Fluor Corp (FLR) 2004 Q4 法說會逐字稿

Good day and welcome to the Fluor Corporation Fourth-Quarter Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's presentation. There will be a replay of today's conference call at 9:00 a.m. Pacific time today, accessible on Fluor's Web site at www.fluor.com. A telephone replay will also be available running through 5:00 p.m. Pacific time on February 10, at the following telephone number, 888-203-1112. The access code of 4061622 will be required. At this time for opening remarks I would like to turn the call over to Lila Churney, Vice President of Investor Relations. Please go ahead.

Thank you. And good morning, everyone. Welcome to Fluor's conference call to review preliminary 2004 fourth quarter and year-end results. Our announcement of preliminary results was released yesterday after the market closed.

The financial information we will cover today reflects preliminary results which are subject to the completion of the annual audit by our independent auditors. Beginning this year, auditors do not provide a final sign-off until the company files its form 10-K with the SEC. This change is due to new regulations related to the Sarbanes-Oxley Act. Our audited financial results will be available on or before March 16, when Fluor files its form 10-K.

Before getting started, I like to read our cautionary note regarding forward-looking statements. In discussing certain subjects, we will be making forward-looking statements regarding projected earnings, market outlook, new awards, margins, the effect of strategic initiatives, and other statements regarding the intent, belief, or expectations of Fluor and its management. These forward-looking statements reflect our current analysis of existing trends and information, and there is an inherent risk that actual results and experience could differ materially.

These differences could arise from any number of factors. Information concerning factors that could cause actual results to differ materially from the information that we will give you is available on our form 10-K, filed March 15, 2004, which is available online or upon request. Due to changes related to new regulations under the Sarbanes-Oxley Act, final financial results will not be available until completion of our audit. Thus, any financial information that is discussed today is preliminary in nature. The information in this conference call related to projections or other forward-looking statements may be relied upon subject to this cautionary note as of the date of this call. The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events, or for any other reason.

Now, I would like to turn it back -- turn it over to Alan Boeckmann, our Chairman and CEO.

Thank you, Lila. And good morning, everybody. Thank you for joining our call today.

This morning, we will review our preliminary fourth quarter and full-year results and also update you on our current business outlook. We are very pleased with our overall performance in 2004. And we feel that our strategy of market diversification continues to serve us well. We are particularly encouraged by the strength of new awards and the strong backlog growth that we have achieved this year.

First, as I look at the fourth quarter, net earnings were 47.5 million or $0.57 per share, and that compares with 51.4 million, or $0.63 per share a year ago. As was the case for the full year, our Nonpower business segments were able to offset the expected decline in Power. And consolidated operating profit for the quarter was 116.9 million, as compared to 115 million in 2003.

As I turn to our full-year results, net earnings were 186.3 million or $2.25 per share, modestly ahead of last year's earnings from continuing operations of 179.5 million or $2.23 per share. Net earnings in 2003 were 157.5 million, and that came out to $1.95 per share. This also included a loss from discontinued operations and the effect of a change in accounting principle. We delivered good earnings performance in 2004 with consolidated operating profit for the year of 410.9 million, up from 406.3 million in 2003. Our earnings were at the high end of our guidance, and that was achieved by growing our Oil and Gas, Government, Industrial and Infrastructure, and Global Services business segments offsetting the decline in Power. It's worth noting that of the operating profit in our nonpower businesses, collectively grew 21 percent in order to slightly more than offset a $64 million decline in power.

As expected, given the strong growth achieved in backlog over the past year, we're starting to see growth at the top line. Revenues for the full year increased 7 percent to 9.4 billion. And fourth revenues increased 16 percent over a year ago to 2.7 billion. We're also extremely pleased to report record new awards in 2004 of $13 billion, up 31 percent from the 10 billion mark last year. This is more than a half a billion ahead of our previous record of 12.5 billion set in 1996.

Awards in the fourth quarter continued the strong trend experienced throughout 2004, and contributed to the record for the year, increasing 43 percent to 3.4 billion, as compared to 2.4 billion in the fourth quarter a year ago. And awards in the quarter again were quite broad based with strength across all segment. So, as a result, our consolidated backlog grew 39 percent to 14.8 billion, up from 10.6 billion at year end last year and also up sequentially from 13.7 billion at the end of the third quarter. This strong growth in backlog driven by strengthening trends in capital spending across a number of Fluor's markets, is building a solid foundation for future revenue and earnings growth.

And if you take just the exception of Power, all business segments posted backlog growth during 2004. And even Power, which had a very strong fourth quarter new awards saw a substantial reversal of its downward trend in backlog, rebounding to nearly the same level as a year ago.

So, as we look across our portfolio, we continue to see ongoing opportunities in the global Oil and Gas market, which encompass a wide range of both upstream and downstream prospects, including new Oil and Gas production programs, LNG, GTL, and Oil Sands projects along with continuing clean fuels work.

In Chemicals, we're continuing to see growing momentum, and we expect that we will continue to also see awards over the next 18 months on a number of projects where we're performing front-end engineering. We're also seeing continued strengthening in general manufacturing across a wide range of consumer and industrial markets, along with ongoing opportunities in the Mining sector. In fact, Mining was quite strong for Fluor in 2004, with nearly $2 billion booked in new awards, primarily related to three major copper projects in south America. Our future prospects continue to focus primarily on copper, iron ore, and precious metals.

We saw good growth also in our infrastructure and transportation business, despite the fact that the year was impacted by an estimated project loss. From a new-award standpoint, we've been having good successes, selectively targeting opportunities with shorter lead times to fill in those valleys between the major privatized projects that typically have very long development phases. Our market position here continues to strengthen, and we believe that we will see good growth in this area over the next year. Increasing opportunities across the industrial and infrastructure markets that I have just mentioned, should offset a somewhat slowing trend in life sciences, which has seen several years of strong activity.

During 2004, we worked off a large number of biologics projects, And these included two new life science projects which we are seeing some overall slowing at activity levels across this market. The industry is now fewer new drugs ready for production, and the Vioxx and other drug recall fallouts continue.

In our government business, our current DOE projects are going very well, with good performance at Fernald, where we're working hard toward the objective of full-site closure in 2006. We will be pursuing several new opportunities this year with the National Nuclear Security administration and the DOE, so this market should continue to be good for us. Our experience at Fernald and Hanford also positions us well to assist in the decommission of U.K.'s nuclear production facility sites an activity that is expected to ramp up rapidly over the next two years. And with regard to our work in Iraq, fourth-quarter activity was more or less on par with prior quarters, but uncertainty remains, and we are currently projecting a relatively modest level of activity during 2005. Although we are hopeful that this could prove to be conservative.

As I mentioned earlier, Power opportunities appear to be picking up again, with the primary focus on new coal-fired plants. We expect 2005 should show a notable pickup in new awards. Let me remind you, however, that power is generally a lump-sum business. So I wouldn't expect to see material improvement in the P&L in this market until sometime in 2006. If you take all of this into account, we continue to see a very positive outlook for new business opportunities through 2005. With few exceptions, the major industries that we serve are in a positive part of their business cycle, and we are well positioned in those to capitalize on the strengthening spending trends across these diverse marks.

With $14.8 billion in backlog, the stage is now set to continue to grow earnings over the next several years. We would point out that we began work on a significant number of new multi-year projects this past year, and as a result, we remind investors of the profit lag that's associated with the wrapping up of new projects and the variability of timing on future new awards. Given these factors, our guidance for 2005 at this early point in the year still remains in the range of $2.30 to $2.60 per share.

So with that, let me turn it over to Mike Steuert, Fluor's CFO, to review additional details of our operating performance, our new awards, and other financial highlights. Mike?

Thank you, Alan. And good morning. Our business segment results are covered in our press release, so as has been our practice I will mainly focus on providing additional background on new awards and backlog for each operating segment and provide a few comments on corporate items and our financial position.

Starting with Oil and Gas, new awards for the fourth quarter were $730 million, bringing the full-year 3.6 billion. Both the quarter and the year were about level with the very strong bookings for both periods last year. The largest award in the quarter was a 346-million EPC project for utilities and off-sites related to a modernization project for our PMEX refinery complex in Mexico. The booking represents a percent share of the ICA Fluor Daniel. We also have a Kuwait National Petroleum new multi-billion dollar refinery. Not only is this the first major grass-roots refinery being constructed in the world in many years, it is also nearly double the size of any existing refinery.

Additionally, we booked several clean-fuel projects during the quarter, as well as two assignments related to Oil Sands projects in Canada. Over $1 billion of our 3.6 billion book to new awards for the segment were for clean-fuel projects. Backlog for the Oil and Gas segment ended the year at $4.8 billion, up 40 percent from a year ago. In our Industrial and Infrastructure segment, new awards for the quarter were a strong $1.1 billion, more than twice the bookings in the fourth quarter of last year.

New awards for the full year essentially doubled to $5 billion, up from $2.6 billion in 2003. The single largest project award in the quarter was for a significant expansion of a major copper mine in Peru. Additional awards included two life sciences projects, as well as construction and project management services related to several chemical facilities in Saudi Arabia.

In the Infrastructure area, we booked a program management award to oversee the upgrade of more than 300 bridges over the next eight years for the Oregon Department of Transportation. Backlog for this segment grew 73 percent to 5.7 billion. New government awards for the quarter were 406 million, down from the fourth quarter a year ago, but up 13 percent for the year to 2.3 billion.

New awards in the quarter included just over $200 million in task orders related to Iraq, as well as a $51 million task order from FEMA, related to disaster recovery and reconstruction, primarily associated with the hurricane damage in Florida. Additionally, we booked two new embassy projects totaling approximately $88 million, in Belize and Greece, and we were recently awarded another embassy project where we booked in the first quarter. Backlog for the Government segment rose modestly from a year ago to 1.5 billion.

In Global Services, we posted a 51 percent increase in new awards for the quarter to 617 million, and for the year, awards were up 23 percent to 1.5 billion. New awards reflect operations and maintenance-service agreements, including a significant multi-year contract for a very important new client in the United Kingdom. Backlog for the segment grew 24 percent to 2.3 billion up from 1.8 billion at the end of last year.

Moving on to Power, as Alan mentioned, fourth-quarter awards nearly tripled to 497 million, our best quarter this year by far. This brought full-year new awards to 612 million, up 26 percent from the 485 million a year ago. The two primary contracts awarded in the quarter were project management and engineering services to recommission a mothballed power plant in South Africa, and a contract to complete construction of a partially built 1200 mega-watt natural gas-fired plant for Nevada Power.

This latter project was one that we had been building for its previous owner, Duke Energy, and which was terminated in March of 2003. As Alan alluded, the strengthening fourth-quarter awards in Power reversed the downward trend of backlog for the segment over the past couple of years and pushed backlog up to 552 million at year-end.

Let me make a few comments on corporate items. G&A for the fourth quarter was a seasonally high 49.2 million, compared to a 39.9 million last year. For the year, G&A improved or was reduced by 6 percent to 133.7 million. We had net interest income of 2.5 million for the quarter, and 3.5 million for the year. Our tax rate for the quarter was 32.3 percent, which brought our full-year tax rate to 33.6 percent.

Let me now make a few comments on the balance sheet, cash and other items. Cash and securities end the the year at 614 million, up 52 million from the third quarter. Including 130 million of commercial paper that was outstanding at year end, Our debt to total capital ratio was 27 percent at end of the year. As we previously discussed, most of our cash was located overseas. As such, we had some outflows in the U.S., including continued funding for our Nootka and the pension funding that we normally do in the fourth quarter of each year. Deferred costs on moth- totaled 250 million as of year end. Cash used by operating activities in the quarter was about 90 million and for the year was approximately 75 million.

Year-to-date capital expenditures were 104 million, slightly above depreciation of 87 million. At year-end we exercised our rights to pay in cash the principal amount of our senior convertible notes when presented for conversion. This will substantially limit the potential dilutive impact on earnings that would have resulted from the recent FASB consensus opinion. Any appreciation over the conversion price at $55.94 would be paid with either common stock or cash. We continue to place a top priority on maintaining Fluor's strong financial position and our A credit rating, and the valuable competitive advantage that it provides.

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

The question-and-answer session will be conducted electronically,y and if you would like to ask a question you may do so by pressing the star key followed by the digit one on your telephone key pad. For those of you joining us on the speaker phones today, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, if you would like to ask a question, please press star one at this time. We will take our first question from Michael Dudas from Bear, Stearns.

Good early morning, gentlemen and Lila.

Good morning.

Good morning.

Good morning, Mike.

First question is relative to 2005 and your range expectations. Alan, what are the two or three things that we should look for as we go through 2005 to get a better sense of execution of bookings and the ability to turn some of these pretty strong increases into the backlog, down to the bottom line?

Well, Mike, as always, when you begin the year, probably the best indicator is the pace of new awards early in the year. As we begin every year, and -- and look at our projection, we have a certain amount of income that we know is coming from backlog and other that is going to be coming from awards that we will book during the year and then execute some portion thereof. So that is usually our number one criteria in terms, of variability, is the pace of new awards early in the year that will move quickly through the backlog.

And do you think that maybe you had a little bit better pace of new awards in the second half of the year than you would have thought maybe six to nine months ago, of this -- of this prior year?

We had a strong year in new awards every quarter. If you look back, we tracked over $3 billion in each of the quarters of 2004, and that's -- that's great. We like them on a consistent basis like that. That's better than sometimes as I've always described as a lumpy business.

So it gave us a little bit more predictability but again as we go into '05, you still have a certain amount that you've got to close in on that is based on your awards during that year. I think back to your question, though, Mike, we anticipate that '05 will be a continuing year of good new awards. Again, based on my comments of the markets that we is see ourselves in, and our position in those markets.

And to follow up, how, looking at the client needs and the markets and the competitive natures, et cetera, how do you look at your balance sheet right now, relative to cash generation, and how strong you want to keep the cash on the balance sheet? And how does that factor into maybe continuing niche acquisitions? Or maybe a little bit larger scale, given that it appears that over the next few years you're going to have some pretty significant business flows?

Let me make a quick comment on that and I'll let Mike follow up on the cash flow. Clearly, as -- if you look at the part of the cycle that we're in now, that we built backlog almost 40 percent over the year, as we kick off all these new projects, there is a requirement for working capital, as you start these projects. We've had a fairly high ratio of these being the cost-plus arena, and so that has had an effect, particularly in the -- in the fourth quarter. And we will probably do so again as we go into the beginning of the year. But that's all good news, because as we work on those projects, then you reach into the cycle, then you start bringing earnings from them as they -- as they mature, and also you start catching up with the cash flow. Mike, you want to make a comment on cash flow?

Following on, Mike, what Alan said, we did see our cash requirements for working capital increase in the fourth quarter. Pretty much in line with the revenue growth we expected, and some of that occurred in Iraq, some of that occurred across our Oil and Gas and Industrial Infrastructure businesses. We're going to watch that very closely, obviously, during 2005, and manage that as well as we can. But we do expect some modest working capital growth as this really good growth in backlog continues to translate to revenue growth.

So Alan, is that going to preclude you from the acquisition front this year?

No, Mike, we are -- we are still continuing our strategy of looking at acquisitions and we will continue to do that, and be active in that arena during the year.

And so you think you will have some this year?

I would anticipate that we would, yes.

Thank you.

We will take our next question from Sanjay Shrestha from First Albany.

Great. Good morning, guys, and congratulations on another stellar quarter of bookings here. Just have a couple of quick questions. First one, in terms of the backlog burn, given the backlog north of $14 billion right now, you know, what is going to be the stretch here into 2006, and how much of that backlog do we expect to recognize the revenue over the next 12 months?

Sanjay we don't normally quote those numbers. I would say though that the stretch this year is pretty consistent with what we went into last year--

Okay.

--in terms of percentages.

Okay. Okay. That's good enough. And another one. it seems like what we have on the Chemicals front right now is really more of either program management or front-end design engineering, and nothing in the full EPC in scope at this point in time. So, Alan, can you remind us how big that opportunity was in the last cycle, and if you were to sort of take a look at it at this point in time, where you might be at that cycle?

The last cycle, Sanjay, ended in early in 1997. It seems like yesterday, but it was a few years back.

That's right.

It --this cycle is a bit different because it's more regional.

Okay.

It was pretty global last year. And in fact, we saw a significant amount of expansion in the U.S. and that's not the case this time. The expansion this this year, or this cycle, is primarily in the Middle East, where they have a feed--stock price advantage and looking to monetize primarily gas assets and in China driven by consumption. We are -- we clearly do focus on the program management, but then also with the attendant engineering construction that comes with utilities and off-sites.

Sure.

But in addition, would he do have some projects there where we are doing the full process unit scope. So it is kind of a mixed strategy that really focuses where we have technology advantage and where we are strong in particular regions.

Okay. In terms of how big that opportunity was in the last cycle, could -- could you remind us?

I think it was a huge opportunity last cycle. The business at that point was one of our larger businesses. I don't think it is quite as large this time. But it's still significant. And I think the Chemicals group has been a solid contributor to our backlog growth this year.

Okay. Great. And one other one real quick here, on the front-end work on the Kuwait refinery project, obviously, that's the grass root and the largest one. How do you sort of see -- one, what is the full scope of that project? And two, how do you sort of see that, you know, potentially hitting your backlog and maybe a little bit more color on over what time frame?

Well, it's an exciting project to be sure. As you heard Mike say, it is, in its own rights, the largest refinery that would be out there once it is completed, and we're doing the front end of that work now here in the U.S. It will then cycle into full project approval probably late this year, early next year. It is -- the significant size of it means a tremendous effort to configure it and do the front end and preliminary engineering. So we will be doing that during the balance of this year, and looking to then convert that into a full-fledged award sometime later this year or early next year.

Perfect. And so the little -- you know, you know, somewhat of a loss that we had within the Power segment now, is it fair to say that this is probably the last quarter we are going to see that and things will start to start to turn-around going into the 2005?

I look for Power to start -- it's leveled out in terms of hitting the bottom and we're starting to come back up as I think you can see in the first quarter--

Absolutely. One last question. Anything new on the U.S. A. ID front, and maybe anything incremental that talks about Iraq, but anything new related to Afghanistan or project in that part of the world?

We're looking at some prospects there that we hope to come to fruition during the year. Again, as we said, we're not really counting on a lot in that arena for '05.

Okay. That's great. Thank you very much, guys.

Jamie Cook from Credit Suisse First Boston has our next question.

Hi, how are you?

Good morning, Jamie. How are you?

My first question, if you look at the margins in the fourth quarter in the Oil and Gas segment, I guess it was a little stronger than I expected. I mean, I thought the third quarter, you had pretty good margins. Could you talk a little bit about what was driving that? And, you know, what are your expectations for 2005? Should we continue -- should we -- should it continue along the same run rate?

Well, the -- again, we're doing a fair amount of front-end work on some of these projects, Jamie. That does tend to have a higher-margin component to it. I would say as we really kick into the larger scope of these projects, that will tend to come down a bit. But then again, the revenue should start to go up as well.

Okay. And then my next question, in terms of G&A, for the fourth quarter, it did seem a little high, if you could talk about that. And I guess if you just look at the four quarters in 2004, G&A sort of moved around a lot, and I guess should we expect the same thing 2005? And I'm just wondering what was driving that?

I will let Mike answer that. We have a lot of moving parts in G&A as you know but I will let Mike give some color on that.

Right, there are several things. Seasonally, Jamie, we do have a higher G&A in the fourth quarter. We make some discretionary decisions on year end on how we fund certain items. We also, in the fourth quarter this year, set aside some legal reserves to resolve a couple I'd say nagging legal issues that have been out there. We saw some very modest translation losses. We increased a couple of our compensation reserves, as well, in the fourth quarter. So it was definitely a seasonally high. In addition, in the prior quarters this year, as in a lot of quarter, we usually have some real estate or other transactions. You know, given our size and the fact that we have a number of properties around the world, we're always adjusting our real estate footprint. In the fourth quarter, we just didn't happen to have any real estate gains that we happened to have in the prior quarters so that caused some of the lumpiness in the G&A as well. But it was most -- mostly some additional reserves for compensation and taking care of some legal matters.

Okay. Thank you.

Our next question comes from Lorraine Maikis from Merrill Lynch.

Hi, good morning. Thank you. Just wanted to follow-up on the recovering Power business, and talk a little bit about what you expect the profitability to look like in the early stages of the recovery.

I wouldn't say it's going to be strong at all. Because we are in the very early stages and I think we're going have to build up more backlog before that happens. What we're really seeing, in terms of the emerging market, there is really in very large plants, in coal-fired plants here in the U.S., and in fairly large base-load plants in places like the Middle East. So as we've booked those -- they come in fairly large blocks, and the projects will start slowly in terms of their revenue and profit take-up. So, I don't see '05 being a very strong year for Power earnings at all. But I think as we go on into '06, we will start to see some contribution there.

And then can you talk about the Nuclear market and what types of opportunities you're seeing there?

Right now, the opportunities we're seeing are strictly around, you know, continued-- ongoing continuing maintenance, you know, keeping plant availability up, and in some cases looking at some decommissioning work. We haven't seen any real new move to new nuclear power plants. I think that probably will occur but I think we're a couple of years away from that being part of the cycle.

Okay. And then finally, you talked about some modest work in Iraq in the first few quarters. Can you just give us an indication of if you think revenue will be up or down from last year in Iraq?

I think it will -- my guess is it will be down. We had a strong first quarter last year in Iraq. And the quarters that we see from the way the work is rolling out will not rival that first quarter result.

Okay. And then finally, you mentioned that you were looking at some small tuck-in acquisitions. Do you have any specific industries that you're targeting?

We've been fairly consistent on staying within certain industries where we see the opportunity to strategically grow our market share on a profitable and accretive basis and that's been in the U.S. government business, in the Operations and Maintenance business primarily.

Thank you.

Just as a reminder, if do you have a question, please press star one. We will take our next question from John McGinty from First Boston.

Good morning.

Good morning, John.

Just a couple of follow-ups and then my questions. One, to finish up with Jamie's question, Mike, what do you see G&A doing in just ballpark in '05 versus '04?

John, our current expectations are in the 140 to 150 range.

Okay. And then the -- the second issue was you had a small -- you mentioned in the press release, sorry, the estimated project loss on the transportation project. That was for the year. And I'm sorry, I just don't remember, when was that? Which quarter was that? Or was that in the fourth quarter?

That was -- that loss was in a couple of quarters. It was spread over several quarters, John.

And -- and including the fourth quarter?

Yes.

And what was the size of that loss?

We didn't disclose that.

I understand that. So that's why -- I mean in other words, can you give us a ballpark? I mean because the question is -- you know, we look at the 23.3 million that infrastructure, you know, you look at infrastructure, it goes 15, 17, 23, and you think you've got a ramp going, but if there is, you know, if there was a $5 million loss last quarter, then you don't have a ramp. S,o that's why I am looking for order of magnitude.

As we refine our disclosures for the 10-K, we'll give you guys more color on it. We just haven't refined that disclosure yet, John.

Well, in a similar vein, Power, you mentioned a loss which was really kind of cool, the Power costs associated with the start-up and commissioning of a waste coal power plant. I mean that -- that -- in other words, you were started -- you started up a waste coal power plant and the contract was bad? Or how big was the loss? Or why you would -- I mean you wouldn't normally have a loss on the job, so did something go wrong there, and how big was it?

As we went to complete a job, we had start-up problems with the coal feed into the boiler, and that caused us to get into a situation where we were late in delivering the plant and incurred some liquidated damages.

Would you have made money in Power without that?

Yeah.

In the fourth quarter, sorry.

We would have made money in both the third and fourth quarter without that, John, and that was a new technology that we were putting in place to prepare the coal for the power plant as Alan mentioned.

So those -- that's done now? It's started up? Or is it still out there?

That's done at this point.

That's done. So that means, if you would have made money, that means that you actually earned about 20 -- 25 million, at least 25 million in '04 X the -- X the project? Just mathematically.

Well, we've not talked about the size of the loss.

Well except you said you would have made money in both the third and fourth quarter and you lost 13.3 million so if I just add 13.3 million to what you reported, that's 26, 27 million.

That's right.

So the question is, can you -- should we look at '05 in Power, can it equal '04 somewhere between '04 reported and '04 adjusted? I mean just give us -- because there is no way we have any way -- any way to gauge that, because we don't have a legitimate run rate, and the backlog has been disappearing now it's going the other way. But just in order of magnitude somewhere between the reported and the reported with the loss added back?

John, I would go back to the statement we made at the beginning of the year, and I still think holds, and that is that this is the last year we will have to offset any incremental declines in Power earnings in our results.

Okay. So power earnings will be up in '05?

Or flat with '04.

Fine. Fine. And then I wanted to just talk for a second about elephants and getting back to I think it was Sanjay's question because I was -- I thought I understood what you all had been saying and now I'm confused. You booked Equate 2. You won it. Congratulations. That's great. But, I understood you were -- you were going to take Equate 2, just as you took the Dow project or DuPont, or whichever one it was -- the other Kuwaiti project, which I assume was in the Chemicals and I&I. You took them as basically project manager, construction manager, Rather than booking a couple billion-dollar lump sum work that's the strategy you're pursuing is. So the question is, as the project goes to full bid, how much is it going be to be to you? I thought were you just doing project management and all of the, you know, the vast majority of that scope was going to go out to subcontractors? Have I been misunderstanding where you're going?

No, no. What we've done is a fairly similar strategy that is still playing out, John, and that is that we do the program management -- we do in fact subcontract out the -- what I would call the major process units to other contractors.

Right.

But then we generally try and do the utilities and off-sites because it's very natural for the program manager to do that. They're in the best position to do it and do it early.

Oh, absolutely. And do you it on a -- on a -- whatever the term is -- in other words. a very favorable basis. But the size of the project, I mean we're not looking at a 2, $3 billion jump from that -- from that?

No, no. The utilities and offsites are a portion of a the total projects--

Okay.

and have not been booked yet.

No, I understand that. But we're talking about hundreds of millions as opposed to billions when that project is booked?

That's correct.

Now, if I can just follow up, what elephants did we book? We booked Sockland Islands. We booked Equate 2, and the Ethylene in Kuwait, even though we didn't book them as billion-dollar projects. Because of the nature of what you're doing, were there other elephants did we book, or did we just book those three in '04?

We booked OPTI Canada Oil Sands.

So you've got four elephants in '04, but none of them were booked in a billion dollar-plus range, right?

That's correct.

Okay. What about '05 in elephant-hunting land? Same? More? Less?

I think we're looking at somewhat the same. We also have, as you know, the front end of that power project that we're doing that should be a conversion to lump sum during the year.

But will you take that one as a lump sum?

Probably.

And that's a billion to 2 billion? I mean order of magnitude that's the Oak Prairie or whatever that --

It's a large project. I wouldn't want to talk numbers at this point in time because we are still configuring the plant along with our client.

And God -- God love you if you can get a coal-fired power plant going. What would be the -- if you did it, is that like an '06, '07 startup? I mean what's the --.

It would be a backlog event in '05, so you real really talking about an '07, '08 startup.

Okay. And then final question, two actually, one little one. Mike, is there a seasonality in Global Services? I mean I wouldn't have thought so but for the last two years the second and fourth quarter have been decidedly above the first and third. And I'm not sure why there should be seasonality, but there seems to be, and I'm just trying to figure out, is there something there? Or is it just kind of a --.

Its just more -- there is some seasonality, John, but not enough to establish the trends that you've seen. Those are just more in terms of timing of awards.

And then here is my last question. If we look at something like Oil and Gas, where it's a function of the work you're doing and you say it is early on and lumpy, I understand that fully. But if I just look at this year, we're going 27, 30, 45, 47, why wouldn't I think you would be on a ramp to do 45 million a quarter which would get you like to 180, 190 million, but that doesn't seem to be -- I know you haven't made any forecasts or any guidance or anything, but I mean by specifically, but you don't seem to be that optimistic. So why aren't I would seeing a ramp that should at least be sustained in Oil and Gas, if not building?

John, I missed the very first part of your question.

I'm just looking at the quarterly run rate in Oil and Gas in '04.

Okay.

27 million, to 30 million, operating profit, then 45, 47. So the last two quarters, we're at a 45, $47 million rate, which theoretically should be sustained or increased if what we're doing is building up to projects. So I'm saying, you all don't seem that optimistic by coming at the low end of the range or even the midpoint. So I'm trying to understand why that ramp isn't something we should build into our models.

Well, if you recall, last quarter at this time we were talking about the very strong quarter that Oil and Gas had, and we were were cautioning that would probably not be the case in '04--

And in fact you beat it.

In fact we beat it. It we had a number of things that occurred that were very positive events that basically happened just a bit earlier than we thought they might.

Okay.

And so again, those -- you know, the timing of those events across the quarterly lines do make a difference, as you rack up one quarter against the other.

So this is not necessarily the new run rate?

That's correct.

It is lumpy, as you described, John.

All right. Thanks very much.

John, before you go, you kept asking when we were go to start booking three billion dollar quarters consistently.

Congratulations. Thank you. But I sure as heck never thought it would be out of the mines in South America. I thought it was going to be $2 billion oil projects, so, it's even more impressive.

We're a diversified company.

[laughter] That's for sure. Thank you.

Moving on to Tom Ford from Lehman Brothers.

Thanks. Good morning.

Good morning, Tom.

Alan, one question I have for you. I thought it was interesting when you talked about past cycles. What is the mix of the backlog for Fluor look like this time, versus past cycles, if you look at it from a cost versus, you know, LSTK break down?

Well, I -- I -- that particular split that you're talking about, Tom, does move dramatically based on what markets we're in. We've peaked at a very high ratio of lump-sum turnkey work in the '01-'02 cycle with Power--

Right.

--with Power in the United States. We're now down to what I would call a more traditional level about a third, maybe a little less than that in lump sum now.

Okay.

I think that will continue until -- unless we get the Power market kicking back in--

Okay.

--and I think maybe a year from now, a year and a half from now you will see that number up slightly.

Okay. Okay. What about, I mean I was thinking about more if we went back further, before, you know, say the '99-2000 period.

Okay. It did good.

Is it similar or --

Yeah, it's moved pretty dramatically, you know, from year to year, Tom, depending on what's going on. Back in the mid '90s, we had a very large refinery that was lump sum. We had a consistent -- I mean a significant part of our backlog, so that number would have been up then and come back down as a percentage. So it is very difficult to track. Again, it depends on the market cycles you're in, and the particular size of a single project may sway it significantly.

Okay.

For example, I mentioned the Power project that we're talking about.

The Peabody and--

Yeah, that would drive up -- that would change the ratio pretty dramatically just with one contract signing there.

Right. And actually that was one of the questions I had for you, was, I just want to make sure I got that timing right. So that sounded like something maybe third quarter '05 event, in terms of a booking, but you don't think the groundbreaking starts until '06 or '07?

No, no, the -- it will be a late '05 booking, with ground breaking somewhere right in that time, a the coal-fired power plant is a much longer cycle construction period--

Okay.

--than most projects.

Okay, and the other thing I was curious about was with respect to this loss on the Power side, you mentioned -- was the problem -- did the problem have to do with the technology?

It had to do with the technology and the way that the coal fed into the boiler.

Okay.

We had to go back in and modify the coal-feed process.

Okay. So is there anything, I mean should we -- how should we think then about Peabody? Because I know some -- in conversations I've had with folks, they've referenced that the Peabody project has some new technology elements to that. Is this -- are these -- you know, apples and oranges, or how should we think about that?

I don't see a connection there.

Okay. Okay. All right. Great. The other question I had was, Mike, in the -- it was broken down or split up among the different segments, but it looks like there was about -- versus our numbers, about 400 million of adjustments in the fourth quarter. I think about half of that was in Oil and Gas. Was that foreign exchange?

No, it wasn't. It was really just additional work that was done on contracts that was added, you know--

So they were like scope adjustments?

Yes.

Okay. And then Alan, one question for you. I know that in the past, when you talked about the earnings guidance range for 2005, you had -- Iraq obviously figured in there, and it sounds like Iraq has been scaled back somewhat. The flip side, though, is it sounds like your new business activity has been maybe better than what you thought. I mean, is that the right way to think about it in terms of that earnings-guidance range that, you know, you're always going to have sort of see-saw effects with certain things going down, and others coming up?

There clearly are a number of components in that expectation, in that range, Tom. And you're right. We have, as we've gone through the year and based on events, scaled back our expectations on Iraq. And so as we go into '05, there is some in there, but it is -- we're being fairly conservative in that regard given the uncertainty.

Okay. Okay. Great. And then last but not least, do you guys have any update on the timing with respect to Hamaca?

I wish we did. The answer is no. We're continuing to -- we're now arguing into the national strike part of the claim--

Umm hmm.

--and we anticipate awards as we go through this year.

Okay.

But I can't -- I can't give you the timing.

Right. Okay. Great. Thank you very much. You bet. Thank you.

Our next question comes from John Rogers from D. A. Davidson.

Good morning.

Good morning, John.

Good morning, John.

Just -- I think most of my questions have been answered but if you could give us an update on the competitive environment, and I know you don't give us margins and backlog anymore, but if you can give us a sense of what pricing is doing in the market? I mean you had this big increase in backlog, and I mean, is capacity being filled up? Or is it changing?

I think if you look across this industry, you'll see -- you'll see pretty strong trends across the board. Which means that there is a lot of additional capital spending going on by clients, and, in fact, the contractors at this point in time, are starting to have an opportunity to be a bit more selective in their bidding. So I think that is kind of the case in the market, as we go forward, of course, that does cycle, so --

Sure.

It is a tough -- it is a competitive market. Always has been. But we are pretty selective in what we bid, even -- even with the strong awards, and the markets we find ourselves in. And you're right, we don't post gross margin in our quarters anymore on bookings, but it has stayed strong.

And Alan, what about the mix between fixed price and cost-plus type work? Is that -- is there a shift there, as you go back to some of these mining projects in Industrial, is the fixed price portion picking up or -- Actually, no, John, the mining projects that we've been signing on have been reimbursable costs. So its been driving the reimbursable portion of our backlog to a higher number. Okay, and lead times on a lot of this work, it must be pushing out a little bit further into '06 and --

That's correct. That is true, yes.

Okay. Great. Thank you.

You bet. Thank you.

We will take our next question from Leone Young at Smith Barney.

Good morning. My questions really have been answered. Maybe just a couple of clarifications, though. Mike, I didn't hear you when you said what Cap Ex was in '04, and maybe you could just refresh us as to the range you would look for in '05. And also, do you have any sense of where cash could end up basically at the end of this year?

Yes. Cap Ex was a little over 100 million about, 104 million, for '04. That was in part driven by some additional Cap Ex to support our activities in Iraq with our American equipment business. It may be modestly higher in '05. It may be 120 million, 100 to 120 million range--

Okay.

--for Cap ex in '05 but depreciation will accordingly move up as well.

And target for cash?

I would suspect that our cash throughout 2005 will remain in the 5 to $600 million range.

Great. Thank you.

Moving on to Alex Rygiel from Friedman Billings Ramsey.

Thank you, two quick questions. With regards to your backlog build of 39 percent year-over-year coming in at the highest it's been in quite some time if not ever, you can talk about what your theoretical capacity is?

Yeah, Alex, that's a very good question. And the reason I like the answer is, it is not the highest ever. In the very early '80s, this company peaked out at actually significantly higher than that, in those days, dollars. I think we have a significant capacity beyond where we're at. And we have even more capacity than what we had back in that -- in the '80s time frame. And then that's based on the fact that we're more broad based now in terms of where our resources are. We've got a very sophisticated work process assisted by the technology to be able to share and move that work around our network. We have a very strong subcontracting network as well. So our ability to staff and build up to a much higher backlog is -- is pretty strong. So I don't see any real restraint on us there in terms of continuing to grow that backlog.

And -- and lastly, based upon your current book of business, can you comment on the profitability of that book of business relative to historical cycles, like maybe the early '80s?

They're just very, very different. In the early '80s we were much more a total-responsibility contractor, whereas today, we do a lot of subcontracting. We have probably more pass-throughs into our books today. But having said that, if you just go back over the last 10 year, I think our margins based on the -- without going all the way back to the '80s -- our margins over the last ten years have improved because of our selectivity, because of our execution capability,y which we put a lot of focus on, and the fact that we've just in that selectivity in the risk program, we've gotten away from signing any projects that would bring in -- that we brought in -- that cause significant problems to the earnings later on. So I think we're a much more consistent company and generally a much higher margin to the bottom line.

And actually one last question. With regards to your cash balances, how do you anticipate that trending over the next 12 months given the the startup of a number of these larger projects.

Mike, you want to address that.?

I'm sorry? I think our cash will remain in the 5 to $600 million range, as we commented, and most of that is overseas, so I don't see that changing. I do see our commercial paper that we use to fund some of our domestic cash needs probably staying around where it was at year end, in the 100 to 150 million range as we ramp up 2005.

Perfect. Thank you very much.

Moving on to Curt Woodworth from J.P. Morgan.

Hi, good morning.

Good morning.

A few quick questions. I was wondering if you could comment on some news flow that has been coming out of Iraq regarding the U.S. looking to hand over some more contracting power to the Iraqi ministries, which is somewhat of an interesting issue given the news that came out earlier this week that about 9 billion of funds were -- were misappropriated. Have you heard anything more with that dynamic?

No, we have not. You know, other than reading the same article that you read. But I do think that that is -- it will happen inevitably, with the timing is just a question mark right now. The U.S. is going to have to start handing over control of a lot of this to the Iraqis, not just self-defense, but also the actual rebuilding.

Okay. And then you commented on year-over-year trends in Iraq, that they could be down in the first quarter but can you talk about sequentially what you're seeing early in this quarter? Just because I know there was a report out of the department of defense saying that they're looking to -- to accelerate some of the spending for Electricity and Water projects. Are you seeing that?

We did book -- we did book new awards in the fourth quarter in Iraq in the area of Electricity and Water. So we are seeing some task orders now being released, but the overall -- you know, change that we saw in the May/June time frame has still kind of persisted in terms of money being redirected towards security as opposed to the rebuilding. But yes, we are seeing some task orders.

Okay. And in terms of the coal-fired opportunity, outside Peabody, are you doing any front end work or do you have any, you know, solid opportunities there, you can talk to?

We are doing some front-end work but nothing that I can point to that would be with any confidence would be awarded in this year.

Okay. Great. Thank you.

You bet.

Our next question comes from Carl Demuth from Lord Abbot.

Good morning.

Good morning.

What area does you see as most attractive for acquisitions? And you also have a return [inaudible] for those?

Well, again, we have really focused our acquisitions really in two markets. That would be the markets serving the U.S. government, and the Operations and Maintenance area. We are looking at a couple others that would be in other strategic markets but that's really where our focus has been. We have hurdles. We haven't published those. But we do look for any acquisition that we make to accretive in the first year.

Okay. And how much of your cash is overseas and what are your plans with that with regard to repatriation?

The vast majority of our cash is overseas. We're looking at some of the new tax codes to see what that does to repatriation. But we do have a regular program of bringing back funds every year from overseas as is tax efficient.

Okay. Thanks.

We have a follow-up question from Tom Ford.

Hey, Mike, just following up on, that you said the commercial paper is going to stay approximately the same at year end?

That's what our current forecast is. We -- throughout the year, it is going to be very lumpy, Tom.

Okay.

We do have a lot of inflows and outflows as we go throughout the year. There's a lot of seasonality. And we normally have a negative cash flow in the first and fourth quarter and fairly positive in the second and third.

Okay. And is it the same then, so total debt -- so the total debt number is expected to be somewhere around the same number?

It will move around during the year but it should be somewhere in the same area as it was in end '04. Or perhaps a little lower.

Okay.

We are looking to, by year-end '05, drop our debt to total capital.

Okay. But -- you're going to drop your debt to total capital?

Right, it was 27 percent at the end of this year and we would like to get it down below 25 at least.

Is any of that going to come from lowering debt or is it more -- that just could be from booking earnings, right?

Our goal is to have a combination of the two, Tom.

Okay. Okay. Great. Thanks very much.

You bet.

We have no further questions in the queue. At this time, I will turn the conference back to Alan Boeckmann for any additional or closing remarks.

Thank you. Let me close by thanking everybody for their participation in our call today. You know, as we've been talking about, this broad-based cycle of capital investment in a number of our markets, I think it has certainly been evident in the bookings we've been able to achieve this year and the final backlog tally being at $14.8 billion, and we are clearly capturing our share of that market. With the exception of Power, the backlog in every one of our other business segments was up this last year, and with Oil and Gas, and Industrial Infrastructure, both up dramatically. We're very encouraged with the strong trend that we see in awards and we expect that trend to continue. We're expecting 2005 to be a very good year for Fluor. We thank you for your confidence and we appreciate your continuing interest in our company. Have a good day.

That does conclude today's conference. We thank you for your participation. You may now disconnect.