Fluor Corp (FLR) 2009 Q3 法說會逐字稿

Good afternoon and welcome to the Fluor Corporation third quarter 2009 conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow Management's presentation. A replay of today's conference call will be available at approximately 8:30 PM Eastern Time today, accessible on Fluor's website at www.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 8:30 PM Eastern Time on November 15 at the following telephone number, 888-203-1112. The passcode of 2465414 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 everyone to Fluor's third quarter conference call. With us today are Alan Boeckmann, Fluor's Chairman and CEO; and Michael Steuert, Fluor's Chief Financial Officer. Our earnings and our 10-Q were released this afternoon after the market closed. We have posted a slide presentation on our website, which we will reference while making our prepared remarks today.

Before getting started, I would like to refer to you our Safe Harbor note regarding forward-looking statements, which is summarized on slide two of the slide deck. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of the 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 in our 10-K, which was filed on February 25, 2009.

During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts with the the comparable GAAP measures are reflected in our earnings release and posted on our website at investor.fluor.com. With that, I will turn the call over to Alan Boeckmann, Fluor's Chairman and CEO.

Thank you, Ken. Good afternoon everybody, and thank you for joining us. Today we will be reviewing our financial results for the third quarter. We will talk about our outlook for each business line and then we will discuss our initial EPS guidance for 2010.

If you will turn to slide 3, I would like to provide some highlights of our financial performance in the third quarter. And while our financial results were off a bit when compared to our record year of 2008, we continued to deliver very strong results in a challenging economy. Revenue declined by 4% to $5.4 billion, and that compares with $5.7 billion in the third quarter of 2008. This change was driven primarily by decreases in the oil and gas and power segments. Revenue in both the industrial and infrastructure and government segments was up from last year.

Segment profit for the quarter declined 8% to $300 million compared to $324 million a year-ago. This reflected lower profit contributions from the oil and gas segment, and a $45 million charge in global services relating to a collection issue on a completed paper mill revamp project. Mike will provide more detail on this issue in a few minutes. Consolidated segment margins in the quarter were a very solid 5.5%, even after the impact of the charge, and this compares to 5.7% in the third quarter of 2008. Net earnings attributable to Fluor for the third quarter were $162 million. This is a decrease of 11% from a year-ago. Earnings per diluted share were $0.89 compared with $1 per diluted share for the same period last year.

Moving to slide four, new project awards for the quarter were $2.9 billion. This compares to our record $8.8 billion a year-ago and $6.8 billion last quarter. I would like to point out that this is another example of how lumpy new awards can be from quarter-to-quarter. Major awards during this quarter included approximately $400 million related to our ongoing work at Savannah River. It was also a full EPCM scope on an underground gas storage project in the Netherlands and a mining construction award in Chile. Given there were no elephants in the quarter and this is the first time in 10 quarters we haven't had $1 billion award in our new bookings, we do think that $2.9 billion in bookings was very respectable.

Consolidated backlog at the end of the third quarter was $28 billion. This represents a $2.9 billion increase from the last quarter and a 23% decrease from a year-ago. During the quarter, we removed approximately $1.2 billion from backlog for our gas processing expansion project in Russia which has been delayed indefinitely by the client. Including this project, the cancellations and scope productions for this year now stand at a cumulative $5.3 billion. With regard to our markets and our prospects as we look out through 2009 and into 2010, global demand for energy goods and services continues to be weak. However, with regard to new opportunities going forward, we are seeing a fairly significant level of new feed and study work, which bodes well for new EPC prospects. In fact, many of the prospects we're tracking are in fact elephant projects that have the potential to close during 2010.

Let's talk a little bit about the markets in each of our segments. I will start with our largest market, oil and gas. And as you can see on slide five, revenue and segment profit for oil and gas declined during the quarter. This is a continuation of a trend that began at year-end as new award and backlog levels have come down from their peak in the wake of several cancellations. In downstream, we continue to work on a number of refinery expansion and upgrade projects here in the US and we see future opportunities abroad, primarily in Europe, Mexico, the Middle East, and Asia. In petrochemicals, even though there is a surplus of production capacity on the market right now, we have some significant target prospects in China and the Middle East, which could be awarded during 2010.

On the upstream side, as we expected, client budgets have indeed shifted toward this area with an expansion of oil and gas production. Upstream projects tend to be larger and more complex than most downstream projects, and they often require skilled feed and program managers. These are two areas where we clearly excel, and we also have extensive experience in the Middle East, in Russia, and Canada, where these investments are expected. During the quarter, the Sibur gas processing project was in fact removed from backlog. This project has not been formally canceled, but it has been delayed indefinitely. So we have taken it out to be conservative. Should it come back in the future, we stand ready to assist the client.

Moving now to power on slide six. Our outlook for this market continues to be cautious, since demand has not yet returned and future expansion will be heavily driven by new government regulations and environmental policy. While that group has enjoyed a fairly stable backlog for the year, revenue has declined as the overall project progresses towards successful completion. Given the breadth of Fluor's power experience all the way from solid fuel to gas fire to nuclear and renewable solutions, we feel that we are extremely well positioned to capture significant market share as demand returns.

To that point, a bright spot has been the success of the nuclear business line, which received additional work related to a capital upgrade project at the Aconi Nuclear Station for Duke Energy, and continuing incremental awards for the preliminary engineering on the South Texas project for Toshiba and NRG. From a renewable energy perspective, we continue to exercise a number of front end programs involving CO2 capture and sequestration, and we have also received a number of front end awards on the solar side, including both large scale photovoltaic and thermal solutions.

In industrial and infrastructure, backlog grew again this quarter with the award of a copper gold mining project in south America. Our group here has done a remarkable job in capturing large mining awards over the past few years, and this should continue to be an area of strength for us, with some very large prospects in 2010. On the infrastructure side, we continue to focus on select road and rail opportunities in the US and Europe. These projects typically have a public/private partnership structure which complements our project management and our development skillset. Funding for these projects continues to be a challenge, and it has caused some schedules to be pushed back. During the third quarter, we were selected as the best value contractor for a road project in North Texas. We expect details of this to be finalized and we will book this into our backlog in the fourth quarter.

I am also very pleased to report during the third quarter, the company successfully resolved the dispute on the London Connect project relating to claims against the client for delays and additional costs. As you may recall we had previously recognized approximately $100 million of claim revenue on this project. The settlement allows for the final closeout of all outstanding issues, with no material impact on the segment's profit.

I'd also like to call your attention to a newly established claim, on the Greater Gabbard Offshore Wind Farm project in the United Kingdom. Over the last couple of months, the company has become involved in a dispute on this $1.5 billion lump sum project. The dispute relates to the specifications of the monopiles and the transition pieces on the towers required by the contract. As a result, the project has incurred higher costs and installation delays which we do not believe are our responsibility. In the third quarter of 2009, the company recorded $115 million of claim revenue related to this issue.

Moving to the government segment on slide seven, this group is having a very strong year. During the quarter, the group recorded over $800 million in new awards, including Savannah River for the Department of Energy, and LOGCAP IV task orders for the Army. On LOGCAP IV, we are still waiting however for the go ahead to begin the process of transitioning into sites on North Afghanistan, under Task Order 5. New awards in this area will be recognized as the specific task orders are incrementally funded, and we are released to start work. Finally, our global services segment continues to be impacted by client deferrals of discretionary spending and maintenance activities. We continue however to maintain a presence on nearly 300 sites and remain optimistic that normal spending levels will return sometime in 2010.

Turning now to the subject of our second press release issued this afternoon. I am extremely pleased to announce that David Seaton has been elected by our board of directors to the newly created position of Chief Operating Officer. As we have said, this move is part of our ongoing strategy to position and utilize our senior-most executives in roles where they can most effectively enhance our client engagement, and continue to focus on operational excellence. As many of you well know, David has been with Fluor for nearly 25 years and over that time has demonstrated consistently the ability to grow businesses, effectively address operational matters, and achieve organizational efficiencies through cost improvement and improvement strategies. I have worked closely with David for quite some time and have every confidence in his leadership and business skills. His agenda will focus on the key areas that I just referenced. All five of our business groups will report to him along with our recently formed project operations unit, and our sales and business development functional units.

With that, let me turn the call over to Mike Steuert for discussion of our financial items.

Thank you, Alan, and good afternoon. First, let me provide with you a brief recap of results for each operating segment. Please turn to slide eight of the presentation. Fluor's oil and gas segment reported third quarter revenue of $2.9 billion, down 11% in the third quarter of 2008. Segment operating costs declined 8% to $189 million. New awards in the quarter totaled $1.2 billion, which includes a medium sized project underground gas storage in the Netherlands. Ending backlog at September 30, oil and gas was $13.1 billion, down 43% from a year-ago. This decline is a result of substantial progress on existing projects, as well as lower new award levels and the impact of approximately $5 billion in project cancelation, scope reductions, and indefinite delays since the beginning of the year.

Now, please turn to slide nine. Fluor's industrial infrastructure segment reported revenue of $1.1 billion in the quarter, up 26% over last year. Segment profit for the third quarter was $42 million, up 49% from a year-ago. You may recall that segment profit in the third quarter of 2008 included impact of a $16 billion provision related to the London Connect infrastructure project. As Alan pointed out in his comments, with respect to the London Connect project, we were able to successfully resolve this dispute within the claims division that we had established. Alan also mentioned the emerging dispute on the Greater Gabbard project. I would just add that as the project progresses, our claim position is expected to grow fairly significantly over time. While the company believes the ultimate recovery of these costs is probable, I also want to reiterate that we do not expect to recognize any future profit on this project until this dispute is resolved. Obviously this will continue to impact our margins in future periods.

Industrial and infrastructure new awards for the quarter were $494 million, and ending backlog is up 14% from a year-ago to $9.7 billion. Revenue for the government segment, was $544 million for the quarter, up 47% from a year-ago. Segment profit rose 34% to $24 million compared to $18 million a year-ago. Third quarter new awards totaled $872 million, including approximately $400 million for the annual booking of the Savannah River contract and approximately $160 million for LOGCAP IV task orders. We have booked very little to date on LOGCAP IV Task Order 5 for North Afghanistan, but these awards are still expected to come in the future. Ending backlog grew to $1.3 billion compared to $886 million a year-ago.

Moving on to slide 10. The global services segment reported an 11% decline in revenue to $529 million in the third quarter. Segment profit for the quarter was just $500,000 compared to $49 million a year-ago. Segment results were adversely impacted by the $45 million provision taken during the quarter for a collection issue on a completed paper mill revamp in Louisiana. New awards for global services segment for the quarter were $183 million, bringing backlog to $2.4 billion. Fluor's power segment reported revenue of $317 million, down 40% from the third quarter of 2008. Segment profit of $45 million was driven by substantial progress on backlog projects. The power segment new awards were $152 million, bringing ending backlog to $1.5 billion, which is about flat with a year-ago. Finally, looking at overall company, after accounting for revenue burn and recent cancellations, the consolidated ending backlog of third quarter was $28 billion. Percentage of fixed price work in backlog is now 21%, and from a geographical perspective, 39% of total backlog is in the US and 61% is for projects outside of the US.

Now, moving on to corporate items on slide 11. Corporate G&A expense for the quarter was $50 million, up from $45 million reported a year-ago. The increase was primarily due to foreign currency losses for the quarter, offset somewhat by overhead reductions. For the full-year we expect corporate G&A expense to be in the range of $180 million to $190 million. Net interest income for the quarter was $3 million compared with net interest income of $15 million a year-ago. The decrease in interest income reflects markedly older returns, partially offset by higher cash balances. The effective tax rate for the third quarter was 35%, below the 37% rate we experienced last year. The lower effective tax rate was primarily attributable to the recognition of a deferred tax benefit associated with taxes and unremitted foreign earnings and increased foreign earnings attributable to noncontrolling interests for which no taxes were paid by the company.

Shifting to the balance sheet. Cash, plus current and noncurrent market securities totaled $2.4 billion at the end of September. This is an increase from $2.3 billion in the last quarter and $2.2 billion a year-ago. During the quarter, we repurchased 1 million shares of the company's stock for $53 million. This brings our year-to-date repurchases to 2.8 million shares for a total of $114 million. Fluor's return equity remains very strong at 25%. Capital expenditures for the quarter were $54 million, bringing total year-to-date CapEx to just under $175 million. We expect CapEx for the year to be approximately $240 million to $260 million. Fluor's board of directors approved our normal quarterly dividend of $0.125 per share payable on January 5, 2010.

Moving on, let's talk about our guidance for 2009 and our initial guidance for 2010, which is shown on slide 12. Due to a collection issue on the paper mill project, we are trimming our 2009 guidance to a range of $3.75 to $3.90 per share. Looking ahead to 2010, we remain optimistic that the general economy and capital investment levels will recover. However, the outlook for many of our markets remains uncertain at this time. Therefore, at this early stage, we are establishing an initial 2010 earnings guidance in the range of $3.20 to $3.60 per share.

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

(Operator Instructions). We go first to Jamie Cook with Credit Suisse.

Hi, good morning. I'm sorry, good evening. It has been a long day already. A couple -- first question, you guys talked about the Greater Gabbard project. I am just wondering how much revenue you have left to burn through on that project and how much that is impacting your EPS in 2010?

Significant -- ?

Because if it is running through a certain amount at zero margin -- I mean -- ?

I would say from a revenue standpoint, we're probably midway. Maybe just a little past midway.

When do you expect to be complete?

It is a stage project in several stages. I would say our first completion is probably sometime towards the end of 2010.

Okay. And then, Alan, obviously, and -- Michael, I need to ask about the guidance I guess for 2010. I am just trying to get a sense for when we look at the downward -- at the midpoint, I think your earnings were down about 11%. How much of that is driven by slower burn rate versus how should we think about margin pressure? And then one more question after that.

I think our margins have held up pretty well in this timeframe. They -- the key to 2010, clearly, is the pace of bookings in the quarter. You -- I made the comment this is the first quarter in 10 quarters we haven't had an elephant or $1 billion project or -- it is a very lumpy business, as I'vesaid before. I think most of the people in the office here were wondering how many times I would say the word lumpy on the call. I think there is a pool started.

But last quarter at $6.8 billion of new awards, we had a number of projects -- in fact, the largest one came in in the l1.5 weeks of that quarter. Otherwise it would have been in Q3. So it just points to the -- how uneven it is. And I think we have -- we're tracking quite a number of fairly large projects that will all -- hopefully, materialize in 2010. So it is the pace of orders that will determine that, Jamie.

But when you think about that -- because obviously everyone will probably overreact to your orders in the quarter -- when you think about the -- you mentioned you're tracking a number of elephants in 2010. You mentioned you're tracking some on the upstream that tend to be larger and more complex. Are the elephants you're tracking for 2010 greater than what we saw for 2009, and do you expect -- this year, it was front-end loaded. When we think about next year, is it evenly distributed? Is it back end loaded? Or too early to make that call?

I think it is fairly evenly distributed.

Okay.

The better news is it is distributed across business groups as well.

Okay. And are the size of elephants bigger or comparable?

I think they are comparable. And actually, honestly, there are probably a few more of them than there were this time last year, but there is more uncertainty at the same time. So timing and the going forward signal from clients is something we will keep watching on.

Okay. Great. I will get back in queue, thank you very much.

Our next questions comes from John Rogers with D.A. Davidson.

Hi, good afternoon. Just following up on Jamie's question a second. In terms of the elephants that you're looking at for 2010, and you said they are spread out across a lot of different end markets. But are these projects that people are waiting to get a better since of economic activity, or their own profitability, or is it a sense they are waiting for financing?

The ones we're looking at, the ones that are our primary prospects, I don't really have a lot of doubt they are going forward. I think there is a fair amount of confidence in those. It is a matter of whether it is a first quarter or second quarter -- that's the timing that I am talking about. Now there are a couple out there that are lower on our radar screen that do have more uncertainty around them. It is quite a wide range of projects.

Okay. And -- it sounds as if at least at this point, I realize this could all change, but you expect backlog to build through the year?

I don't know that it would build. We will have a fairly heavy revenue year in 2010. And it will be fairly comparable to this year in terms of revenue. I don't know that we will build, but I don't think that we will lose much if any.

Okay. And I guess just because you didn't touch on this too much, but in terms of your cash position at the end of the quarter, could you guys talk a little bit about in terms of your priorities here -- I mean, it is going to be so -- a pretty big number. I know years ago you talked about if you ever got to that level you might look at some other things and what your thoughts are there now?

Sure, John. Our cash at the end of the quarter was $2.4 billion. Today it happens to be $2.5 billion. We have had some cash inflows since we closed the quarter. Our priorities remain that we do pay a healthy dividend and will continue to pay a healthy dividend. We have been looking and have been buying back shares as I indicated. Our strategy in terms of share repurchases is the offset share creep and be opportunistic, and I expect that would continue as we go forward. As we said before we also have a -- highest priority, to make very accretive acquisitions for the company in terms of our investment strategy and we will continue to focus on acquisitions as we move forward. We have been very selective. We haven't really made anything in a recent past. But we continue to -- to view acquisitions very favorably as a key strategy for the company and are very interested in making those -- that meet our criteria.

And is it your sense there is more opportunity out there now?

There have been a fair amount of opportunities we continue to look at. I'd say there is a fair amount of opportunities present themselves for us going forward.

Particularly in smaller niche areas, we have found good opportunities.

John, we do expect given where we are in the cycle that we have had a fairly heavy buildup of advances from clients, it is likely that our cash position could decrease somewhat through early part of 2010, has to burn through some of those advances and complete some projects.

Okay, good, thank you.

Thank you, John.

Our next question comes from Barry Bannister from Stifel Nicolaus.

Hi. About two or three quarters ago we had discussed how in the third quarter you might enjoy a nice bonus for completion of a large coal-fired power plant in Texas. It does look like the margin in power was very, very good. Could you just put round numbers on the quantification of what that bonus was in the quarter which caused that unusually great margin?

No, we won't quote numbers but we did -- we did recognize some of that in the quarter.

Is a margin in the mid teens something that we can expect for the balance of the year in the power segment? And just -- I mean, how unusual was it this quarter in terms of the great performance in that segment?

That project is a two-phase project. We just completed phase one. There is a second phase that occurs in the first quarter of 2010.

All right. And then, Sugarland had a staff cut of about 15% a month ago. There is the Russian cancelation and some Iberian refinery that was never explained that was ostensibly cut. Did you move work the other offices in oil and gas or was that a sign of just reduction of work in the segment?

No the Sibur project really didn't have a big impact there. That project was taken out of backlog.. We had a very small amount of support for the client there, when that one was delayed indefinitely. On the other project that you mentioned, there was a reduction of scope in that project that we responded to. But that project itself is still going quite well. Going very strong. In fact, I will be there week after next. It was more a timing issue of coming down on some of the engineering work as we're transitioning into construction for the projects that were located in that office.

Okay. And, you have done a great job managing this downturn I would say, knowing Fluor's past cycles, comparing this one. This cycle is -- you have done a great job of maintaining the profit levels, so congratulations.

Thanks.

We will go next to Andrew Kaplowitz with Barclays Capital.

Good evening. Alluding to what Barry was just saying, obviously very strong margins in oil and gas this quarter, and they have been ticking up I think while a lot of people thought they would tick down. So I think just thinking about the sustainability of margins going in order and maybe stepping back and thinking about the overall pricing environment, we definitely -- we have talked a lot on these calls about competition, but at least it is not manifesting itself so far in these margins.

Well, as we said, we entered 2009 with a very strong backlog in that area. Even though we have seen some cancellations, the bulk of our projects have gone forward, and we had enjoyed good pricing capability as we booked those. And I think the new awards that go forward probably won't be quite the same level, but I don't think we're seeing a significant dropoff because again, the projects we have here are continuing forward and we're continuing to recognize revenue against them.

Okay. And -- now, maybe if I could ask a question of your perspective. What I am trying to figure out, when I look at your new awards in the quarter say now versus 1,5 years ago at the height of the oil and gas boom, what we hear is that procurement costs for instance have gone down dramatically. So like, some of your peers give out things like Scope new awards. What I am trying to figure out is how much of a difference is it making in your new awards now versus let's say two years ago in the value of the work? You understand what I'm saying.

Yes, it is a very good question. I think the backlog run-that up a number of us had definitely had a factor in there for the escalation that was occurring during 2007 and primarily the first half of 2008. And that opposite effect is occurring right now. We have advised a number of our clients that now is probably the best time for them to truly go forward with their capital spending. The procurement of manufacturing equipment is probably as low as it is going to be going forward. There has been a real leveling off of labor rates. So, yes, we definitely have noticed a difference. We have modified a number of our estimates downward based on the expected capital costs.

And does that mean, Alan, that maybe the same project two years ago would be, I don't know, 20% more expensive that it is today or something like that? And that's the difference in your new awards now versus two years ago?

I don't know it has been that dramatic, when you compare against all of the cost factors in the projects, but it has definitely come down. We saw a run-up I think from late 2005 to mid 2008 of almost 40% in some commodities there, in commodity areas. So it has come down. I would say the number is more like 10% to 15%, just in general terms.

Okay, great. One more quick one if I could. The mining projects -- you booked a smaller one in the quarter. But it seems like if you look at the big mining companies, they are getting more positive about the sustainability of the recovery. Is that what they are communicating to you? Do you see a lot of these big elephants starting to move forward even as they go to 2010?

Absolutely we do. I think the mining companies are -- in fact, there is an article in the Wall Street Journal today, by BHP Billiton's CEO talking about the view of the forward market. These companies are all fairly strong now from a balance sheet standpoint. They have got great reserves and they see a growing market and demand in their areas coming up. So I think that's -- that is going to be a major market for us. Continue to be major market.

Okay, thank you very much.

You bet.

We will go next to Richard Paget with Morgan Joseph.

Good evening, everyone. Wondering if you could talk a little bit about the government services segment? If we look at the operating margin compared to the first half of the year, it was down a little bit. But relative to what it was last year, it was relatively in line. Does that have to do with some of your bigger programs,ramping up with task orders? Or is this how we should look at the profitability of these new projects going forward?

It -- there is a number of variables in there. I would say -- and I'll ask Mike to comment on it as well, is the -- the completion of task orders, you -- we usually get grades on that. And we didn't really complete a lot of task orders in this last quarter. The -- we're waiting, in fact, for release of a number of them on the Afghanistan front. I don't know, Mike if you want --

That's correct. Unlike the last two quarters where we had positive adjustments and what have you, we did not receive any significant award fees in this quarter.

We had a reversal of a reserve we had taken last quarter that attributed to that.

How should we think about the backlog in that segment building? Will it primarily be task orders of existing programs getting stripped in, or are there still some large Federal programs out there that you guys are bidding on right now?

There are some we're bidding on. The Federal programs, particularly in the Department of Energy, we really only book those once a year in our third quarter, as we did in this third quarter for our Savannah River project. The Afghanistan to the LOGCAP and the contingency operations fees is booked as released and typically gets burned off a lot of that in the same quarter. It doesn't really have a backlog trend you could look at and make comparisons on.

And then in terms of the large project or large programs you guys are bidding on, do you care to comment specifically?

We are pursuing a couple of them that probably won't get decided -- one may occur in Q4, but I think it is more a Q1 event, and another one that will happen later on in 2010.

Just expanding on John's earlier question with the acquisition market. It seems there will a lot of strong balance sheets out there. Growth has been relatively constrained given the market. Why do you think there hasn't been more M&A activity just given that strategic buyers have a lot of cash out there?

If you're talking publicly traded companies, even small ones, it is interesting to watch the dynamics. Most companies think the fair price is their 52-week high, which almost always through this part of 2009 has been 52 weeks ago. And so I think it is just a matter of expectations that need to be reset has been the primary thing -- the stumbling block we have seen.

So, I guess given this point, where I mean, if multiples aren't necessarily -- those expectations aren't coming down, the EBITDA run rates will be.

I think they are starting to. And I think you will see more action as a result of that.

Okay, thanks. I will get back in queue.

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

Two questions. First you reference solar and some other opportunities you're looking at. Can you give us some guidance as to the magnitude of the new awards that could be coming down the path on the solar side?

So far we have just gotten front end work. I would hope that those turn into awards in the 2010 period. But it will probably be mid-to-late 2010 before they get really funded. There is still I think some regulation issues that will probably have to be answered before they really truly go forward. Size-wise, I think it is a fairly big range. The typical -- the capital cost on this is primarily the equipment, more so than the engineering or the construction. So I -- they are not going to be -- they are not going to rival a coal fired power plant or even a very large gas fired power plant. But if we get a string of them I think they could be a good business line.

And quickly, could you comment, or try to quantify, the value of stimulus dollars that could be in your backlog right now? And then also, talk a little bit about the energy bill and the need for an energy bill to be passed in order to jumpstart some of your end markets?

Really the only stimulus funding we have seen directly has been the award that we got at Savannah River for some nuclear soil remediation. And -- it was -- I would say we're less than $0.5 billion.

And the energy bill?

No, the energy bill, I think the energy bill is obviously controversial. And even if you're for it or against, if it does get passed there starts to be some certainty in the market. So I think to the extent you foresee it being passed, I think it will help. If it just sits there and there is a lot of debate and delay and no action taken but it's pending, I think it will cause uncertainty and anxiety in the market.

Great, thank you very much.

We will go next to Will Gabrielski with Broadpoint AmTech.

Couple of questions. Can you walk through in detail -- I know you guys go through a pretty thorough guidance process. How much [book burn] government work does Fluor feel comfortable putting in its guidance next year? And also on the services side, clearly industrial production is ticking up in a lot of regions. And net revenue numbers still pretty low. What do you think the odds for recovery are there for 2010 and how aggressive or nonaggressive were you in terms of 2010 guidance?

Well, on the government side, really, we have got a fairly stable workload in the Savannah River project. We have got a fairly stable and reliable workload on the stimulus award that we received there, ongoing work at Hanford. So that side of the equation we bet a pretty good view on. It is the contingency operations -- it is hard to say what IDIQ and how much is going to get released. I would say we take a fairly conservative view on that simply because of the uncertainty of it.

In the services part of our business, we have seen dramatic cutbacks in maintenance spending at all the sites that we're resident on over the last year. Most companies start in January -- and obviously Fluor was no exception -- I think every company in the US and globally looked at overheads and what they could trim out of discretionary capital. And that has hit us in that area. I don't think that's going to pick up until sometime in 2010. We're hoping it is earlier. We have taken, again, a fairly conservative look at that. Thinking this is probably more a second or third quarter event.

All right. Okay. Any potential impact from the Gabbard dispute related to any of your other offshore wind projects that you're potentially bidding on?

No, I don't think so. I think the project itself is going very well in terms of the work that is going forward. And we have got -- we're working on the front end of the other projects. There doesn't seem to be any impact on that. In fact, we're the developer on those projects.

Okay. Question in Abu Dhabi. I know in May you were excited with the opportunity and then Habshan 5 came along and clearly the bid came in well below what you were expecting, and I know you did the feed on the [Ruez] project. Did you -- there have been awards announced over the last week for that project on the refinery. Can you provide any color? Did you bid there? If not, are you seeing that competitive landscape stay aggressive as you saw in Habshan 5 or is that getting a little better? And how is it impacting your view of certain projects and how did that impact your awards really, and your expectations for the second half of 2009?

Well, the Habshan project was one of the first megaprojects projects bid in a very long time in the Middle East that didn't have a program manager. And the results of the contest are such that we are pretty convinced they are going to need one. We're staying away from what I would call true long slate bidding opportunities in those areas. We're going to continue to focus on being the program project manager, and then providing services for the integration and the overall site management. So that's our strategy. It's a strategy we have used for quite some time -- it has been very successful. So we have been -- we're very selective in these areas where we see lump sum bidding with multiple bidders on the bid list.

You raise an interesting point. A few of these mega-projects now being dominated by Asia based ENCs do not have a program manager. When you are in conversation with clients, how do they feel about that? And there is an opportunity on maybe certain of these projects for a program manager to be brought in?

Yes. There is.

Okay. Great. Thank you.

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

Good evening, guys. Can you just comment on the outlook for offshore business, in terms of what you're seeing there and any update on your partnership with Global Industries?

Absolutely, we're seeing a significant increase in the offshore and upstream, even onshore upstream business -- we would characterize it more as total upstream. The clients' capital programs have definitely shifted away from the downstream, where it had been over the last couple of years. And so, we are -- the prospects out there reflect that. The -- we are pursuing several opportunities right now with Global Industries. Too early to give any results on those. But we're confident we have a good team with them and we expect that to be successful.

Just following up on that in terms of the acquisition potential out there, is this an area where you might be looking to potentially add a company?

The strategic focus of the company is looking at potential acquisitions in several areas. This is one of them without a doubt, as is the infrastructure side of our business. Probably the two highest priorities in that area. In those areas.

I agree, very helpful. I'll jump back in queue. Thank you.

We will go next to Michael Dudas of Jefferies.

Could you comment on David's opportunity as COO and what you're expecting from him? And also does that mean -- would you anticipate some changes in structure, reporting going forward as we move into to 2010?

Well, we have made the change obviously effective today. He reports directly to me and all of the P&L units now report directly in to David. So he has management oversight responsibility for all of the P&L units in our business. That move was made to get even a stronger focus on the forward market, and to provide even more focus on our execution. But primarily, it was an offensive move to go after prospects we have on our slate. David has got a great reputation and an outstanding list of client relations that I think will serve us very well there.

Thanks Alan, appreciate it.

You bet.

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

Hi, good evening. On the Greater Gabbard, when could you resolve those issues?

Honestly, that is hard to say. The contract calls for a process of adjudication that involves binding arbitration. That is in the UK, under UK law. As we stated also, we just resolved the London Connect project. That arbitration has been going on for several years. I think we'd like to try and see if we couldn't get into expedited arbitration. But if it stays in the normal course, it could be quite some time.

Just to confirm the answer to Jamie's question, you don't have any profits assumed for that if 2010 guidance?

That's correct.

No, we do not.

Okay. And then I know you just reserved for it, but what are the prospects for recovering the paper mill?

Not good. That's why we reserved for it. And we thought we had a possibility we would have looked at what we might have been able to put on our 81-1 accounting, but we don't believe we have a good position there.

And then how robust are the opportunities in infrastructure? I would think there would be many projects out there looking for a private investment. I think today in North Carolina, there was one opportunity that was just announced.

Actually we see a fair number of infrastructure opportunities into 2010. And, in fact, we will have -- I think we could have as many as two bookings in our fourth quarter for infrastructure. So that is a very good business for us. It is one we want to continue to grow.

Okay. Great, thanks a lot.

Next to Joe Ritchie with Goldman Sachs.

Hi everyone, thank you for taking my questions. I guess my first question is on the large projects that you mentioned, Alan, you -- if I heard correctly, you expect to see maybe some large projects being booked in the early parts of 2010, and then maybe towards the latter part of 2010, are there any $1 billion plus projects that you could foresee booking ahead of that schedule?

Obviously, I would like to see something accelerate. But right now it looks like the really big ones are starting in first quarter of 2010.

Okay. And -- as you look through, the different end markets that you play in -- it sounds like the in the mining sector, you're content with your positioning there and you think there are some large projects that could be booked in 2010. Could you rank order some of the other end markets on where you could potentially see those opportunities?

Clearly oil and gas has a number of opportunities. Again, I have said on the upstream side, mining is probably second in terms of number of prospects. And then, infrastructure.

Okay. And I was wondering if you could give us an update on the refining market in the US. and I guess specifically, I note you're working on completing the Garyville refinery this year. Earlier that year the other Marathon Detroit refinery was pushed out into 2010. Is it still likely that project goes forward in 2010 or what is an update on that project?

I think that is very likely. It is going forward, so we are completing Garyville as you said. We're pretty confident Detroit will keep on going.

Thank you for taking my questions.

We will go next to Andrea Wirth with Robert Baird.

Thanks, guys. I wonder if you could comment on the infrastructure market, particularly on the transportation side? Does sound like at least the PPP market is still moving a little slow. But wondering also what you're seeing really to Federal funding on the safety [rule] side. Looks like we just got another couple extensions here. Wondering if that is having any major impact on the timing of projects going forward?

Our infrastructure group depends a lot on doing our own development. We do bid on projects, some of where we have a limited slate and an opportunity to add value. And the ones that we are looking at in Q4, one of them is a bid project and the other one is a develop project. We frankly haven't seen any real stimulus funding coming into those -- that size of an infrastructure project as yet. Most of the stimulus funding went out and was parceled out on very small roadworks that went to local contractors. So I don't think any of us that play in the big project game have seen the benefit of those dollars.

Then on the nuclear front, just curious if you -- if you see any potential benefits from some of the recent stumbles that Westinghouse has seen in its certification of the AP1000, and any potential there for some of the utilities to look at different technologies? And then the potential for Fluor to have a little more piece of the pie, in terms of the buildout of new nuclear?

Well, I like to think we have a great position going into nuclear, particularly with respect to our ability to manage large projects, have a balance sheet that can stand up to the liabilities. And we are working with Toshiba on their ABWR technologies and I hope to continue to be capable to do that. I think as it goes forward, you will find us engaged in a number of nuclear opportunities. That market is probably going to be a bit delayed from what people have been expecting. But I think it will be 2011 to 2012 happening for most companies that are able to play in it.

And one last, on the corporate expense line, it was a little higher sounds like due to FX. Should we expect that roughly $50 million range to continue and be that run-rate for now or does that reverse?

We could see slightly higher in the fourth quarter. We traditionally have a higher corporate expense in the fourth quarter as we make a number of decisions in terms of discretionary spending.

So seasonally it will be a little bit up.

Great, thank you.

And we have a follow-up question from Barry Bannister from Stifel Nicolaus.

Just, if I could ask Mike to walk through a couple mechanics, it sounded like there was $150 million of claim overruns and that will go into contracts and excess, is that right? On Greater Gabbard?

Yes, that will. We took some funding out, for Connect, from that perspective last quarter, but this will go into claim revenue.

Okay. And if you're halfway through a $1.5 billion LSTK project, then over the next five quarters you would recognize perhaps the other $750 million of revenue. But then did I hear you correctly in saying that there would be claim revenue in each of the quarters associated with this project's overruns and did you say they would be $100 million, in that range?

We didn't say how much they will be, Barry. There will be ongoing claim revenue because of the actions that have been taken by our client, outside of the specification. There are costs that are going to mount up every quarter.

Right. We say we will grow significantly, but we didn't give a number.

So that is like the old San Diego freeway job where that will sit in contracts and excess until it is resolved and then it will be a use of cash in the form of a receivable?

That's correct.

Okay, and what was the tax rate for the fourth quarter, or what will the full-year be? Because it jumped around this quarter on some tax credits. And then in 2009, are we looking at the same tax rate we were using, around 37%? Or is it something materially different?

It is kind of hard to forecast tax rates on a quarter-to-quarter basis. I still think we're probably looking at what we have seen for the nine month total being fairly accurate for the total year. Right now I don't see any reason why 2010 should be much different than 2009.

So there is no carryover tax benefit from the writeoff of a domestic job in Louisiana that might impact your US rate, bringing that down and therefore your total rate would benefit in 2010?

No, there is not.

Okay. Thanks.

We will go next to John Rogers with D.A. Davidson.

Just to go back to the power segment for a second. What do you expect is going to happen over the next couple of years if nuclear projects are pushed out further than we think and coal projects continue to be stymied by the environmental regulations? Do we see a big uptick in power projects or what are your customers telling you?

John, there are a number of factors that all play into how that is going to unfold. One we have already talked about being whether or not the cap and trade legislation gets passed. The second is whether or not we have an economic recovery. Reserve margins have improved based on the economy. And so, there is less of a demand for coming out with new generation in the interim. If that starts picking up, and we still have uncertainty, I think you're going to start to see a lot more gas-fired projects. We already have some of those that we're working on. And we have already booked some this year. So -- that is likely what will happen. But right now, my guess is, we're not going to see forecast additional demand in the next 12 months or so.

Okay. Great. That's helpful, thank you.

You bet.

We have time for one final question from Mark Levin from Davenport.

I'm sorry, you may have already asked and answered this. But Alan, could you talk to what are the key factors that would drive you towards the high end of 2010 guidance versus the key factors that would drive you towards the low end?

Good early bookings, particularly in Q1. A rapid release in early 2010 of our LOGCAP work in Afghanistan would -- and if there was, in fact, an expedited adjudication on Gabbard, those would all drive us up to the top end.

Perfect, thank you very much.

You bet.

And that does conclude the question-and-answer portion of today's call. I would like to turn the call back over to Management for any additional or closing remarks.

Thank you, operator. And I would like to thank all of you for participating on our call today. As we have discussed throughout this call, our earnings in 2009 continue to be relatively strong, with year-to-date earnings and persons per share increasing over 2008, when, in fact, you have taken into account the equity sale last year on Greater Gabbard. Strong new awards in 2008 and the first half of 2009, have been a factor in contributing to where we are in a very strong $28 billion backlog. It is has allowed us to maintain our selectivity and our discipline while we pursue new prospects. For 2010, we feel it is appropriate to take a cautious view of our markets at this time. But we remain hopeful that a broader economic recovery will develop during the year. We look forward to updating you on your next call. Thank you, so much, for your interest in Fluor and we appreciate your confidence in our company. Have a good day.

That does conclude today's conference. We thank you for your participation.