chicago bridge & iron (cbi) earnings report: q1 2016 ... · cb&i has nearly 4,000 employees in the...

CompanyName:ChicagoBridge&IronCoNVCompanyTicker:CBISector:IndustrialGoodsIndustry:Materials&Construction

EventDescription:Q12016EarningsCallMarketCapasofEventDate:3.73BPriceasofEventDate:36.37

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

ChicagoBridge&Iron(CBI)EarningsReport:Q12016ConferenceCallTranscriptThefollowingChicagoBridge&IronconferencecalltookplaceonApril20,2016,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ScottLamb;ChicagoBridge&IronCompanyNV;VPofIRPhilAsherman;ChicagoBridge&IronCompanyNV;PresidentandCEOMikeTaff;ChicagoBridge&IronCompanyNV;EVPandCFO

OtherPart icipants

StevenFisher;UBS;AnalystAndrewKaplowitz;Citigroup;AnalystJohnRogers;D.A.Davidson&Co;AnalystMichaelDudas;Sterne,Agee&Leach,Inc;AnalystJamieCook;CreditSuisse;AnalystJeffVolshteyn;JPMorgan;AnalystAndyWhitman;RobertW.Baird&Co;AnalystJerryRevich;GoldmanSachs;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheCB&Ifirst-quarterearningsconferencecall.

Asareminder,thisconferenceisbeingrecorded.

Itisnowmypleasuretointroduceyourhost,Mr.ScottLamb,VicePresidentInvestorRelationsforCB&I.Thankyou.Mr.Lamb,youmaybegin.

Scott Lamb(VPofIR):

Thankyou,Operator.Goodafternoon,everyone.WelcometotheCB&Ifirst-quarterearningscall.Thankyouforjoiningustoday.

Thisafternoon,youwillhearfromPhilAsherman,PresidentandChiefExecutiveOfficer,andMikeTaff,ExecutiveVPandChiefFinancialOfficer.PhilandMikewilloffercommentaryontheresultsforthequarter,andthenwe'llopenupthelineforyourquestions.

Beforebeginningtoday'scall,theCompanywouldliketocautionyouregardingforward-lookingstatements.Anystatementsmadeordiscussedtodaythatdonotconstituteorarenothistoricalfacts,particularly,commentsregardingtheCompany'sfutureplansandexpectedperformance,areforward-lookingstatementsthatarebasedonassumptionsthecompanybelievesarereasonablebutaresubjecttoarangeofuncertaintiesandrisksthataresummarizedintheCompany'spressreleaseandourSECfilings.

Whileforward-lookingstatementsrepresentManagement'sbestcurrentjudgmentastowhatmayoccur




inthefuture,theactualoutcomeorresultsmaydiffermateriallyfromwhatisexpressedorimpliedinanysuchstatements.

IwillnowturnthecallovertoPhil.

PhilAsherman (PresidentandCEO):

Thankyou,Scott.Goodafternoon,andthankyouforjoiningusaswereportChicagoBridge&Iron'sresultsforthefirstquarterof2016.

First,welcometoScottLambasournewHeadofInvestorRelations.ManyofyouknowhimfromhisyearswithFosterWheeler,andmorerecently,CameronInternational.ScottisaseasonedIRprofessional,andisagreatadditiontotheteam.

IalsowanttothankJaimeCoryellforhistremendouscontributiontothisroleandcongratulatehiminassuminganotherpositionwithinourcorporatestrategicplanninggroup.

First,letmeconveyourthoughtsandprayerstoourofourneighborsintheHoustonareathatsufferedthroughthesepastfewdaysofstormsandflooding.CB&Ihasnearly4,000employeesintheareaonprojects,intechnologylabs,fabricationplants,warehousesandoffices.

I'mrelievedtoadviseyouthatwehavenoreportsofanysignificantimpacttoouremployees,otherthansomecasesofbeingunabletogettowork.Secondly,ourmajorprojectsalongtheGulfCoastoranyofouroperationsintheHoustonareaexperiencedminimaldisruptionordamageduetoflooding.Weare,ofcourse,monitoringthesituationbutbelievetheworstisbehindus.

Nowasyouknow,Ibegineverycallwithacommentaboutsafety.Andweareveryproudofmaintainingourpositionasoneofthesafestcompaniesintheworld.Wehavethelowestlosttimeincidentrateintheindustry.

17ofoursitesarewithoutalosttimeaccident.26ofoursiteshaveworkedover1millionmanhourswithoutaninjury,and50siteshaveovera0.25millionmanhourswithoutarecordableinjury.Butasimpressiveasthisrecordis,wearenotinfallible.

Lastmonth,weexperiencedthreeseriousincidentsatdifferentsiteswithdifferentcircumstances,andwheredifferentworkwasbeingdone.Butwhattheyhadincommonwasthateachoftheincidentsinvolvedfairlyroutinetasksthatendedtragically,becauseofsomedecisionorjudgmentthatresultedinfatalitiesthatshouldnothavehappened.Althoughwe'verecordednearly650millionman-hourswithoutafatality,thisisatragicreminderthattheworkwedorequiresconstantvigilanceandattentionineveryproject,lab,shop,andofficeeverydayaroundtheworld.

SoabriefcommentonourfinancialperformancewhichMikewilldiscussinaminute.Goodnewsonoperatingcashflow,whichwas$142millionor1.3timesournetincomeforthequarter.Includingthecashflowsfromourunconsolidatedequityjointventureprojects,whichareessentiallyadvancedpaymentstofinanceouroperationalactivities,thisamounttotaled$257millionor2.4timesournetincomeforthequarter.

Ourconsolidatedfinancialperformanceforthefirstquarterresultedinincomefromoperationsof$188million,revenueof$2.7billionandnetincomeof$107millionor$1.01perdilutedshare.Earningswerelessthanexpectedduetounderperformanceinourfabricationservicesgroup,whichwasoverbudgetontwounrelatedprojectsthatcompletedinthefirstquarter,andbothchargesarenon-recurring.TheimpactonEPSfortheseprojectswasapproximately$0.18perdilutedshare.

Yeartodate,wehavealreadyseenimprovementinnewawardbookingsearlyinthesecondquarter




counteringwhatisatacontinuingdelayandfinalcapitaldecisioninmostofourmarkets.Wearenotseeingcancellations,butthecontinuingweaknessincommoditypricesisdelayingcommitments.Giventheoverallmarketdynamics,wearetakingthemostconservativepositionintermsofwhatwesee--whatwetakeinthebacklogasanewreward.

Thisdelayhasbeenfeltthisquarterinournewawardsexpectations,andmorespecificallyinourpreviousoutlookonCameronLNGtrain4.AlthoughwehaveanagreementinprinciplefortheEPC,wefeltitwasprudenttodefertakingthis$1billioncontractintobackloguntiltheownersmoveclosertotheFID.

WearetakingthesamepositiononAnadarko'sMozambiqueLNG,whichwehadexpectedtobookthisfirsthalfoftheyear.Buthavingsaidthat,neitherprojectsubstantiallyimpactsour2016outlookforrevenue,earningsorcashflow.

OthernewawardsforthefirstquarterincludescopeincreasesonanLNGmechanicalerectionandinstrumentationprojectinAustralia,refinerymaintenanceworkintheUnitedStatesandCanada,crudeoilstorageintheMiddleEastandCanada.PetrochemicallicensingintheAsia-PacificregionandChina,catalystawardsintheMiddleEast,environmentalremediationworkfortheUSNavy,andavarietyoftechnologyandfabricationawardsglobally.

NowIwillbrieflydiscusshighlightsfromouroperatinggroupsfromthequarterandprovidesomeperspectivesonouroutlook.ForengineeringconstructionintheUS,wehaveanumberoflargeprojectscurrentlyunderconstruction,includingourLNGexportterminalsforCameronandFreeportLNG,andourpetrochemicalplantsforOxyChem,Shintechand(Exelatte).Wealsohavethreecombinedcyclepowerplantscurrentlyunderconstruction.

ThebacklogdistributionofourengineeringconstructionbusinessintheUSisabout78%,andconcentratedinthethreeendmarketsIjustmentioned.Forengineeringconstruction,LNGisnearly50%,petrochemicals30%withtheremainderdistributedbetweenpowerrefiningandunderpinningwork.

Orpic,thelargemulti-billiondollarpetrochemicalprojectinOmanthatwebookedlastquarter,combinedwiththeanticipatedLNGworkinEastAfricaaswellassteelplatestructures,pipefabricationandtechnology,shouldincreaseourinternationalworkoverthenexttwotothreeyears,returningouroverallportfoliotoamorebalancedgeographicdistribution.

Currently,marketsinAsiaPacific,SouthAmericaandCanadaremainopportunistic,withmuchsubstantialactivitywhilewewaitforimprovedstabilityincommodityprices.ThecleanfieldsprojectinKuwaitisoverthehalfwaymarketinphysicalprogress,andinAustraliatrain1atGorgonLNGissubstantiallycomplete,withourmechanicalelectricalsubcontractandpipingsupplycontractforWheatstoneLNGwelloverhalfcompleteaswell.

NowouroutlookforE&C,ourexpected2016awardsrepresentapproximately60%ofouranticipatedtotalfortheCompanyfortheyear.Themixoftheseawardsiscomprisedofapproximately50%to60%LNG,20%to30%refiningandpetrochemical,andtheremainderdistributedbetweenpower,gasprocessing,refiningandunderpinningwork.

Turningtofabricationservices,ourabilitytoin-sourcemajorcomponentsofourlargeprojectscombinedwithasolidreputationinmarketshareforheatexchangers,tanksandfabricatedpipingisacriticalpartofourvaluepropositiontoourcustomers.Italsoprovidesstrongmarginopportunitiesandsteadycashgenerationforourshareholders.Aswecontinuallyimproveefficiencies,consolidatefabricationcapacityandleverageafairlystablesupplymarket,weexpecttoseelong-termgrowthinmarginexpansion.

Thisfirstquarter,however,wehaveseensubstantialheadwindsfromnewprojectdeferralsinthesteel




platestructurebusiness.Plus,asImentioned,underperformanceontwoprojectsthatdilutedtheearningsoftheoperatinggroupthisquarter.

Butgiventhefairlyquickbook-and-burnattributeofthisgroup,thehighwinratiosofitsunit'ssteelplatestructures,fabandmanufacturingandengineeringproductsandexpectedmarginperformance,weseesomegreatopportunitiesalreadydevelopinginthesecondquartertooffsetthisslowstarttotheyearandachievethefabricationservicesoperatingplan.

Opportunitiesforfabricationservicesareconcentratedincapitalinvestmentsandnaturalgasliquids,petrochemicals,terminals,LNGandpowerworkinNorthAmericaandtheMiddleEast.Particularly,inSaudiArabiaandKuwait.InothergeographiessuchasWesternandEasternAfricaandCentralandSouthAmerica,wearepursuingselectiveopportunities.

Movingtotechnology.Duringthequarter,thecatalystplantwherewe'repartneredwithClariantisprogressingasplanned,andisprojectedtoreachmechanicalcompletioninJunewithproductiontostartinOctober.Alsoaswe'vepreviouslyannounced,webrokegroundinMarchonthenetpowerdemonstrationplantwithourpartnersExelonand8RiversCapital,andexpectcompletionearlynextyearwithcommercialoperationscheduledformid-2017.

Wearealsopursuinganumberofinitiativesthatcontinuetoprovidenewopportunitiesfortechnologylicensing,catalystsandanadditionalpullthroughforbroaderCB&Iofferings.Prospectivepetrochemicalopportunitiescontinuetobepositive.

Althoughthegapbetweenethaneandnaphthacrackershasnarrowed,theUScontinuestobethepreferredlocationforethanecrackerswhiletheMiddleEastandAsiafocusonliquidcrackers.Refiningmarketsfortechnologyareexperiencingactivitytiedtogasolinedemand,growth,drivingdemandforalcoholateblends,amovetowardsproductionofcleanerfuelsandlowercrudepricesencouragingthesurgeforoil-relatedprojectsandproducts.

Capitalservices,duringthequarter,weperformedseveralnuclearoutagesandcompletedanumberofturnaroundsatvariouslocationsinNorthAmerica.ThegroupalsocontinuestocollaboratewithourotheroperatinggroupstoenhancetheOrganization'soverallcompetitivepositioning.OpportunitiesforcapitalservicesremainprimarilyinNorthAmerica,andconcentratedinpowerandindustrialmaintenance,environmentalandsustainabilityworkandselectiveopportunitiesforfederalservices.

Importantly,capitalservicesissupportedbyagoodtrackrecordofperformanceinthenuclearoperationsandmaintenancemarket,withgoodprospectsonthefossilandnuclearpowermaintenancebusiness,emergencyreliefwork,opportunitiesinselectivestatesandindustrialservices.Federalgovernmentspendingtrendscontinuetopresentchallengesforthisoperatinggroupinthenearterm.

Insummary,we'repleasedtoseethestrongoperatingcashperformance.Andaswe'vepreviouslydiscussed,wehaveverygoodvisibilityinto2016withover75%ofourprojectedrevenuecurrentlyinbacklog.Andwehaveeveryexpectationthatwithsustainedmarginsandastrongbacklog,weremainconfidentinourabilitytoachieveour2016guidanceof$11.4billionto$12.2billioninrevenueandourEPSrangefortheyearof$5to$5.50.

Withthat,letmeturnitovertoMikewhowillreportthefinancialsforthefirstquarter.Mike?

MikeT af f (EVPandCFO):

Thanks,Phil.Goodafternoon,everyone.

Philgaveyouagoodheadlinesummaryofoursolidoperatingresultsforthequarter.




Withearningspershareof$1.01,asignificantincreaseinoperatingcashflow,sequentialquarterreductionintotaldebt,andahealthybacklog.TheresultsalsoreflectedadeclineinSG&Aexpense,andaneffectivetaxratethatisbothcompetitiveandsustainable.

IÕllnowwalkyouthroughsomeadditionaldetails.First,letmeofferaquickhousekeepingnotebeforeIbeginmydiscussionofourQ1performance.

Asyouallknow,wecompletedthesaleofournuclearbusinessattheendof2015.And,ofcourse,ourfinancialresultsforthefirstquarterof2016donotincludeanyoperatingresultsfromthatnowdivestedbusiness.Youwillhavenoticedthatourpressreleaseincludestablesthatshow2015keymetricsonaproformabasis,excludingthenuclearoperations.

Inmyremarkstoday,Iwillrefertooperatingresultsfor2015.Iwill,infact,bereferringtothoseproformanumbers.WethinkthisisthemostmeaningfulwaytoevaluateourQ12016performance,becauseitreallygivesyouanapples-to-applescomparison.

Now,withthisinmind,let'sstartwithalookatthetoplineforCB&I.OurQ1consolidatedrevenuewas$2.7billion,roughlyflatascomparedtotheyear-agoquarterasa14%increaseinE&Crevenuewasoffsetbyrevenuedeclinesinfabricationservicesandourtechnologygroup.

Grossmarginwas10.8%ofrevenue.Thedeclininggrossmarginyearoveryearisaresultoflowerrevenuevolumeinthefabricationservicesandtechnologygroups,aswellasreducedoperatingleverageandanoveralllowermarginmix.

Forthequarter,sellingandadministrativeexpensewas$93millionor3.5%ofrevenueversus$106millionintheyear-agoquarter.TheimprovementinSG&Aisdueinparttolowerincentivecompensationcostsinthefirstquarterof2016.Operatingincomewas$188millionor7%ofrevenue,versus$201millionor7.6%ofrevenuesduringthefirstquarterof2015.ThedeclineinoperatingincomedollarsandmarginreflectsthefactorsIjustmentioned.

AsIstatedpreviously,dilutedearningspersharewere$1.01forthefirstquarterof2016,a5%increasefromthe$0.96fortheyear-agoquarter.EPSincreasedyearoveryear,despitethelowerlevelsofgrossprofit,dueinparttocontrollingSG&Aexpense,aslightdeclineintheeffectivetaxrateto27%versusnearly29%intheyear-agoquarter,andamodestreductioninthenumberoffullydilutedsharesoutstanding.AsPhilhighlightedpreviously,newawardsforthefirstquarterof2016totaled$1.2billion,downfromthe$3billionfortheyear-agoquarter.

Asyouallknow,thequarterlypatternofnewawardscanbelumpyoverthecourseofanygivenyear.Havingsaidthat,wecontinuetohaveconfidencethatorderswillreboundastheyearprogresses.Ourconfidenceinthatregardisbasedonthesheervolumeandqualityofourprospectlist.

Nowlet'sreviewtheoperatinggroupresultsfortheyear.Andagain,pleaserememberthatwhenIreferto2015results,Iamcitingtheproformanumbersthatexcludethenuclearoperations.

Newawardsforengineeringconstructionwere$323millionforthequarter,ascomparedto$1.2billionintheyear-agoperiod.E&Crevenueforthefirstquarterwas$1.5billion,up14%ascomparedtotheyear-agoquarter,duemainlytoincreasedactivityinourLNGexportfacilities.

Forthefirstquarterof2016,E&Coperatingincomeincreased23%to$112millionor7.4%ofrevenues,from$91millionor6.8%ofrevenuesforthecomparableperiodin2015.Theimprovementinoperatingincomeandmarginwasattributabletohighervolumeandsolidexecution.

Ourfabricationservicesgroupgeneratednewawardsof$374millionforthefirstquarterof2016,downfromtheyear-agoperiod.Revenuesinthefirstquarterof2016cameinat$518million,representinga




declineversustheyear-agoquarter.Thedeclinewasduetothewind-downofvariousstoragetankprojects.

Operatingincomeforfabricationservicesinthefirstquarterof2016totaled$38millionor7.4%ofrevenue,comparedto$52millionor8.2%ofrevenuesinthefirstquarterof2015.Thesofterresultsarereflectiveoflowerrevenuevolume,andtheunfavorableimpactoftwoprojectchargestotaling$26million.Thechargeswerepartlybutnotfullyoffsetbysavingsonvariousotherprojects.Theimportantparthereisthatthejobsarenowessentiallycompleted,andwewouldexpectfabricationservicesmarginstoimproveintheremainingquartersoftheyear.

Ourtechnologygroupreportednewawardsforthefirstquarterof2016of$84million,ascomparedto$7millionintheyear-agoperiod.Revenueforthetechnologygroupinthefirstquarterof2016declinedto$65million,ascomparedto$99millioninthecomparableperiodin2015.

Thedeclineinrevenuereflectedlowercatalystvolumeandthetimingofnewawards.Weexpectquarterlyrevenuestoimproveinthissegmentoverthecourseof2016.

Operatingincomeforthetechnologygroupinthefirstquarterof2016was$26millionor41%ofrevenues,comparedto$48millionor48%ofrevenueintheyear-agoquarter.Thedeclineisdueprimarilytolowervolume,althoughbearinmindthattheyear-agoquarteralsoincludedaone-timegainof$8million.

Lastly,ourcapitalservicesgroupgeneratednewawardsof$417millioninthefirstquarterof2016,downby$400millionascomparedtotheyear-agoquarter.Revenueforthequarterwasrelativelyunchangedversusayearagoatabout$569million,aslowerindustrialmaintenancerevenuewasoffsetbyhigherUSpowermaintenancerevenue.

Operatingincomeforcapitalservicesinthefirstquarterof2016was$11millionor2%ofrevenues,amodestimprovementascomparedto$10millionor1.9%ofrevenueintheyear-agoperiod.

Now,let'sturntothebalancesheet,cashflowandliquidity.Operatingcashflowinthefirstquarterof2016amountedto$257million,whichrepresentsadramaticimprovementfromtheyear-agoperiod.Ifyoudoacomparisontotheyear-agoperiodonareportedbasis,thepositiveswingincashflowis$547million.Ifyoudoacomparisononaproformabasis,excludingthenuclearbusinessfromayearago,theswingisstillimpressiveat$243million.

Now,Ineedtopauseheretotalkaboutthegeographyofthecashflowstatementforjustaminute.Asmostofyouknow,advancepaymentsthatcometousinconnectionwithprojectsexecutedthroughunconsolidatedequitymethodjointventuresappearintheStatementofCashFlowsinfinancingactivities.

Inrecentreportingperiods,theseadvancedpaymentswereimmaterial.However,thischangedinQ1becauseoftheadvancedpaymentwereceivedononeofourrecentlargeequitymethodawards.

So,the$257millionIcitedisasumofthe$142millionofoperatingcashflowandthe$115millionofadvancepaymentsfortheunconsolidatedequitymethodventure.Onago-forwardbasis,forthesakeoftransparencyandconsistency,wewillcitethedollaramountofsuchadvanceseachquarterwhenevertheyarematerial.AsareminderandaswediscussedinourrecentInvestorDay,weexpectouroperatingcashflowperformancein2016tobeatorabovenetincome.

Atquarterend,ourcashandcashequivalentsbalancewas$641million,whichrepresentsanincreaseofalmost$300millioncomparedtotheyear-agoquarterand$90millioncomparedtoyear-end2015.Ourthree-partcapitalallocationstrategyisunchangedaswereturncapitaltoshareholders,continueto




makeongoinginvestmentsinthebusinessandsteadilyreduceourtotaldebt.

Forthefirstquarterof2016,wepaid$7millionincommonstockdividends.Wespent$8milliontorepurchaseshares,invested$22millioninourCapExprogram,andreducedourtotaldebtonasequentialquarterlybasisby$120millionorroughly5%.

Finally,Iwouldliketoreaffirmourguidance.Weexpectrevenueintherangeof$11.4billionto$12.2billion,anddilutedearningssharesintherangeof$5to$5.50persharewithaslightbiastowardsthemidpointoftherangeforbothrevenueandEPS.

Asmanyofyouknow,itisquitecommonforCB&I'sfirstquarterresultstobetheweakestofanygivenyear,andwearelikelytoseethatpatternplayoutagainin2016.Wefullyexpectearningstoprogressivelyimproveaswemovethroughtheremainingquartersoftheyear.

Withthat,IwillturnitbackovertoPhil.


Thanks,Mike.Let'sopenthecallforyourquestions.

QUESTIONS&ANSWERS

Operator :

(Operatorinstructions)

StevenFisherwithUBS.

StevenFisher (Analyst-UBS):

Hello,Phil.Youguysdidn'tchangeyourguidancedespitethefabricationissue.So,istheresomethingyouareplanningonfortherestoftheyearthatwilloffsetthat$0.18offabricationdisappointment?Or,asyousaid,youaretrendingtowardthemidpointwhereyouwereexpectingtobeattheupperendbefore?


Yes,aswesaidSteve,thechargesandfabricationofthetwoprojectsarenon-recurring,bothprojectsare100%.Ithinkifthosehadoccurredinadifferentquarterintermsofnormaloffsets,probablywouldnotevenbediscussingitmuch.

Butcertainly,weseethebusinesswillbeabletooffsetthosewiththeearningsthatweseeinfrontofusandthemarginimprovementthatwesee.Sowefullybelievethatourguidanceisintact.


Andthesluggishbookingsinthequarterdidnotputyoufurtherbehindintheplanatallfortheyear?


TherealsluggishbookinginthequarterwasactuallyCameron.Wethoughtthatwemightcomeinat$2.5billionto$3billionmark.Butprimarily,thathadtodoontwofronts.One,somesteelplatesstructuresbusinessesthatitlookliketheyaredeferredtothenextquarter,andwearealreadyseeingareboundfromthat.

ButthebigonewasCameron.AndalthoughwehadcometoanagreementontheEPCcontract,thereis




somecurrentdiscussionswithintheownersgroupthatlooklikeFIDwassliding,sowejustdecidedtotakeamoreconservativeviewonwhenwemightbookthatEPCcontractandwaittillwegetaheadsupfromtheowner.

Soweareconfidentthejobiscertainlybankableandwewillgoforward,andsothere'snothinginherentlywrongwiththeproject.It'sjustgoingtoslidealittlebitfurtherintotheyear.


Steve,asPhilmentionedinhisopeningcomments,wedidn'thaveanythingbookedreallyinourplanfortheyearrelatedtoCameronotherthanabooking.Sowehadn'tlostanyrevenueorcashfloworEPSassociatedwiththatproject.


Okay.Sointermsofbookingsfortheyearthen,canyoujustcommentonthepaceofunderpinning?Howdidthatlookinthequarter?Areyoustillthinkingabout$4billionto$5billionfortheyear?

Andthen,Iguessinaggregatewiththewholeyear,whatareyouthinkingaboutnow?Withandwithout,let'ssay,CameronandMozambiquehappening.


Ithinkgenerally,ifMozambiqueandCameronjustdon'tcomethroughthisyearwithEPC,obviouslythatisabouta$3billioncorrectioninournewawardforecast.Underpinning,Ithinkwiththeamountofrevenueandthekindofworkweseeisprettysolidatprobably$4.5billionto$5billionfortheyear,andIthinkthatisprettygood.

Butwehavegotanumberofotherdevelopments.Wehavegotsomegoodpetrochemicalbusinessinfrontofus,andwefeelprettyconfidentthatevenwithoutthosetwobigLNGjobs,weshouldcomeupbetween$10billionand$12billion.


Okay.Andthenjustlastly,sothekeythingsthatstillhavetohappentohitthat$11.4billionto$12.2billionofrevenues--basically,you'vegottheother25%ofyourrevenuesandbacklogsinunderpinning,orarethereother(multiplespeakers)--?


You'reabsolutelyright.75%isinourbacklog,thatmeanswehavegot25%ofworkthat'souttherethatweneedtobookandburn.Ithinkthegoodnewsis,thepetrochemicalworkthatweseeinfrontofus,wearewellpositionedforthat.Andprovidingtimingisonourside,weseemprettygoodwiththat.Butwehavegotrevenueon--wehavegotvisibilityon75%ofthatrevenue,sowe'reprettyconfidentinthat.

Andrememberlastyear,wehadaboutcloseto$1billionofFXimpactonourrevenue.Sowedon'tseethatnecessarilythisyear.Sowehavegotagoodstartonthat.


Yes,Steve,ifyoujustdothemathontherevenue,whichIknowyouguysandallyouguyswilldooverthenextfewdays,fortheremainingthreequarters,Ididthatthisafternoon.Wewouldneedtoaverageabout$3billionaquartertohitourmidpoint.

Lastyear,weaveraged$2.75billion,andasPhilsaid,wealsoaveragedbetween$200millionand$250




millionalmostperquarterofFX.Andwhatwesawthisquarter,theFXimpact,therewasaslightimpactofFXbutitwasbelow$50millionorso.SothatisagreatimprovementfromanFXstandpoint.


Yes,Ithinktherealswingunitinourbusinessisourfabricationservices.Ithasgottherightcombinationofcertainly,volumeandmargin,andaquickbookandburn.SoIthinkthatisgoingtobethereal--becausetheEPCworkissolidandgooddurablebacklog,butatasfarasourabilitytobookandburnrevenueandearningsinoneyear,certainlythatisgoingtobeimportantthatwemakesurethatunitisperformingwherewethinkitoughtto.


Okay.Iwillturnitover.Thanks.


Thanks,Steve.

Operator :

AndrewKaplowitzwithCitigroup.

AndrewKaplowitz (Analyst-Citigroup):

Goodafternoon,guys.Howyoudoing?Welcomeback,Scott.

Sojusttalkingaboutcash.Evenifweexcludetheunconsolidatedadvances,yourcashfromoperationswas1.3timesyournetincomeinthequarter.Andwhatusuallyisaprettyseasonallyweakquarter,andagain,excludingtheunconsolidatedadvances,youreallydidn'thaveanybookingsinthequarter.

Socanyoutalkabout,Mike,Iknowthisisforyou,whyyourcashamountswouldbeatleast1.3timesthenetincomeoverthenextfewquarters?Iknowyouwanttobeconservative,butyouknowIwanttopushyouonit.


Well,thanks,Andy,andIalwaysappreciatethat.No,Ithinkwehavesaidthatbefore.Isthatkindofourbenchmarkis1times.

AndIthinkwhenyou'rebenchmarkis1timeswiththeabilitytogetupinthe1.5,1.8rangeinanygivenyearbasedonthetimingofsomepayments,certainly,thepaymentfromOrpicwasnice.Andactually,aboutIthink$25millionofthatissittinginoperatingcashflowthatwasrelatedtothesubcontractfees,andtheother$115millionwassittinginthefinancesectionofcashflow.

So,yes,certainly,Andy,wedohavethatcapability,andItellyouwhat,wewerepleasedwiththisquarter.Theunitsdidagreatjobofgoingoutandjustdoingsomeofthebasicthingsliketimelybillingandgoodcollectionsandmanagingourpayables.

Andalso,wesawagoodindicationtheDSOheldprettysteady;ourDPOactuallyimprovedforthequarter.Sothingsaregoingintherightdirectionfromthatstandpoint.


Okay,Mike,thatishelpful.Still,maybeIcanaskyouaboutfabservices.Obviously,yousaidthesetwoprojectsareonetime,theyarefinished.




ButIfeellikeoverthelastcoupleyears,wehaveheardaboutmorevolatilityinthisbusiness.Maybetheretendstobetimingissuesaroundunderutilization,sothesethingsgetmagnifiedabit.Butitdoesfeellikethereismorevolatility,maybesinceyouboughtShawbackwhenthisbusinessaroundthisstuff.Somaybecouldyoucommentonthat.Andhowlikelythisbusinessistomaintainthis10%to13%marginthatyouhavetalkedaboutgoingforwardfromhere.


Well,keepinmindthattheprojectsthatwearetalkingaboutwereCB&I'slegacybusiness,andwhichisabusinessthatwerarelyhavethesekindofissues.SoIprobablywouldargueabitabouthistoricalperspectiveonthat.

ButIwilltellyouexactlywhatitwas.WehadoneprojectintheNortheast,whicharguablywasmarginallyprofitable.Butwhentheprojectwascomplete,therewasawarrantyissueonaverylargepre-fabricatedunit,thisisabigunit,anditseparateshydrogenfromLPGontherefineryfuelgas.But,itwasalargeunit.Sothevendorhastheresponsibilityforreplacingtheunitandfixingit,wehavetheresponsibilityforsupportingitwithengineeringandconstructionsources.Sothatcreatedthatovercharge.Soit'snon-recurring,andtheunitisgoingtogoinandwe'llbedone,weareoutofthere.

ThesecondisatankwebuiltinAustraliaandjustcouldnottackletheproductivityofAustralianlaborinthatparticulararea,anditjustgot--sowehadan$11millioncharge.Soinandofitself,thethingsthatnormallywouldbeoffsetinanormalquarterbutgiventhisissucha[thing]quarter,they'requiteapair.

Butnothingsystemicintheoperations.We'vegot1,000contractsin85placesintheworld,andIwouldliketosaythatweareabsolutelyinfallible.Buttheyalwaysconcernus,wealwayslookforthesolutiontomakesurethisdoesnothappenagain.Butthosearethekindofcircumstances.Sothey'renotsomethingthatwhichislingeredanongoing,andwefeelprettyconfidentwecanmakeupthecourseoftheyear.

ButIwillsay,fabricationservicesgenerallyIthinkhaveagreatopportunity.Theiractualmarginsareprettyhealthy,Ithinkwehavewrestledtheutilizationissuesdowninthepipingsideofthebusiness.We'regoingtodosomemoreconsolidation,wehaverestructuredthatandsoasweworkintoourowninternalbacklog,theoutlookforthatisprettygood.

SoIthinkthatwhatwehavebeenexperiencingis8%to9%operatingmargin,MikeandIarestillpushingthattowardsacouplepoints.Andwiththeamountofvolumeweseecangothroughthere,thatislikewhenItoldSteve,thatisthepivotgroup,ifyouwill,ortheswinggroupthatisreallygoingtodeterminewhetherwecanhitourtargetsornotthisyear.


Gotit.Still,maybeIcouldjustaskyouaboutthesensitivetopicofsafetyforasecond.Twobigincidentsafteralongperiodofgoodperformance.Iknow,youknow,itdoesn'tmakeyouguysfeelgood.Whatarethelessonslearnedfromtheseissues,andarethereanychangesyou'remakinggoingforward?


Itistragic,andI--weneededtotellyouthatbecauseIalwaystalkaboutsafetyandourprideinoursafetyperformance.Itwas--itisdifficulttoexplainbecauseindifferentpartsoftheworld,differentpartsofdifferentbusinesses--Iguesswhatwascommon,whichImentioned,istheywereroutinetaskswhichbecamedangerous.Thejudgmentaroundandthesituationalawarenessiswhatwedescribeit,justfailedtheindividualsonthoseprojectsandithadtragicconsequences.

Sowehadacorporatesafetystanddown.Wehavecommunicatedwitheveryoneofouremployees.Thisisprobablythemostimportantthingcanourbusiness,tokeepourpeoplesafe.SoIthinkpeoplehave




confidenceinoursafetyrecord.Certainlytheownersdo.ItwasjustatragicseriesofeventsthatcertainlyisunprecedentedinourCompany;butithappened.

Sowehavecertainlyalloftheimprovementsarearoundtherootcausesofthoseincidents.Butit'slikeakickinthestomachtous,asyoucanimagine.Butwehaveaddressedit,wehavesharedthiswithotherpeopleinourspaceandownerssotheycanlearnfromit,andthatiswhatwedoinbusinessbecauseeverybodyhasthesameinterest.Butthankyouforaskingthatquestion.


Okay,thanks,Phil.


Allright.

Operator :

JohnRogerswithD.A.Davidson.

JohnRogers (Analyst-D.A.Davidson&Co):

Hello,goodafternoon.Canyouhearme?


Wecan,John,eventhoughyouareinCalifornia.


I'mjustwondering,Phil,isCameronandMozambique,itseemsatmoreriskofdelay.Doyoustarttopivotsomeofyourpeopletothinkaboutotheropportunities?Especiallyoutinto2017and2018thatyou'vegottobeworkingonwinningnow?


Yes,we'vegotanumberofdevelopmentLNGsthatwecertainlyhaveteamsworkingonthat.ThereareteamsthatareabsolutelydedicatedtotrainforonCameron,doingthepreliminaryworkaswehaveAnadarkoandMozambique.Thoseactivitiesarefunded,theyareprogressingthepreliminarywork.

Ijustthinkitisimportantjusttobeprudentintermsofalltheinternaldecisionsthathavetobemadebyverycomplicatedowners'groupsandoff-takeagreementsandsoforth.Andjustmakesurethatwedon'tgetaheadofanyofthatwhenweactuallybookworkintoourbacklog,becausewehavealwaystakenaveryconservativeviewonthat.Andwerequirealotofdocumentationanddiligencebeforewetakealargeoutofthebacklog.

SoIthinkjustfromthegeneralenvironmenttoday,whereweareseeingalotofdelayincommitments,wejustthinkwewanttobealittleprudent.There'snothingstructurallywrongwiththejobsorinherentlywrongwiththejobs,we'recontinuingourwork.Itisallfunded.

Butweseethisaroundtheworldthatthingsarejustslowinginsomeareas.Fairlysignificantlyinareasintermsofdelays,andintermsofcommitmentsandfinancialcommitments.Sowejustwanttotalkaboutthatalittlebit.





AndJohn,Iwouldpointout,too,thatalso,I'djusthighlight--there'sanumberofotherareasthatwehavegotgreatpossibilitiesinandwearecertainlytracking.Youlookatpetrochemical,weseetwoorthreelargemulti-billiondollarjobscomingtomarketinNorthAmericathisyearthatwethinkwearewell-suitedfor.Several,Iwouldsaythreetofourofthejobswe'vetalkedaboutinthepastonthepowersidethatarethere.

Andwehavealsogotanumberofopportunitiesrelatedtorefinery,bothintheUSaswellastheMiddleEastandRussia.Soit'snotjust--we'veonlygotfolksworkingonsomeofthebigelephantsinLNG,wehavegotourcriticalassetsdeployedinallofthedifferentendmarketsthatweseethatwouldcontributetoourbookingbasefortheyear.


John,Ithink--andyouknowthisaswellasanybody,Ithinkifyoulookatjusthowwearelayered,remember,sincetheendof2013totheendof2015,we'vebookedover$41billionworthofnewwork,$41billion.Andalotofthathadtodowithlong,durablebacklog,muchofwhichgoesoutto2019andbelow.Thenyouhavegotanotherlayerofpetrochemicalworkwhichcycletimesvarybetweenthreeandfouryearswhichalsocontributedtothat.

Beyondthat,youhavequickbook-and-burncharacteristicsofallourfabricationworkandallofourunderpinningwork.Sowhenyoulookatallofthat,justhowworkflowsthroughourgroup,wefeelprettyconfidentthatwithevensomedelaysonsomeoftheseheadlineprojects,wecertainlyarewellpositionedtodothatandstillcontinuetoreturntheearningsandthecashflows.


Thankyou.IfIcouldjustonefollow-up,whatareyouexpectingintermsofaninvestmentinnetpowerthisyear?


Mostofourinvestment,Ithinkitwas$43million,wasaCapExinvestment.Ithinkmostofthatwillactuallycomenextyearaswegetclosertogettingintooperations.

SoIthinkrelativetotheinternalreturns,internalrateofreturnsthatweanticipate,Ithinkitwillturnouttobeagoodinvestment.Sothatjobisgoingalongjustfine,andwewillkeepreportingonitbecauseweareprettyexcitedaboutwhatthat'sgoingtodoforus.


John,whatItalkedaboutatAnalystDaywasthatweexpectedtotalCapEx,andthatistraditionalCapExaswellasourinvestmentinnetpowerandClariant,tobeinthat$140millionto$150range.Andyousawthatbeingabout$22millionthisquarter,with$11millionofthatshowingupincashflowundertheCapExline.Andthenthere'sanother$10million,$11millioninotherrelatedtoClariantthisquarter.


Okay.Ijustwantedtounderstandhowmuchthatwasimpactingcashflowthisyear.


No,notthatmuch.





Okay,great.Thankyouverymuch.


Allright,John,thanks.

Operator :

MichaelDudaswithSterneAgee.

MichaelDudas (Analyst-Sterne,Agee&Leach,Inc):

Michael,Ithoughtyouwerepartyon.


Partyon,it'sapartyhereonWallStreet.Thanksthough,andwelcomeback,Scott.

Scott Lamb(VPofIR):

It'sgreattobehere.


Absolutely.Andthefirstquestionis,onMozambique,certainly,thecautionisprobablyguided.Yourthoughtson--isthereanythingdifferentthat'smaybecausingthingstopushtotherightandthanyouwould'vethoughtmaybetwoorthreemonthsago?AndhowdoyouthinkExxon'spotentialinvolvementinthatgasplaycouldimpact--Idon'tknowifitimpactsyourAnadarko,butmaybeforthewholeinvestmentthesisforthatplay?


Yes,gettingtothefirstquestion,Ithinkthereisreallynothingdifferent.Itisjusttakinglongertogetthenumberofcommitmentsandtheagreementsfromthegovernmentandtheoff-takebuyerstoreachagreementonthetermsthattheywant.Soit'sjust--Anadarkoisworkingthose.Wehaveseennoslowdowninourpreliminarywork;it'sfunded.

Soitisjustacautionthat,that'stakinglongerthanwhateverybodyexpected,whichiswehaveseenthisbeforeontheseverylargeLNGdevelopments.Sothathasnotnecessarilychanged.Andyoursecondquestionwas?


Exxon.


Exxon.WellIthinkit'sgreat.IthinkforExxontocomeinatthispointwheneverybodyisfeelingalittlebitnervousaboutLNGdevelopmentsisaprettygoodendorsementforthatprojectandthequalityofthoseassets.Fromourperspective,wehavehadalong-termrelationshipwithExxon,asdoesChiota.

IthinkweservedthemwellonthePapaNewGuineaplant,whicharguablyisprobablyoneofthebetterLNGdevelopmentsthathavebeendoneinthelastdecade.Sowewouldhopethatasthatworkdevelops,wewouldbewellpositionedtoparticipate.Butfirst,ourfirstobligationistotheworkathandandthatiswithAnadarko.Sowearefocusedonthatandcommittedtothatandwewilljusthavetoseehowthatotherworkdevelops.





Phil,whenyousayitisfairtosaythatfromourdailyinvolvementwithAnadarko,wehaveseenochangeintheircommitmenttothisproject.


Absolutelynot.That'sagoodpoint.Absolutelynot.


Iappreciatetheanswer.AndforMike,IthinkyoumighthavementionedinoneofyourpreparedmarksorquestionsthattheOrpicpaymentcameinfirstquarter?


Itdid.


Okay,terrific.Andarethereanyothermilestoneoranyonesthatarevisibleinthehorizonthatyoucouldhighlightheremaybeforthenextonetotwoquarters?


I'dsayoverthenextquarterorso,itismainlyit'sgoingtobejustgoodblockingandtackling.Obviously,there'sgoingtobemilestonepaymentswegetonsomeofthelargeprojectsthatarerampingup,suchastheCameronandFreeportandothers.Butwedoseesomelargebookingsinthebackhalfoftheyearthatcouldhavethat.

Especially,onthepowersideandaswellaspetrochemicalside.SoIthink,weareverypleasedatthestartoftheyear,andwehopefullywefeelthisbodeswelltoaverystrongcashflowyearfortheCompanythatallowsustofocusonourcapitalallocationplanandreturningcapitaltoourshareholders,investinginthebusiness,andreducingourdebt.


Andwillthatcapitalallocationbemoreoptimisticastheyeargoesthrough?SinceIknowyou'vegottoprobablycatchuponsomeoftheCapExthatyouseeinthenextfewquarters,itcouldbemorejusthowthecashflowhasturnedandhowitplaysthroughtoretiredebtandbuybackstockthisyear?


Ithinkthatmakessense.


Terrific.Thanks,gentlemen.


Thanks,Mike.

Operator :

JamieCookwithCreditSuisse.





Hello,Jamie.

JamieCook(Analyst-CreditSuisse):

Hello,goodevening.Acouplequestions.One,Mike,backtothecashflowquestion.

Obviouslycashflowinthefirstquarterwasgoodanywayyoulookatit,buthowcomfortableareyouwithyourabilitytohitthelongertermtargetof1.5timesdebttoEBITDAoverthenext12to18months?Whilethefirstquarterwasgood,itsoundsliketherewassomedelay,youtalkedaboutthedelaysinprojectswhereyou'reprobablycountingonadvancedpayments.Sodoesthathave--areyoulessconfidentinthattarget?

Mysecondquestion,onthetechnologyside,Iappreciatetheone-timethingsyoupointedout.Butmostpeopleviewthatasamoreofrecurringearningsbaseandthedeclinesonrevenueandprofitwerefairlydramatic.

Socanyoutalkabout--Iknowyou'reexpectingtoimprovesequentially,howmuchdidyourecaptureordoyouexpecttorecaptureinthesecondquarter?Andjusthowdowethinkaboutthecadenceofearningsthere,justbecausethat'sviewedasaleadingindicatorfornewwins,newEPCwins?

AndthenIguessmylastquestionisonSG&A.Itwasalittlelighterinthefirstquarter.Iknowyoutalkedaboutstockcomp,buthaveyourexpectationsforSG&Afortheyearchanged?Isitnowlowerversuswhenyouguidedattheanalystday?Thanks.


SoIwilltakethefirstone,andthenletPhiltalkaboutthetechnologyrevenue.Butno,fromgettingourdebtdowntothat1.5metricthatwetalkedaboutatinvestorday,no,ithasn'tchangedfromthat.We'vesetthatasalong-termtargetof12to18months,soIstillthinkaswegetinto2017andtowardsthemiddleorendof2017that'scertainlystillveryattainable.

Wemadegoodimprovementthisquarter.Someoftheadvancedpaymentsyoureferredto,wewerenotexpectingthoseuntil2017.Andsowhetherthatslipsamonthortwoorthree,notgoingtochangethataswegetintotheendoftheyearonthat.

Soagain,weareverypleasedataalmost$550millionimprovementyearoveryearonaquarterlybasis.Thatcertainlyheadsintherightdirectionandall.Andasweexpectedwiththatdivestiturethatwemadeattheendoftheyear.

Asitrelatestothetechnologyrevenue,IwillletPhiltalkaboutthebusiness.Butwhenyoulookatthataswhole,wecertainlyexpectthatbusinesstogetbacktonearorabovewheretheywereonanannualizedbasisfor2015in2016.Sowedoseesomerampingofthatbusinessaswegettowardstheendoftheyearasitrelatestocatalystsalesaswellasnewtechnology.And,Phil,doyouwanttoshare?


Ithinkifyoulookatjusttheoverallhealthcheckofthebusiness,certainlynewawardswerelessthanweexpected.Ithinkweprobablygotabout85%or90%ofthenewawardsthatweexpected,buttheslowdowninChinaiscertainlymeaningful.Historically,licensingawardsforthatgrouphasbeenabout26%ofthetotalandthathasbeendown,andwehavetalkedaboutit.

Thatcertainlyisonegroupwhichdoeshaveadirectcorrelationtothepressureonoilprices.Butstill,wearestartingtoseethattrendreverseitself.Buttheinterestingthingaboutthatbusiness,certainly,we're




watchingnewawardsbecausethathasadirectslowdownonlicensingrighttothebottomline.

Butwealsohavecatalystsaleswherewehavehadsomeimprovementinpriorquarters,andcertainlylookingout,ourprojectionforjustouroperatingincomeisprettyclosetowhatweoriginallyplanned.Soifwecangetourlicensingactivitybackuptowhereitshouldbe,weshouldseesomeprettygoodresultsfromthewholegroup.

Ourrevenues,ourbackloginthatgroupiscloseto$1billion,whichisprettystrongforatechnologygroupofthattype.Sowe'reprettyencouragedbyit.Ithinkthatthereissomegreatdevelopmentsinrefining,potentiallyaroundAppalachia,andourpatentsandouralcoholationtechnologyisdoingverywelloutsidetheCompanyeventhoughethanecrackersisstrongintheUS.

ButwealsohavesomeNaphthatechnologywherewearelookingattheliquidsdevelopmentintheMiddleEastandelsewherethatwehaveaplay.SoIthinkouroutlookisconfidentandpositive.

Idon'tthinkthiswillbealong-termissuewithtechnology,butweexpecttoseethemcontributeattheirnormalpace,andcertainlytheirmarginsat,Ithinkaround40%grossmargins,willcontinue.Soitisstillagoodearnerforus,Jamie.


Andthen,Jaime,yourlastquestiononSG&A?


(Inour)tax,sorryifImissedthattoo.What'sthenewtaxnumberonSG&A?


SoSG&A,Iwouldexpectthat$15millionimprovementthatwesawinthefirstquartertocarryovertowardstheendoftheyear.SoIwouldsaywhatweareexpectingfortheyearisprobablyabout$15millionless.SoyoushouldseeSG&A,asIspokeatanalystday,Isaidit'sgoingtobealittlehigherthanyousawlastyear,wherelastyearwewereat3.0%.

SoIthinkitwillbeinthe3.2%,3.3%rangefortheyear,andourtaxratefortheyearisunchanged.AsIsaidatanalystday,Iexpectthattobearound28%.SoIthinkitwillbe27%,28%fortheyear.


Okay.Allright,thanks.Iwillgetbackinqueue.


Thanks.

Operator :

JeffVolshteynwithJPMorgan.

Jef f Volshteyn (Analyst-JPMorgan):

Hello,thanksfortakingmyquestion.Iwantedtofollowuponsomeoftheongoingprojects.Phil,yougavesomecommentaryonacoupleofthem,butifyoucouldexpandonhowaretheyperformingagainstyourexpectations?ParticularlyFreeport,Cameron,trainsnumber1through3,andthecrackerprojects.





Sure.Ithinkagain,althoughwefocussomeonthefabricationjobs,intheirentirety,theyarefairly--theyaremuchsmallerintermsofhowtheymovetheneedle,asyoucanimagine,butcertainlyimportant.Soit'salwaysimportanttoremember,asyoureadilypointout,thatwearean80%/20%company,where20%ofourbacklogdriveabout80%ofourprofitability.

Soobviously,howthesejobsareperforming,particularlyFreeportandCameron,areabsolutelycritical.Theyareprogressingwell.Wearerightonplanforthecompletiondates.

Ithinkitisnosecretthatwearelookingataboutthefirst,secondquarterof2019forFreeport.Itisperformingwellagainstallofitsmarginexpectations,aswellascashflows,aswellasCameron.Cameronisabitbehind,notoftheirschedulebutcertainlybehindFreeport.Andagain,itisforecastedtocompleteasplanned.

Sowe'rereallylookingatthealmostgettingclosetothehalfwaypointonthesetwoprojects.Andtheimportantthingisthat,weareintherevenuestreamswillplateauatsomefairlyhighlevels,andagain,outthroughabout2018andthenwewillstarttoseetailoffforthelastyear.Sothesenextcoupleyearsaregoingtobeveryimportantintermsofouroverallperformanceandtheproductionofrevenueandprofitsfromthosejobs;buttheyarebothtrackingverywell.

Ourthree,Ithinkwasthreepetrochemicaljobs,Oxychemisthefarthestadvancedandagain,Oxychemisprettyclosetobeingcomplete.Andagain,theperformanceonthathasbeenverygood.Rememberonthatjob,weprovidedtechnology,aswellastheEPC,aswellasallofthetanks,andthetankageonthatjob.Sothat'sbeenaverygoodexampleofhowwelayerinprofitabilityonthejob,andwe'reverypleasedwithhowthat's--aswellastheowners,verypleasedonhowthatjobhasprogressedandwewillfinishup.

WhenyoulookatShentechand[ExioleLote],andIapologizebecauseIalwaysmispronounceLote,thatjob,again,isjustgettingstartedasisShentech.They'reinthesingledigitsintermsofprogresssofar.Soit'salittlebitearlytoreport,butcertainly,thereisnothingearlyonthatwouldalarmusasfarastheirprogressortheirperformance.SoIwouldhavetosayallinall,onthe20%oftheprojectsthatarecontributing80%ofourearnings,wehavegotgoodthingstosayaboutvirtuallyallofthem.


Veryhelpful.AndthenjustfollowingupontheIngallsside,isitcompletelydoneoristhereasaleofsomepercentageofrevenue?


No,IthinkIngallssideiscompleted,yes.


Okay.AcoupleofmorehousekeepingquestionsifImay.


Sure.


Thedeclineinbacklog,isitallburnourweretheresomereductionsinscopeorcancellations?





Itwasallburn.Itwasjustsimplydoingthemathbetweensalesversusbookings,andthenyouhadalittlebitofanFXimpact.Buttherewerenosignificantscopereductions.


Andthelastquestion,arethereanyone-timecompsandone-timeitemsin2015thatwillmakecompsdifficultin2016andintheremainingquarters?


Soone-timeeventsthatyou'resaying?


Correct.Excludingnuclear.


No,notsignificant.Ithink,asIpointedoutinthefirstquarter,wedidhavetheonegoodguyin2015relatedtothat$8millionone-timegain.Butoutsideofthat,thereisnothingsignificantintheremainingquartersthatIrecallfromacompstandpoint.


Great.Thankyouverymuch.


Thankyou.

Operator :

AndyWhitmanwithRobertW.Baird.


Hello,Andy.

AndyWhitman (Analyst-RobertW.Baird&Co):

Soothershavetalkedaboutsomeofthecustomersaskingthecontractorstoslowdownthepacingofthework.Iwasjustwonderingwiththerevenuetrendsthatwesawinthefirstquarterifyouareseeinganyofthatfromyourcustomerbase?


No,there'scertainlyissomecustomerinfluencegenerallyonprimarilyreimbursablework,andwedon'thavemuchofthat.Butthepaceoftheprojectsonfixedpriceworkisprettymuchdeterminedbythecontractandourobligationandus.Soitwouldbeunusualforthecustomertotrytoslowthoseprojectsdown.

PluswhenyoulookatallthoseLNGjobs,theyhavetake-or-paycontractsandthey'vegotaschedulethat'sabsolutelycritical,aswellasthepetrochemicalandotherworkwearedoing.Soweareseeing--I'mgoingtosayinmyclosingremarkssomecommentaryaroundhowwedoseethatimpact.BecauseIthinkgenerallyweseethis--generally,evenwe'renotcorrelateddirectlywiththegasbillonprices,generallythereisalotofpressurefrommanyIOCsandNOCsasfarasmarginsandcommitmentsand




products.

SoIwouldhavetosay,ifthereiscustomerimpactintoday'senvironment,ithastodowithjust,again,adelayinmakingfinancialcommitments,andwehaveseenthat.However,wehavenotseenanycancellationsincurrentbacklogorinperspectivework,sothat'sgood.Itjustseemstobepushingoutalittlefarther.


And,Andy,asPhilsaid,inafixedpriceenvironmentwherewe'revirtually70%ofthat,that'sourbacklog,theyreallydon'thavethatoptionBecauseasPhilsaid,they'vegotdeadlines,wehavegotdeadlinesinthecontract.Sowewouldhavetorenegotiatethosecontractsiftheyslowedusdownonanything.


Customershavetalkedalittlebitaboutobviouslyrevisitingthecapitalbudgetsaspartofthedelays.Whatareyouseeingintermsofthecompetitiveenvironmentonpriceandriskterms?Arethosechangingwiththesofteningenvironment,theslowingenvironment?


Sure.Ithinkitis.Itisgoingtobe--especiallythisyear,andwhilethereisinstabilityintheoilandgasprices,companieslikeoursaregoingtohavetobeverycarefulandveryselectiveintermsofwheretheyareworkingandwhatkindoftermstheyarewillingtoaccept.Andit'snotjustafixedpriceversusreimbursable,becausereimbursableissubjecttomargincompression,andafixedpriceisaverycompetitiveenvironmentoutthere,aswell.

SoIthinkallcompaniesinourindustry,aswellasothersuppliers,itaffectsusjustlikeitaffectsGE.Soallofthesuppliersarefeelingthispressure,andarebeingverycareful,Ithink,intermsofwhattheycommittogoingforward.


Thatishelpful.ThenIguess,onemorequestionhereonReficar.Youhavenothadachancetoaddressthisonepublicly,andIthinkitisprobablyworthcheckinginon.There'sobviouslyalawsuitpending,Idon'tknowifithasbeenfiledyet,Ithinkithas.


Yes.


It'sclaimingbillionsofoverrunsonareimbursablecontractforyouguys.Couldyoujusttalkaboutthebasisforthat?Howthatcouldgetresolvedorwhatcourtswouldberesolvedin,andwhatthecashimpactis,inotherwords,howmuchcashdotheyoweyouasoftoday?


Yes,wetalkedaboutthat.Wedidnotputitinourcommentary,becausequitehonestly,itisnotalawsuit.Itisaremedyinthecontractwhichcallsforthepartiestopursuearbitrationforanydisputes.

Theclaimsthattheyhaveagainstus,wedon'tseethattheyhaveanymerit.Butwenowdohavesomedisputesagainstthem,becausetheyhave,sinceourlastearningscall,withheldsomereceivablesandsomemoneyofoursthatwecertainlywillworktogetback.Sothisisgoingtobekindoflong-term.Ithink




therhetorichastuneddownalittlebit,andwehavegotsomediscussions.

Sowedon'tseeanyrealimpactonus.Wewilljustseehowthatgoes.Butit'snotalawsuit,andIthinkwewilljustlettheprimarilysomeofthelawyersandthecouncilhavetodealwithit,butwedon'thaveanyimpactbuiltintoourplan.


Isthatsettledinthejurisdictionthatis…?


ItwillbesettledintheUScourts,inUSjurisdiction.Itisinternationalrules,arbitrationrules,internationalrules,soitwillbeapanel.Itisareimbursablecontractandit'squitetransparent.

AndIthinkallofthepaymentsthathavebeenmadehavebeenauditedthroughouttheproject,andthere'sbeennodisputesbeforethen.AndIthinktheimportantthingis,isthattheplanitselfisoperatingverywell.Probablyaboveexpectationsorwheretheythoughtitwouldbeatthispoint,sothatisgood.

Weareveryhappyaboutthat.ButIthink,Isaidinthelastcall,thatIthinkthattooisfairlysymptomaticofbigIOCsandNOCstryingtorationalizetheircapitalplans.Andinthiscase,theplanisalreadybuilt,sotheeconomicshavechangedwiththeselowoilprices.

ButIcan'tdoanythingaboutthat,butIthinkwegavethemagoodplantandIthinktheyknowittoo.Sowe'regoingtoworkthroughthisissueandifanything--butremember,thearbitrationhassomeconfidentialityaspectstoit,soIcannotreallyreportonthatperse.Butshouldanythingmaterialcomeoutofthat,ofcourse,wewillcertainlymakeourinvestorsawareofit.


Thanks.


Okay.

Operator :

Wedohavetimeforonefinalquestion.YourfinalquestionwillcomefromthelineofJerryRevichwithGoldmanSachs.


Hi,Jerry.

JerryRevich (Analyst-GoldmanSachs):

Hey,goodafternoon.I'mwonderingifyoufolkscantalkaboutwhattheoutlookisforyournaturalgaspowerbusiness?What'sthecadenceofnewinquiriesthatyouareseeingtodayversus6or12monthsago,andwheredoyouthinkweareinthecycle?

Andalso,canyoucommentonthecompetitiveenvironment?Hasthatimprovedatall?Itlooksliketherehavebeenofcoupleofcostoverrunsforfolks,andI'mwonderingwhatthecompetitivelandscapeisliketodayversus6to12monthsago,aswell.





Ithinkwehaveseenalotofchangeinthatmarket.Ithinkwhenwefirstwentdownthatpathandwetalkedabouttheopportunitysetoutthere,welookedat,Idon'tknow,somethinglike70plantsthatwerebeingthoughtaboutwithvariousownersaroundthecountry.AndthisisalltheUSmarketthatweareaddressing.

Rightnow,wehavegotthreeunderconstruction.Theyareallgoingprettywell.Theseareallfixedpricejobs,theyareveryschedulesensitivetotheseprojects.Soweareworkingonthose.Weprobablyseemaybeapotentialofthreethisyear,wewouldhope.Sothatisthepacethatweseeonthese.

Itvariesintermsofownersandhowtheyviewontheirroleinbuyingmajorequipment,orwhattheywastopursueintermsofequipmentandchangesinschedule.Sotheyallvary,buttheyalltendtobearoundI'dsay(technicaldifficulty)million.Sowethinkwemightbesuccessfulincertainlytwoorthreenewawardsthisyear.


AndJerry,Ithinkwestillremainverypositive.AndIthinkwhenyoutalktotheownersandyoulookatbaseloadcapacity,thecoalfleetcontinuestodiminish.Asweallknow,notlongago,coalaccountedforover40%ofourbaseloadcapacityintheUS.Today,thatnumberisprobablycloserto30%,andallprojectionshaveitgoingto20%overthenextfiveyears.

Sothatbaseloadhastogetreplacedwithsomething,andIthinkthecommonbeliefisthemajorityofthatreplacementisgoingtocomefromnaturalgaswiththebalancecomingfromalternativesources.Andalso,wedostillfeelthisgoingtobeanicemarketforusoverthenextfiveyearsorso.


Asfarasthecompetition,itisprettymuchthesamesubsetwetalkedabout,ownersarelookingforcompaniesthathaveexperienceincertaintypesofplants,incertaincapacities,andcertainexperiencewithvarioustypesofequipment.SothattendstobreakdowntowithusandFluerandZacharyandKeywittandthat'saboutit.Soit'sareasonablecompetitiveslateofcompanies.

Welikethebusiness.Wethinkwecandoitwell,andit'scertainlysomethingwe'regoingtowillpayalotofattentiontogoingforward.


Thankyou.Andlastquestion,Phil,youmentionedtherewasalotofworktodoonMozambiqueLNGbeforeanFIDcouldbereached.Hasthattimelineshiftedatall?Orhaveyourplansmovedaroundatall?


No,ourpreliminaryworkisfundedforthetimeupuntilFIDandthenbeyond.Andallthatreallymeansisthereisatremendousamountofplanningandscopingandworkingwithequipmentvendors,suppliers.ItisjusttheimportantthingabouttheEPCcontracttous,isitallowsusthentogetintothenextphasewhichisfirmingupthosecommitments.

Sothenwecansharpenprices,wecangetsomecommitmentsandjustgetrealprogressgoing.Rightnow,itisallpreliminarywork.

Sothatcangoonmuchfatherandwewillbefinewiththat,becauseeverythingismeaningfultothejob.Sowearedoingthingsthataremakingthejobmoveforward.Itisjustuntilwegettosomeoftherealimportantcommitments,wewillbeworkingpreliminarywork,andcloselywithAnadarko.Sothatisnotaconcern,butwecertainlywouldliketoseetheprojectmovingforwardandit'sgoingtobeanexciting




partoftheworldtodevelopoverthenextseveralyears.


Yes,Jerry,ifyoujustlookatsomeofthethingsthatAnadarkoisworkingon,theyaremakinggoodprogress.ButitisgroundbreakingworktillyouthinkaboutnegotiatingallofthetaxcodesoverthereinMozambique.Theyjustdon'thavethelevelofdetail,obviously,thatwehavethere.Sothatisnew.

Theyareinventingnewtaxcodethere.Theyhavealsopubliclystatedthattheyhaveheadsofagreement,whicharebasicallyagreementsareinplaceforover80%oftheoff-take.Sotheyarebasicallytakingthoseheadsofagreementsaswespeaktodayandconvertingthoseintofirmcontracts.

ThosearethetworeallyimportanttasksthatAnadarkoneedstogetdonethisyear.Wethinktheyareonscheduletogetthosecompletebytheendoftheyear.ThenasPhilsaid,afterthatiscomplete,wewillfinalizeourEPCcontractwiththem.

ButwhetherthathappensinNovember,December,orJanuaryorFebruary,itreallydoesnotchangetheeconomicsofthejobforus.ItjustmaychangewhetherwehaveabookinginQ4orQ1.


Oncethejobgetstarted,Jerry,we'regoingtobetakingnamesforanambulancetripovertoEastAfrica.SoI'msurewecancountonyou,right?


IwillletJaimetakethatone.Thankyou,guys.Iappreciateit.


Allright.Takecare.

Operator :

Thankyou.IwillnowturnthecallbackovertoMr.Ashermanforclosingremarks.


Thankyou.Idohaveacoupleofbriefremarks.Aswehavebeenquicktopointoutinpreviouscalls,verylittleofournewworkhasbeencorrelatedtothedownwardpressureoncrudeprices.

Andwhilethatstillmaybetechnicallyaccuratefromaunitoperationstandpointrelativetothatcapitalinvestment,thecontinuinginstabilityintheindustryisabsolutelyimpactingthetimingoffinancingandcommitmentdecisions.Long-term,weseegreatopportunitydrivenbydemandinourprimaryendmarkets,andwe'reconfidentinourpositiontocapturemuchofthatwork.

Butquitehonestly,thislookslikeanotheryearofdifficultnavigationforcompaniesinourspacewhowanttobookqualitybacklog,whileworkinginanenvironmentofmarginpressureanddelayedcommitments.Andthisisaglobalphenomenon.

Butweareconfidentthatourintegratedbusinessmodelwhichprovidesdiversifiedearningspotential,ourdurablebacklogwhichispredominantlyatthestartofthecurve,nottheend.Ourselectivityofprojectsthatmeetourfiltersforcashflow,marginandrisk,andtrulytofocusonthingswedobetterthananyonewillnotonlysustainusthisyear,butwillcontinuetoimproveourabilitytoreturnvaluetoourshareholders.




Sothankyouforyourtimeandinteresttoday.Thisconcludesourcall.

Operator :

Thankyouforparticipatingontoday'sconferencecall.

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