Fluor Corp (FLR) 2008 Q4 法說會逐字稿

Good afternoon. Welcome to Fluor Corporation's fourth quarter year-end conference call. As a reminder, today's call is being recorded. At this time all participants are in a listen-only mode. A question-and-answer session will follow management's presentation. A replay of today's conference will be available at approximately 8:30 p.m. Eastern time today, accessible on Fluor's web site at www Fluor.com. The web replay will be available for about 30 days. A telephone replay will also be available through 8:30 p.m. Eastern time on March 4th at the following telephone number, 888-203-1112. The pass code of 4383516 will be required.

At this time, for opening remarks, I would like to turn the call over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Welcome to Fluor's fourth quarter and 2008 year-end conference call. With us here today are Alan Boeckmann, Fluor's Chairman and CEO, and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed and we have posted a slide presentation on our web site which we will reference while making prepared remarks.

Before getting started, I'd like to refer you to our Safe Harbor notes regarding forward-looking statements which is summarized on slide two. During today's call and slide presentation we will be making forward-looking statements which reflect our current analysis of existing trends and information and there is an inherent risk that actual results and experience could differ materially. You can find a discussion of those risk factors that might cause expectations to be different than actual results in our 10-K filed today February 25th, 2009. With that I will turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.

Thank you, Ken. Good afternoon everybody, thank you very much for joining us today. Today we will be reviewing our results for the fourth quarter and also for the full year of 2008. In addition we will provide an update on our current business outlook and discuss earnings guidance for 2009. But first before we get into the specifics on behalf of the over 40,000 employees of Fluor Corporation let me brag a little bit about 2008. It was without a doubt the strongest year in our company's history. With record setting revenue, earnings, new awards, and strong cash generation. And with $2.1 billion in cash and securities and minimal debt, our balance sheet strength is substantial.

To start off I'm going to start with slide three and cover some highlights of financial performance. As I said we announced record financial results for 2008. Our net earnings rose 35% to $720 million, that translated to $3.93 per diluted share. And that compares with $533 million or $2.93 per diluted share in 2007. Consolidated operating profit for the year was $1.3 billion, that's up a full 61% from $802 million a year ago. The total year results reflect very strong profit growth in all business segments and was driven by a 34% increase in revenue and higher operating margins which improved from 4.8 to 5.8% in 2008. Our revenue rose to a record $22.3 billion, up from $16.7 billion in 2007.

As I move to slide four, full year new awards rose to a record $25.1 billion, up from $22.6 billion a year ago, which was a record at that time. It was driven by increases in oil and gas and Industrial and infrastructure. We booked a very healthy $4.2 billion in the fourth quarter, that when combined with the $8.8 billion in the third quarter kept us on our recent average of about $6.5 billion per quarter. This chart clearly demonstrates the kind of lumpiness that we will see going forward as prospects move further out, though at this point we are expecting fairly strong new awards in the first half of 2009. With regard to our markets and prospects, the economic environment is creating uncertainty on a number of our markets. But many of our key clients continue to invest in strategic long-term programs where Fluor excels. While we have seen delays on several backlog projects the impact has been relatively minor.

Year-end backlog was $33.2 billion, up 10% over the prior year. Now, that was down sequentially from the high mark of $36.5 billion at the end of the third quarter and that was due to several factors, those are an increase in fourth quarter revenue burn rate, we also noticed and recorded the impact of currency exchange on international projects values as the dollar strengthened and the timing of certain new awards, which closed earlier than expected and went into the third quarter in our record bookings in that quarter. With respect to our view on backlog going forward, while we do expect as always there will be a certain degree of lumpiness from quarter to quarter, we continue to believe that we can maintain backlog at the current levels through 2009. Let's talk a little about the markets in each of our segments, let me start with the largest market, oil and gas.

As you turn to slide five you can see oil and impasse had a tremendous year in 2008 and finished the year with record backlog and operating profit. The year was particularly strong from a downstream perspective, but as we have predicted, US refining awards have begun to slow. We in fact continue to see downstream prospects in the US, but they're smaller in size than what they have been. The market is clearly moving internationally to Europe, Middle East and Asia where we are growing our presence.

As I mentioned, we have seen several projects delayed including the most recent announcement by Valero. With the cancellation of the construction portion of our two hydro cracker contracts we have approximately $750 million remaining in backlog, which will come out in the first quarter of 2009. We are extremely busy executing our substantial downstream backlog and we continue to track and perform feed services on some very large international prospects. In the petro chemicals area, we still see a number of opportunities in chemicals and specialty chemicals in the Middle East, China and to a lesser extent Europe. On the polysilicon side, we are hearing about some delays in expansion projects as many of these projects do require financing. Having said that, we are making substantial progress on projects for REC and LDK and continue to be very well positioned to capture a significant share of this growing market.

Finally in upstream substantial investments are planned in the Middle East, Russia and Canada. A number of these relate to the development of gas resources as well as offshore and onshore production facilities and related top sides. We are particularly focused on these large opportunities where we can bring our extensive program management capabilities to bear. And while in the very early stages, we were very pleased with the selection of our Fluor-led venture by the Denali Group for a prefeed contract on proposed gas treatment plant in Alaska. This gas plant would be the world's largest, but more importantly puts us in a great position to participate in the overall Alaskan pipeline program once it receives the necessary approvals.

We find that many clients today are hoping to benefit from lower commodity costs and because of this we have actually seen some increase in feed work. But unlike our experience in recent years the timing of the releases for the full EPC is probably less predictable. I'm on slide six now, and on the power front we grew backlog substantially during 2007. In 2008 we completed the 242 megawatt pulverized coal plant for Newmont Mining which was named a Top Plant Award by Power Magazine. We also made substantial progress in '08 on the Oak Grove project, which is going extremely well, and on pursuing new contracts for gas fired plants, also for FTD and SCR emission rededuction project. In addition to our traditional power generation markets we are also positioning ourselves and see great promise in a number of renewable energy markets including large scale wind farms, solar power and biomass facilities. We are hopeful that the new administration will quickly address the US energy policy and provide clarity around carbon legislation so the substantial power market can start moving forward again.

As you look at industrial and infrastructure, our mining backlog is intact with the exception of one copper project which we took out in the fourth quarter. As we go forward, most clients have in fact scaled back on their near term Cap Ex plans, although one significant bright spot exists. We have one mining client who despite CapEx reductions is moving forward with a rather significant program that is being awarded to fluor. In infrastructure, we have several major road and light rail prospects. The availability of funding is clearly an issue, particularly with state DOTs, but we're hopeful that the financial picture will improve as we move through this year. We are excited about the pace in which new opportunities in the offshore wind area are developing. In addition,to Scottish and Southern's plans to develop a second phase at Greater Gabard, we were recently granted exclusive rights to develop a wind farm at Bell Rock off Scotland's coast along with our partner, Airtricity. This market is continuing to develop and has the potential to be a substantial contributor for us.

I'll ask you to move to slide seven for the government segment, with awards for both Savannah River and LOGCAP 4 this group has made significant strides over the last year. In addition to being one of our more counter cyclical parts of Fluor, this group has fashioned solid growth prospects. For the DOD, we are finally seeing a meaningful level of LOGCAP awards come our way, mainly for work in Afghanistan. We continue to be active under our CTAC contract in iraq. Also as you may know, our services contract for the DOE at Hanford has been extended which should also be a positive for the first half of this year. I am very encouraged by this group's recent successes and we do look forward to a very strong 2009 from our government group. Global services, after four years of double digit percentage EBIT growth continues to be effective at renewing existing contracts, maintaining the presence on over 300 customer sites and expanding their services offerings globally. We also expect that we will see in this group a pickup in refinery outages and power turn around work that our customers have been deferring.

We're also on the verge of signing up a number of new maintenance services relationships that have been in the development for some time. Overall, this segment is performing extremely well and should have a solid 2009. So in summary, we remain optimistic that despite certain head winds that are certainly out there for all of us, that our substantial backlog and diversified business model will allow Fluor to deliver solid results in 2009.

So with that let me turn the call over to Mike Steuert, Mike will review additional details on operating performance, on our new awards and other financial information. Mike.

Thank you Alan, and good afternoon. First, let me provide you with a brief recap of the results of each operating segment.

Please turn to slide eight of the presentation. Fluor's oil and gas segment reported profit of $724 million, which is a 67% increase from 2007. Revenue increased 55% to $12.9 billion. New awards in the fourth quarter totaled $2.7 billion including a petrochemical expansion project in China, a refinery conversion project in Portugal and additional scope on several downstream refining projects in the U.S. Ending backlog rose 15% to $21.4 billion.

Moving to slide nine, Fluor's industrial infrastructure segment reported operating profit of $208 million, a substantial increase from $101 million in 2007. Improved results were mainly due to increased contributions from mining projects and a $79 million pretax gain relating to Greater Gabard. Revenue of $3.5 billion was modestly higher than last year. New awards totaled $5 billion for the full year, up 50% from last year. Year-end backlog rose to $6.7 billion, which was an 11% increase over 2007. The government segment posted operating profit of $52 million for the full year, up 78% from a year ago.

Improved operating results reflect higher performance base fees from strong performance on contracts as well as improved profitability due to a shift away from fixed price contracts. New awards total $1.4 billion for the year, including the Savannah River contract and task orders under LOGCAP four. Fourth quarter new awards totaled $271 million, including about $100 million for LOGCAP four task orders. Backlog at year-end was $804 million, which is up modestly from $740 million a year ago.

Turning to slide 10, the global services segment reported a 14% increase in 2008 operating profit to $229 million. Full year revenue rose 9% to $2.7 billion. While all business lines generated strong results, the year over year improvement was mainly driven by increased performance from our equipment services unit. Full year new awards totaled $2.1 billion, which brought year-end backlog up to $2.6 billion. Fluor's power segment reported a 98% increase in operating profit to $75 million. Driven in large part by a 64% increase in revenue. New awards in 2008 totaled $1.3 billion, including a 620 megawatt gas fired combined cycle power plant that was booked in the fourth quarter. Ending backlog for the power segment was 1.8 billion, which is down from 2.4 billion at the end of 2007, primarily due to progress on the Oak Grove project.

As Alan mentioned, Fluor's consolidated backlog at year-end now stands at $33.2 billion, approximately $1 billion of the decline from last quarter is due to the impact of currency translation as the US dollar has strengthened and another $270 million of the decline is due to the mining project cancellation that Alan also mentioned. One quarter of the total backlog value is for fixed price contracts and the backlog is now evenly split between projects in the US and those outside of the US. Let me now move on to corporate items on slide 11. G&A expense for the year was $229 million, up from $194 million a year ago. This was mainly due to higher compensation related expenses and a $16 million provision associated with existing facilities in the UK.

We had net interest income of $55 million for the year compared with $41 million last year, reflecting substantially higher cash balances throughout the year, and lower interest expense. The effective tax rate for the year was about 35%, which is an improvement from our expected 38% run rate. One driver in the quarter was a $12 million tax reduction associated with the capital loss in the UK real estate transaction I just mentioned. The remainder of the reduced tax expense primarily resulted from statute expirations and reversal of certain valuation allowances. By comparison, the fourth quarter of 2007 was affected by significant audit adjustment with the IRS that resulted in a very positive $123 million earnings impact. Shifting to the balance sheet, consolidated cash and marketable securities balance went up to $2.1 billion throughout 2008 which compares with $1.7 billion at the end of 2007. This $400 million increase was driven by strong cash flow from operations, which totaled over 900 million for the year. Our debt to capital ratio was reduced to 5% compared with 13% a year ago, primarily as a result of the conversions by convertible note holders throughout 2008. Capital expenditures for the year were $300 million, up from $284 million in 2007, with the majority of these expenditures attributable to our continuing investment in our equipment services business and to investments associated with expansion of our work force and our it infrastructure. In the first quarter we declared our normal quarterly dividend of $0.125 per share, which is payable April 2nd, 2009. In conclusion overall I am very pleased to say Fluor's financial condition remains as strong as it's ever been.

Finally, let me address our guidance for 2009, which is shown on slide 12. We are facing a challenging global economic environment including declining demand for commodities and very tight credit markets. As a result we are seeing evidence of a slow down in certain new capital investment programs, however the impact of Fluor's backlog has been relatively minor. Based on a review of our sizable backlog, a relatively robust prospect list, and action to improve overhead leverage the company is maintaining 2009 EPS guidance at the previously issued range of $3.90 to $4.02(Sic-see press release) cents per share.

Operator, with that, Alan and I will be happy to respond to questions.

Thank you. (Operator Instructions). We will go first to Michael Dudas with Jefferies.

Good afternoon, everyone.

Hello Michael.

Alan, could you characterize some of the discussions that you have had with your clients across the board and how different are they reacting relative to what maybe investors or the general media is reacting towards the economic slow down and the expectations of much lower capital investment going forward.

Yes, Michael, I think clearly every client out there, every company in America is being cautious. But it's nowhere near the gloom and doom that's being predicted in the general marketplace. Everybody still has companies to run, they have plant to maintain, they have capital expenditures that they are committed to and are planning to benefit their business. We have seen some slow down, I've mentioned that, we have seen some that are waiting a quarter or two to get better commodity prices. But, you know, if you see the announcements that have been made by a number of the oil companies they're still planning on major capital expansions.

So the gloom and doom that's out there is general prediction, we're not seeing it specifically in our business. We're having, we have had some cancellations and delays, but they have not been major. And we have had some very nice surprises. We counted on almost no LOGCAP work, in fact our LOGCAP predictions when we put our plan together were almost to zero and we have had very very nice infusion there. The government business is picking up additional work. And we're tracking some more significant number of feed projects than we were at this time last year.

What just one follow up if I could, what of the end markets that you see, maybe away from energy and oil and gas, which markets do you think can surprise to the upside relative to new bookings and the ability for Fluor to generate nice returns, and maybe if you look at the I&I business what sliver might be continued to cause some issues relative to new bookings and returns and maybe you can also talk about the US infrastructure opportunities that may present itself for Fluor going forward.

Sure. I think clearly I've already mentioned the unit within Fluor that has the most upside potential right now is our government business in terms of what we had been planning on for 2009. But secondly I think in our oil, gas and chemicals area we're still seeing significant strength and potential awards and new awards in our chemicals group. And in our upstream business. And continuing on fairly substantial feed work in the downstream oil side. So I think both those two units still have significant opportunities in front of them. Interestingly enough, the unit that you would probably think is going to be the worst hit, the mining industry, and I know you cover that Mike, so you will appreciate that, we actually have been very fortunate because of our positioning and our client relations to be in a position to take some pretty significant projects yet in 2009. So even though that business has been hit hard, we have good opportunity there and we're capitalizing on it.

As for infrastructure, I think all of us were a bit disappointed in what the actual bill presented in infrastructure. It's more specific projects that are out in different districts. I think the DOTs will eventually get money that I think will then be an opportunity. But we didn't see a lot coming out of that bill that helped very specifically on infrastructure opportunities. We actually are seeing it more in the energy side and I think that's where we're going to see some work during 2009 that was not expected.

Thank you Alan.

You bet.

We will go next to Jamie Cook with Credit Suisse.

Hi. Good evening and congratulations.

Thanks Jamie.

Thanks Jamie.

All right . My first question you will be surprised by, when I look at your guidance of $3.90 to $4.20 for 2009 I guess, given the delays that we have been hearing about and cancellations that we have been hearing about, I'm surprised we're not a little more cautious on the outlook for 2009. So can you just, is there any way you can quantify what Valero or Marathon or any of those projects quantify the impact to earnings in 2009. And then also you mentioned that you thought that you would get some benefit from your taking actions to improve overhead, so is any of that in your 2009 outlook. Then last Alan I just wanted to clarify, I thought you said in your prepared remarks that you thought flat backlog would be flat for 2009 and I want to make sure it was total backlog or was it oil and gas, if you could just clarify that statement

Sure, I will. Let me start with that one Jamie then I will come to your other question

Sure.

I was talking about our total backlog. Clearly it will be lumpy quarter to quarter, but if you look across the quarters year to year we expect it to remain relatively flat.

So by the end of 2009 we will still be at like $33 billion?

The number will start with a 3 I believe yes.

Wow. And it's oil and gas you're still seeing the prospects, but government is picking up.

Government is definitely picking up. We will be seeing renewal on power and infrastructure side. We have got several very large prospects in oil and gas that we hope to close on during the year. So yes, all in all let me talk a little bit more about the overall, give you an overall perspective if I can on the guidance

Sure

We clearly put the guidance together in a different world in terms of how it went together. On the other hand, if you look at the counter balancing forces, clearly I mentioned head winds, we have several head winds no doubt. We have had projects that have been deferred or canceled, delayed. We have some new awards that have been delayed, or are stretching out. And we have had a strengthening of the US dollar which has created definitely some head wind on our P&L for 2009. But, even when you consider those risks and the drag on earnings, we have had really relatively little cancellations of backlog. And I feel actually very good about the execution and risk management that's going on within that backlog. We continue to see sizable prospects across the board in a number of our business groups and we expect to have a fairly strong first half in terms of new awards.

You mentioned overhead, we are, I think, very responsibly taking a deliberate and structured approach to overhead cost control. But again we were counting on some overhead expenditures again based on a very different market, so some of the cutbacks are very natural. I would not labor any of our cutbacks draconian. We are still investing in a number of areas for improved competitiveness for training of our personnel. So we believe we can cut back on discretionary items that help balance that earnings projection. And we will continue to evaluate that as we go through the year.

All right, great. I'll get back in queue, congratulations.

Thank you Jamie.

We will go next to Alex Rygiel with FBR Capital Markets.

Thank you, good evening gentlemen.

Good evening Alex.

A couple quick questions. First, Mike I believe you mentioned actions to improve overhead leverage, what did you mean by that.

Alex, that's just what Alan explained that, we are responding to the changing economic environment and we have been very successful in leveraging our overhead the last couple years and generating increased profitability through that and as we see these markets mature we want to keep leveraging our overhead and keep generating EBIT per dollar overhead. We're taking actions to ensure that we continue to do that.

Are you seeing any increased competition that is leading to pricing erosion or lower margins on upcoming opportunities.

Alex, I think we have seen a little bit of that in particular markets. I think that may continue as we go through the year, but again we have got a fairly good and complex system of activity that we use to make sure we're competing on projects where we have got a value added proposition. So I don't foresee any significant margin erosion in our backlog.

In one end market that was left out on the power side was nuclear generation, can you comment on that right now.

I sure can. We are continuing to support Toshiba as their sub contractor on the NRG south Texas project. I think you probably saw a press release this morning from them announcing the signing of their contract with their client. We're continuing to support them for the COL license application. We will be the engineering constructor of record for that entire plant. But that probably won't go into backlog until 2012. That is an AVWR, or advanced volume water reactor, which as opposed to the other reactor technology in their fleet has been built and is proven. And I suspect given a lot of the uncertainty that's out in the market we will continue to see more AVWRs become reality in the future than some of the other technologies that are out there. And I think we're very well positioned with that.

Great, thank you very much.

You bet.

We will go next to Andy Kaplowitz with Barclays Capital.

Good evening guys, nice quarter.

Thanks Andy, how are you today.

Good. If we talk about margins in oil and gas, then in power, the margins continue to be pretty high in oil and gas. You know, I know you talked generally about pricing, but if we look what's in backlog can you sustain these margins in oil and gas in 2009 or do they need to come down a little bit.

I think we have got a good track on 2009. I don't expect any real degradation in those margins during the year. You will notice though, that in the fourth quarter on power, our margin went down. There was a charge there for a 12-year-old dispute that we actually were successful in the dispute, but collectibility became an issue.

Alan just besides that I saw the charge in the K, besides that, it still was a little bit lower than the rest of the year, is there anything going on there is it sort of --

No, that would be timing issue, it wasn't significantly lower. Actually we really expect power margins to be much stronger in the second half of the year.

Okay, great. If I could just push you a little bit on maintaining back logs for the year. Obviously there's a level of trepidation around what backlog will be in 2009, given the stock price movements in the last few weeks. Can you tell us sort of the level of conviction you have and maybe give us examples if you could of how we're going to see big new awards in the first half of the year. Any color would be helpful.

That's a very good question. We look at each business groups in the prospects in front of us, we annualize very carefully go get percentage and we put a factored number in that. Clearly, that factor is either right or it's wrong. And we can take the project into backlog or we lose it. So it's a process we use that served us well over the years. It is one that gives us some confidence that we are going to be able to maintain it quarter to quarter. I think that quarter to quarter comment though needs to be moderated by the lumpiness issue I mentioned on just timing. We expect a very strong first half of the year. But actually there is, there are a couple very significant projects that are timed in the second quarter. That if we get those would be a significant addition to backlog. So lumpiness is the watch word, but I think given the puts and the takes we really feel that we will be in backlog that does start with a 3.

That's fair. And then just one final question, if you look at your cash obviously you have been hoarding it over the last couple years which is a good thing. And, you look at the public valuations coming down over time. So what's your current thinking on dash deployment, any changes, any need to be more aggressive, where are you guys in the process.

Well, we have not at all, we mentioned in our last call that we really are looking to take an opportunity during this market for acquisitions. We still mean that, we're still focused very heavily on that, we're doing a lot of work in that area. But actually in a lot of cases those may in fact be a stock deal more than a cash deal. We will be using cash for a number of purposes, we have still Cap Ex in our equipment business, we have still a very strong dividend policy for our industry. And we will be using some for what I call niche acquisitions. Having said all of that, I still think we will wind up with a very significant cash balance during the year.

Thank you very much.

We will go next to Will Gabrielski with Broadpoint AmTech.

Good afternoon, thanks for taking my questions. So a couple, the burn rate in the fourth quarter was obviously above trend lines to some extent and that helped you, going forward when you look at backlog what do you think the burn rate will look like, similar, up or down in 2009.

I think it will be fairly similar, maybe up a bit. What do you think Mike?

Yes , it's going to be up a bit, but I think as we go through 2009 it will flatten out throughout the year. We won't see the growth that we saw

That's very true.

Quarter to quarter basis

Can you add some color around your commentary, there's one comment about the first half of '09 and some sizable projects, is there any color you can add by end market or geography that we should be paying attention to? Probably not, because I think it would point specifically to a project we're not really at liberty to mention. It I think it will actually be fairly broad based. We're going to see I think some good awards in I&I and E&C and in government.

Okay, fair enough. One of the questions, just a follow up on the acquisition path, I think there's some pretty big opportunities coming from the transportation bill, probably that fit more up Fluor's alley of working on high speed rail projects and bigger highway and bridge projects. Is that a market you guys are keen on making acquisitions in right now or opportunities.

Yes, it is. You know, as I've stated I think the last couple quarters our priorities for acquisitions are in the area of infrastructure design in the area of new build power, new build nuclear power generation and in the area of offshore oil and gas.

Okay. One last one and it's maybe a one word answer or not, but there was some chatter on BP Whiting, are you guys seeing any slow downs there, is there anything meaningful to report in terms of what you're counting on in 2009 relative to what you were expecting when you booked the project?

No, that's the simple answer.

Okay, great, thank you very much, good job.

You bet, thank you.

We will go next to Graham Mattison with Lazard Capital Markets.

Hi, good afternoon guys.

Good afternoon Graham.

Just quickly looking at ratio of fixed price projects versus cost reimbursable, do you see any change in that going forward given the sort of changing economic environment.

Yes, I actually think we will probably trend up a bit on the fixed cost part, particularly towards the end of the year. And again that's based on the prospects that we see we have in our line of sight. The good news again is almost all of those we're doing the front end on and in almost all cases it will be a negotiated lump sum where we have a significant part of the equipment purchased and even have index on things like labor. So even though they're fixed costs I don't see it adding significantly to our risk equation.

All right, great, thanks. Also in the global services division, you mentioned refinery outage and turn arounds expected to increase. Just getting a sense of timing, is that more going to be second half, or is there time of the year during that and is that going to be impacted at all by the lower commodity demand prices and also the tight credit market.

I think it's already been impacted, that's why I'm saying what I am. We saw a slow down in the fourth quarter and in the first part of this quarter, the current quarter. But we expect that that will then start to come back into play as we get in probably more into the end of the second quarter, into the third quarter.

Okay, great. I'll jump bag in queue, thank you very much.

Thank you.

We will go next to Barry Bannister with Stifel Nicholas.

Thanks for the quarter guys, bless you. Quick question, your G&A was $229 million, it popped up from 210 to 220 guidance I noticed you didn't break out the FX effect on your backlog, could you talk about currency, how it may have affected G&A and backlog.

We didn't because Barry it wasn't one of the more material impacts, the two larger impact we did break out was increase in compensation related expenses and the one time charge we took for relocating some of our UK facilities. So it was smaller than those that's why we didn't break it out.

You would be looking at returning to around the 229 plus inflation in '09?

No, 229 is too high of a run rate.

But that's with inflation?

I would say in '09 probably 200 to 220 range is reasonable for 2009.

Okay. Now, when I look at the power operating margin it had a dig drop. When I look at the tax rate it was also very low. Could you describe what the tax rate is going into '09 and power's margin as well.

Sure. Let me start with the tax rate, Barry. Both in 2008 and 2007 we were very successful with reducing our tax rate, had the big settlement in 2007. This year, we had some positive tax rate adjustments due to some statute expiration and valuation allowances. The other thing that impacted the tax rate was the $12 million credit we got our tax benefit we got as part of that UK relocation. We purposely structured that transaction so that the cost of the transaction, the write off on the transfer of the building would be to a large extent offset by the tax benefit.

Right.

So taxes are kind of complicated to look at. If you knit those two together and take it out of the tax rate, look at the difference between our normalized tax rate and what was reported, we come in about $0.02 or $0.03 over guidance for the quarter and the year. Kind of complex. We are going to continue to aggressively pursue tax benefits throughout 2009 as well. It's an area I think that we have done a good job adding value by trying to drive our tax rate down. We do plan nominally for 38%, but certainly strive to achieve rates below that.

And then just lastly the LOGCAP four incumbent has challenged in court the other LOGCAP party besides you that is pursuing business. Have you had any sort of delays like you've seen in the past with Savannah River and other nuclear that involve legal action or is everything proceeding on the orders you have been awarded.

We as you well know we were awarded LOGCAP almost 18 months before we actually got our first task order because of all the protests that occurred during that. So yes, the incumbent shows a significant willingness to protest which has in the past delayed some of the awards. But I think that clock has run out, that's why we're starting to get the awards that we are.

Great, thank you, great quarter.

You bet, thank you.

We will go next to Andrew Obin with Banc of America Securities.

Yes, this is Banc of America Merrill Lynch. Just a question in terms of the comments you made for margin in 09, do you expect any specific margin pattern for the year which would reflect the fact that the environment is getting more competitive or just the environment not getting more competitive and you're still able to book contracts that have margin that is very much comparable to what you have shown us in '08?

Well, I think there's no doubt and I predict the market will become more competitive. I think we're starting to see signs of that as I mentioned. But a lot of the work that we're doing has been contracted and is in backlog. And it varies dramatically. I think, we expect to see from a burn rate standpoint some fairly positive margins in our power group towards the end of the year. I expect oil and gas to stay pretty constant. As will global services and government and I&I. So I don't expect any degradation of margin as we go through 2009.

So are we going to see at all. Is the quality of the contract so good right now, that how long will it take for the stuff that's being booked right now to show up on your P&L.

Well, it depends on the nature of the contract and what stage it's in when we're awarded. But typically the front end of the project gets a fairly good margin while we're in our services side of it. Then it drops a bit during construction, when we start to see a significant amount of CFM in reimbursable project. Then typically because of execution it goes up rather significantly at the end of the project when we are able to release reserves and contingencies. So you have to track each project on its own cycle and look at the dynamics of each one.

I should not expect margin deterioration through the year for the company, right.

That's correct.

And just I apologize if I missed it, you said that some contracts were booked in 3Q that were supposed to be booked in Q4, could you quantify what Q4 awards would have been if that didn't happen, just what's the normalized run rate for new awards now going forward.

Well we made a comment in our prepared remarks I think I would refer you to. If you look at the average of the two that was pretty much our expectation for 3 and 4. And so

Then I missed them, thank you.

Yes.

Thanks a lot.

(Operator Instructions). We will go next to Steven Fisher with UBS.

Good evening, going back to the maintaining backlog, it sounds like it's going to be mostly organic with the book big bookings you have later in the year, is it all organic or how would M&A activity be factored into the equation.

I have not factored any M&A activity into the equation.

Okay, so that would all.

It doesn't mean we won't have M&A, my response wasn't based on counting on M&A.

Okay, great. Then you mentioned that you expect to do some negotiated lump sum work, would that include oil and gas as well.

Very little in oil and gas. That's directly negotiated. Although I will say to the extent that we do lump sum oil and gas, we do the front end on those projects as well. So we're extremely well positioned, very knowledgeable of the cost.

Okay. And then can you venture a guess or an estimate at what you expect over time your percentage of the LOGCAP four wins would be.

That is almost too difficult to predict. Because the government can change its priorities on which area it spends and that, you know, there's three contractors and I think you can pretty much count on it being a fairly even split as you look forward.

Okay. And then lastly, related to nuclear, are you planning to be involved in any AP 1000 projects.

We are not directly involved in any AP 1,000 projects today.

Would you see any possibility of that over the course of the build out.

I would think that we would. I think there's an opportunity for us particularly outside the U.S. to work on AP 1,000.

Okay, great, thanks.

We will go next to John Rogers with DA Davidson.

Hi, good afternoon.

Hi John.

Just a couple quick follow-ups. Alan or Mike, I can't remember which. When you were talking about the wind projects, were you implying that you were looking at putting some equity into some of these projects.

Yes, we would. As you recall, we were the developer codeveloper with Airtricity on the Greater Gabard project and had an equity position on that project. When Airtricity was bought out we sold our equity

Right.

It was in the second quarter. And so the Bell Rock project we're looking at we would be developer and equity participant.

John, that $79 million gain I referenced in industrial infrastructure in second quarter was the gain on the sale of equity. But our equity positions were relatively modest

Okay. I mean can you put any brackets how big investments these would entail or how much at risk.

Well, yes, let me see if I can, I got to go back a little bit and talk about our whole business model for infrastructure. By and large we do a tremendous amount of development work in infrastructure and then do the follow on EPC. There's very few projects in infrastructure that we don't take an equity position. But to Mike's point they're typically very small and oftentimes they're only during the construction and then in the initial operation phases of the commercial project. We don't take equity to get the EPC we take equity only if it's a good business prospect on its own right. We then have the EPC, then oftentimes the maintenance. That's the model that served us very well.

All right. And then I mean size of these potential investments.

We take positions ranging from 5 or 10% of the equity up to 50% on different transactions, but you're talking generally double digit millions that are very modest and certainly immaterial to our balance sheet.

That's just what I wanted to confirm. Great, thank you.

You bet.

We will go next to Brian Chin with Citi.

Hi, thanks a lot. Just to clarify a couple questions on guidance. Do you have any margin degradation in your guidance?

Say that again.

Do you have any assumed margin degradation in '09 versus '08 embedded in guidance.

Brian, I think I've answered that question at least twice now on the fact that we're counting on consistent margins as we go through '09.

Okay. I'm sorry, I'm beating a dead horse a little bit, but one more clarifying question on that. When you say that that includes both margins on new orders you expect to win in '09 or does that only include the projects you have in backlog right now.

Well, obviously it's a mix of projects that are in backlog plus projects that we win during the year that we execute portions of them during '09.

Got you, okay. When you said that the backlog will be flat in '09, you said it will start with a three handle, basically we should be thinking of a $30 billion backlog by the end of '09 not a flat as in $33.4 billion backlog at the end of '09.

It's hard for me to be that precise, three quarters out Brian. That's why I said relatively flat.

Okay.

I mean, there's an envelope there that I wouldn't even want to guess at, but it's hard to say we're taking statistical analysis and giving our best guess where it will be.

Fair enough. One question on M&A. You said you're looking at nuke software and infrastructure you said that in the past, when you're looking at what you're looking at is your methodology really geared towards what segments you're looking at or are you going to be thinking of things like accretion valuation metrics like is the EBITDA, is the acquisition EBITDA accretive or EPS accretive, does that enter into your thinking?

It definitely does. We look at both aspects. First of all the acquisition has to be one that is strategic and fits our strategic initiatives for the corporation to look at long-term growth. But then secondly it has to make sense from an accretion standpoint. It also has to make sense from an ability to match cultures and to integrate the acquisition.

Great, thanks a lot for the clarification, appreciate it.

You bet.

Go next to Joe Ritchie with Goldman Sachs.

Thanks for taking my questions. The first question is Alan you made a comment earlier regarding not many cancellations, but can you give us a little bit more color regarding what percentage of your backlog is delayed today.

Oh, that's hard to say. We have got, we took about $270 million out in the on one project in the fourth quarter. And we will be taking out $700 million on the Valero project in the first quarter. But delays are hard, because it's just hard to put a number on. We have got projects that are delayed, we have some that actually accelerate.

Yes, I mean our translations, are 1, 2% of backlog and I think delays are low single digits.

Right.

It's not significant I think that's what we have said all along, it's not the gloom and doom scenario that many people have predicted.

Okay. And when you talk about the low single digit delays, can you give some kind of timeframe, are we talking --?

It varies. I think for the most part the delays that we are looking at are stemming from the fact that our clients are expecting to get a savings on their capital cost for commodity goods that go into the construction of their project. And so that's been the main driver for the delays to date.

Okay. And you made a comment earlier about the first half of 09 being a potentially strong booking quarter, we have kind of beaten a dead horse on the flat backlog guidance, but you would have to assume a run rate of approximately $5.5 to $6 billion in new awards in order to get to a flat backlog for 2009. Is your comment on the first half of '09, is that run rate in the first half of '09 could actually be better than that.

Again, we're basing it on looking out over the whole year. Quarter to quarter it's hard to say. In Q3 we had several very significant projects actually occur early where we forecasted them in the fourth quarter. And that happens. So we get within a week of a quarter close and it can make a significant difference on the numbers. So I'd hate to give you a prediction quarter by quarter. But I do see some significant prospects that will we believe occur and come into our backlog during the first half of the year. Actually the biggest project that could possibly come into our backlog is really in the second half of the year. So it just is a mixed bag, it's hard to predict with any exactness what quarter some of these might occur.

Okay, thanks for taking my questions.

No problem at all, thank you.

We will take a follow up question from Will Gabrielski from Broadpoint AmTech.

Thanks guys. I wanted to ask you a question on the wind market. I think you guys have been an early mover. What are you bringing to the table there, how are those projects priced, can you give us a little more color how you're developing that business in the interim, how big from a man hours standpoint each project can look like, or some kind of quantitative number around it that can help us understand the size of some of these.

Absolutely. The offshore market tends to be much more expensive on a per kilowatt basis, just because of the environment that you're building in. The Greater Gabard project was 500 megawatts and our contract was just under $2 billion. So they're sizable. I don't have, it's too early for us to put a number on Bell Rock. We're just now, we just got the license on that so we're going to be going into doing some feed work and some early analysis of execution and cost. But they're sizable projects. That's why we have a significant advantage in that area because of our ability to handle not just the technical nature but the logistics and financial requirements.

Okay. Then I'm sorry to go back to project specifics here. Back in the third quarter on the call I think you just got back from Kuwait and you were talking Al Zour, and obviously there's been a lot of noise on that project. I'm curious how that's proceeding if you can add any value to what we're seeing in the news about that right now.

There was a lot of news in the fourth quarter actually.

Yes.

It was about the time of our conference call. I think that has settled down dramatically. There was a lot of political and a lot of news in the press around that project. It's moving now I think in very smartly. We have a lot of people on that project and it's progressing rather well.

Great, thank you guys again.

We will take another follow up from Barry Banister of Stifel Nicolaus.

Gentlemen, I looked at your quarterly operating margin by division and the standard deviation of the margin for the last eight years quarterly just a minute ago. Power is the most volatile business by far. Its margin standard deviation is two times its average margin and it's very hard for us to predict that business. It's probably a business that gets progress payments and occasional bonuses, could you give us some insight into 2009 quarterly, is there anything on the radar that would lead to one quarter being particularly more opportunistic for such award fees than others that might help us model that margin.

Barry you as always are right on with your analysis. The power market is marked by lump sum projects. Lump sum projects in the power market wherein a lot of projects and other industries, we will go to mechanical completion in power we go into delivering energy onto the grid for our completion. That last month or two of that project is critical, because if just the slightest problem in the process or operations can cause delay in the energization of those projects.

So we typically and I think all contractors do hold a fairly significant reserve and contingency for that potential. So when you're successful as we are on a tremendous number of our projects, we're able to release those reserves, those contingencies as that project completes. That's when you see the big uptick in margin that's dramatically bigger than what it would have been during a run rate. That occurred to us in '03 and '04 if you look at your data there when we were completing a lot of projects in the previous cycle.

In Iraq.

Well, no, I'm talking about in the last power cycle in gas cycles here in the US. But we also had the same thing in Iraq. So we are on the fairly significant project growth, which one of the units is scheduled for completion. Again it's right on the end of one quarter and the beginning of another. So timing may move from one quarter to the other, but it's in this year.

Back half, front half?

Second half of the year.

Okay. And the margin in oil and gas and global services is steady as a rock, moves with revenue and they do a great job there. I'm not going to beat the dead horse on margins again, but it looks like you're tracking right on what revenue would say your margin would be. No mix of feed in there that might have boosted oil and gas temporarily, no reversion down as you move into the field pretty much expect that to be more the same.

I expect it to be fairly standard as pretty much on the pattern that you've seen.

Thank you very much.

And that does conclude our question and answer session. I would now like to turn the call back over to Alan Boeckmann for any additional or closing remarks.

Thank you, operator. I want to thank all of you who have participated on the call this afternoon. While there is clearly a level of uncertainty in the global economy, we certainly acknowledge that, we have not seen the kind of falloff that many pundits have expected. Our backlog is strong and it's substantial. And we do expect major awards in 2009. We have plenty of work to do and we want to continue to see the robust list of prospects in front of us.

I'd like to paraphrase one of our major clients, Tony Hayward, CEO of BP, who was quoted as saying the future has not been canceled. So in fact we continue to maintain high expectations for our company and we will take all the actions within our control to deliver the best results we can in 2009. We greatly appreciate your interest in Fluor, and your confidence in our company. Good day.

And again, that does conclude today's call. We do appreciate everyone's participation. You may disconnect at this time.