid activity has been very slow to develop, but we hope to see some measurable activity by year end. As we move to the Global Services segment, the robust engineering and construction environment is creating very strong demand for their services.
These include operations and maintenance, equipment and tools and temporary labor. O&M is very busy servicing long-term plans and expanding our geographical coverage.
And this in fact should pickup later again this year once the refiners get back to normal levels of turnaround and maintenance activities. This group is focused on expanding regionally and you can see from our results, our margins continue to be strong.
On slide 6, for Industrial and Infrastructure, the two most active markets here are certainly mining and infrastructure which includes transportation. Touching on mining first, while there weren't any major awards in this particular quarter, there are some very sizable projects slated for the second half of the year.
These continue to be driven by investment to expand both copper and iron ore supply and by very strong commodity prices. We also see viable prospects associated with alumina, gold, tar sands, nickel and uranium.
We anticipate strong demand for large capital projects in this market segment, well past the end of the year. As for infrastructure, as we've discussed in the past, we generally only book one or two large projects per year, given the complexity and their extended development periods.
In terms of new infrastructure projects, the Greater Gabbard wind farm was awarded during the second quarter. As we look ahead, key prospects for the balance of this year are focused mainly on design build highway projects in the U.S.
Longer term; we continue to see opportunities to deploy our private public partnership business model to help develop key infrastructure programs including both roads and rail lines. The power market is picking up a bit with some key prospects set to be awarded in the upcoming quarters.
As we have recently discussed though, a number of customers are going ahead with plans to construct gas-fired plants, particularly given the inability to secure permits for coal plants. We are now on track to book two gas plants in the U.S.
this year and also looking at potential opportunities in Europe. On the coal side, the EPA has approved the air permit on the Desert Rock project, which is an important and positive step for this project to be sure.
As you may have read though the state of New Mexico plans to appeal that decision under our other environmental hurdles that will have to be cleared before this project can move forward, including approval of the environmental impact statements. We are very encouraged by EPA's action.
On the nuclear side, we continue to support the South Texas project as Toshiba and NRG work to complete their construction operating license application. In addition, we continue to position ourselves for other nuclear newbuild opportunities in the U.S.
and internationally. We are also seeing some sizable projects develop including and involving renewable energies that include wind, solar, and biomass.
With regard to scrubbers, the recently announced ruling that overturned Clear Air Interstate Act may potentially impact this market segment, but it's too early to tell. We continue to pursue prospects in both the U.S.
and Europe in this area. Finally, as I turn to oil and gas on slide 7, this segment continues to be extremely active.
They had another very strong quarter with $3 billion in new awards, which included prospects and awards in the U.S., Eastern Europe and Asia Pacific and the prospect list for the balance of 2008 is substantial as well. In downstream, we continue to be active on numerous FEED contracts.
As we've mentioned in the past, both cost escalation and environmental issues have caused some short term delays in awards. But most projects are expected to proceed on full EPC awards.
We expect the second half of 2008 to be very strong in terms of new bookings for downstream. As expected, petrochemicals area have slowed somewhat.
But we continue to be very busy in the polysilicon area and are making extremely good progress on existing projects. As you know, we're working for a number of major clients around the world and we expect that substantial investment levels will continue to benefit Fluor, given our strong market share and position in this growing area.
Finally in upstream, we continue to track developing opportunities in the Middle East and Russia and Canada. A significant portion of major integrated oil company and national oil company budgets are directed towards new production.
Accordingly, many of our current prospects relate to the development of gas resources as well as offshore and onshore production facilities. So, in summary, from a market perspective, we are seeing continued strength across most of our key markets globally, and this supports our view that 2008 has the potential to set many new company records.
So, with that, let me turn the call over to Mike Steuert, our CFO to review additional details of our operating performance or new awards and other financial information. Mike?
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Thanks Alan and good afternoon to everyone. First, let me provide you with a brief recap of results for each of our operating segments.
Please turn to slide 8 of our presentation. Fluor's Oil & Gas segment reported second quarter revenue of $3.3 billion, up 56% from the second quarter of 2007.
Operating profit grew 68% to $169 million. New awards in the second quarter totaled $3 billion including several refinery upgrade projects in United States and Eastern Europe.
Ending backlog at June 30, 2008 for oil and gas rose to $20.9 billion, which represents a 49% increase from a year ago. Moving on to slide 9, Fluor's Industrial Infrastructure segment reported revenue of $912 million for the quarter, up 4% over last year.
Operating profit for the second quarter was $121 million, up from $23 million a year ago. The strong operating performance was driven by mining and metals and progress on major infrastructure projects as well as the Greater Gabbard equity sale.
New awards for the quarter were $2.4 billion, of which $1.8 billion was for the Greater Gabbard project. Ending backlog was up 25% to $7.1 billion compared with $5.7 billion a year ago.
Revenue for the Government segment was $300 million for the quarter. This compares with $325 million a year ago.
Operating profit was $11 million, an increase of...an increase from $9 million a year ago. Second quarter new awards totaled $87 million and ending backlog was $316 million.
Now turning to slide 10, the Global Services segment reported a 16% increase in revenue, to $696 million. Operating profit for the segment grew by 38%...
37% to $66 million. This is a result of strong growth from both the operations and maintenance and the equipment services business lines.
For the quarter, new awards were $673 million and backlog increased to $2.7 billion. Segment continues to win new clients as well as secure multi-year renewal agreements from existing clients.
Horsepower segment reported an 86% increase in revenue to $522 million, up from $280 million last year. Operating profit was $25 million in the quarter, a substantial increase from $6 million a year ago.
Revenue and operating profit growth during the quarter were driven by significant progress in major projects including the Oak Grove coal-fired facility in Texas. Power segment new awards were $206 million and ending backlog for the quarter was $1.9 billion.
As Alan mentioned earlier, first consolidated backlog now stands at a record $33 billion, up $1.5 billion over the first quarter. The percentage of fixed price work at our backlog was 26% and about 46% of our backlog is for projects in U.S., with 54% for projects outside of the U.S.
Let me comment for a minute on corporate items on slide 11. Corporate G&A expense for the quarter was $62 million; up from $52 million a year ago, mainly due to an increase in compensation expense resulting from strong operating performance and an increase in the company's stock price which reflects expense associated with various share-based plans.
For the full year we expect corporate G&A expense to be in the range of $210 million to $220 million. We had net interest income of $14 million for the quarter, compared with net interest income of $8 million last year, reflecting returns generated by higher cash balances.
The effective tax rate for the quarter was 39%, which was slightly above our expected rate of 38%. Shifting to the balance sheet, consolidated cash amount for securities balance at June 30th was $2.4 billion, up sharply from $1.9 billion last quarter or $1.5 billion a year ago.
This increase was driven by strong cash flow from operations including client advances. Capital expenditures for the second quarter were $68 million, including equipment for Mico, additions to our computer infrastructure, and upgrades to our systems.
We now expect CapEx for the year to be in the range of $260 million to $280 million. On July 16th, as Ken mentioned, Fluor completed a 2-for-1 stock split, as in June 30th there were 18.5 million shares outstanding, whereas Board approved a normal quarterly dividend of $12.5 per share payable on September 5th, 2008.
Overall, Fluor continues to have a very strong and robust financial position. Finally, let me make a few comments about our updated guidance for 2008, as is shown on slide 12.
As we have seen throughout the year, demand remains strong for the engineering construction solutions that Fluor provides. We are encouraged by the strength of our financial results to-date, and see substantial opportunities for the balance of the year.
As a result, we are increasing our full year guidance for 2008 earnings per share to a range of $3.65 to $3.80 per share, which is up from the previous range of $3.30 to $3.45 per share. With that, Alan and I will be glad to respond to questions.
Question And Answer
Operator
Thank you. [Operator Instructions].
We'll go first to Jamie Cook with Credit Suisse.
Jamie Cook - Credit Suisse
Hi, good evening and congratulations. I guess, Alan, I have to ask you about the guidance.
I don't want to do it myself, but I've covered you guys for quite some period in time and I have never seen you raise guidance so much, so early in the year. So, I am just trying to get a feel for where is the one particular segment that continues to perform better than your expectations, is it older problem projects rolling off, just where do you view in 2008 so far, where is the upside I guess the price coming from relative to your expectations?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Jamie, I would have to say it's occurring in quite a number of areas. First of all, our new awards have been extremely strong as you can see.
Also every segment is performing well. We literally don't have a problem project when we look around and see performance that can go down from drainage on a project.
We have also a number of projects that are moving quickly through the engineering phase, to construction. Oil & gas revenues have probably been the one that have been the most particular strong if I have to look at any one market and say that it is strong beyond our expectations.
But they've all done very well. Our margins remain strong.
We've increased both those in I&I and in Global Services, and I would also say, actually we're seeing very strong overhead leverage in all of our groups, with increased revenue, and also at corporate. So, it's all of those combined that's had us perform in this as well as we have.
The moment, we raised guidance last quarter you all accused Mike and I are not being conservative any more. So maybe that will put up your request.
Jamie Cook - Credit Suisse
Okay. I guess just my follow-up question that the margin in the global services business were 9.5%, I've never seen that business get that type of margin.
Is that something... was there anything unusual in the quarter, or is that what type of run ratio should we think about on a go forward basis for that business?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Clearly that's very high, it's one of the best quarters from a margin standpoint, Global Services we had. So, I wouldn't forecast that as a run rate.
I think it depends on the volume of work and type of work we're doing in here the quarter. I would say ongoing from quarters out, it won't be quite as strong.
But I think we are growing over the normal trend line though in Global Services by selectivity and strong performance.
Jamie Cook - Credit Suisse
And then just last, can you just sort of give us an update on the power side of the business? Can you just give us an update on what you think, I think last time you said maybe we get about four gas-fired power plants within the next 3, 6 to 12 months, how you say that shaping up in over the longer term on the next 12 to 18 months?
Do you see gas or renewables as a bigger opportunity for Fluor specifically?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, we do... it's right now very unlikely we'll get a coal plant in this year.
I think Desert Rock is maybe an important step forward, but I think that will translate into an award if it does come in the probably the first quarter. In the mean time that we're seeing a tremendous number of increase in front end studies being done on gas-fired plants.
In our prepared comments, I think that we said we would... we expect to book two, naturally book two into full backlog this year.
There will be many others that we would be working on and probably translate into a full award as we get into '09.
Jamie Cook - Credit Suisse
All right, thanks. I will get back in queue, congratulations.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Thank you.
Operator
We'll go next to Andrew Kaplowitz with Lehman Brothers.
Andy Kaplowitz - Lehman Brothers
I have been called worse, how are you doing guys?
Alan L. Boeckmann - Chairman and Chief Executive Officer
They normally miss my name out, Andy.
Andy Kaplowitz - Lehman Brothers
Nice quarter. Alan, could you talk about visibility around awards, like if you look at now versus let's say six months ago and 12 months ago, it almost seems like you are telling us that you have better visibility now going forward than you did six months ago or 12 months ago, am I reading that correctly?
Alan L. Boeckmann - Chairman and Chief Executive Officer
No, I think we do. We've always had I think probably very good visibility compared to a lot of the people on our space because of the amount of front-end work we do.
I think it's actually improved because more of our businesses are getting under our tremendous amount of front end efforts and we've gone through a lot of the issues of escalation of the caused delays in our project. So, we've got a pretty good view particularly over the next six months, I would say, I won't say that entirely accurate but we've got a pretty good fix on it.
Andy Kaplowitz - Lehman Brothers
Do you think, I mean if you look at the FEEDS now versus the FEEDS a year ago, would you say that your FEED volume is higher now?
Alan L. Boeckmann - Chairman and Chief Executive Officer
I think it's pretty much the same Andy, but we're getting... we're coming into the...
I would say the final stage on a number of very large ones. But we are replenishing those with things that are coming up.
But in terms of the next six months, I think we've got a pretty good line of sight on what we think is going to come into backlog.
Andy Kaplowitz - Lehman Brothers
And Alan, I know it's early, but can you comment on 2009 in terms of backlog? I mean do you think it's reasonable to believe that we can grow a backlog off of what is going to be a pretty high base it looks like at the end of this year?
What are you thinking about that so far?
Alan L. Boeckmann - Chairman and Chief Executive Officer
2008, I said was going to continue to be a growth... a year of growth in backlog.
I expect that we will be able to grow backlog in '09 in at least the first couple of quarters, and that's again just based on visibility. It's hard to see within a clarity beyond a year from now though Andy, and all I can say is the trends and the dynamics that are in front of us do look good.
Andy Kaplowitz - Lehman Brothers
Got you. And just one final question on this line, obviously, you've seen what the stocks have been doing lately and do you think that just sort of the market doing what it's doing and have you talked to any customers in the near term about sort of the reaction to what's going on here in the stock market and I just think maybe we're making a mountain out of a molehill, but I am sure your customers sort of watch what's going on with the oil prices and what have you?
Alan L. Boeckmann - Chairman and Chief Executive Officer
We... the whole sector is moved down with oil over the last month to six weeks, which it's amazing because oil is still at a price that is significantly more than what I would need warranty investments in the projects we are all looking at.
So I think if there is if anything that the market works out today represents a great opportunity for the overall... for the whole segment as oil prices are still at a very strong level to justify the capital programs that our clients have.
Andy Kaplowitz - Lehman Brothers
And you don't see any sort of more uncertainty on the customers' part. I mean they all have the sort of five-year view on oil prices and that sort of how they are basing a lot of deals?
Alan L. Boeckmann - Chairman and Chief Executive Officer
You're exactly right and it is significantly lower than today's market price.
Andy Kaplowitz - Lehman Brothers
Okay. Thank you, I will get back in queue.
Operator
We'll go next to Michael Dudas with Jefferies.
Michael Dudas - Jefferies
Good morning everyone, afternoon everybody rather.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Hi, Michael.
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Good afternoon, Mike.
Michael Dudas - Jefferies
On the infrastructure and I&I front, taking out the wind project, looking at the rate of new order growth, maybe that's by the most overall sensitive to economic supply demand conditions. Could you maybe elaborate a little bit more what you are seeing in a broad sense, in the two areas that you see quite positive mining and infrastructure and maybe some of the other areas?
Do you see it's maybe confirming some of the fears in the marketplace about global economic activity slowing down?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Yes, Michael, you're absolutely right. The I&I Group for the last maybe two years, really a year and half to two years, it's really been all about mining and infrastructure.
We would have very, very... even though we had a good award this quarter on the manufacturing and life sciences area, the consumer product side of that and even the pharmaceutical biotech side has been relatively flat.
And that I think that a lot of that has do certainly with the economy. The mining side though has been extremely strong and even though we really didn't get any significant awards in this particular quarter in mining, they really are lined up for the next several quarters.
We've got some very strong prospects there.
Michael Dudas - Jefferies
And maybe you want the consolidation maybe happens or doesn't happen in the mining sector that might unlock some of these projects going forward?
Alan L. Boeckmann - Chairman and Chief Executive Officer
I think it... there's probably a bit of uncertainty now because of the potential M&A activity there.
But if that occurs, it's hard to say the effect that it'll have on it. It could remove that uncertainty, it also could dry some rationalization but we'll wait and see.
Michael Dudas - Jefferies
Mike, could you share with us possibly what of the $2.4 billion in cash in the balance sheet, what is in essence shareholder cash and revisit your thoughts on allocation and maybe the market opportunities for niche acquisitions or capital balance sheet reallocation?
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Well, Mike our number one priority continues to be acquisitions, niche type acquisition. We are looking at a number of those.
We have for quite sometime we'll continue to focus on niche acquisitions and perhaps the markets... the current market environment will give us more opportunities going forward there.
And that is really our number one focus. We did adjust our share repurchase plan with the stock split and we'll be looking at share repurchases as well as we go throughout the rest of 2008 and 2009.
Alan, I don't know if you want to really add anything to that?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Mike, what would you say is our cash balance if you take out the client advances, I think that was one question?
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Right. If you look at cash growth, it's been in part financed by client advances and part just by sound operating results.
We have client advances that represent about $1.5 billion of our cash. So we really have roughly $1 billion of what I will call free cash above our level of client advances at this stage, Mike.
Michael Dudas - Jefferies
Thank you for that, I appreciate. Thank you, gentlemen.
Alan L. Boeckmann - Chairman and Chief Executive Officer
You bet.
Operator
We'll go next to Curt Woodworth with J.P. Morgan.
Curt Woodworth - J. P. Morgan Securities Inc.
Yes, hi good afternoon.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Hi Curt.
Curt Woodworth - J. P. Morgan Securities Inc.
Alan, if you look at the oil and gas revenue this quarter of $3.3 billion, that's a pretty big step function change from last quarter. Do you feel that, that type of burn rate or revenue run rate is going to be fair, looking out at the last two quarters of the year?
Alan L. Boeckmann - Chairman and Chief Executive Officer
I think it is for the next quarter or two, Curt. We are into heavy procurement, heavy client finish material section right now of the projects that we have been booking in oil and gas.
So, I think it will stay pretty much at this level, maybe even go up just a touch over the next quarter or two.
Curt Woodworth - J. P. Morgan Securities Inc.
Okay. And then in terms of your comment on the downstream booking opportunity for the back half of the year, can you give us a sense of the size of those projects and also right now, what percent of your oil and gas backlog would be downstream?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Fairly dramatic part of that would be downstream at this point in time, I would say, way more than half, it's probably in the three quarters level. But the...
as we go forward in this year, there is one particularly very large one, it will be looking at booking and there is some number of them of that would add up to, fairly significant projects. Plus we have a couple that are outside the U.S.
that would from a downstream standpoint that will be coming into next couple of quarters.
Curt Woodworth - J. P. Morgan Securities Inc.
Okay. And then in terms of globally what you are seeing in the E&C market, I mean how would you characterize either engineering or construction, labor capacity for the market?
I know you said you have I don't think any near term capacity issues before, just kind of give us an update on that and if you expect your win rate to be affected by going foreword?
Alan L. Boeckmann - Chairman and Chief Executive Officer
The limitations that are out there from a total industry standpoint, certainly the professional side, the home office, engineering and procurement side has been a challenge for all of us. I think the industry has been able to manage that.
The more specific problem is going to occur in particular regions for individual projects. Middle East is going to be a challenge, I think Australia is going to be a challenge, Western Canada those are the areas that where construction labor are very tight.
Having said that, every... all of us in the industry are focusing on that, we see the prospects of this, we are working with both the governments and locals clients and industry to do training.
But it is going to be a challenge. I don't foresee that it will dampen our opportunity to do projects.
We have always been even over the last year, year and a half, been fairly selective based on what we can resource.
Curt Woodworth - J. P. Morgan Securities Inc.
Great. And just one final question, if I may, on the wind market do you see many opportunities similar to the size of the UK project globally and are you focused on any U.S.
projects right now?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well clearly, that was a very large project. It's the largest one we are looking at internationally.
And wind projects itself or us to be focused on, it needs to be a large project that requires our expertise for the logistics and the size and the planning and the financial strength. We are looking at a couple in U.S.
And I think hopefully will be at least participating in one as the year as... this next year unfolds.
Curt Woodworth - J. P. Morgan Securities Inc.
Great, thank you very much.
Operator
We'll go next to Alex Rygiel.
Alex Rygiel - Friedman, Billings, Ramsey
Thank you. And a follow-up on that last question as it relates to wind opportunities in the U.S.
Are they solely offshore opportunities that you are looking at or are you also looking at on land opportunities?
Alan L. Boeckmann - Chairman and Chief Executive Officer
No we are looking at on land opportunities as well.
Alex Rygiel - Friedman, Billings, Ramsey
Great. And does that also include solar?
Alan L. Boeckmann - Chairman and Chief Executive Officer
It does, but we've been really focused on the... what I call the downstream side of solar.
To me, that's where the real opportunity lies because the plants that are necessary to make the product to create a solar cell are a lot more complex, lot more capital intensive than actual solar farm would be. And so that's what we're focused to our chemicals businesses producing the polysilicon that goes into those cells
Alex Rygiel - Friedman, Billings, Ramsey
Sure. That's helpful.
As it relates to nuclear, could you talk a little bit about the timing of maybe when we might hear additional opportunities out of domestically or internationally for Fluor?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well,I think, it's kind of a mixed set here. We are focusing on some U.S.
opportunities. We are...
I think everybody saw the announcement in the Middle East for the Emirates. We are going to be competing for that.
That's a rather dramatic and significant program. So, I think there is...
that market continues to unfold. I would just remind everybody that, that market in terms of its actual revenue generation is still several years away until our licenses are valid.
Alex Rygiel - Friedman, Billings, Ramsey
Of course. And lastly for Mike, is there anything you could do to limit the creeping tax rate?
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Well, we are focused very aggressively on that. We had a couple of unusual items this quarter, but I think overall our 37% to 38% is probably going to be the range we're going to see for some time.
Alex Rygiel - Friedman, Billings, Ramsey
Excellent. Thank you very much.
Operator
We'll go next to Graham Mattison with Lazard Capital Markets.
Graham Mattison - Lazard Capital Markets
Hi good afternoon guys congratulations on the quarter.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Thank you, Graham.
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Thanks.
Graham Mattison - Lazard Capital Markets
Question on the polysilicon plant, I mean in the recent past you guys have gotten a number of awards there. Do you still see the opportunity for some significant polysilicon plants out there?
Alan L. Boeckmann - Chairman and Chief Executive Officer
We do. Yes, we sure do.
We've got a major market share there and it's a market that is a quick time to market issue is very imperative for these clients and we're able to offer that though I really think we have the inside track on that market we continue to... we hoped in trying to tend to stay there.
Graham Mattison - Lazard Capital Markets
And you say that you potentially this later part of this year or is it more of a 2009?
Alan L. Boeckmann - Chairman and Chief Executive Officer
I think we still have some award during this year, but I think it will go on definitely and certainly into '09.
Graham Mattison - Lazard Capital Markets
That will be great. And then just turning to I&I, if you back out the wind gains, is that margin that you have sort of 4.5% about a good run rate to go forward with?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Yes, I would think so.
Graham Mattison - Lazard Capital Markets
And there is nothing sort of one-time or unusual there?
Alan L. Boeckmann - Chairman and Chief Executive Officer
No, other than the Gabbard, there was no, nothing unusual in that. We did have if you look at our 10-Q, we did make a modification in our claims status on the connect project.
Graham Mattison - Lazard Capital Markets
Got you. Okay great.
I will join back in queue. Thank you very much.
Operator
[Operator Instructions]. We will go next to Andrew Obin with Merrill Lynch.
Andrew Obin - Merrill Lynch
Hi, yes good afternoon and congratulations. Just a question about pass-through costs, and how I should be thinking about it.
What's the margin on pass-through costs blended compared to your shall we call it, core margin? Your...
are margin on your pass-through costs?
Alan L. Boeckmann - Chairman and Chief Executive Officer
We do. In some projects, we do not, but in most project there is some margin on it as we get a margin on the total installed cost.
But it is lower then the margin which is directly conducted by Fluor.
Andrew Obin - Merrill Lynch
Well, try to thinking that as just a nominal fee or is it one-time?
Alan L. Boeckmann - Chairman and Chief Executive Officer
It'scompared to the margin that we get on what we conduct is a fair amount.
Andrew Obin - Merrill Lynch
And then just another question, how should I we thinking about the impact of inflation and given the fact that we do have stuff index in the backlog on a year-over-year backlog growth, could you quantify the impact of inflationary pressure on backlog growth? What percent of backlog growth would you attribute to just inflation?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well it's certainly, it certainly does have an effect as projects increase and the cost to execute both from escalation and material and labor that does find its way into our backlog. In some cases, it's the project adjustment on the already booked projects and it certainly then is represented in a new award based on the estimates that are inducted for that proposal.
It's hard to say what the percentage would be in the backlog. You would have to take a reference point and go back and look at the escalation for each of the component parts of that project.
But I'd certainly say that it does have an effect.
Andrew Obin - Merrill Lynch
Well, is there just a way to think about it? Is it 5 percentage points of total growth, kind of just to get to a ballpark where you guys just can calculate?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Gosh, it would be hard for me to give you a guesstimate number, if I can give you one.
Andrew Obin - Merrill Lynch
Now to end, just a final question. As I am thinking about mix of FEED and construction in your backlog and I apologize if you've addressed it already.
Has there been a dramatic shift as we transition on the cycle from FEED into construction or is it more of a gradual shift?
Alan L. Boeckmann - Chairman and Chief Executive Officer
It's gradual. We still continue definitely to get FEED opportunities and are working on those in a number of areas.
As I've mentioned, I think in the last couple of calls, our FEEDS are tending to be... to come up with a different mix.
We're doing much less U.S. downstream now.
Most of those have come into backlog; there are still a few out there that we will be booking in the last part of '08 and early '09. The FEEDS now for downstream are more international and they are also both U.S.
and international more upstream.
Andrew Obin - Merrill Lynch
And just a... what's the mix of FEED and construction today versus a year ago?
Alan L. Boeckmann - Chairman and Chief Executive Officer
I would have to say that the percentage for construction has gotten higher, simply because of the number of projects that have moved into EPC and into our backlog. And then we've been able to move on into the field in those.
So, a lot of those have kicked into our revenue generation now and as a result, simply because they are so large, they tend to have a reduction effect on the percentage of FEED work.
Andrew Obin - Merrill Lynch
But could you quantify it?
Alan L. Boeckmann - Chairman and Chief Executive Officer
We're still working on a significant amount of FEED work that will allow us to grow backlogs.
Andrew Obin - Merrill Lynch
But could you quantity it or --?
Alan L. Boeckmann - Chairman and Chief Executive Officer
I just again don't have that data here.
Andrew Obin - Merrill Lynch
Well congratulations, thank you very much.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, thank you.
Operator
Next to Brian Chin with Citigroup.
Brian Chin - Citigroup
Hi just a quick clarification here. In the slides, the EPS guidance said to a range of $3.55 to $3.70.
I think in your comments and on the press release, it says $3.65 to $3.80. I just want to make sure I have the right numbers?
Kenneth H. Lockwood - Vice President, Corporate Finance and Investor Relations
, this is Ken Lockwood. Yes, we've discovered that that went out with the wrong number, it's $3.65 to $3.80.
Brian Chin - Citigroup
Okay great. And then also on the Summerfield loss, can you comment on what happened there and is there any takeaway with regards to future UK nuclear decomp projects?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well we are... we were obviously disappointed by that decision.
We had worked on that for sometime. We are currently working on other remediation opportunities, not just in the UK but certainly in the UK there are still others.
We expect that it will additional opportunities at Summerfield. So it's not a...
it's a significant market opportunity for us. We have a very strong position in it.
We are as I mentioned earlier we are still bidding for the second phase of Savannah River and our opportunities coming up in this next few years and if fortunate, then you all come out for DOE. So we are still focused on that industry.
Brian Chin - Citigroup
Yes. Are there any takeaway reasons as to what can be learnt from the [indiscernible] loss that can be applied to any other projects or how should --?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Let me just state that the answer is yes, but I wouldn't want to state those on the public call. We have a....
we obviously are going to continuing to complete there. So, we would like to keep our strategy to our cost progress.
Brian Chin - Citigroup
Fair enough. Thanks.
Operator
Next to Barry Bannister with Stifel Nicolaus
Robert Connors - Stifel Nicolaus
Hi guys. It's Robert Connors and Barry Bannister on conference.
Also when I look at this I&I margins and the... was a very strong force 4.6% the strongest since...
quarterly margins since I believe in 2001. Now I was wondering if mining might be taken or getting some traction, and pricing is improving in that market or what would you mainly attribute it to?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Couple of things. The answer is yes to you first comment.
I think we are getting some traction in mining. But we also are getting couple of the projects that we booked in last year and have been in the infrastructure are now picking into full revenue generation at good margins.
As I commented earlier on the earlier question, I think that's a pretty good number going forward.
Barry Bannister - Stifel Nicolaus
And Alan, one of my question is the $3.65 to $3.80 is that with $0.26 included?
Alan L. Boeckmann - Chairman and Chief Executive Officer
It is.
Barry Bannister - Stifel Nicolaus
Okay. And you are entering the Northwest shelf of Australia on the LNG liquefaction side in a JV structure.
Is that going to be your global approach?
Alan L. Boeckmann - Chairman and Chief Executive Officer
It is if it for total responsibility, Barry. As you know, we don't do the coal box side of LNG.
Barry Bannister - Stifel Nicolaus
Right. And then on BP Whiting that refinery job was held up on some environmental issues.
But I haven't heard anything about it in a long time, could you give us an update?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, our client put out an announcement here recently on that and it looks like they are definitely moving forward now. My anticipation is we will be booking at...
it's hard to say which quarter, but it will be in 2008.
Barry Bannister - Stifel Nicolaus
And can you say whether that was the big refining job that you though might fall this year, since you said it was domestic?
Alan L. Boeckmann - Chairman and Chief Executive Officer
It is.
Barry Bannister - Stifel Nicolaus
Okay. And that is it for me.
I'll follow up later with some power questions.
Alan L. Boeckmann - Chairman and Chief Executive Officer
All right, thank you.
Barry Bannister - Stifel Nicolaus
Thanks.
Operator
[Operator Instructions]. We will go next to Steven Fisher with UBS.
Steven Fisher - UBS
Hi, good afternoon. I wonder if you just comment on your fixed price exposure the 26%.
Alan, you said you don't have any problem projects in there. Could you just discuss how much lump sum turnkey dollars you have in the backlog, and what actions you've taken to kind of mitigate any of the typical lump sum turnkey risks?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, we continue to strengthen our risk program as we go through and plow some of the painful lessons learnt back into it. What we've been able to do is on the projects that we booked into backlog over the last year or year and half that are characterized as lump sum.
In a lot of respects, they're not. We've been able to take some of the more riskier elements out of that, where we couldn't really provide a mitigation plan that's satisfied us, and we've been able to take them outside of the contract and index them, either through an escalation clause or some other thing that turned them into more reimbursable characteristic.
They still get listed as lump sum in our backlog, but quite a few of the projects that we have booked have that in there. The other thing is in the selection process we go through at our lump sum bids, we have been very careful to really go into markets where we have a competitive slate that we know we have an advantage and we know we have value to bring to that.
So very, very... I think the backlog we have today is probably from a quality standpoint; the strongest that that corporation has ever have.
Steven Fisher - UBS
Okay, great. And then just a clarification, did you say the booking for Savannah River was going to be about $300 million?
Alan L. Boeckmann - Chairman and Chief Executive Officer
That's correct and that will be a third quarter award. We book our governmental DOE contracts every third quarter, and all booked one year in advance.
Steven Fisher - UBS
Okay great, thanks a lot.
Operator
We'll go next to John Rogers with D.A. Davidson.
John Rogers - D.A. Davidson & Company
Hi good afternoon. Congratulations as well.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Hi John.
John Rogers - D.A. Davidson & Company
A lot of the questions were answered, but Alan, if you look at acquisitions out there are there any particular sectors that you could comment on the, that you're not involved in that you'd like to add, or is it just a question expanding your reach where you are now?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, we've said for sometime that there is a couple areas that definitely fit our strategic intent. One is we'd really like to grow our infrastructure business.
It's been a very strong business for us. But it's been one that we'd like to scale up much more significantly, given the opportunities that we see globally.
So an acquisition in that area is one we would put as a fairly high priority. Another one is just in the operations that make...
such just also a very fractured business globally, but one that's been very good for us. And so we're looking at opportunities to acquire there on a regional basis or a client set basis.
The other areas are in the nuclear side both, in any part of the nuclear cycle interests us, whether it be in the fuels side, the power side or the remediation side.
John Rogers - D.A. Davidson & Company
Okay, thank you.
Operator
We'll go to Mark Thomas with Simmons & Company
Mark Thomas - Simmons & Company
Good afternoon, guys.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Hi Mark.
D. Michael Steuert - Senior Vice President and Chief Financial Officer
Hello Mark.
Mark Thomas - Simmons & Company
Alan, you talked on the Clean Air Interstate Rule and how it might affect, I guess, future scrubber work. Could you quantify how much of your backlog includes work that could be impacted by this rule?
Alan L. Boeckmann - Chairman and Chief Executive Officer
Well, I think if I just looked at our current backlog, we've got a number of projects in our backlog and those don't appear to be impacted by it at all. The impact it would have us on future opportunities if that ruling stands and isn't challenged, I think it will slowdown the scrubber opportunities across the industry.
Mark Thomas - Simmons & Company
Why would it not affect your current backlog, is that because those projects are already I guess almost completed?
Alan L. Boeckmann - Chairman and Chief Executive Officer
The monies have been committed for those and on an incremental basis they still make sense.
Mark Thomas - Simmons & Company
Okay, all right and that's all I got. Thanks guys, great quarter.
Operator
And our last question will be from Alex Rygiel with FBR.
Alex Rygiel - Friedman, Billings, Ramsey
Thank you. Just a follow-up, when you analyze your change in backlogs try to get to or quantify the year-over-year change in rising material inflation.
It actually appears as if material inflation is softening within your backlog, is that the case?
Alan L. Boeckmann - Chairman and Chief Executive Officer
You know I think it has come down somewhat. I mean we're still seeing inflation.
But the last quarter inflation in last two quarter was not as strong as we've seen a year ago. That could change.
We've seen some changes in iron ore costs globally that will I think will find its way into pricing in a number of areas and commodities. So we haven't seen the end of it, but you're right.
It's moderated over the last two quarters.
Alex Rygiel - Friedman, Billings, Ramsey
Thank you.
Operator
At this time, I would like to turn the conference over to Mr. Alan Boeckmann for any additional or closing remarks.
Alan L. Boeckmann - Chairman and Chief Executive Officer
Thank you, operator. And Mike and I thank all of you for participating on our call today.
As you can see from our strong results and our confidence in our outlook going forward, 2008 is rapidly shaping up as another record year for Fluor. Our diversification in terms of the industries and geographies that we serve really provide us with substantial opportunity across a number of markets.
We greatly appreciate your interest in Fluor and your confidence in our company. Have a good day.
Operator
Ladies and gentlemen, this does conclude today's teleconference. We appreciate your participation.
You may disconnect your phone lines at this time.