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Chicago Bridge & Iron Company N.V. (NYSE:CBI)

Q2 2010 Earnings Conference Call

July 27, 2010 5:00 PM ET

Executives

Philip Asherman – President and CEO

Lasse Petterson – COO and EVP

Dan McCarthy – President of Lummus Technology

Ron Ballschmiede – CFO and EVP

Analysts

Andrew Kaplowitz – Barclays Capital

Joe Ritchie – Goldman Sachs

Michael Dudas – Jefferies

Scott Levine – JPMorgan

Barry Bannister – Stifel Nicolaus

Martin Molloy – Johnson Rice & Company

Joseph Gibney – Capital One Southcoast

Avi Fisher – BMO Capital Markets

Graham Mattison – Lazard Capital Markets

John Rogers – D.A. Davidson

Brian Uhlmer – Pritchard Capital

Operator

Good afternoon, my name is Channel and I will be your conference operator today. At this time, I would like to welcome everyone to the CB&I 2010 Second Quarter Earnings Conference Call. (Operator Instructions)

Before beginning today’s call, the company would like to caution you regarding forward-looking statements. Any statements made or discussed today that do not constitute or not historical facts, particularly comments regarding the company’s future plans and expected performance are forward-looking statements that are based on assumptions the company believes are reasonable that are such into a range of uncertainties and risks that are summarized in the company’s press release and SEC filings. While forward-looking statements represent management’s best current judgment as to what may occur in the future, the actual outcome or results may differ materially from what is expressed or implied in any such statements.

Now I would like to turn the cal lover to Mr. Philip Asherman, President and CEO of CB&I.

Philip Asherman

Good afternoon, and thank you for joining us to discuss our results in the second quarter. With me today are Ron Ballschmiede, CB&Is Chief Financial Officer; Lasse Petterson, our Chief Operating Officer; and, Dan McCarthy, President of Lummus Technology. After some brief comments from management, we will open the call for your questions.

For today’s agenda, we’ll begin a summary report from Lasse, who will highlight this quarter’s results for CB&I Lummus and Steel Plate Structure business sectors, followed by Dan who will discuss the performance of Lummus Technology and provide a view of recent trends affecting our global end markets. Ron will then provide a summary of financial results, and I’ll conclude with a few brief comments before we respond to your questions.

I’ll now turn the call over to Lasse, for a discussion of our CB&I Lummus’ and Steel Plate Structure’s business sectors. Lasse?

Lasse Petterson

Thank you, Phil. Good afternoon. A brief we’ll discuss some of the major projects in the backlog, which totals $6.8 billion as of June 30. The highlights of the quarter was the start of our (Liquid) production at the PERU LNG product. The first cargo was loaded and shipped in June and we have shipped two additional cargos in July. The project has been a tremendous success and the client is very pleased with the project and our performance. We are assisting the client for the first six months of operations, during this time we will complete the final flood test and performance testing.

The project was completed on time and below budget and are a lower cost per ton of product than any other recent LNG production facility, according to the owner. Our successful execution after LNG will position CB&I well for future liquefaction projects.

Let me just give you some additional information on the project. The side covers more than 4 square miles on a cliff 500 feet above the Pacific Ocean. The project is located in an active seismic zone and was build to withstand an earthquake with a magnitude of 8 on the Richter scale. The gas is coming from the Camisea field in the eastern part of Peru through a 500-mile pipeline to the flat, which has a production capacity of 4.5 million tons of LNG per year.

A workforce at the site beat that 5,600 and we provided 1 million hours of training to more than 13,000 Peruvian workers in welding, pipe fitting and other sustainable skills. The work out through that LNG was executed safely and at a very high level of productivity and quality.

At the REFICAR Refinery expansion project in Colombia, the detail engineering work is progressing as planned and construction is underway in (Capaena). To date, more than 50% of the (tide) equipment has been procured and the major reactors arrived at site last week. We are heavily recruiting craft labor and have initiated an extensive training program in preparation for hiring more than 5,000 workers at the job site, a similar exercise to that in Peru.

In Chile, final phase completion test are being conducted on the second and final tank for the Quintero LNG input project. First production began in August, 2009 and the plant has been since operating with 99.7 reliability performance. We’ve been very pleased with the success of this fast-tracked project and we are preparing to demobilize from the site later this quarter.

In the U.S., we were awarded a $280 million contract by Occidental petroleum for new gas processing plants at the Elk Hills field in California. Engineering is well under way and we plan to mobilize at the project site by the end of the year. The project is scheduled for completion in 2012.

The conventional tank building activity is continuing well in the U.S. (Engerion) pre-awarded a contract for Chevron for approximately $30 million for multi-tank projects in the Southeast of U.S. And in Canada, we have worked on the engineering and procurement for the (Curl all signs) project for the last 18 months. We continue to be a released on multiple aspects of the project and are waiting for the release.

We recently announced a $70 million project in Abu Dhabi where we are working with Daewoo, to provide storage tanks for the Ruwais Refinery expansion project for it to clear. Our scope for the project is scheduled to be complete in 2030.

A major low temperature storage tank project for GASCO in Abu Dhabi is also progressing well. Engineering has been done in a Plain Fields, Illinois office and we are now mobilizing at the construction sites. We’re building six cryogenic tanks for the storage of propane and butane and two (inaudible) tanks as well as the associated systems for GASCOs integrated development project in Ruwais.

In May we announced the contract for constant development services for the Yamal LNG liquefaction project in Russia. We were awarded the contract following a site tour of the PERU LNG project by the members of the Yamal LNG team. PERU LNG is conceptually similar to the proposed Yamal project.

In Qatar, the Pearl Gas-to-Liquid project for Shell is now in completion. Commissioning is well under way and we expect to complete testing and hand over by the end of the quarter.

And in China, the second phase of the Fujian LNG import terminal project is on track for completion by year end. Air raising is complete on both tanks and we have begun setting the platform modules on top of the tanks and hydro testing will begin next month.

Engineering for our major gas pump project in Papua New Guinea is well under way in our Singapore and Perth offices. And we have mobilized the project management in Brisbane. The five injects first major equipment delivery is in transit and scheduled to arrive in August. And we expect to mobilize to this site by year end.

This morning, we announced $190 million LNG storage tank award associated with a major liquefaction project in the Asia Pacific Region. A scope is scheduled to be completed 2013.

In Western Australia, the LNG storage tank for the Pluto LNG projects are nearing completion as we in the process of (inaudible) and purging the tanks. Also in Western Australia, the Gorgon Energy Storage tanks project for Chevron is in the design phase. Engineering is ahead of schedule and we will mobilize on the island later this year.

That concludes my remarks.

Philip Asherman

Thank you, Lasse. Dan McCarthy will now report on Lummus Technology. Dan?

Dan McCarthy

Thank you, Phil, and good afternoon to everyone. For Lummus Technology the second quarter provided good positioning for the remainder of 2010. We had a high level of licensing activity and are on track to meet our targets. New awards of $83 million were solid and would’ve been much higher but some heat transfer equipment contracts were delayed and we continue to experience relatively long periods between the time we notified that our technology has been selected and the time we actually booked the contract.

Honam-based petrochemicals remain our most active technology area. During the quarter, we were awarded methanol to Honam’s recovery project as well as projects for on purpose propylene production and C4 processing. In the (Palomay) areas we were awarded a new large-scale Polypropylene plant in Russia. We have also been active providing high propylene technology upgrades to existing licensees.

The Natural Gas Processing business continues to be promising, not to mention the occidental petroleum gas processing unit. This facility will utilize a proprietary Lummus technology process design. This project as well as the REFICAR project in Colombia, the two examples where our business model provides CB&I with a competitive advantage in the market place. We believe that there are other opportunities where CB&I will combine process and execution expertise to the advantage of our customers.

Much of our Refining Technology portfolio is covered by a joint venture, CDTECH and CLG, and this flow through the equity income line. CDTECH has achieved solid performance driven by catalyst sales and licensing in China and Russia. CLG hits catalyst sales targets but has not had as much opportunity in life missing. It did have however grant a license for a Lou Plant in North America.

First half of the year illustrated two trends. As mentioned earlier, our time lag between notification of technology selection of contract booking has lengthen. We attribute this to customer’s greater levels of due diligence before final project authorization. As a result, we have built up a large inventories of contracts waiting release. These should find their way into backlog in the next few months which will result in higher revenue and profitability in the second half of the year.

The other important trend is the broadening of our customer base in China. We have enjoyed much success serving spade on companies and now find a privately held Chinese companies moving into petrochemicals. These private companies are investing in new capacity to make all of ends by ethanol or building plants to upgrade C3s and C4s.

Three of our second quarter contracts were multi-technology licenses to these private Chinese companies. They are impressive because they develop projects quickly, target aggressive schedules and have rapid growth plans, providing those with additional near-term opportunities.

But the remainder of the year, we remain confident in our trajectory. We believe that the large list of technology selections will convert to new contracts. In addition we have a solid prospect list especially in petrochemicals when new and rebound projects for ethylene and history evidence are under development. We believe significant investment decision to also remain in the refining sector in the second half of the year and the uptick in natural gas processing will continue.

Asia Pacific, the Middle East and South America will be the areas with the greatest opportunities but don’t be surprised if there are also some significant new investments in North America as well.

Now I’ll turn this back to Phil.

Philip Asherman

Thank you, Dan. Ron, let’s talk about this quarter’s financial results.

Ron Ballschmiede

Thanks, Phil, and good afternoon everyone. With that overview of our major sector activities around the world, let me take you through the strong financial performance for the quarter.

Revenues for the first quarter were $916 million, down from $1.2 billion in the second quarter of 2009. The year-over-year revenue decline was consistent with our expectations and with our full-year revenue guidance of $3.9 billion to $4.2 billion. As we described in our prior calls, the industry new awards slowed down in late 2008 and early 2009, combined with the engineering and ramp up fails of our late 2009 new awards and the completion of our large LNG projects in the first half of 2010 caught in a bit of unusual revenue trend in spite of our beginning backlog of near record levels of $7.2 billion.

Importantly, the second quarter of 2010 reflects an end to that lower revenue trend, our second quarter revenues increased by 5.4% over the first quarter of 2010. We expect the sequential increase in quarterly revenue trend to continue in 2010 and ‘11, and hopefully beyond.

Our gross profit for the quarter was $120 million or 13.1%, up from 11% from the second quarter of 2009. The quarter reflects one of the strongest quarterly gross profit percentages since expanding our business outside the traditional tank business in the early 2000s. The 2010 gross profit, gross profit rate, that’s from a different project execution and a greater portion of our gross profit coming from our higher margin businesses, Lummus Technology and Steel Plate Structure.

However, as our major Lummus projects in related revenue continue to ramp up into 2010 and in the future, we anticipate our consolidated gross profit will remain in the 10 ½ to 12 ½ range which we have discussed previously.

Selling and administrative expense remained well control, down $5 million or 9.6% over the comparable quarter and down 13 million or 11.7% year-to-date. The decline in 2010 reflect the cost reduction activities implemented in 2009. The lower equity earnings reflect a temporary slowdown in the refining activities which Dan spoke to earlier and also the timing the of the delivery of licensing and catalyst which are weighted towards the back half of the year.

Second quarter operating income totaled $71 million or 7.7% of revenues, the third best operating margin in our history. Over the last seven quarters, our operating margins have totaled 7.3% of revenue reflecting the quality and solid execution of our backlog.

Income tax rate for the quarter was 29% and 30.5% year-to-date, reflecting a continued favorable geographic mix of our pretax income.

The summation of all that results in the second quarter of net income of $47 million or $0.47 per diluted share. EBITDA totaled $90 million for the quarter or 9.8% of revenues and $370 million or 9.7% of revenues for the trailing four quarters.

With the strong first half results and our continued confidence in our business model, backlog and prospects we have adjusted our full-year’s earnings guidance to $1.75 to $1.90 per diluted share.

Last on Dan’s spoke to new awards and prospect activity saw a fight of rights and over all comments. Our new awards for the second quarter totaled $916 million for a book-to-burn ratio of 1.0 and year-to-date new awards of 1.5 million, compared to 428 million and 1 billion for the respective 2009 periods.

We have two awards during the quarter in excess of 40 million, which totaled approximately 350 million, with the balance of all new awards being smaller projects and contract closed spread nicely between our sectors and project types around the world.

In addition to our LNG tank award announced earlier today, we continue to track several significant opportunities which support our 2010 new award guidance of $4 billion to $4.5 billion. Our backlog totals $6.8 billion at the end of the second quarter, compared to $7.2 billion at the beginning of the year. Based upon our previous 2010 revenue and new awards guidance, we continue to expect to report year-over-year backlog growth. We’ve had no significant projects cancelled from our backlog and none are expected.

The year-to-date strengthening of the U.S. dollar against other currencies, principally the Australian dollar and Euro, decreased our backlog by approximately $100 million. While currency impacts have been a reported metric to understand around our backlog movements, the infamous after this currency movement is minimal.

Now let me take you through the sector’s second quarter results. Steel Plate Structure reported second quarter 2010 revenue of 360 million, compared to 458 in 2009. The decrease of 98 million is attributed to the wind down of two large pay-projects in Australia and lower activity in oil sands work in Canada, partially offset by a greater volume of storage tank work in Central America.

So in the CB&I alumnus sector, our major 2009 Steel Plate Structure awards in Australia and the Middle East, and our Asia Pacific LNG Tank Award announced today will provide additional revenue for the balance of the year and into 2011. Steel Plate Structure’s operating income totaled $33 million or 9% of revenues, compared to $42 million or 9.2% of revenues in 2009.

CB&I Lummus’ revenues totaled 506 million in 2010, down 165 million from 671 in 2009. There are couple of items driving this net change. The most significant revenue decline is a result of a wind down in 2010 completion of large LNG projects and the slowdown of the U.S. refinery work. This decline was partially offset by Canadian oil sands work and the start-up revenues coming from our new awards in the first half of 2009. Both REFICAR and PNG projects are off to a good start, with higher revenue burns expected to reach of the last two quarters.

Income from operations totaled $25 million of 5% of revenues in the second quarter of 2010, compared to 22 million or 3.3% in 2009. The 2009 quarter and year-to-date operating margins have been negatively impacted by the U.K. project charges. Our Lummus sector carries a higher relative percentage of fixed cost than our other two sectors. Accordingly, the 25% decline in quarter-over-quarter revenues results in downward pressure on our sector operating margins. This metric will improve as the large vessel of projects move out of engineering and into the construction phase.

Finally, our Lummus Technology revenue and operating results reflects some important project mix changes. Dan previously mentioned the current relative strength of the petrochemical demand compared with the refining market. For Lummus Technology, the impact of these market trends result in lower joint venture results, which are primarily refining related and higher petrochemical licensing revenues and gross margins. The decline in the second quarter revenues reflect lower heat transfer revenues to the timing of new awards, which will partially offset the higher licensing revenues.

As I mentioned previously, Lummus Technology’s timing for the delivery of licensing and catalyst activities are waited towards the back half of this year.

Now a few comments on our balance sheet, cash flow and other financial matters as if we have had many positive developments in the quarter. Our balance sheet liquidity remained strong, with a cash balance of $300 million, no revolver borrowings and cash net of debt of $170.5 million.

Our investment in contract capital, reflecting the combined balances of receivables, contracts in process and accounts payable, stands at a negative $600 million at the end of the quarter, compared to 682 at the end of the year. Year-to-date free cash flow totaled $86 million, compared to 55 million for the comparable period of 2009.

In late May, we announced the initiation of our share repurchase program. During the quarter we acquired a total of 2.2 million shares or $40.7 million, representing an average price of $18.38. Due to the timing of the second quarter repurchases, our reported earnings per share of $0.47 was unchanged from the pre-purchasing activities. This repurchases will benefit the third and fourth quarter’s earnings per share.

We will continue to review additional share purchases prospectively, balancing the program with opportunities to grow our company through acquisitions and organic growth, while meeting an appropriately conservative balance sheet and cash position.

Last Friday we completed our 4-year $1.1 billion committed and unsecured credit facility, which extends the maturity of our revolver out to July, 2014. We were able to take advantage of the improving financial industry market conditions to secure the 4-year tender had raised terms and conditions favorable to other recent agreements as benchmarked among our peer group. The agreement provides liquidity and the flexibility for organic growth to continue lighter the credits to support our projects as well as grow through acquisitions.

Finally in late June, we are pleased to announce that CB&I has joined the Large-Cap Russell 1000 Index.

In closing, our strong backlog and financial position provide us with the necessary financial flexibility to deliver our projects to store owners, take advantage of the energy market demands for our services and we are well positioned for opportunities to grow our company. Phil?

Philip Asherman

Thanks, Ron. Clearly our upper revision of earnings guidance for the year, combined with consistently solid operating income over4 successive quarters and the overall health of our balance sheet is good news. This kind of performance provides the confidence that CB&I's business model with this unique mix of technology, engineering and construction services and the global supply of Steel Plate Structures, all concentrated on the global energy markets can produce the level of earnings our shareholders expect.

We’ll continue to differentiate ourselves by the flexibility in our commercial approach. The energy focus on our business model, and in today’s economy, the inherent advantages of being a true multi-national company. We’re convinced that our approach to the energy infrastructure market, we can continue to post solid results without sacrificing margins for top line growth. We’ll also continue to have an appetite for acquisition targets, which are accretive and compatible with our global footprint.

Looking back early this year, I celebrated my 31st year in this business, and I’m lucky enough to mark that occasion while we’re at the inauguration of PERU LNG, which as Lasse discussed, is the best in class and a tremendous example of what this company can achieve..

Looking ahead, I’m excited about the opportunity to capitalize on CB&Is tremendous mix of work going in the next year and beyond. And with that in mind, I’m confident that we can continue to translate these opportunities into solid earnings, opportunities for our employees and great results for our customers.

Now let’s open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Andrew Kaplowitz with Barclays Capital.

Andrew Kaplowitz – Barclays Capital

Ron, you had mentioned in the CB&I Lummus business that as revenues continue to expand, we can look forward to better margins. The 5% margins are pretty good from where we’ve come from. So I guess the question is how much higher can we go? Was there anything unusual? Did you get anything for Peru in 2Q out of the ordinary and what can we look forward to a non-segment?

Ron Ballschmiede

No, there was no individual item that stuck out and reflected unusual trend. That’s a business that absent the charges we’re talking about. Any quarter will bounce around in that, particularly the volume level.

Andrew Kaplowitz – Barclays Capital

A follow-up question. Going over to the oil sands in the Pearl project, it seems like the activity is ramping up. You might not have booked over the full release, so whatever it is you have but it seems like it’s ramping up. Do you expect now that in 3Q? I hate to ask you ask that question because it is a moving target.

Ron Ballschmiede

Well, I appreciate that Andy. The project is progressing as planned. Just the fact that we haven’t booked on the backlog and got that final release shouldn’t imply that there’s anything fundamentally changed on our forecast on that project. And I don’t think that we’re not the only contractor necessarily affected by that. For the owner multiple phases. Nothing’s changed fundamentally. I anticipated the debt backlog booking would come in in the second quarter as you know. But the dynamics are depriving just went out that way. We can only expect that we’ll going to continue and book that thing in this quarter.

Operator

Your next question is from the line of Joe Ritchie with Goldman Sachs.

Joe Ritchie – Goldman Sachs

The guidance that you’ve given on the awards for the year, 4 billion to 4.5 billion, does it assume that (Curl) goes this year?

Ron Ballschmiede

It does.

Joe Ritchie – Goldman Sachs

Also from your legacy projects, I was curious on that we haven’t touched on golden pass on both of those projects.

Ron Ballschmiede

Nothing really has changed on our estimates from both those projects on golden pass so no fundamental change from what we’ve previously reported.

Joe Ritchie – Goldman Sachs

I saw that your SG&A had trended a little bit below my expectations for the quarter, Ron, can you give us any guidance for the remainder of the year on where we should see that line item?

Ron Ballschmiede

The greatest amount of savings are in the front half as we started experiencing some of those cost reduction savings in the back half of 2009. So I would expect Q3 and Q4 to be give or take, looking dollarwise, looking like the second quarter.

Philip Asherman

Just to kind of restate what we talked about last year as well, when you look at the SG&A, we feel pretty confident that we are sized for the backlog that we have booked. We got high utilization on all of our offices. So again, that SG&A rate reflects what that size it is will be for the backlog that we have. So it’s again in a year of, I will say different relationships between some of the numbers (inaudible) we have seen in the past, that’s one of them that certainly reflects that. So it doesn’t necessarily reflect the backlog but we feel pretty confident, we are sized for the capacity we are going to going forward.

Operator

Your next question is from the line of Michael Dudas with Jefferies.

Michael Dudas – Jefferies

Two questions, maybe a little bit more toward looking ahead, many of your successful wins in projects have come about through long gestation periods. Can you give us a sense of where we stand on those types of projects that you are working, early marketing, sales, pre-fees that could lead to possibly a 11 or 12 type large significant projects?

Philip Asherman

I sure will. You are absolutely right, I think the model that we prefer on the very large mega projects are one that as you term is a fairly large gestation periods where we are able to plants (inaudible) price accordingly. I mean if you look at the last four quarters, you are talking about $6.5 billion or so of new awards and that doesn’t include the current job, which talked was going to be a fairly large award for this year and that too has had a very long gestation period and I think is again our preferred model for approaching this.

I think how I would characterize the rest of the year would be, we will middle of the range type projects, something certainly less than $1 billion but very solid projects combined with what we see, as Ron mentioned, are underpinning of smaller work that we have told you in the past is somewhere in the $300 million to $500 million per quarter. Work that we depend on to – in our engineering and procurement jobs, certainly in our smaller steel play structures and some of our technology work.

Going forward when you look at where the big projects are in our end markets, I think it’s fair to say that most of those would probably be in the LNG liquefaction side. Lasse mentioned Yamal as an example, there is a couple of other North America and certainly Asia Pacific opportunities where we may play one of several kinds of roles or multiple types of roles that we are certainly working to develop. And of course, Yamal is in Russia and there is some other opportunities.

So if you look at that going into ‘11 and ‘12, what’s going to feed the pipeline as far as mega projects, from our end markets I would have to say the highest probability will be in – continuing in the LNG business.

Michael Dudas – Jefferies

One other question. Now that you have $1 billion credit facility redone, maybe you could remind us a little bit about how you look at acquisitions, how the company thinks about it, where do you think you need some more tuck-in, or is the marketplace priced appropriately for an opportunity if you just start to step out after a couple of years of transition here?

Philip Asherman

Well, I think you really have to look at our sectors and our businesses fairly individually and characteristics. If you look at Lummus Technologies and we have spoken about this, we are certainly interested in expanding that business in absolute terms, what we are finding that, it’s a fairly long process because we are talking about in most cases, carving some part of another company’s technology. There aren’t any big game changers in terms of that business. So that’s a different type of acquisition strategy.

If you look at steel play structures, the growth from that will be primarily organic. I mean that’s going to be a business that’s going to depend on our ability to win work in all the end markets that we serve, geographic markets that we serve and continue to improve on the efficiencies that we have in that.

If you look at CB&I Lummus, it’s kind of a different situation as Ron alluded to, and if you look over the last four quarters, I think I would approximate that about 25% of our income came from CB&I Lummus, which means to me that there is a lot of headroom if you look at the verticals and there is a lot of headroom perhaps in some other types of industries and markets. We really don’t have as a core part of our business right now. So that would – I think there is some interesting targets that come out of that strategy. And then if you look at just how we would want to diversify our company horizontally, I mean we may be an interesting buyer but you got to have a seller but we are looking for perhaps addition to our company that would give us kind of growth, but not get too far afield of what our core business is, and that’s how we kind of think of acquisitions going forward.

So as I said, we have got an appetite, we are interested and we are going to make sure that it meets our filter for compatibility and accretiveness.

Michael Dudas – Jefferies

So wouldn’t beyond that size of Lummus type of acquisition, it doesn’t sound like.

Philip Asherman

I don’t know, we are going to have to look at them as they are teed up, this is not an industry, as you know, that has a real act of pipeline all the time, but we think there is some advantages for additional size but we are not going to differentiate ourselves on size, we are going to keep driving the orient (ph) side of our business, and I think certainly that’s the way we will continue to grow.

Operator

Your next question is from the line of Scott Levine with JPMorgan.

Scott Levine – JPMorgan

Quick question regarding the competitive landscape whether you are seeing any changes there versus last quarter or beginning of the year and maybe any changes in contract terms sought by your customers in certain parts of the world?

Philip Asherman

No, I can’t tell that we have noted any necessarily change in the competitive landscape nor the contractual terms. Our mix is pretty much as we anticipated.

Scott Levine – JPMorgan

On the order book, maybe if you could provide a little bit more color Lummus Technology in terms of its percentage of your order book for this year versus maybe last year and it sounds like your margin guidance, maybe comment on your level of confidence, 10.5 to 12.5 carrying forward to 2011 and beyond.

Philip Asherman

I will let Dan add the confidence part but as we projected for the year and the breakdown that we gave you, I would say one of the good news that comes out of this quarter is we are tracking. I mean Dan mentioned there was a, I will call it, a contractual pause effected in some his business lines but essentially the tracking as we anticipated. So what we forecasted for that business, we got a high degree of confidence that outlook is pretty good. Dan?

Dan McCarthy

I would just have to say that what we are finding is indeed the prospects versus growing, we are making a lot of different proposals, binding proposals as the year goes on. So that these opportunities are moving along the pipeline to fruition and we are thinking that between now and say through 2011, we will see a steady ramp up of orders.

Scott Levine – JPMorgan

A quick one for Ron. Any change to the guidance for tax rate and maybe a little bit of color on shares given the recent buyback activity for 2010?

Ron Ballschmiede

I think our year-to-date tax rate of just over 30 and as well as 29 for the quarter is right in the bandwidth we would expect for the full year at this point in time. So that’s trending a little bit better as the mix of our income becomes more clear for us. And then, second question, Scott was around –

Scott Levine – JPMorgan

The share base, is it meaningful a down tick there with the buyback?

Ron Ballschmiede

We will continue to evaluate the shares in the program going forward but as we sit here right now, the impact of the 2.2 million shares that we did in the second quarter, we had about 2 million share improvement on our shares outstanding. So about $0.01 a share in each of the third and fourth quarters.

Operator

Your next question is from the line of Barry Bannister with Stifel Nicolaus.

Barry Bannister – Stifel Nicolaus

The at-the-market offering, which was 10 million shares, what was the amount offered and roughly what was the average price at which it was offered?

Philip Asherman

I don’t have the exact numbers right in front of me but I can get you those. But it was right around $18 to $19 and right around a little over 2 million shares.

Barry Bannister – Stifel Nicolaus

And then, on a couple of projects, P&G has had some political problems, maybe you could update us on where that stands on a timeline? And then is there a chance that as golden pass is commissioned that you would be saving some of the charges in the form of maybe liquidated damages or change order towards the end of the project, it might carry over that uncertainty.

Philip Asherman

First, P&G, if you are referring to some of the tribal issues they have had at P&G is that the – we have not seen any disruption in our work. Of course, it’s in engineering right now we really haven’t mobilized much of the field, we are good portion of the engineering in Singapore and we will transfer that work later in the year.

So we haven’t seen that, the owners are dealing with certainly all the political issues in there but we have not seen any slowdown at least on our scope of the work.

The Golden pass (inaudible), I have to look back at my notes and see if (inaudible).

Barry Bannister – Stifel Nicolaus

(Inaudible) very high margin, licensing type of work there and then as the large equipment starts to be fulfilled such as the heat exchangers that the margin there would revert back to more normal levels?

Philip Asherman

I am sorry, would you go back and repeat that, I think I interrupted you and started to answer the second part of your question.

Barry Bannister – Stifel Nicolaus

No, I just said as you fulfilled the heat exchangers and other large components and Lummus Technologies, won’t that margins start to come down?

Philip Asherman

We’re talking about P&G? Is that the cut?

Barry Bannister – Stifel Nicolaus

No, I was talking about Lummus Technologies had a spike in margin despite weak revenues.

Dan McCarthy

I think that you’re absolutely correct. The reduced revenues as Ryan said had a lot to do with fee transfer volume and of course, the margins on that work are a little bit lower than the margins on licensing side. So, yes, that revenue recovers from heat transfer. You will see some tempering, but on balance, I think you’ll not see a huge drop.

Philip Asherman

And I’d add that the – if there’s ever such thing as an average equity earnings, certainly for the first half, those are below our expectations for a linear 2010. I mentioned that there’ll be some significant delivery, so catalyst and licenses and in the back half. So, that also has a pretty significant effect in operating margins.

Barry Bannister – Stifel Nicolaus

Okay and then just lastly. Are you where you want to be on fixed price and de-risking the backlog? You’ve gotten down I think to the core portion of steel plates structures and are you where you want to be?

Philip Asherman

We’re finding Barry that the mix that we currently have, which is split pretty much down the middle, 50/50 in terms of pure fix price and a combination of fix price reimbursable, that mix is obviously producing – is aggregating the kind of earnings that we think this business model can produce. So, that may seems to work very well and we’re going to watch that very closely as going forward. Obviously, we have to bid the market, but we’re going to watch that mix very closely to make sure that we make the right selection of new projects.

Operator

Your next question is from the line of Martin Molloy with Johnson Rice & Company.

Martin Molloy – Johnson Rice & Company

Could you talk about the outlook for gas processing plants. I noticed Occidental in one of the presentations; they mentioned a second one in the same field they expect to go forward on later this year. Are there other areas around the country like this?

Unidentified Company Speaker

Yes, I think absolutely. There are multiple fields being developed. All these is revolving around Shell gas, which has been termed unconventional gas and but this unconventional gas is going to be the majority of the gas that we use in the future. So much of this stuff is coming out. Now, you’re seeing the price of natural gas in the United States actually at a discount on an NG level compared to crude oil.

So, as more as this gas comes out, we’re going to find more projects for us in terms of gas processing and Occidental’s one area – there’s a fields here in Texas, the old Marsalis region, so it’s spread out in a lot of interesting areas in North America.

Martin Molloy – Johnson Rice & Company

Okay. And do you have a rough breakdown in terms of wards that were outside of the U.S. during the first half of the year or outside of North America?

Unidentified Company Speaker

We’ve been consistently banning (inaudible) about. Well, the gas plant was going to do that, but the last prior year, our current backlog is roughly well over 70% somewhere outside the U.S. I think that’s obviously been reduced with the gas playing (ph) on Occidental plant. But, I think generally that 70/30 split is probably not a bad number to use going forward.

Philip Asherman

Probably realistic for the full year.

Unidentified Company Speaker

Probably, yes. As far as 70% of our work somewhere not in the U.S.

Operator

Your next question is from the line of Joe Gibney with Capital One Southcoast.

Joseph Gibney – Capital One Southcoast

Guys, good afternoon. Hello. Phil, I just want to get your perspective on smaller project to word flow, the singles and doubles of 40 million and then lots of CVS Multi-tank award in the Southeast for 30 million and unless, over the course, you got 73 consistent hitting in the mid up or end of your typical inbound order range within the smaller projects. Just curious, is it flat bottom tank work? Is it elevated water storage tank work? Are you gaining share from some smaller fabricators, just appreciate your perspective. It’s been very consistently strong.

Philip Asherman

Yes. Obviously, and we’ve talk about this a lot is that smaller work is a run rate that we pay a lot of attention to as far as the underpaying of renewal work and our work flow as we should. It’s a combination. They are small enough, where I don’t know that any necessary breakdown would give you any help except to say that it is a combination of flat bottom tanks, a variety of steel plate structures, engineering procurement work and some very instant places around the world that don’t meet that $40 million threshold that we set with the SEC as far as what we’re going to report publicly, but certainly a very, very important part of our business plan going forward and our technology business.

And again, that 40 million is a project value, which most of our technology business has a hard time getting up to. But, if we change that to look at income, that would be a different story. But, again, I think we’ve guided you to consider that $3 to 500 million ranges is a pretty good run rate that we look for that smaller work and we’ve been very pleased certainly over the last, at least seven quarters or more of that run rate continuous. So, we’ve been pretty successful in that market and we’re counting on that to continue.

Joseph Gibney – Capital One Southcoast

All right. I appreciate it. And Ron just wanted to apologize, if I missed this, but CapEx. I know you guys are at the sort of low point of your spend cycle here with engineering phase on some of your larger projects, but is CapEx guidance for the full year unchanged even though we’re at sort of the low point right now through the first couple of quarters.

Ron Ballschmiede

I think as we progress through the year, I’ve been very pleased with the organizations frugality. So, I think the new range is probably in the 30 to 35 million for the full year.

Joseph Gibney – Capital One Southcoast

Okay.

Ron Ballschmiede

We’ll have some higher spend in the back half just as we move forward in some of these projects, but well below what we thought we would be for the full year.

Philip Asherman

I think if I could just add, I think going into 2011 when we start talking about it at the end of 3rd quarter and looking into 2011 as the timing of where we expect this revenue increases and the CapEx to adjust. We should be able to give you pretty good visibility on how we see that looking for 2011 and beyond.

Operator

Your next question is from Avi Fisher with BMO Capital Markets.

Avi Fisher – BMO Capital Markets

Excuse me. Hi, good evening, guys. Can you – I’m curious about, if you can talk a little bit about the dynamic to both the segment revenues and EBIT and also the balance sheet as these projects converge (ph) or transition from the E and the T side to the C side, which we’re expecting to see in the back half of this year, and particularly in 2011.

Philip Asherman

Well, the transition that phasing really is going to change it all for obviously Lummus Technology or steel plate structures, I mean the nature of steel plate structure again is more of fire with the very as far as percentage of the word, very little engineering content as a comparison, but high content obviously of materials, sometimes 65% or 75% of that business that really hasn’t change in terms of characteristics.

It’s really CBI Lummus, where these large projects on a reimbursable basis or in any contract. We’ve got a ramp up of close to a year on many of these large projects, but they’re good durable backlog, which should serve us well the next couple of years, before you start seeing downward trends. So, that’s really where the change in that relationship between backlog and revenue has affected our mix –

Avi Fisher – BMO Capital Markets

Okay.

Philip Asherman

And what we’re seeing right now coming up with that first half of the year is what we forecast and anticipate on how that mix is going to look relative to impact on margins and revenue performance is really pretty much how we saw it and how we originally affected some of it, and we certainly believe as Ron said, we’ve seen an uptick in revenue of this quarter, so we’re starting to see that again get continuing traction and going into 2011. So, that’s what we see today.

Avi Fisher – BMO Capital Markets

Since a lot of the projects in CBI Lamas (ph) have transitioned as I recall to cost reimbursable does that mean that as you move into the construction phase, as you mobilize the thousands of people on say REFA car (ph), is there any impact to margin on that, should we expect margin to come down?

Philip Asherman

No, margin is margin is margin. (Inaudible) job is just a matter of the amount of revenue and the volume as we go forward. But that will certainly ramp up –

Avi Fisher – BMO Capital Markets

So, ramping the burn rate –

Philip Asherman

Yes.

Avi Fisher – BMO Capital Markets

We expect sort of a ramp in the burn rate without really that material swings in margins as we speak.

Philip Asherman

Absolutely. Absolutely.

Ron Ballschmiede

(Inaudible) material swings in margin or cash flow coming from those old (inaudible). Just like they are right now.

Avi Fisher – BMO Capital Markets

And you kind of touch on the next question, in terms of cash flow, which is if you look back from a year from now to today, your working capital has basically cut and half and your cash is kind of doubled, which is fantastic. Can you continue, what happens to working capital and cash as these projects transition to the construction side and I mean as your working capital gets down to sustainable levels, can you continue to generate the cash you’ve been generating?

Ron Ballschmiede

I think that transition is basically finished. Certainly, finishing up our challenging projects chewed up some – we spent the money to finish those jobs. Those are done. The large lump sum LNG businesses that Lasse and Throwdwell (ph) sea projects that Lasse went through are essentially wrap up at this point in time. So, there is not a lot of cash or earnings to be generated from those at this point in time. So, I think you’ve sent the transition. The steel plate structure will continue to be lump sum work.

Lummus Technology has its own characteristics, pretty much cash flow equaling revenues and there shouldn’t be given our current mix on CBI and Lamas (ph) side, there will still continue to have some lump sum work that those tend to bring in down payments and the cost reimbursable stuff no matter what phase you’re in are designed to be cash positive, they just don’t have the magnitude of down payments that a lump sum does. So, I think we’ve seen the thread.

I think, therefore, we will see our working capital and our contract capital move more with backlog than perhaps you’ve seen a move before with all the challenges we’ve overcome on the new (inaudible).

Avi Fisher – BMO Capital Markets

And on backlogs, did I hear you say properly, you expect backlog to grow year over year, right?

Ron Ballschmiede

That’s correct.

Avi Fisher – BMO Capital Markets

Thanks for the questions and very nice quarter.

Philip Asherman

Thank you, Avi.

Operator

Your next question is from the line of Graham Mattison with Lazard Capital Markets.

Philip Asherman

Hello, Graham.

Graham Mattison – Lazard Capital Markets

Hi. Good evening, guys. How are you?

Philip Asherman

Good.

Graham Mattison – Lazard Capital Markets

Quick question on Lamas Technology (ph), you mentioned that you’re expecting a pickup in revenues in the second half of 2010; shouldn’t I be at the sort of the run rate? Is this back to sort of what we saw in 2009 or would it be possibly back to sort of the 2008 levels?

Philip Asherman

I’ll let Dan, but let me add just so to maybe helpful and maybe misunderstood. That business is we really characterize that as an operating income business, it’s much easier to talk about particular with the JVs and the different products from technology, from the licenses to the catalyst, to the heat transfer equipment. We continue to believe that that business from an operating standpoint will be in the band that we’ve talk about annually, kind of that $80 to 100 million given its current configuration.

So, that’s sort of how we look at that business as oppose to revenue and I’m going to turn over to Dan. I just wanted to, because we’ve been trying to articulate it like that, I didn’t want to confuse anybody.

Dan McCarthy

Yes, I mean when you look at 2009, it’s almost like two different years. You had the beginning of the year and the end of the year and 2008; we haven’t gotten back to being that good yet. We’re on our way, and so I would say that think of where we are is just a little bit better than the last half of 2009.

Graham Mattison – Lazard Capital Markets

All right. Great. I’ll jump back in queue. Thank you.

Philip Asherman

Thank you, Graham.

Operator

Your next question is from the line of John Rogers with D.A. Davidson.

Philip Asherman

Hello, John.

John Rogers – D.A. Davidson

Hi. How are you? One of my questions been answered. But one thing I just wanted to understand a little bit, so maybe it’s just in terms of the pricing that you’re seeing in the market where there’s some comments that pricing is still very tough, other saying we’re dealing with it and not seeing it as much of an issue on the larger projects and one your take on it.

Philip Asherman

Well, I mean we had our discussion, I guess at the back half of the year about the Koreans in the Middle East.

John Rogers – D.A. Davidson

Yes.

Philip Asherman

I’ve been through that. I take what we see going forward, especially in the middle of the range if you will on the projects. We don’t necessary pursue or it’s not our preference to pursue projects that are, that pricing is necessarily the differentiator. But certainly in today’s marketplace, you always got to working to be as competitively of prices you can, that’s an obvious, but it’s not the sole differentiator in most of the markets that we’ve done.

Steel plate structures, that’s a little bit different. That is a price competition, it’s a fragmented market, you got to be good, you got to be effective and you got to be efficient. Technology is a preference of technology soon, and it’s not necessarily driven by price. So, CBI Lummus again, it depends on which project you go after but it could be a matter of location, it could be a matter of project team. I’m not sure all these necessary comes down to race.

But, again, we’re looking at EPC scope or EP and fabrication and construction scope. We’re not necessarily selling man hours for FIB (ph) work and MPMC work. So, again, it’s more on qualifications and type of team and the capability we bring to the table.

John Rogers – D.A. Davidson

And I realized that pricing is more than just absolute dollars or measured by margins, I mean it’s the risk that you take on and the type of work that you’re doing, but is it materially different, the market opportunity that you see out there versus what you’ve been working at least over the last four quarters now that you –

Philip Asherman

I wouldn’t say so, John. We haven’t seen that. In the real change in the whole cost structure of capital projects has been in the supply market and the lack of, and the absence of the volatility that we had in the preceding several years. So, we’ve some as we’ve seen a lot of the pricing, so have margins fairly stabilized. But, incrementally, if you go back – I certainly start tracking this around, if you look at ‘97 and you went through 2000, 2001 or you start seeing the spikes in 2004, another spike.

Again, we’ve seen margins for the industry and incrementally increase and somewhat stabilize as we’ve seen other pricing components in this contract stabilized, and it’s a bandwidth that single digits of the most companies. I think, again, if you look at how we aggregate our businesses, if you look at CBI Lamas (ph), it’s tough to get ratchet, pickup perhaps on size, perhaps in volume, but really on price. CBI steel play structures are different than, of course, as I mentioned before, the technology is really the technology preference. It’s a preference of which technology they wish to use and fortunately, we’ve got a lead position in most of the technologies that we’ve provide.

Operator

You’re final question is from the line of Brian Uhlmer with Pritchard Capital.

Philip Asherman

Hello, Brian.

Brian Uhlmer – Pritchard Capital

Hey, good afternoon. Pretty much all of my questions have been answered. So, if I throw something of the wall at you on as we look at the liquids market in North America, the NGLs, are you guys thinking the KE4C (ph) doing feasibility studies, have you heard from guys about feasibility for ethylene C bottle (ph) mix or upgrades or possibly even new capacity of ethylene here in North America based on some of the finds that we’re finding here primarily here in Texas.

Philip Asherman

Dan?

Dan McCarthy

Yes. It’s actually quite interesting. The U.S. is starting now to export product to maintain load because it has a favorable cost position and it doesn’t take – first couple of months in doing it, nobody wants to spend more money on capital but it doesn’t take long before they start thinking about it. And I do believe that was when I talk about lost of Eric (ph), I was not just talking about gas, I was also talking about petrochemicals.

Brian Uhlmer – Pritchard Capital

Okay. Good deal. So, theoretically you can get some liquid separation fractionation and move it down the line to ethylene type work as well?

Dan McCarthy

I think it will take awhile to get those projects launch, but I think that they’ll come on the horizon.

Brian Uhlmer – Pritchard Capital

Okay. All right. Yes, everything else is answered. I appreciate the time. Thanks.

Philip Asherman

Thank you, Brian. Is there anyone else on the queue?

Operator

No, sir. There are no further questions.

Philip Asherman

All right. Well, we want to thank everyone for their time and their interest this afternoon and with that, I’ll conclude the call. Thank you.

Operator

Thank you for joining today’s conference call. You may now disconnect.

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