Fluor Corp (FLR) 2009 Q4 法說會逐字稿

Welcome to Fluor Q4 and year end 2009 conference call. 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 the investor relations section of Fluor website at www.fluor.com. The web replay will be available for 30 days.

A telephone reply will also be available through 8:30 PM Eastern Time on March 3, at the following telephone number, 888-203-1112. A pass code of 492-4283 will be required.

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

Thank you, operator. Welcome, everyone, to Fluor's fourth quarter and 2009 year end conference call. With us today are Alan Boeckmann, Fluor's Chairman and CEO, we also have David Seaton, Fluor's Chief Operating Officer, 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 website, which we will reference while making prepared remarks this afternoon.

Before getting started, I would like to refer you to our safe harbor note regarding forward-looking statements, which is summarized on slide two of the presentation. 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 in our 10-k, which was also filed today, February 25, 2010.

With that I would like to turn the call over to Alan Boeckmann, Fluor's Chairman and CEO. Alan?

Thank you, Ken. Good afternoon, everyone, and I would like to thank you for joining us. Today we will be reviewing our results for the fourth quarter and for the full year of 2009. Providing an update for you on our current business outlook, and then discussing our earnings prospects and guidance for 2010.

First, before we get into the specifics, let me just say that Fluor's strong earnings in 2009, which included very good performance from oil, gas, power and government segments, were surpassed only by our record results in 2008. And despite over $5 billion in cancellations and scope reductions during 2009, we finished the year with a $27 billion backlog, and in addition our cash and our marketable securities balance grew to $2.6 billion.

I would like to take a look at some of the highlights of our financial performance in 2009, and I refer you to slide three. Net earnings attributable to Fluor for 2009 declined 4% to $685 million, that's $3.75 per diluted share. And that compares very favorably with the record $716 million or $3.89 per diluted share in 2008. You will recall that in 2008, we were bolstered by a $79 million pretax gain, which was $0.27 per share, and that was related to the sale of our equity in the Greater Gabbard wind farm development.

Consolidated segment profit for the year was $1.25 billion, and that was down 3% from $1.29 billion a year ago. Full-year results reflected very strong profit growth in the government and power segments. And oil and gas results, which matched record levels achieved last year, were offset by a decline in global services. Consolidated revenue for the year totaled $22 billion, that was affectively flat with $22.3 billion a year ago, and the segment margins held up well at 5.7%, and that was down just a bit from 5.8% the previous year.

Move to slide four if you would, and there we see full year new awards for $18.5 billion, down from the record bookings of $25.1 billion a year ago. Mainly that was due to a significant decline in oil and gas awards during 2009. As expected, our fourth quarter new awards were somewhat below recent trend lines at $3.3 billion. That included awards of $1.6 billion in industrial and infrastructure, and $912 million in oil and gas. Backlog of $26.8 billion at year end was down from $28 billion at the end of the third quarter.

With that I would like the turn the call over the David Seaton, Fluor's Chief Operating Officer, to talk a little about the markets in each of our segments. David?

Thank you, Alan. If you don't mind, I will start with oil and gas, and work my way through the segments. If you will turn to slide five, oil and gas had another tremendous year in 2009 from an earnings perspective, but their markets have clearly cooled off, particularly from a downstream and refining perspective in the United States. While this was not at all unexpected, it does leave a sizeable hole to fill.

We continue to see downstream prospects in the US, but they are smaller in size. The recent announcement of our selection by Pasadena Refining is a good example of this. We see the refining market continuing to move internationally, specifically in Europe, the Middle East, Asia and to some degree in Mexico.

In petrochemicals, we see some opportunities in chemicals and specialty chemicals in the Middle East and China, and to a lesser degree in Europe. We have excellent experience and strong client relationships in those markets, and I think we have a good chance to capture some of the projects that will go forward during the 2010 time frame.

Finally, I believe that the majority of the capital investment going forward will be focused in the upstream segment. We have a long resume of experience on the onshore side, and as you know we are working to build our capabilities on the offshore side through alliances with global industries and CNOOC of China. There are substantial investments planned in the Middle East, Russia, Australia and Canada, and depending on the specific geography to client, and our competitive position, we may target different roles that range from the front end design EPC to acting as the program or project manager.

Overall, with regard to major oil and gas prospects, we are seeing a significant increase in our feed activity, but in many cases the timing of the EPC is slipping out.

If you will turn to slide six now, let's talk about the power market. Our power backlog has come down as we complete the Oak Grove project, but I think the backlog for this group has a good chance of stabilizing during this year. As we've discussed in the past, we've been winning gas fired EPC projects and FEED awards on the renewable side, mainly solar, and just announced an award for 50 megawatt power plant in Spain. We're also working on the application of CO2 capture for coal plants, which could lead to EPC opportunities in late this year or early 2011.

We continue to support Toshiba on the NRG STP three and four project, and we're very encouraged by NRG's announcement last week that they favorably resolved the issue at CPS Energy, so that the project can continue. This is a tremendous project for Fluor, and the development remains on track to become one of the first nuclear projects to receive DOE loan guarantees and a construction operating license.

In industrial and infrastructure, mining backlog is up again this quarter, and that's a trend we expect to continue to see. In the fourth quarter, we booked a sizeable diamond mine expansion in Botswana, and we're also released on package six, sorry package for phase six of the BHP Billiton's rapid growth program. More importantly, we have a lengthy list of very large mining prospects, and we have a demonstrated strong win rate.

In infrastructure, we continue to focus on selected road and rail opportunities in the US and Europe. During the fourth quarter, we booked a design build contract for the I-15 corridor reconstruction project in Utah. As many of you recall, we were selected as the contractor on SH161 project in north Texas, and we expect this award to go into backlog in the first or second quarter of 2010.

Other active infrastructure areas, offshore wind development. During the quarter, a joint venture including Fluor and Scottish and Southern Energy was awarded exclusive rights by the crown of state to develop round three when offshore wind farm zone in the Firth of Forth, excuse my knowledge of the coast of Scotland. The zone has a potential install capacity of 3.4 gigawatts, which would almost double Scotland's entire existing renewables capacity. These are long-term opportunities that I think position us to be a leader in the offshore wind farm market.

Moving to government segment, if you turn to slide seven, this group had very strong performance this year. During the quarter, the group recorded about $200 million in LOGCAP IV task orders in Afghanistan. And the transition of the north region of Afghanistan is going as expected. As you know, we booked these amounts as we are released to take on those specific scopes, so this contract should continue to generate awards each quarter.

Earlier this month, we announced the LOGCAP task order to perform work in Haiti. Subsequent to that announcement, we were informed that the State Department would instead provide Haiti support through the US AID organization, and our contract was withdrawn by the Army.

In addition to the opportunities with the Department of Defense, we have several opportunities to expand our services with the Department of Energy, the most imminent of these procurements is the Portsmouth facility, where we expect a decision some time in late 2010. I'm encouraged about the government group's recent successes, and look forward to continued growth in 2010.

Our global services segment continues to be impacted by client deferrals of discretionary spending and maintenance activities. We still maintain presence on nearly 300 sites and remain optimistic that more normal spending levels will return some time during this year.

During the fourth quarter, DuPont awarded Fluor a multi-year contract for construction maintenance and services on nine sites throughout the United States and Puerto Rico. This new contract includes seven existing sites where Fluor already has a presence, plus two additional sites.

That's a quick summary of the segments and some of the market highlights, I will turn it back to you, Alan.

Thanks, David. Regarding overall market conditions, while we have definitely been encouraged by the very notable uptick in front end engineering activity, we continue to experience what I would call uncertainty as overall capital investment in most of the markets lag behind the levels we saw prior to this recession. The only notable exception that we see to that is both our government business and the very substantial investments that our mining clients are making.

And I would like to ask Mike Steuert to review some details of our operating performance by segment, and then Mike will summarize some of the noteworthy corporate financial metrics. Mike?

Thanks Alan, and good afternoon, everyone. First let me provide you with a brief recap of the results for each operating segment. Please turn to slide eight of the presentation.

Fluor's oil and gas unit reported record segment profit of $730 million, which is slightly above the previous record profits of $724 million achieved in 2008. Although revenue declined 9%, reflecting slowing of new awards and a declining backlog, segment profit was bolstered by strong margins driven by favorable performance on various projects. New awards for the segment totaled $7 billion, down from $15.1 billion in 2008, which included a number of sizable downstream refining awards in the United States. Ending backlog declined to $11.8 billion, driven in part by $5.2 billion in cancellation and scope reductions.

Now if you move on to slide nine, Fluor's industrial and infrastructure group reported segment profit of $140 million. This compares favorably with 2008, which included a pretax gain of $79 million, on the sale of the Company's joint venture interest in the Greater Gabbard offshore wind farm. Revenue for the segment rose 39% to $4.8 billion, due to increases in mining and infrastructure project volume. New awards totaled a segment record of $6.8 billion, up 36%. Year end backlog also rose to a segment record of $10.2 billion, which is a 53% increase over 2008.

The government segment posted profit of $117 million, more than double the $52 million reported a year ago. Improved results primarily reflect contributions from the LOGCAP IV task orders in the Savannah River project. Revenue in 2009 grew by 50% to $2 billion. New awards totaled $2.3 billion for the year, up from $1.4 billion in 2008. Including both the annual contract award in special American Recovery and Reinvestment Act funding at the Savannah River, and incremental LOGCAP IV task orders. Ending backlog for government rose 27% to $1 billion.

Now turning to slide 10, segment profit for global services declined to $140 million in 2009, down 39%. Including the impact of the $45 million charge on the paper mill project in the third quarter. Revenue decreased by 23% to $2.1 billion, reflecting the impact of the global recession, which continues to cause declining volumes of capital work and maintenance activities. Full year new awards of $1.3 billion were below the $2.1 billion received in 2008, bringing year end backlogs to $2.4 billion.

Fluor's power group reported a 65% increase in segment profit, to a record $124 million, while revenue declined by 33% to $1.3 billion. The decrease in revenue reflects a decline in backlog, driven in part by the large Oak Grove coal fired power project, which is nearing completion. Increased segment profit reflects favorable project completion adjustments and fees associated with several other projects. New awards in 2009 totaled $849 million, excuse me, $894 million, below the $1.3 billion recorded a year ago, due to reduced power demand and uncertainty regarding carbon emissions legislation. Power segment backlog was $1.3 billion at year end, down from $1.8 billion at the end of 2008.

As Alan already mentioned, Fluor's consolidated backlog at year end stands at $26.8 billion, this represents a sequential decline of $1.3 billion from last quarter, reflecting the fact that our revenue burn exceeded the level of new bookings in the quarter. There were no material cancellations in the fourth quarter. The percentage of fixed price backlog now stands at 21% of total backlog, with 38% of backlog in the US, and 62% outside of the United States.

Now I will move on to corporate items as shown on slide 11. G&A expense for the year improved substantially to $179 million, down from $229 million a year ago, mainly driven by lower compensation related expenses and cost reductions. Net interest income for 2009 was $14 million, substantially below the $48 million we earned last year, due to the impact of lower interest rates.

The effective tax rate for 2009 was 35.5%, slightly higher than the effective tax rate of 34.4% for 2008. Effective tax rate for 2008 included favorable benefits resulting from several or the reversal of certain valuation allowances statute expirations and tax settlements. The effective tax rate for 2009, at 35.5% was somewhat lower than we expected. We do expect the tax rate from 2010 to be plus or minus 38%.

Shifting to the balance sheet, the consolidated cash and marketable securities balance moved up to $2.6 billion at the end of 2009, which compares with $2.1 billion at the end of 2008. The $500 million increase was driven by strong cash flow from operations, which totaled just under $900 million for the year. So far during the first quarter, we have seen our cash balance decline by about $300 million, due to traditional seasonal working capital increases in the quarter.

During 2009 we did repurchase 125 million of Fluor shares, about 260 shares at $12 million, that we repurchased in the fourth quarter. We also paid out $24 million to convertible note holders during the year, which helped bring our debt to total capital ratio down to a very modest 4%.

We declared our normal dividend at 12.5 cents per share, which is payable April 2, and capital expenditures for the year were $233 million, down from $300 million in 2008. Overall, Fluor's financial condition remains very strong, as it has been for the last several years.

Finally, let me address our guidance for 2010, which is shown on slide 12. We are beginning to see some positive signs of recovery, as Alan and David mentioned, as evidenced by the new amount of front end activity and we expect capital investment levels to gradually rebound as the global economy improves. However, relatively low new orders in this quarter and recent quarters, and continuing delays in the full release of major projects is expected to put pressure on our 2010 earnings.

Based on a detailed evaluation of the projected impact on the affected business segments, we are reducing our 2010 earning guidance to a range of $2.80 to $3.20 from the previously established range of $3.20 to $3.60 per share.

With that, operator, I believe we are ready to take questions.

(Operator Instructions). In the interest of time, and to allow everyone an opportunity, we ask that you limit yourselves to one question and one follow up. We will take our first question today from Jamie Cook with Credit Suisse.

Hi, good evening.

Good evening.

Questions really I guess revolve around the guidance, if you could just give a little more clarity. I guess, the low end of the range surprises me to some degree, so can you talk about what your, I understand awards have been weaker, but what your anticipation is of the burn rate for 2010. Is it the usual 60% to 65%, then we get the regular book and burn stuff. Because I would think you could at least do $20 billion or so in rev. Is it a rev issue, and what are you seeing on the margin pressure side, I'm just wondering if that's compounding the guidance outlook that we see for 2010. And sorry, Mike, also G&A, what you are assuming for 2010 unless I missed it.

Sure, I'll let Mike respond to that last part, Jamie. The issue clearly is the pace and size of new awards. As you know, we had a $2.7 billion third quarter, and now fourth quarter at just over $3 billion. Those were both lower than we thought. And they were characterized by larger projects moving out. Such that they are now targeted in our Q1 or Q2 of 2010. And its those bookings, in particularly the fourth quarter that you count on to drive your results for the following year because you get a full fourth quarter burn out of the revenues on those projects.

That's one issue, the other one is a margin issue, but it may not be exactly like you expect. We are doing incredibly well in our mining industry, booking new awards, and that's helping us keep that backlog up, but our oil and gas has fallen off fairly significantly, that's a margin shift. Those business have different margin characteristics. So we are replacing a good portion of that revenue, but it's coming in at a lower margin through our mining industry. So that has been another characteristic that's changed and driven our outlook to where it's at.

This is the fist time we have had to lower earnings expectations in quite some time that were driven just strictly by a market issue and not a performance issue. And it is truly market.

Now, I do believe that starting with this, with Q4, we are going to see incremental increases in the booking revenue over the next couple of quarters. And some of those projects that have moved out are still very real, they are just taking longer than we thought to come to fruition.

I will let Mike speak to the G&A and any other comments he wants to add to that.

Thanks, Alan. Jamie, you didn't miss it, our guidance for 2010 for G&A is going to be roughly $200 million. And we do expect to probably burn about 60% of our backlog as we indicated in the 10-k.

Okay, but Alan, sorry, then I will get back in queue because I'm sure everyone has a lot of questions, just on the, I mean a lot of it it seems like you were expecting a bigger award in Q4 that was going to help you -- that was going to help your 2010 numbers, but still it seems like a dramatic decrease in EPS guidance given the fact that Q4 is just a little lighter, and you are saying expect things to return in Q1, Q2, I get the margin issue. Anything else there or can you just help me understand what you assume at the low end of the range versus the high end.

The low end of the range assumes continued significant drop off in new awards or the delay of those.

So we continue with the $3 billion or so pace.

I think my guess is that we will come above the $3 billion pace as we go forward.

But does the $2.80 assume the low.

But the $2.80 assumes that we don't maybe rack up as quickly as what we are expecting. And that's been the case over the last two quarters. We are trying to be a little conservative on the low end.

Okay, so to be clear, the $2.80 assumes a $3 billion-ish order run rate over the next couple of quarters.

Well, $3 billion or in that range, yes.

Okay. Thank you, I will get back in queue.

We will take our next question from Will Gabrielski with Broadpoint AmTech.

Thank you. Good evening, guys. I guess a couple of questions, obviously your guys' press release, more FEED work over the past month or two, what is the competitive environment like in general, because if you look at some of the bigger opportunities that slipped in '09 to competitors, you had done the FEED work there, so I guess what is your degree of conviction around maybe seeing a better conversion rate going forward, and what's giving you that sense of confidence.

The big loss in 2009, where we had done the FEED work was the Gasco project in Abu Dhabi, and that was just a tremendously competitive bid process. I anticipated at that time that we would see a renewal of not just FEED work but PMC opportunities, which has been historically where we have gone after these large projects. And we in fact have seen exactly that happen, Will. When we get into the FEED side, there is more, it's a more competitive market than it was, but it's not as dramatic as what you see on the EPC side. And we do have a fairly significant number of FEED projects we booked in the last two quarters. But our prospects for Q1 actually include, probably one of the largest slates of FEED projects that we've seen in quite some time.

Okay, and then on the PMC side since you mentioned it, do you feel like the environment has shifted more permanently this time to some of the Asian competitors are able to stay competitive with you throughout the cycle, or do you see us reverting back to the similar to 2004, 2005, followed by 2006, 2007, and 2008.

We've never really had competition from the Asian EPC contractors for PMC. Our competition for PMC has largely come from Bechtel and Foster Wheeler, and I don't see that changing in this market. The Asian contractors, the Koreans, Japanese, have always been pretty successful on the EPC portions, even over the last four to five years. The difference here is that everybody's hungrier today than they were over the last cycle. So the margins and the bidding pressures are just that much more than they were at that point in time.

So how do you view, when you look at the backlogs and the award targets for 2010 for some of these competitors in Asia, you would think they would be less hungry with the amount of revenue coverage they have in backlog right now, yet it doesn't seem to be the case that they are backing off. What are you seeing competitively when you show up against them, or what are you hearing about their ability to continue to book work, and do they now have a new business model that's somewhat altered from past cycles.

I'm going to transfer that question over to David Seaton, he has been doing a significant amount of work and presence in the Middle East, where most of that work is going on, he has a good view of it.

Thanks, Alan. I really don't see a shift in their business model at all, as a matter of fact I think it beckons back to a couple of years ago with the thirst for gaining projects at some pretty aggressive pricing. I think the diversity that we have in being able to do that front end, the PMC, in addition to kind of doing some of the utilities and off sites with the integration work, still bodes well for us.

I think our model still holds true, although I think for us to continue to grow we are going to look at competing selectively but competing against some of the Asian contractors, and just the competitive landscape specifically in the Middle East, where I think we have a competitive advantage. Clearly Habshan, as Alan mentioned, was disappointing to us, but it was also quite a learning experience, and I think we are better prepared today to take our fair share of that market in the oil and gas piece, as well as other industries in the Middle East.

Will, further to your question, I do believe there are a significant number of large projects that are slated to come onto EPC status in the next 18 months. I think you are going to see people start to get full backlogs, and I don't believe that this competitive pressure that we are facing today is here to stay. I really do believe you will start to see a transition where there is a little more equilibrium in the market towards the second half of this year.

Okay, and does your strategy, I guess I've heard from some of your competitors that possibly, have you been approached by any of these Asian firms to work together, and I did see you were teamed up with Samsung on the Singapore regas project, so I'm curious if that's a strategy going forward also.

It's been a strategy that we have used for quite some time. We have teamed with the Koreans in Kuwait, and we've also teamed with them in offshore East Africa. It's a common practice that we use on a lot of large projects that require a total EPC risk profile.

Okay, thank you.

You bet.

For our next question, we will go to Michael Dudas with Jefferies.

Good evening, everybody. My first question is, given the competitive nature, the relatively soft 2009 that the industry has seen, has that opened up some better opportunities for Fluor to look at growth by acquisition?

Mike, the answer is yes. But we are pursuing a strategy of acquisition. I will have to say that it's been tougher than we had thought. We are taking a fairly conservative approach into what we would pay for acquisitions, but we are still dedicated to doing that particularly in the area of offshore oil and gas, and infrastructure. We are still pursuing opportunities in discussions in that arena. I would hope to be able to do something in both of those areas in 2010.

And my second question is, relative to, in the infrastructure business in the mix of your backlog, has it been as competitive or has it been a little less competition for you in your mining and infrastructure work that to allow you to contract some better targets and risk mitigation in that marketplace. And given the US market, everybody has been concerned about the local state budgets et cetera, will that enhance the opportunity for some of the larger project financial work that Fluor typically does quite well on the infrastructure side.

You mentioned two markets that we are actually doing quite well in, even given the current market status. Mining in particular, we truly excel in that arena in terms of our ability to capture awards throughout the last several years.

In the infrastructure side, I think we are the best in the market at doing design build and being able to integrate between the engineering and the construction, and we drive a significant amount of efficiency in doing that. So we have been very successful even in competitive lump sum bidding in that arena. However, the current budget crisis that you talk about in a number of the states, I think really does help us in the PCP market, where we do a lot of project development. That combined with, we think we are starting to see the opportunity to finance some of these projects starting to become more advantageous than it has been in the past. That is an area that we are focusing on, and we think will help drive better results as we go through this year.

That continued to be a pretty good margin business for you relative to everything else you have.

Yes, it sure does, it is still one of our better margin businesses.

Just one finally, you think that the mining cycle the next, let's say two years, looks pretty robust for projects primarily in Latin American and Australia.

Without a doubt, I think both of those areas significant spending plans on part of all of the big mining outfits.

Terrific, thank you, Alan.

For our next question, we will go to Graham Mattison with Lazard Capital Markets.

Hi, good evening, guys. Question on the offshore, one of your partners today on their call made some pretty optimistic comments about their outlook for the Middle East, I was wondering if you might be able to comment on what you are seeing there, what you are bidding on or type of work you are bidding on, and if successful, when you think that might be able to contribute, is that a 2010 or more a 2011.

Graham, I'm going to turn that question over to David, as well.

Thanks, hello, Graham. I think there is great opportunity in the Middle East with our partner there, which is why we pulled that alliance together. We are biding on a couple of projects, major projects right now. Mostly fixed platforms, but I think one or two could be awarded during 2010, but I see kind of a pent up demand there, and I see that as a robust market for us going forward.

But if one of these were to be awarded in 2010, would you be able to recognize, where would the bulk of the revenues come in there, would that be more of a 2010 or would it probably spill over more into 2011 or possibly 2012.

It would spill more into 2011.

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

We will go now to Scott Levine with JPMorgan.

Good afternoon, guys. Question on the margins, you indicated that mix was having an impact with regard to the mining versus the oil and gas example, but I was wondering within the individual business lines, are there some that you would highlight that are holding up on a comparative basis well, particularly well relative to others, what would those be.

Mining is, it just happens to be one of our lower margin businesses because of the amount of pass through revenue that we do there. Power is holding its own, albeit on a smaller volume of booked work. We are seeing the competitive pressures lessening or driving down margin somewhat in our oil and gas business primarily.

Okay. Turning to the government side, I've sensed that you guys sound a little pessimistic or cautious with regard to stimulus, I was wondering if you are feeling any better there than you did maybe six months ago, number one. And secondly, if you could offer up your thoughts with regard to the budget proposal, and what your thoughts are on how the proposal for government spending looks for fiscal 2011.

I would have to say, in terms of stimulus money, we aren't all that bullish on it. The stuff that's come out that really is targeted at infrastructure has been relatively small. And those projects that have been utilized in those funds are typically fairly, are smaller projects done by either municipality or county governments, and those typically aren't our clients. Our clients are the State DOT's, that drive the much larger projects that we go after on a design build basis.

We are not real, there is nothing really in our forecast with respect to that. The new budget that's out or the proposed budget I should say, does have a number of things in it that are of interest to us, clearly the additional loan guarantees for DOE, I think is a real positive sign. The subsidies and so forth for renewables is also something I think we are developing the strongest resume in the whole renewables area, and that's an area we intend to continue to push. But all the other things that are out there don't really seem to come into our, into our strike zone, and so we are really looking more at the private sector and primarily more offshore than in US.

Understood. One last quick one, if I may, on global services it sounded like you guys are expecting recovery there in 2010, would you say you are any more optimistic than you were three to six months ago on that subject.

Yes, I think we are. We are starting to see it kind of, it's flattened out during the last part of the fourth quarter and going into first quarter. We are starting to see a little more activity at sites. And we kind of predicted this, if you remember the call last quarter, because the stuff that's being delayed, the discretionary spending can only be put off so long, and so as we move into the spring time frame in particular, when you start to see really seasonally a lot of the turn arounds that occur both in the spring and fall, we think those are going to be more robust and more volume than what we saw last year.

Very well, thanks, Alan.

Next question will go to Andrew Kaplowitz with Barclays Capital.

Good evening, guys. Alan, you mentioned margins in oil and gas are under a bit of pressure, but as I look at the performance in 4Q, you still did 6.3%, and if I look back over the last three to five years, I see margins in the fives, in 2006 to 2008, and in the fours before that. I guess the question is, how much pressure, is there any way to give us some color on what you see, because it's hard to see it in the numbers that you've reported over the last few quarters.

Andy, we are seeing some pressure there. I wouldn't call it dramatic, I think we continue to be very selective. The bigger point that I was trying to make, and maybe I wasn't clear enough, is that we are really, in terms of the mix of revenue that we are seeing in our burn as we go through 2010 is going to have a lot more mining work, a higher ratio of mining work to oil and gas work than it was in previous years. It's a trade off in those two margins that's going to really affect our bottom line.

That's fair, Alan, but I guess then it's safe to say that the margins you are booking on current oil and gas projects that are going into backlog are not so much lower than what we see that you are reporting in revenue.

No, it's not a giant drop off, but they are lower, it is a tougher market.

Alan, if I could, it's David. I think you are seeing a shift to the construction phase of many of the projects in oil and gas, which is typically not quite as high as the engineering phase. But at the same time we are starting to see a lot of FEED activity, which is pure services, and it does attract a little bit higher margin, but in general I think it will still be under pressure, but as Alan said, it won't be dramatic.

I think David makes a good point, we are starting in the revenues that we had in fourth quarter, and I think what you will see in first quarter is it's going to have a little higher ratio of front end services work in it, which does help to keep the margins up there, Andy.

That's helpful. Follow up, maybe for David, so we saw less than a billion dollars in new awards in oil and gas. We see $2.5 billion in revenue. So the question is, I mean I know that the other segments are going to help the backlog going forward to some extent, looks like oil and gas is still coming down for awhile, can it stabilize this year, are there enough large projects out there, what is the conviction level around oil and gas backlog stabilizing.

Well, I will answer it a couple of ways. One, as we talked, we are kind of a victim of our own success when you look at how well we did on the US refining market back in 2007, 2008 standpoint, working that off creates quite a big hole. Specifically the fourth quarter, there are several projects that shifted from quarter to quarter. So I know Alan's used this term and I continue to use this term is our awards particularly in oil and gas, continue to be lumpy as we go through the year.

I will say that there is a tremendous market out there, and I think we are as well positioned to capture that market as anyone. It's a matter of timing to us. So to your question of whether it's going to completely stabilize during 2010, I wouldn't venture a guess but I think the long-term, excuse me, the long-term opportunities are significant. So I think we are kind of in that book to FEED work kind of phase like we were in the '06 time frame, and we will see the fruits of those labors as we go into 2011 and 2012.

Okay, that's helpful, David. I will get back into queue.

We will go now to Steven Fisher with UBS.

Hi, good evening. Just to follow up on Andy's question there, so based on just FEEDs alone, it sounds like that may not be enough to stabilize the backlog in oil and gas, that you do need some EPC's there to help out, is that the way to understand it.

Sure.

That is true, Steve. When we look at our forecast for the year, I think you are going to start to see some good sized project awards hit E&C, really starting in the second quarter. We had really anticipated that some of those that we were pretty confident now in second quarter, were going to be Q4 or Q1 events.

Okay. So in the meantime, I mean should we start to see the revenues in oil and gas trend similarly with the year-over-year backlog change and maybe a little bit of a lag.

Okay, on the SG&A, I'm just wondering why SG&A would be up versus 2009 when volumes are coming down.

Basically what is reflected in there are just traditional salary increases for the staff and our SG&A activities. Other than that, there's really no substantial change in SG&A year-over-year. This is truly our corporate SG&A where we did have substantial reductions in 2009.

Okay. And just one last quick one, I think you had anticipated earlier that there would be about a billion dollars of revenue opportunity in Afghanistan in 2010 based on the initial timetables, where does that outlook stand today.

Mike, go ahead.

The, we are looking at something in that ballpark probably maybe just slightly less.

Okay, nothing materially less.

No.

Correct.

Great, thanks a lot.

We will go now to Joe Ritchie with Goldman Sachs.

Thank you, good afternoon, everyone. I may have just missed this, but when I'm taking a look at your SG&A for next year and your expectations of $200 million, that seems to be up about 10% over 2009, is there, are you expecting some costs in 2010 that you didn't expect, that you didn't see in 2009.

Not really, no. I think, Joe, if you look at that number, there is probably some opportunity for cost reductions on that number. We did have a very aggressive cost reduction process in 2009, and it was very successful for the Company. Basically took $50 million out. There is a possibility that a small amount of that, those cost reductions may creep back in in 2010. Plus as I said, we did give our staff normal salary increases this year, which are part of the growth in the cost. And that was a change from last year, where we kept salaries pretty flat throughout the corporation.

Okay. Great. I guess you talked a little bit about the mix in your new awards shifting in 2010, does the mid point of your guidance assume that your new awards are going to be flat, up or down versus 2009.

I think they are going to be relatively flat. Again it's going to be a transition year that's going to start off a little lower in both new awards and maybe even EPS. And then build up during the year.

Great, one last question, can you give us just an update on the Greater Gabbard project, I think you said about $115 million that you recognized last quarter, but wanted to get a sense for what was happening this quarter.

As you know, we have stopped taking profit on that project because of the current (inaudible) with the client. We think we are in very good shape on that. The project itself has overcome the delays that had hit it in the fall. In fact, have closed construction for the winter season as planned right on target in the assembly and placement of the piles and transition pieces. So we feel pretty positive about that project, we just need to get through the arbitration, which is looking like it will be on an accelerated pace.

Okay. Great, thanks for your time.

We'll go now to Jeff Spittel with Pritchard Capital.

Thanks, good evening, guys. Thought your commentary about things picking up in the metals and mining business versus oil and gas was sort of interesting, ostensibly they are being driven by the same macroeconomic factors. Could you help us understand a little bit better from your dialogue with your clients, what is driving some of the metals and mining projects to kind of move forward at a more accelerated pace versus what you are hearing from your oil and gas customers.

Think it's several things. First of all it's project opportunities. They have been developing some of these projects for some time, secondly they've gotten and maintained fairly strong commodity prices, and there are fewer large competitors in that arena than there are in the oil and gas side. They had their serious round of mergers acquisitions and combinations a couple of years ago. So they all have very healthy balance sheets, they all are forecasting continued heavy consumption of most of the base of minerals and metals, and seem very committed to their capital spend.

Okay. In the oil and gas market, is there any particular geographic region, I guess the Middle East might be one candidate, and then I guess between the split of offshore and onshore projects, where you are starting to see FEED work accelerate.

Middle East is clearly the driver there, but we are also seeing a number of things in the, what I would call the former Soviet Union, in southeast Asia/Australia. And also we have some great opportunities both in Canada and in South America.

Okay, great, thanks, guys, I will turn it back.

(Operator Instructions). We will go next to Alex Rygiel with FBR Capital Markets.

Thank you, good evening, gentlemen.

Hi, Alex.

Few questions. First, the tax rate for 2010 looks a little bit high relative to my expectations. Did that have any impact on your lower guidance for 2010.

Alex, compared to the results for 2008 and 2009, yes it does. We had some favorable impacts the last two years on our tax rate that drove it down, and at this stage of the year we are really not forecasting any favorable adjustments on a normal run rate, absent any valuation allowances or other adjustments, 38% is pretty much our normal tax rate. So on a year-over-year basis, it does impact the relative performance.

I'm sorry, relative to your guidance from a few months ago, did you modify your tax rate at all.

No, tax rate is not really a major driver in the difference in the guidance.

Fair enough, as we think about LOGCAP IV task orders over the next couple of quarters, should we assume that they continue at the similar pace as the fourth quarter.

I would say yes.

When we think about bid costs for larger DOE opportunities, do you think DOE bid costs will be greater in 2010 or less than 2009, and what order of magnitude if it is significant.

I think they are going to be about the same. I mean, as an example, the biggest procurement that was out there ahead of us was Portsmouth, which we obviously spent the money in 2009, the next one that's really out in front of us is Oak Ridge, and I don't see really any dramatic change year over year in our spend on pursuing that business.

Alex, let me remind you that we have space in our overhead rates to absorb those bid costs, so they really don't hit the bottom line.

Perfect, that's very helpful, thank you.

Our next question, we will go to Barry Bannister with Stifel Nicolaus.

Hi, gentlemen. If you take on the role of PMC in some of the Middle East projects, then you would have a unique vantage point into whether some of the Korean subcontractors would be out of capacity and how backlogged they would be. By our calculations, they are almost four years of backlog, double any European, US, or Japanese average. As you do your preparations for the PMC bids, are you experiencing or seeing anything similar in terms of the amount of backlog relative to the amount of revenue.

I think you can see that without really being in an advantaged position as a PMC. When you look at some of the major projects in the Middle East specifically, some of these awards are as large as existing backlogs were for some of the Asian contractors. Like I said, it's kind of a phenomenon that we've seen before. And one we kind of anticipated, and it just makes you kind of look at things with a jaundiced eye, when you look at selectivity, whether you want to pursue some of these things, when this feeding frenzy is among us. I think in the next couple of years, you are going to see the Asian contractors with a capacity issue, which I think opens up opportunity for companies like ours.

In the mid to late 1970s, Fluor Daniel had a backlog of at least five years though, do you think the Saudis and others are aware of just how backlogged these companies are, and how long it may take to build the projects.

Absolutely. They do in depth studies from time to time, and I think they know exactly what the capacity of the companies are.

Okay, so they must not need that capacity for quite a while I would guess.

I think there is significant capital spend. I would suggest that most of them are concerned with some of the projects that have already been procured and the ones that are on the table. I think that they're, and I can't speak to this for sure, but if you look at the way things were delayed during 2009, those programs were not canceled, they were just pushed to the right. So we could see in the out years, 2011 and 2012, another little mini blip, because of the significant spend, particularly in the oil and gas business in the Middle East. When you look at some of the programs that are out there that are yet to be procured, and the capital expenditures that have been published by many of the NOCs in the region, there is a significant amount of opportunity out there.

Right, so if there are change orders or if these contractors are not performing, there's a chance that Fluor would be the designated contractor to pick up some of the slack given that they would be out of capacity and maybe in over their heads, wouldn't there be.

I wouldn't say change orders on existing contracts but I think it does bode well for us when you look at the next wave of capital procurement.

And then lastly, was there any Oak Grove completion or Garyville completion bonuses in this quarter.

There were some, Barry, but we still have the major ones to go on unit two. And there was nothing on Garyville.

Thank you.

We will take our next question from John Rogers with DA Davidson.

Hi, good afternoon.

Hi, John.

Alan and Dave, you referred to some opportunities for some large project bookings over the next couple of quarters. I'm wondering from a clients perspective, are we seeing any risk that it will be a more of an incremental approach with authorizations for work, or do you see that as any significant risk.

That's been the typical cycle, even during the good times. And that is, and it's holding true, we are going through the approval cycles and then getting the authorization for the EPC, and that has delayed a number of projects, and that's kind of the dynamic we have been talking about that's impacted our numbers.

Okay. But -- so you don't have any significant or different concern that some of these larger projects could just be pieced out as opposed to--.

No, I think the ones that we are looking at, again, we have been selective at the ones we are targeting, John. I think they are absolutely ones that are going to be awarded on a full EPC basis.

Thank you, appreciate the color.

Ladies and gentlemen, at this time that concludes our question-and-answer session. I will turn the conference back to our speakers for any closing remarks.

Thank you, operator. I would like to thank all of you for participating on our call this afternoon. We are absolute proud of our achievements in 2009, but as you've seen, clearly 2010 is shaping up to be what I'm going to call a transition year earnings-wise, because we have seen an uptick in our front end awards, our study of work. And it reminds me very much of the transition and the make up of work we saw in 2006. I think David actually commented on that.

So if you can take and go forward on that, and conclude from our comments on today's call, we are concerned about the markets but we do see the year unfolding in a manner that will allow us to grow as we go through the year. I think that will bode very well for the, closing out the year in a strong position and then moving forward in 2011.

Our early indications that I mentioned a couple of times are that both our first and second quarters will be a bit below the run rate that we have had on EPS guidance, but we do expect them to get stronger as we go through the year in new awards. Our visibility in terms of the timing of the release of some of these larger projects is starting to get more clear than it was in the last quarter. And this has in turn impacted our confidence level to be able to achieve the recent guidance that we have given you.

We continue to maintain high expectations for Fluor. We will take all the actions under our control to deliver the best results that we can for 2010. We really do appreciate your interest in Fluor. And your confidence in our Company. Have a good day.

Ladies and gentlemen, this does conclude our conference, we appreciate your participation.