Fluor Corp (FLR) 2010 Q4 法說會逐字稿

Good morning and welcome to the Fluor Corporation's fourth-quarter and year-end 2010 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 2.00 p.m. 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 2.00 p.m. Eastern Time on March 1 at the following telephone number, 888-203-1112, the pass code of 4733502 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. Good morning and welcome to Fluor's fourth-quarter and 2010 year-end conference call. With us today are David Seaton, Fluor's newly elected Chief Executive Officer, and Mike Steuert, Fluor's Chief Financial Officer.

Our earnings announcement was released this morning before market opened. We have posted a slide presentation on our website, which we will reference while making our prepared remarks this morning.

Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide number 2. During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is 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 this morning, February 23, 2011.

During this call, we may discuss certain non-GAAP financial measures, reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are posted in the investor relations section of our website at investor.fluor.com.

With that, I will turn the call over to David Seaton, Fluor's Chief Executive Officer. David?

Thanks, Ken. Good morning to everyone and thank you for joining us here today. Today we will be reviewing, as Ken said, our fourth-quarter and full-year 2010 results and discuss our earnings guidance for 2011.

I would like to start by covering some of the highlights of our performance in 2010, so I'd ask you to please turn to slide 3.

First, as a clear sign of our strength, our market position, we posted full-year new awards of $27.4 billion, which was a new Company record. This represents a 48% increase over 2009 and we had significant awards across our diversified portfolio but clearly our strong mining and metals orders and sizable upstream oil and gas awards were the most significant contributors. We also posted major wins in infrastructure, government, and our global services sectors during this year.

New awards for the fourth quarter were a strong $7.1 billion including awards of $4.4 billion in oil and gas and $1.3 billion in industrial and infrastructure.

Turning to slide 4, we were awarded the engineering, procurement, and construction of the upstream facilities associated with the Santos Gladstone LNG project in Queensland, Australia, valued at $3.5 billion, which was a very important strategic win. When you combine that with our FEED win for the Woodside Browse LNG offshore facilities, these awards help establish Fluor as a leader in the region in the burgeoning oil and gas market.

In the fourth quarter, we also booked one of the first incremental awards for the first phase of the ExxonMobil West Qurna upstream production development program in Iraq. This early works project encompasses the engineering, procurement, construction, and management contract for oil field and related infrastructure development to support the West Qurna development. Fluor expects to book further awards on a periodic basis as this project is released.

The industrial and infrastructure segment booked a large iron ore expansion in Chile and Fluor's $350 million share of the Windsor-Essex Parkway PPP road project in Ontario, Canada. Also in the fourth quarter, our government group booked over $530 million in new awards, including the LOGCAP task orders and the power segment booked $471 million in awards, including a four-year contract for systemwide fossil power plant maintenance for Luminant.

Turning to slide 5, year-end backlog rose to $34.9 billion, up 30% from a year ago, and up $1.9 billion over last quarter. Despite the inherent variability of the quarterly bookings, as we signaled before, new award wins will be lumpy as we go through the years quarter-over-quarter. However, this represents the third consecutive quarter of increased Fluor backlog.

Moving to the income statement, net earnings attributable to Fluor for 2010 were $357 million or $1.98 per diluted share. Full-year results reflected profit growth in government, global services, and power, offset by the anticipated decline in oil and gas sector.

Turning to slide 6, the industrial and infrastructure group, while the profit contribution from mining and metals business and certain infrastructure projects were very strong, the segment was impacted by pretax charges on the Greater Gabbard Offshore Wind Farm project.

In the fourth quarter, we recorded an additional $180 million charge driven in part by the bankruptcy of a major subcontractor, which adds to the $163 million charge we took in the third quarter. The Company also recognized $152 million tax benefit, a significant portion of which arose from the financial impact of the Greater Gabbard charge.

On our third-quarter call we discussed that the Greater Gabbard project had experienced a number of issues that substantially increased the estimated cost to complete the project. Many of these issues date back to the beginning of the project when the customer caused significant delays when they directed us to address perceived well issues on the monopiles. Substantial costs associated with that issue and the knock on impact to both the project costs and schedule are included in the claim that we have outstanding with the client.

In addition to the issues associated with that ongoing claim, continued cost overruns on the project reflect execution challenges including the bankruptcy of the major subcontractor, delayed material and equipment deliveries, along with low wind turbine and subsea cable installation rates which also added substantial costs for the additional maritime assets and have extended our schedule to complete.

Late in the fourth quarter, the project was impacted by the bankruptcy of a major subcontractor with responsibility for transporting and installing the subsea cabling. Subocean formally entered bankruptcy administration on January 19, resulting in the recall of all Subocean's installation vessels back to port. Immediately preceding the bankruptcy, the project experienced very low productivity due to payment disputes between Subocean and suppliers.

While we are in the process of contracting for other vessels and crews to resume the installation of cables, the day rates for those activities are expected to be significantly higher than the rates that were in our original contract with Subocean.

The project has also continued to be significantly impacted by weather-related delays, which dramatically worsened during the fourth quarter. Weather delays equate to lost days, which result in substantial additional costs for idle vessels and crews.

Turning to slide 7, with regard to progress on the subsea cabling, we continue to be impacted by both weather and technical challenges. Our current forecast assumes that most of this work will be completed this summer, which represents about a two-month delay from our estimate at the end of the third quarter.

I think the photos on slide 7 show the size and specialized nature of the marine assets that we are using.

Our previous cost estimates assumed that we could secure an additional jackup vessel to speed the pace of wind turbine generator installation. While we continue to make progress on the installation of the wind turbines in the fourth quarter, we are well behind the schedule that we envisioned would be possible at the end of last quarter. Due to challenging oceanic conditions and limited vessel availability, we now see the turbine generator installation and commissioning extending through the spring of 2012.

To summarize, the incremental $180 million charge in the fourth quarter primarily reflects additional costs associated with the impact of Subocean's bankruptcy, additional downtime due to extensive weather delays, and the additional cost for the wind turbine generators and cable installation. We expect to complete the project in the first half of 2012.

Our current position represents our best cost estimate at this point considering the projects team had experienced to date and what we believe will be required going forward. While we have taken a number of actions to mitigate cost escalation and delays to the schedule, we could continue to experience challenges as we work towards the completion of this project.

Now notwithstanding the substantial challenges that we experienced on Greater Gabbard during 2010, I believe Fluor is well positioned to grow in 2011 and beyond and our markets and the global economy continued to strengthen.

Now I would like to turn it over to Mike Steuert to review some details on our operating performance and corporate financial metrics, as well as our financial outlook for 2011.

Thank you, David, and good morning. Let's start by going over a recap of the year. Detailed results for each operating segment can be found in the earnings release and in the 10-K. I would like to refer you to slide 8 of the presentation.

Revenue for 2010 was $20.8 billion, which is down 5% from the $22 billion a year ago. This is primarily due to a lower contribution from our oil and gas group as they transitioned from large downstream projects nearing completion to the large upstream projects awarded this year.

Consolidated segment profit for the year was $621 million. This is down significantly from last year due to $343 million of charges from the Greater Gabbard project that David discussed.

In addition, there was a $95 million charge related to the bankruptcy ruling that adversely impacted the collectability of our claim on the completed SR125 Road project and charges totaling $91 million for the estimated additional cost to complete the gas-fired power plant in Georgia.

Moving on to slide number 9, we continued to actively manage our corporate G&A expense downward during 2010. For the year, actuals of $156 million were reduced from last year's $179 million as a result of ongoing cost reduction initiatives and lower management incentive compensation. For 2011, we expect our outlook for G&A expense to be in a range of $170 million to $190 million.

The low tax rate for 2010 was primarily attributable to a $152 million tax benefit from the tax restructuring of a foreign subsidiary in the fourth quarter. A significant portion of the tax benefit arose from the financial impact of the Greater Gabbard losses on the affected subsidiary.

As David mentioned, Fluor's consolidated backlog increased to $34.9 billion at the end of the quarter. The percentage of fixed price backlog rose 29% with a geographical split at 26% in the US and 74% outside of the United States. It is worth noting that 80% of the new awards in 2010 were for projects outside of the US.

Shifting to the balance sheet, on slide 10, the consolidated cash and marketable securities balance was $2.6 billion at the end of the year. In spite of cash outflows to fund the Greater Gabbard project, operations generated over $550 million in positive cash flows during 2010.

A portion of the cash flow was used for share repurchase. Last quarter the Board of Directors approved an increase in the Company's share repurchase program, raising the total number of shares available to 12 million. During the year, we repurchased just under 3.1 million shares or about $175 million worth primarily during the fourth quarter. Our expectation is to continue buying back shares throughout 2011 on an opportunistic basis. We also paid out approximately $90 million in dividends during 2010.

Capital expenditures for the year were $265 million compared to $233 million last year. This increase was driven by continued investment in construction equipment through our global services segment, which supports both third-party clients as well as the needs of other Fluor business units.

For 2011, we expect that capital expenditures will range from $250 million to $275 million. Full-year depreciation expense was $189 million and as we've said for numerous quarters, Fluor's financial condition continues to strengthen.

Finally, let me conclude my comments by talking about our guidance for 2011, which is shown on slide 11. With three consecutive quarters of strong new awards and backlog growth and with a healthy prospect list, we are maintaining our EPS guidance range for 2011 at $3.00 to $3.40 per diluted share. These estimates again assume a G&A expense of $170 million to $190 million and a normalized tax rate of 34% to 36%.

With that, operator, we are now ready to take questions.

(Operator Instructions) Jamie Cook, Credit Suisse.

Good morning. I am not going to go too much into the charge because it sounds like it's unclear whether it will be more, but I guess, David, what quarters will you be working most heavily on this project? Because I am just trying to get a sense for if there's another issue when that potentially pops up. And then I think historically you've said that there are other wind projects that you are bidding on, so given what we've seen to date, does that change your opinion?

And then the last question if you could just talk to the oil and gas margins were lower than I thought in the quarter. Was there anything unusual in there? I will get back in queue.

Okay, I will start from the back, Jamie. Good morning. I think the oil and gas margins were little depressed because as I said in the last call, we are kind of in that inflection process where the new awards are starting to come in and we still have a fair amount of [pinch] that we are dealing with as we get ready to really start these big programs. So I don't expect that margin to stay where it is going forward. But as I've said in the past, I don't think it's going to reach the level what we enjoyed in the '08 and '09 timeframe.

Okay, but are projects we are putting in backlog today, is it higher margin than where we were six months ago? Within oil and gas specifically?

Yes.

Okay, care to quantify or no?

No.

Okay, sorry, just Greater Gabbard, I am just trying to get a sense where I didn't think you were doing much work this quarter.

We were doing -- we were -- continued to do a fair amount of the subsea cabling. And that's where the Subocean assets were pointed. So you can imagine the bankruptcy came as quite a surprise to us and again that was January 12, which I think tells you that it was a little bit of a surprise to us.

As far as the amount of work we are doing, we will continue to do the cabling through the season as long as the weather provides. We have been impacted by probably some of the worst weather from an averaging standpoint that we have seen. But the majority of the wind turbine generator installation will take place in the late spring and early fall. So we should have most of the activity during that period of time.

And then your thoughts on -- there are other wind projects out there that you were bidding on. Does that change your view on whether or not that's the right direction in which Fluor wants to go in?

Well, I still believe that wind farms are a good business, but I think it's safe to say that we won't do any future wind farms under the existing contractual approach.

Okay, so you won't do another wind farm fixed price?

Major portions of it fixed priced.

Okay, thanks. I will get back in queue.

Andy Kaplowitz, Barclays Capital.

Good morning, guys. David, maybe you could tell us of the $180 million charge at Gabbard, how much was the bankruptcy of the subcontractor? Was it the majority? And just trying to think about how we look at it going forward.

It's a significant amount. I wouldn't venture to define it any further than that.

Okay, then if you look at your guidance for this year, you kept it the same. How do we get conviction in that guidance with sort of this open-ended Greater Gabbard issue? We are all going to try and figure out how conservative, David, you are being here. But it kind of seems like we're right in the middle of you trying to get a new subcontractor. Is that fair?

I think that's fair and I think we are still replacing Subocean, but I think this has been a very expensive lesson and those lessons have been put into the forecasts going forward. As we said in the prepared statement, we can't guarantee we don't have any other problems on Greater Gabbard, but I think those lessons that we have had have been pretty pointed in how we've estimated going forward.

Go you. So I mean, bankruptcy is a pretty big, unusual deal. If we don't have anything like that, do you feel pretty good about your new estimates.

I feel pretty good about our new estimates, yes.

Okay, just one more question, shifting gears. The industrial infrastructure business, the margins ex Gabbard were very high but the revenue was sequentially down a lot. And so I'm just trying to figure out what's happened there. Are some projects coming in with more equity earnings? Is it -- you would think that that business is ramping up in revenue, not down, and the margins were quite high ex Gabbard.

Mike Steuert Andy, you are correct. There's a general trend for the revenue to ramp up as we go through the mining work, but it is kind of lumpy from quarter to quarter just depending on how much client-furnished material and other things come in in various quarters.

But the other -- your other comment is absent Greater Gabbard, that business segment is performing extremely well. We had a very good quarter in the mining business and in the other industrial and infrastructure businesses.

Mike, I always ask you this. The mining margins that are coming in, are they better than 3% potentially?

In some cases, yes.

Okay, thank you.

Will Gabrielski, Gleacher.

Thanks and good morning. A couple of questions. First, the run rate on government awards, I thought we were sort of hitting a new threshold closer to $1 billion and then that went backwards this quarter. Is there anything different there or is it just the normal lumpiness of government award timing?

Will, the LOGCAP awards are pretty evenly -- they are ballpark $500 million a quarter and then of course in the third quarter of every year, we have the major award for Savannah River, the annual funding. So that may be what you are referring to; in the third quarter we saw a larger number.

And the Portsmouth award pushed from fourth quarter to first quarter. That may have some impact in --there.

Mike Steuert But for Portsmouth and Savannah River, as we've done for quite a few years on our DOE sites, we just book that once a year and generally in the third quarter when the budgets are approved.

Okay, I was curious on your Browse FEED, which you press released last night -- can you go through the value proposition of teaming with the McDermott there versus doing upstream FEED by yourself for Santos? Or how maybe you went through it in Iraq and why you would wind up teaming with McDermott in this situation versus going it alone?

Well, I think when you look -- as I have said before, when you look at the upstream sector, particularly offshore, we do not want to take on a heavy asset base, so that pushes us to team with people like McDermott which we have done so in the past very successfully. I think that's the main reason.

But when you look at the FEED, the majority of the FEED will be done by Fluor, but the FEED was also awarded with the follow-on EPC, assuming that it gets sanctioned, and that EPC value will require the assets of McDermott. So the majority of the project management and the front-end design is primarily Fluor.

When we get to the EPC side, it will have a significant component of those marine assets.

I'd like to go one more, Will. When you look at that question and specifically, the offshore oil and gas business as well as the comment relative to wind farms, we believe that having control of those marine assets to be an absolute critical point and therefore when we look at things in offshore oil and gas as well as wind farms, we will either partner or have control of the key marine assets.

Okay. That's helpful. I won't ask the obvious follow-on of why you don't own your own marine assets. Just kidding. Global services business, just general commentary there, it would seem that that should be ticking higher yet awards were down a little bit quarter-to-quarter and kind of like ran through the year at an average of 400, which was up a little bit from '09 but still well off peak. Can that start to recover more meaningfully in '11?

I think so. I think that the discretionary spend of our customers is beginning to come back. I think it's probably going to be late '11 and early '12 before you see any significant change in the earnings stream. But I am pretty bullish on where that market is going. I also believe that they have done a good job of diversifying their offering from being heavily dependent on the major turnarounds to more of an asset management model with some of the customers like IBM, DuPont.

Okay, and one more if you will do it. Clean Air Transport Rule, US power, just general thoughts on what that could look like for awards in 2011 and I guess gas plants would be a big part of that.

Absolutely, and gas plants are in our sweet spot. We are seeing a fair amount of FEED activity or preplanning activity with our customers in that regard and I believe there will be a dashed cash -- dash to gas and we are well positioned to take advantage of that market.

Great, thanks, and enjoy the new role.

Thank you very much.

Steven Fisher, UBS.

Good morning. I noticed that the fixed-price mix increased to 29% from about 20%. Is that largely due to the Santos contract?

It is. We also had the Windsor-Essex Parkway that was booked in the quarter as well, so the two of them increased that, Steve.

Okay, so just as it relates to the Santos, I mean can you just discuss what exact risks you are taking on on that project and how you intend to manage that risk?

Well, this project was a negotiation as opposed to a full bid process. If you remember back, there was a competitive FEED process we went through. We won that. That gave us the right to develop the EPC pricing, which we have done, and many of the components are indexed around labor and labor productivity. Labor is a very precious commodity in Australia right now.

So there are pieces that we do have some protection on, but I feel comfortable with how the project has developed, the knowledge of our team on things that we know how to go do, as well as the surety of scope that exists on that project.

So if the labor productivity and costs are indexed, is the risk that the costs run up ahead of what the indexing allows you?

I think part of the indexing is creating the lump sum and that indexing was done with a keen eye on what the labor market is going to look like over the next little bit of time. I think we have great insight into that given the amount of work that we already do there in the mining sector.

So I feel pretty comfortable the way that estimate was developed that we do have protections in there that will ensure our success on that project.

Okay. And then just shifting to the gas-fired power plant, could you just talk a little bit about what happened there for the incremental costs on that project?

I'm sorry, say that again.

The gas-fired power plants, the incremental costs there, could you just talk about what happened there?

The incremental costs relative to the -- oh, the Plant McDonagh, I'm sorry. We still continue to struggle with productivity on that job. I think that we made some significant changes in our project team. We have also worked very closely with the labor market there. That is a union job and expect quite a bit of improvement coming from that project going forward.

So I think that was the main reason for the addition, but again, I think based on the knowledge that we have today we've put that into the project and I'm confident of our position now.

Okay, then just lastly, so you have $10 billion of fixed price contracts. We talked about Santos. We talked about the wind project and the gas plants, so how concentrated is the rest of the fixed price mix? And maybe could you just spend a minute talking about some of the most major projects you have there and where you stand on those, particularly I guess the Bay Bridge or any of the other big infrastructure fixed price contracts? I think that's a key topic on investors' minds. They want to know where you stand here.

I would probably back up a little bit and start by saying that because of Gabbard and some other things, we took a real close look at our risk process to see if we had any glaring holes in how we do those things. I am happy to report that we still believe in that process and it works. There's been some significant issues that you've seen, bankruptcy being one of them that would not have been anticipated, clearly, in how we develop these projects.

So I am very bullish and comfortable with the process that we have that allows us to create these lump sum or fixed price projects with a high degree of surety going forward. I know that it's hard for you guys to understand given what we've shown you here, but I feel good about the process that we have.

We have had probably I think the number was 62 "risk projects". We've had problems on two from a pricing standpoint over the last little while. Now granted, they were significantly bad, but that's two out of 62 is not too bad from a project perspective. So that gives me comfort that we do have a good work process in place to identify these risks and price these risks, and then we've got the execution capability and the knowledge to properly mitigate and manage those risks.

But as far as the concentration, I think it's pretty spread out and there's not anything in there as large as Greater Gabbard.

You asked specifically about the Bay Bridge. That project is going very well and that is a case where we own with our partner the big shear leg crane that some of you saw when we took the trip there. So that's an example of where we practiced the asset ownership, the asset control, which is part of that risk mitigation.

So I think we do a lot of things really, really well. It's a shame that we have these circumstances on things like Gabbard and McDonagh, but again, I look at where we are in the future based on the fact that I have a very keen understanding and faith in the process that we use going forward.

So I don't think that there's anything unusual going forward or in our backlog right now. And as I said, when you look at our growth and our ability to put the kind of new awards on the table here over 2010, notwithstanding some lumpiness, I think we will continue to grow backlog over 2011 and I believe very strongly that we have the tools and systems and people in place to deliver the margin that we expect on those projects.

Right, and in our top 20, we do have a couple of other fixed price projects, one of which was at Denver Eagle P3 that we booked in the third quarter I believe of 2010. That's moving very well. It's early stages, that's doing well. And the other project in the top 20 is the I-495, which is also progressing very well.

Okay, great. Thanks a lot.

Scott Levin, JPMorgan.

Right, it's actually Rodney Clayton here for Scott. Good morning. So can you talk a little bit about the refining and petrochemicals business? Obviously on the refining side we've seen an improvement in crack spreads over the last few weeks and months and several service providers have cited a strong turnaround season. I'm just curious if you are seeing some returns in terms of capital spending picking up there? And if so, can you maybe bifurcate between maintenance type spending versus any capacity additions that might be taking place?

Sure, I think on the turnaround season, we are seeing that pick up, as I mentioned earlier. We see the discretionary spending coming back in there because of the crack spreads and I would divide the downstream market between North America and the rest of the world.

In North America, most of the spend is going to be on that maintenance side because we basically finished most of the major capital or are in the process of finishing most of the major capital programs in North America. So it's going to be smaller projects. We are finishing projects that have already been sanctioned.

So I don't really see a whole lot of tremendous growth in North America, but I do see it outside the US. I see growth in South America, Asia, as well as the Middle East, with regard to new capacity. Mexico I guess I should say is going to look at more of the cleaner fuels and there will be expansions in places like the Salamanca refinery in Mexico, which we are very well positioned for.

So as I signaled before, I see the downstream market as not as many big elephants going forward, but certainly significant opportunities that will be in the $300 million to $500 million range fairly globally. And we have done some things to expand our execution capability to be able to address those markets in the other places.

Now, petrochemicals is probably the biggest cyclical business in our oil, gas, and chemicals segment, as it historically has been. And we are coming off a big boom on the ethylene chain again, in finishing those programs. So what we are seeing is the further downstream derivative projects down that ethylene chain. There are some pretty sizable projects, but they are all going to be in the Middle East and in Asia and specifically China, which again fits into our sweet spot when you look at our execution capabilities in those two regions.

But I don't expect the chemicals piece to be demonstratively larger than we see in the current portfolio during '11.

Okay, that's pretty helpful there. Secondly on the gas business, and I know you've already spoke to maybe gas-fired capacity additions, but more in terms of derivatives in terms of pipelines and gas processing and storage, are you seeing any uptick there?

Maybe you could speak to it similarly as you did with refining in terms of North America versus the rest of the world.

Well, gas outside the US in the normal regions are pretty bullish and continuing. Gladstone is a great example of that, and I think we've positioned ourselves quite well. The Middle East is also going to be a big play for us in places like Abu Dhabi, where we have a very strong capability.

In North America, it's going to be -- it is the Marcellus and the Barnett Shale play. It is somewhat fragmented and smaller from a capital perspective. We are looking at some opportunities around the infrastructure to support those, and we will be looking at that pretty hard. But I don't see a real large play for us in the gas gathering and storage, but I believe some of the infrastructure around water and transportation will be part of things that we will look at pretty hard.

Okay. I noticed your CapEx outlook at the midpoint suggests kind of flattish spend year-over-year. And obviously, that should be a good thing for your free cash flow, but how should we interpret that? Does that suggest that you are not seeing an uptick in your maybe internal investment opportunities?

And does that suggest that you might look to be more aggressive on M&A going forward? Or are you just consciously trying to flatline that spend so you get the free cash flow boost?

Let me comment on that. That CapEx really doesn't support our capacity or our growth. That CapEx is to a large part supporting the growth of some of our clients to help them with their projects as well as third parties. And I think our forecast is conservative. We have a lot of opportunities for CapEx in excess of $250 million should we want to spend that kind of funds to support a number of our clients that are growing in a lot of different parts of the globe.

Okay, so you are not looking to any type of facility spend or anything like that on a major way this year?

No.

Okay, all right, and then one more if I may. The Middle East obviously has taken a lot of headlines there. Can you remind us which countries other than the obvious ones where you are most active and just kind of generally speaking what's your outlook there how that might impact you going forward?

Well, I think the base answer is we enjoy great diversity of industry and geographies, so I believe that just in general, capital spend in those major markets like oil and gas is like squeezing a balloon. If you squeeze it and shut it off in one part of the world, that investment will go to other parts of the world. So I don't think it necessarily has a dire impact on us.

We are active right now in Saudi Arabia, Kuwait, the UAE, and Qatar. And I don't see a lot of change right now. Obviously we've been pretty keen around the security of our people. I am actually going out next week to the Middle East on a routine trip. So I feel quite safe given the places I'm going to be going as well as the security that we enjoy as Fluor.

You know, the unrest right now is interesting. I think the changes that you are seeing are in places where unemployment is quite dire. And in a lot of the places where we are working, notwithstanding Saudi, you don't have as much difficulty there.

So I think the Middle East is changing but I will give you an example. When I first moved out there in '95, '96, Bahrain was off limits to the ex-pat community or the Fluor community because of unrest between the Shia and the Sunni. Now that's what you are seeing today. It's opportunistic given the Egyptian uprising and the Tunisian uprising.

So I think there's going to be moderate change politically and otherwise as we go through this year in the Middle East. But I also believe that cooler heads will prevail and it won't be a significant problem relative to our business.

Thank you.

Michael Dudas, Jeffries.

Good morning, gentlemen. David, maybe you can share with us your thoughts heading into 2011 of the state and the structure of the contracting industry, how it looks relative to what it was over the past couple of years, and how Fluor is positioned in this uptick in what I think most people think is growth in capital spending.

You know, I think as I've said before, there's been the question around the Asian competitors. And as I've said, this is the third or fourth time I've seen predatory pricing come from that part of the world. And we just choose not to participate in that price war.

I think pricing is moderating. I think that many of the competitors that we've talked about in the past have quite large backlogs and may suggest a capacity issue, whereas I think we kept our powder dry and we are ready to take on the projects that are in front of us.

I think that the markets are changing. I do see an uptick in just about every market. I see capital being made available in just about every market that we play in. But I really believe it's the diversity of Fluor, both market and geography, that sets us apart. We can go take advantage of any individual market or geography when that opportunity comes and the organizational structure that we have allows us to be local in most of the key regions of the world.

So we have kind of used the term in the past the Great Gretzky. We know how to skate to where the puck is going to be, not where it is. And we've done a lot of things to invest over the last year and a half to make sure we are positioned very well in those markets.

I'm sure your Canadian shareholders appreciate that comment. Just finally, as you look at the organization today, are you staffed appropriately to meet today's backlog needs or as you indicated, how much availability do you have to be opportunistic and take advantage of your clients' needs and to expand the size of the revenue base and certainly the earnings base over the next couple of years? Thank you.

I think one quick example is you noted that Jamie noted that E&C margin was down into the 3s. Well, that's us making sure that we are investing in our people and our systems to be available for those programs as they come.

I would say that right now from the peak of '08, late '08, we are down about 10% to 12% in headcount. Well, that means to me that we've got -- not only do we have the capacity to do what's in front of us both in backlog as well as the programs that are in front of us that we are bidding right now, I think Fluor has got a unique position to be able to turn that crank and add to our capability human resources wise pretty easily.

We've got great tools and systems that I also think set us apart because when you sit at a design table in Manila or in Houston or in the UK, our people sit down to the same exact tools and systems.

So we have a strong training and development capability that I think make us an employer of choice, which all add to our ability I think to turn the crank and have more capacity than many of our competitors.

Tahira Afzal, KeyBanc.

Good afternoon, gentlemen. I have two questions. Number one, in the prior quarter and really any qualitative commentary you've provided at conferences thereafter, you indicated that if bookings in the fourth quarter and into the first quarter were strong, that you'd feel more comfortable around the mid to upper end of your guidance. And I guess that would be outside of the potential issues on the offshore project.

Could you comment a bit on how the bookings came in versus your internal expectations and how you incrementally feel about guidance to the extent you can comment?

I guess the second question is in regards to Brazil, a lot of positive commentary and visibility over there in terms of deepwater, but it seems that's trickling into other aspects of infrastructure there, including some of the refinery space and in terms of some of the more civil infrastructure space.

So would like to get any commentary you can provide on your outlook there and positioning there going forward.

I think on the new awards side, it has been lumpy, but as we've talked in the past, things move from quarter to quarter. We were fortunate that Santos happened, but it happened very late in the quarter. So we were very fortunate in that, but I think the commentary is the new award intake is matching with our expectations both in terms of what we did last year as well as in terms of what we were expecting during the -- during 2011.

So I think we are sticking very close to what we have anticipated as far as new order intake that provides those earning streams as we go throughout the out years.

Relative to Brazil, we are still looking very keenly at that. That's a very difficult market to compete in relative to infrastructure simply because of the competitors that are there and some of the Brazilian practices.

We have an ability to work there. We've done it in the past and we've just got to make sure that we do it on a measured basis. Again going back to our risk processes, and make sure we know exactly how we're going to make money there before we really take a big step there.

Thank you.

Joe Ritchie, Goldman Sachs.

Good morning, everyone. Just a couple quick questions. On the two projects that you are taking charges on, could you remind us again your percentage completion on each of the projects?

On Greater Gabbard, we are 72% complete and on McDonagh, we are about 62%.

Okay, great, and then just focusing on Gabbard for one second, on the subcontractor that defaulted, could you just kind of walk us through the process of finding a new subcontractor and what is embedded into your expectations both from a timing and I think you mentioned higher rates? That would be helpful.

Well, I think in our going forward estimate, we clearly have lost schedule time. So there's an issue of timing of installation that matched with our original plan. So there is additional scheduled requirement because we've got to get new ships. We have gone out and we have preliminary pricing on the other marine assets that we're going to need, and that is embedded in the plan and estimate to go forward.

Okay, and I guess one last question on backlog. I don't think you've mentioned this, but are you expecting backlog to grow in 2011?

Oh, absolutely.

Okay, then any specific large projects that you can talk about would be helpful? Thanks.

I wouldn't really specifically talk about any large projects. Obviously we are in competition for several of them. But I think as I've said, it's going to be lumpy as we go quarter-over-quarter, but I clearly believe that we will end with a higher backlog in '11 than we ended in '10.

Okay, thanks for answering my questions.

Robert Connors, Stifel Nicolaus.

Just real quick, a few questions. If you were to look at the oil and gas FEED activity you are working on now relative to 12 to 18 months ago that is just now turning into EPCM, would you be able to quantify or throw some color comparing the two levels of FEED activity?

Well, it's certainly much higher than it was a year ago and probably not as high as it was when we think back to '06, '07. It's very robust, though. It's primarily on the upstream oil and gas, upstream oil and gas side, but we are seeing a fair amount of smaller projects, as I mentioned, in the downstream market. Again, it's revamps, upgrades, it's cleaning up some of the gasoline markets around the globe to some of the newer fuel specs. So for the rest of the world to catch up with the West, there's a lot of spend there in improving the gasoline qualities and lowering the emissions. So I'd say it's pretty robust right now and growing, frankly.

Okay, and then just real quick on your comments on the downstream side, could we possibly see Fluor reenter some geographies or countries where you had participated in the recent past due to just some recent comments coming out of the regions of programs to go forward on the downstream refining side?

Well, you know, I'd answer it two ways. One is I feel confident that we never really left some of these key regions. We may not have been as active as in the past, but again, I look at the geographic diversity of our Company and it plays very well for being able to go to these places and strengthen our capability again.

But as I've said in refining, it's going to be in places like in South America and Mexico. It's going to be in Asia as well as in the Middle East. But I wouldn't ignore the US. There is still projects out there in the US and we are still as positioned here in the refining sector as anyone.

Then just real quick, if I were to look at oil and gas's backlog per employee level entering -- going into 2011, it's basically the highest it's been in five years. I understand that as the market is just starting to turn that a 6% margin in that segment within a year is a bit of a stretch because pricing hasn't really improved across the industry. But what is to keep Fluor from achieving, say, like a mid 5% margin within the segment just on increased utilization alone?

I have always stayed away from margin questions and I will stay away from margin questions going forward. But in general, I would say that we have reached as I said an inflection point. You can read that that is a utilization and a leverage position on our people, tools, and systems. So I do believe there's some economies of scales available to us as we get back to that high utilization rate, but I wouldn't give you an answer on the margin side, on what it would be.

Okay, thanks.

Avi Fisher, BMO Capital Markets.

Good morning. I think you are allowed to blame Alan for the first write down if you want to.

No, I wouldn't do that. This is a team sport and we are all in this together.

Okay, on the Greater Gabbard, I think Technip bought the subcontractor. Are you -- I guess I have a few questions around that. What does it mean that you have a large competitor entering the space? Do you see that as good or bad? Are you possibly working with them to continue to be the sub on that?

We've had conversations with them, but I don't think we came to any agreement relative to the existing assets. As far as them entering the market, I think that there is a lot of work in that market going forward. The question is how are we going to compete?

As I mentioned, it's safe to say that we won't use the same contracting mode that we have used previously.

Yes, can you --? In the future on one hand you're going to -- you may be competing with them. Can you joint venture with them and share risk going forward on future projects?

I think so. I think so. Technip is a great company. We have worked with them in many places around the world, have great respect for them. I see no reason why we couldn't partner going forward.

A few questions that have been asked, I'm just trying to get a little more clarity on it. When you think about industrial infrastructure, you got really solid margins excluding the charge and the burn rate on the backlog was lower than I expected. So was there any impact on flooding in Australia on the burn rates there?

No, I think one phenomenon that's there is the Windsor-Essex project where the success fee was part of 2010, but we burned zero revenue, progress revenue. So that might have a little bit to do with the disconnect you are speaking of.

So did you clarify how much or quantify what that fee was on that?

No.

And then thinking about it a little bit more deeply, you have on one hand some -- a lot of infrastructure work, a lot of industrial work. How do we think about the flow of the burn? I presume infrastructure's a lot more seasonal than the industrial and the mining.

Well, I think the flows are -- there's no real difference in the flows from our anticipated flows. We build in the portfolio nature of the business where you have the revenue flows on mining are reasonably synonymous with the oil and gas business. But we are all on a percent complete basis, and that predicts the revenue burn.

Probably the biggest variation is the timing of bringing in customer-furnished material. CFM from quarter to quarter could produce some variation.

Okay, hard to quibble with $2 billion in cash, but DSOs are up. Free cash flow is lagging net income. What could be done to improve the free cash flow generation relative to net income?

You are correct there. We've had some very positive events the last month or so bringing in some more cash. One of the areas that we continue to work on very aggressively is with the US government in Afghanistan. We do have quite a bit of funds tied up in both contract RIP as well as accounts receivable and that's just a fact, it's just challenging to work in that environment. Before you can invoice the government these days you have to have every i dotted and every t crossed and it takes us quite an effort to put together our invoices and get paid from the government, especially for LOGCAP.

So federal government is the biggest culprit there?

Right, we feel we have more working capital tied up with LOGCAP than any other program we have by far.

Two more just quick questions. You mentioned water infrastructure before. I'm curious what areas -- what your entry point is in that water infrastructure market and why?

Well, I'd separate it between municipal and industrial. We will not participate in the municipal side and we're looking very, very closely at the industrial side. We have great capabilities that are embedded in the projects that we have done in a lot of industries to give us that expertise and that capability on the industrial water side.

And is that sort of -- can you clarify, is that sort of the environmental regulatory work around energy side or is it desalination?

It wouldn't be desalinization necessarily. It would be on the environmental, the cleanup, basically the recycle of water usage as it relates to (multiple speakers) gas production.

Okay, then finally your tax rate guidance, should we think about that -- and this is a small question, but should we think about that before minority interests? What is the right way to calculate the minority?

That's a great question, because I would think about that after, at the bottom line. That's why the rate is lower, either 34 or 35. If you can do it before, you'd use a higher rate.

Okay, and then before, before I let you go, on the minority interest line as projects ramp in the oil and gas side and in the infrastructure side, should we expect minority interests to also grow?

It will probably grow in line with our revenue. I wouldn't think there would be any kind of growth that's disproportionate to the growth of the Company. Because that comes not just from oil and gas. It comes from some of our infrastructure projects and other markets in which we operate.

Got you. All right, thanks for your time.

Chase Jacobson, Sterne, Agee.

Just on the backlog risk profile, I don't think there are, but can you tell us if there is any projects in backlog that you would -- other than Greater Gabbard that you would consider first of a kind projects?

No, that would be it.

Okay, that's good. Then on the labor capacity, you mentioned 10% to 12% reduction since the peak in '08. How much do you think you could grow backlog before you had to add capacity to your workforce?

Well, that's going to be a moving number as we continue to grow. We are going to be bringing on new people as we go through '11 on a systematic standpoint like we always have. So I think there's not a lever point where we say we have to add X people. It's all based on new award backlog, anticipated backlog, and then frankly, the specialty types of resources that we need to attract or to attract business in a specific industry or in a specific region.

Okay, lastly with their continued lack of clarity on funding for infrastructure, can you just update us on the PPT activity?

I think it's been fairly strong and Windsor-Essex is a good example of that market continuing. We've got several projects out there that we are pursuing that hopefully will close as we go through '11 and into '12. So I see it continuing on a measured pace.

Given the funding issues in a lot of governments and municipalities and what have you, I think our business model is very well suited to the current environment. So I think we are very optimistic about that and that's combined with the fact that the capital markets are improving. There's access to credit these days -- gives us some optimism there.

Okay, thank you.

John Rogers, D. A. Davidson Investment Company.

Good morning. Just one quick question. In terms of the share buyback during the quarter, what was your average purchase price?

John, I don't have an exact number for you, but it was in the mid-50s, mid to maybe slightly upper 50s.

Okay, great. Everything else has been answered. Thank you.

Alex Rygiel, FBR Capital Markets.

Thanks. Good morning, gentlemen. David, you highlighted the dash to gas. I'm curious how quickly you think that could play out and what order of magnitude could that develop into over the next year or two?

Well that's -- sorry, go ahead.

Is that a project or two per quarter or a project or two per year?

I'd say right now it's probably a project or two per year and the reason I say that is there is still pending legislation on carbon. You've got the transport rule. You've got all these other things that are kind of out there. You've got the EPA doing what the EPA is doing.

So I think there's some question as to when that's going to take place. I do believe the fundamentals have changed quite dramatically given the price of gas as a fuel of choice. But as I've said, there's probably three or four that we're looking at right now that will really hinge on whether there is some ruling on air and water permits.

How does the dash to gas change your longer-term view on the nuclear market?

Well, I think the nuclear market, our view on the nuclear market is focused outside the United States. We don't think the fundamentals necessarily support a major built out or the nuclear renaissance in the United States that I think we thought was there a couple years back. So we are continuing to position with the international market. We are continuing to position with some of the technology suppliers on the new technologies as well as on the small modular reactors.

Lastly, as it relates to the Exxon work in Iraq, can you quantify the size of the booking in the fourth quarter and how often that could be reoccurring?

That was a very, very modest booking. That project is going to be booked incrementally over time, so we expect that to happen throughout the next year or so.

I think it's going to range from $0.5 billion to $1 billion year-over-year for the foreseeable future.

And that may happen in multiple quarters throughout '11. It may be more of a book and burn project as opposed to one large project going into backlog.

Perfect, thank you very much.

Martin Malloy, Johnson Rice.

Good morning. Could you talk about the prospect list and any changes that you would like to highlight in the last six months in terms of types of projects that you are seeing?

You know, as I've signaled, I think what we've seen different is a lot more FEED work, which bodes well for the out years when they get into EPC. We are seeing not quite the level we saw in the boom in '06 and '07 on FEED, but clearly it's pretty healthy and it's pretty much across the board.

But I think one of the differences is that we are much more diverse and we're much stronger in some other markets and not necessarily as reliant on one single market to maintain a growth curve. In days gone by, a decade ago if E&C had had the kind of percentage drop, it would have been a pretty material action. Because of the diversity in the mining business, the infrastructure business, the LOGCAP business, we have continued to stay flat and/or grow in what is probably the worst financial market since the Great Depression. I just think that's a great testament to the strength and diversity of our Company.

Okay, and on the Greater Gabbard project, could you talk about the availability of vessels, the specialized vessels that would be needed to replace the Subocean vessels? Are there a large number of those type of vessels out there that are available or is it a relatively finite group?

It's a relatively finite group, and that's why I showed the picture on the slide to show the complexity and the size of some of these ships.

With regard to the jackup rigs, we do have those committed and in the case of Subocean, they are a little bit more available, but again, it's a tight market. There's a lot of wind projects going on in that part of the world and it is a little bit tight.

But as I've said, we have gotten bids on all the vessels, so we understand what the additional pricing is and we are tightening up on what the availability is and making sure that we've got those assets committed for this year.

Thank you.

Chris Wiggins, Oppenheimer.

Good afternoon. Thanks for fitting me in. Just a real quick one. Most of my questions have been answered, but revisiting the share repurchase, last quarter I think you were talking -- it seemed more aggressive as far as talking about heavily frontloading it versus this quarter kind of mentioning being opportunistic. I'm just curious if there's any change that I should be reading into on your willingness to be buying back here?

No, there really isn't. We are going to be opportunistic as we go through the year.

And should we still expect it to be heavily front-end loaded?

Mike Steuert I'm not -- I think it's probably going to be the more evenly spread throughout the year.

Okay. Thank you.

Thank you. This concludes today's question-and-answer session. I would like to turn the conference back over to Mr. David Seaton for any closing or additional remarks.

Thank you, operator, and I really appreciate everyone's participation in this call today. We may have sounded a little frustrated I think is a good term relative to Greater Gabbard and the disappointment that our organization has in those results. But I'd like to point everybody back to the fact that Fluor had an extremely strong year in new awards which surpassed the Company's previous record and we drove our backlog back to a point that's almost at record, just under $35 billion.

We are positioned and strong in every market and region that we choose to participate in and I feel very bullish about the opportunities that are in front of us.

But I also have to say that I feel very privileged to take the helm at Fluor at this time with the robust backlog we have and the prospects that are in front of us.

I greatly appreciate your interest in Fluor and for your confidence in our Company. I hope everyone has a great day.

This concludes today's conference. Thank you for your participation.