Fluor Corp (FLR) 2011 Q3 法說會逐字稿

Good afternoon ladies and gentlemen. Welcome to the Fluor Corporation third quarter 2011 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 will be available at approximately 8 PM Eastern time today, accessible on Fluor's website at www.fluor.com. The Web replay will be available for 30 days. A telephone replay will also be available through 8.30 PM Eastern time on November 9 at the following telephone number, 888-203-1112. The passcode of 593-1473 will be required. At this time for opening remarks, I would like to turn the conference over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Good afternoon and welcome to Fluor's third quarter 2011 conference call. With us today are David Seaton, Fluor's Chief Executive Officer and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market close. We have posted a slide presentation on our website which we will reference while making prepared remarks today. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements which is summarized on slide 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, and there is an inherent risk that actual results and experience could differ materially.

You can find a discussion of those risk factors in our 10-K which was filed on February 23, 2011, and in our Form 10-Q filed on August 4, 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'll turn the call over to David Seaton, Fluor's Chief Executive Officer. David?

Thanks, Ken. Good afternoon everyone and thank you for joining us here today. Before I get started, I'd like to briefly comment on the tragedy that we experienced over last weekend in Afghanistan. As you may have read, last Saturday in Kabul, a convoy transporting NATO military personnel and civilian contractors was attacked. A suicide car bomb with over 1,500 pounds of explosives struck an armored carrier within this convoy. Regrettably, 13 people lost their lives in this attack including 7 Fluor LOGCAP employees. This is a very difficult time and we would like to express our thoughts and prayers for the families and friends of those who lost their lives in this tragic, tragic event.

Getting onto the regular presentation, I'd like for, to turn to slide number 3 and talk a little bit about our financial results. I want to start by covering some of the highlights of the third quarter. Consolidated revenue in the third quarter totaled $6 billion which represents a 10% increase over third quarter of 2010. Net earnings attributable to Fluor in the quarter were $135 million or $0.78 per diluted share. Our segment profit totaled $236 million including a $38 million pre-tax charge for additional cost associated with the Greater Gabbard Project mainly associated with the installation of subsea cabling. As you know, challenges in the cable installation process have been largely caused by the bankruptcy of a critical subcontractor back in January. This forced the project to secure alternative vessels and a cable [burial] equipment. The project is progressing and is now approximately 90% complete. Importantly, turbines are generating power that is flowing into the grid and we expect to be substantially complete the overall project in early 2012.

Moving back to our results for the third quarter, our strong market position has once again enabled us to book substantial new work and grow our backlog to a new record. This third quarter new awards totaled $6.7 billion, including a good mix across a diverse portfolio. As a result, of our strong bookings in the quarter, our backlog grew by $1.5 billion to a new high of $41.8 billion.

Now if you would turn to slide 4. The Oil & Gas segment had new awards of $1.6 billion in the third quarter including an upstream award for a topside facility, an offshore platform in Canada and additional scope on a large petrochemical project in the Middle East. Ending backlog for Oil & Gas segment is $14.6 billion. We continue to work on numerous funding programs, several of which have recently been announced. Our Fluor Offshore Solutions unit was awarded the front-end design and engineering, or FEED contract by Abu Dhabi Marine Operating Company for a new offshore facility located at the Nasr Field off the coast of Abu Dhabi. The Nasr Full Field Development Project includes 7 wellhead towers, and facilities including gas processing and oil separation, a utilities platform as well as living quarters. It also includes infield subsea pipelines and export pipelines. This is Fluor's third major offshore FEED within the last year for this very important customer.

The Downstream Group was awarded a contract by North West Redwater Partnership to provide FEED services for a new refinery in Alberta, Canada. Fluor will be responsible for 2 of the 4 process units for this large refinery complex that will upgrade oil sands Bitumen and we expect to secure the EPC contracts after the completion of the FEED phase. I also want to point out that during the quarter, we made an investment in a leading sulfur recovery technology with the acquisition of Goar, Allison & Associates. This acquisition further strengthens our Sulfur Group with the addition of 2 patented technologies, 1 of which is a unique sulfur degassing process that has become the technology of choice for many of our customers -- excuse me.

Turning to Industrial Infrastructure, the group had another great quarter with new awards of $2.8 billion, the largest award in the quarter was processing facilities for new mining -- their Congo project in Peru, and a self-performing EPC contract within our infrastructure segment in earthworks activities at the same site. The segment's backlog rose to $22.3 billion, which is a 29% increase over last year. The Mining and Metals business line continues to work on a lengthy list of FEED contracts and while recent volatility in metal prices has caused some uncertainty in the market, there is no evidence there are mining clients (technical difficulty) have slowed their capital investment plans.

Moving to Government segment, the group booked $1.7 billion in new awards during the third quarter including the annual funding of both the Portsmouth and Savannah River contracts for the Department of Energy, and an increase in funding for LOGCAP IV task orders in Afghanistan. Ending backlog rose to $1.8 billion which is up from a $1 billion a year ago. The group continues to perform very well, as evidenced by the 24% increase in the segment's profit from a year ago. Global Services operations & maintenance business line booked $302 million in new maintenance contracts and renewals of existing long-term contracts.

Solid profit contribution from the equipment and the temporary staffing business line helps this segment grow profits by 11% over the third quarter of 2010. Although market conditions continue to be very weak, the Power segment had new awards of $470 million in the quarter including a major environmental compliance program for Luminant here in Texas. During the quarter, we also announced the award of the engineering procurement and construction contract for a new 540 megawatt combined cycle fired gas-fired project in Texas. Once the client receives its final EPA permit, we expect to receive full notice to proceed and we will take the project in the backlog at that time.

Please turn to slide 5. Last month, we announced that we had become the major -- majority investor in the NuScale Power small marginal reactor technology company. This company expects to invest approximately 30 -- we expect to invest approximately $30 million during 2011. This move acknowledges our belief that small modular reactors, or SMRs, will be a commercially viable alternative for the next generation of nuclear energy deployment. We are very excited to be part of that. In addition to making an investment in the company NuScale, Fluor secured exclusive rights to provide engineering construction services for the future NuScale SMR facilities that are installed. We also recently announced the formation of a project to specific consortium with GE Hitachi nuclear energy as an engineering procurement and construction partner to pursue the nuclear new build projects in Poland. As you may remember, we have quite a presence there with the office in Gliwice. Poland's power utility is expected to complete its vendor selection in mid-2013 and has targeted 2020 as the commercial date of operation for its first nuclear power plant.

In summary, Fluor had another strong quarter of new bookings which has resulted in a six consecutive quarter of backlog growth. We continue to be very positive about our prospects for growing in the out-years. While there are continuing concerns about the global macroeconomic environment that we live in, we have not seen any material change in our clients' capital spending outlook up to this point. Now I'd like to turn it over to Mike to review some of the details of our operating performance in the corporate financial metrics as well as our financial outlook for the balance of this year and our initial guidance for 2012. Mike?

Thank you, David and good afternoon. The detailed results for each operating segment can be found in the earnings release and in the 10-Q. My comments today will focus on a few highlights and corporate items. Please turn to slide 6 of the presentation. As David mentioned, Fluor's consolidated backlog increased to a record $41.8 billion at the end of the quarter. The percentage of fixed price contracts in overall backlog was reduced to 14% from 24% last quarter. The main driver of this change from the prior quarter was the result of a client on the Gladstone LNG Project in Australia electing to convert that contract from fixed price to cost-plus. Secondarily, a great majority of our new awards in the quarter were from cost-plus contracts. Backlog for projects outside the US now stands at 80%.

Now moving onto corporate items on slide 7. G&A expense for the quarter was $37 million which compares with $40 million a year ago. The effective tax rate for the quarter was 30%. Let me shift to the balance sheet. The consolidated cash and marketable securities balance totaled $2.8 billion at quarter end, up from $2.5 billion a year ago. We repurchased a total of 4.2 million shares during the quarter for $241 million which completed the Company's previously announced share repurchase program. As we announced today, the Company authorized a new 12 million share repurchase program. During the quarter, we also paid $22 million in dividends; capital expenditures for the quarter were $79 million which compares with $88 million a year ago.

And late in the third quarter, the Company completed a very attractively priced $500 million offering of tenure unsecured notes to be used for general corporate purposes and to enhance our cash balance in the United States. Overall, Fluor's financial condition remains robust and we are very well-positioned to fund the growth that we expect to see ahead of us. Finally, let me conclude my comments by talking about our guidance for the remainder of 2011 and for 2012 which is shown on slide 8. The Company's guidance for 2011 EPS has been narrowed to a range of $3.20 or $3.40 per share, reflecting the strength of our recent operating results.

Looking ahead to 2012, the Company expects varying levels of profit growth for all business segments except Power which continues to experience particularly weak market conditions. The Company is establishing its initial guidance for 2012 at a range of $3.40 to $3.80 per share. This range includes an estimated $0.15 to $0.25 per share impact for the continued funding and operations of the Company's recently announced investment in NuScale Power. Going forward, beginning of the fourth quarter, Fluor's share of NuScale's results will flow through as an operating expense in the Power segment.

In 2012, the Company expects robust revenue growth due in part to growing Client Furnished Materials, or CFM, which may put pressure on margins. Our focus will continue to be on growing net income and earnings per share on an absolute basis. In addition, our guidance for 2012 assumes G&A expense will be in the range of $170 million to $190 million, capital expenditures of $250 million to $300 million(Sic-see presentation slides) and effective tax rate of 32% to 35%. Operator, with that, we are ready to take questions.

(Operator Instructions) Jamie Cook, Credit Suisse.

Good morning, a couple of questions, first on guidance and then on NuScale. First, Mike, on guidance, the share repurchase you announced, just -- is that included in your 2012 outlook? And then if we adjust for NuScale, your guide implies, what, $3.60 to $4 if we just want to do an apples-to-apples comparison, I'm just trying to figure out why the guide is so low? If Gabbard is running off, you had $0.16 -- $0.13 in charges this quarter which we had back, we look at our backlog today relative to where we were last year, you're up like 56%, so I'm just and again, this is ex-NuScale, just so -- it implies like 8%. If we take the midpoint, it implies like 8% EPS growth so I'm trying to figure out why the guide is so conservative. Are there other problem projects? Is that conservatism? Is it margins? And then my second question with regards to NuScale, I guess, what's the risk that this investment becomes even more and over what time period do you expect to earn a profit on this business? Like how long before this investment pays off? And with that, I'll get back in queue.

Okay. To answer your first question, no, the share repurchase program we announced today is really not reflected in our guidance for next year --

Okay.

In terms of impact. I'll start but I'll let David also help on the earnings guide. It does not reflect any issues or problem projects out there that are on the horizon for us.

Okay.

It's -- obviously, the range is fairly consistent with the range that we have given in terms of the width of the range that we've given in prior years, but it does reflect a fairly high level of global uncertainty at this point. It also reflects this is early November of 2011, so we have a ways to go to get to 2012. We normally do adjust our ranges as we go through there that there's clearly some uncertainty being this far away. So I wouldn't be concerned about that.

But there is not a margin issue or there is not an issue where you have stuff in backlog that you don't expect to move forward to that the burn rate for 2012 is unusually low?

No, in fact my comments, I tried to make the comment that I think our burn rate is going to be fairly robust in 2012. But we do have a slightly different business mix; Mining is still very strong, and Oil & Gas side, we have an awful lot of upstream activity and we're seeing increasing amount of some offshore activity. That has a lot of CFM in it though I think we'll see margin pressures, not because of anything in terms of project issues, but it's more of a mix issue and a reflection of the fact that we did have substantial CFM.

Yes, it still implies single-digit EPS growth. I don't know. So it's Mike being Mike? (laughter)

I don't about that, Jamie.

Well, all right, so Mike -- so David, sorry, I don't know if you want to comment. And then just the expected payoff on NuScale. I think some investors think the investment is a little high and over what time period do we see actually this thing pay off?

Yes, and I think Mike hit it on the head relative to our guidance. I'm pretty bullish on what we've got in backlog; there is nothing in backlog that we are concerned about being removed or slowed. We're at that inflection point that we've been talking about for a couple of quarters relative to E&C's earnings were several major projects that have yet to be booked into that backlog. But we clearly see Energy & Chemicals growing as we move into next year. You know what? I don't know if it's Mike being conservative or me being conservative. I think the range, as Mike said, is consistent with what we have done before and there is a drag because of the expense of the NuScale investment. On NuScale and specifically on that market, I think that the small modular reactor market has the potential to be huge. I think when you think of [Fukujima] and the older technologies, and then you look at security issues and otherwise, I think the market for this size reactor in series is part of the wave of the future. I really believe in this piece of the market. We're looking at it on a year-on-year basis.

We were able to take this stake at a very low cost and we will continue to invest in it as we go through the years. We are looking at completing the CDC, or the design license, sometime between now and 2014 and we will be prudent in how we manage that investment. Obviously, we believe that we helped this company attract other investors and our expectation is to bring them in as part of this program which should limit the amount of expense we have to put in until we see profitability being returned. But I think the overall investment will be very positive to the Company in the out years and the ability to do the Engineering & Construction on these around the globe is a position that we're very happy with.

Yuri Lynk, Canaccord Genuity.

Just to follow-up on Jamie's question on the guidance. I guess it was a little bit more surprising if one considers the I&I margins if you strip out the loss, were still well north of 4% in the quarter and they've been there all year. So, what can we -- are you still guiding towards lower margins in the I&I segment as the mining work starts to flow through and when can we expect that to start to hit?

Well, we're in the stage of many of those projects where we are transitioning to the construction phase of that project. And that's also the time when the CFM kicks up. So you got a little bit of a double whammy there where we're transitioning and we're not going to make the same dollars associated with the projects at that stage as it relates to the increase in CFM.

Okay, understood. And on the Oil & Gas side, margins have been pretty steady there. What can we expect in 2012 from some of the newer work that you've booked in terms of a margin impact? Is it more or less the same or should we start to see a tick up there?

I think we should see a marginal tick up as we get into next year in the E&C margin.

Andy Kaplowitz, Barclays Capital.

How are you doing guys? I've been called worse. (laughter)

Andy, how are you doing?

Good. So the I&I business, revenue ramp is hard to predict, I know, but I&I is up over 50% year-over-year in backlog and revenue is up 10% or a little bit more. So, I'm trying to figure out when the ramp-up, the bigger ramp-up is really going to start. Are we on the cusp of a bigger ramp-up? Is it just very hard to predict? Can you talk about some of these mining projects and when they are really going to move?

Well, Andy, they are moving. I think we will see ramp-up certainly through the first half of 2012, you'll see it on a quarter-by-quarter basis, you'll see revenue ramp up in I&I. I believe we've also seen some of that, a little bit of that this year, but certainly not to the extent that, that backlog is from.

Okay, that's good -- (multiple speakers)

Also, Andy, you also have more projects coming into that backlog and I would comment that the duration of many of these projects are longer than we've experienced in the mining sector before. So it's going to ramp up and it's going to stay up, I think for some time.

Okay, that's fair, David. So, the [bear thesis] on Fluor, at least one of them is that backlog has peaked, and there is nothing more to go here on backlog, so how do you feel about the $40-plus billion of backlog that you have now for the next year? Your conviction level around more mining prospects coming and keeping that I&I backlog flat to up and Oil & Gas growing from here?

Well, I think we're going to continue to grow. I think it's going to be and we'll invoke that word that we've always used, about being lumpy. I think it's going to come up and it's going to go down a little bit as we go through the next few quarters but when you look at the prospects that we are pursuing, the prospects that we know we're going to get but we have not yet put into backlog, I think allows us to grow backlog as we get towards the end of next year. The prospect list is very robust but it's a change. I mean, you look at us [and] 80% of our businesses is outside of the United States. That's obviously a historic high for us. I don't see that changing anytime soon and I think our diversity of market and geography is really starting to pay dividends. I'm really bullish on our ability to grow this thing beyond the $40 billion. But I'd only caution with that lumpiness word, that there will probably be some quarters where our backlog will be reduced from the highs, just to return there or above in the out-quarters.

Scott Levine, JPMorgan.

So you just indicated that you don't see anything changing with regard to the bias toward international but you have had a couple of announcements here and there in the US including couple of potential ones here with Power coming back. So I mean, I guess I would ask are you at all incrementally optimistic that parts of that business start to come back over the next year versus maybe 6 months to 12 months ago and which businesses do you see emerging first as growth drivers within the US if and when that market ever comes back for you?

Yes, I don't want to be too pessimistic about the United States. I think that you've got a seen the press like I do and I wish it was this November we would have the election, not to give you any opinion on where I stand politically, but I just don't think many people have the courage to make a lot of decisions before that election. I wish it was already over. I believe that Power will continue to be a major segment for us in the United States. You think about what they have been able to deliver over the last couple of years from an earnings perspective; that will return. I believe that once the EPA starts to permit some of these gas programs that are waiting, I mean there's probably 2 projects or 3 projects right now that we've won in the Power segment but they're waiting on their permits. So I think that, that market is very important to us. We have a great position in it and that is regardless of the fuel source.

I think another piece of that particular market is the environmental compliance programs that are coming. You saw where we announced the Luminant Program; that is the first of quite a few projects in that particular segment of Power. So we're -- I'm pretty bullish about the out years. I think they are at a point right now where they are finishing many projects and [taking] up those earnings and I think we're going to start to see our backlog improve in Power as we get towards the middle of next year. I think another market that will provide work for us is a historic market for us and that is in the Petrochemical & Chemical market. There's several programs that customers are looking at to take advantage of the gas play.

We are positioned for several of them. But I think there is also a fair amount of upgrading that is going to take place in the existing facilities because they have been starved of capital over the last decade where the investments have primarily been outside of the United States. I still believe that we're one of the preeminent players in Infrastructure as it relates to the public-private partnership approach to that market. So, I feel that those are just 3 that I think will help us grow, but we're not going to wait on it. That's why we've been so aggressive in looking outside of the United States and changing the mix of our projects.

That certainly makes sense and then maybe as my follow-up there, could you comment on circumstances regarding the conversion of the Gladstone contract to cost-plus? What motivated that and maybe your comfort level around executing additional work in Australia?

I'm very bullish about Australia and our ability to execute under any contract mode. That specific contract, I mean, that was the whole idea of converting to reimbursable was always an option in that contract. We got to a point where the customer just felt more comfortable with a reimbursable approach and we were eager to accommodate them within the confines of that contract. So, it derisks the project for us, which I like. But there was nothing significant that forced us into that position. But Australia is a great place for us, whether it's Oil & Gas, Mining, and I think, Infrastructure has some opportunities down there as well.

Tahira Afzal, KeyBanc.

First of all, I just wanted congratulate you on NuScale. I think you bought a great technology and I probably concur that maybe I'm the only other fool who thinks that SMRs are going to be the future as well. But I guess, would like some color on, as you look at the opportunity going forward, how would you break it down up into international versus the US, especially with coal [retirements] coming up over the next several years in the US? And as you look at the international portion of it, what are your assumptions about export licenses for some of the components that you might be acquiring to export?

On the latter part, I'm not sure. That's a little premature to answer that question. I think that when you look, as you said, the coal retirements, but I also think that did you have some older nuclear plants in the fleet here in the United States, that will be coming up for operating permit renewals. And I think in some cases, they may be constrained in how well they can do that. Those are huge power loads that will come off the system. And I think this is an example of one of the technologies that will be employed to replace those megawatts both on, like I said, the nuclear business but also on coal. I think that -- and the business plan that NuScale have, looks at the United States first. I think that most of the world is looking for the NRC stamp of approval which is why we're focused on that design certification. My guess is that you will see the first units deployed here in the United States.

But then I believe that it will very quickly become something that is used on more of a global scale than in the United States. So I think all in all, in the out years, I see more outside the United States than I do inside the United States. The design of this facility is -- the safety, it's completely passive. You don't have the same situation that you would have that we experienced at Fukujima and so I think it's going to start in the States and will replace some of those megawatts, but I also think there is a security aspect to it. When you think of some of the key installations around the United States, whether it's the New York Stock Exchange, or whether it's a military installation, I think there is great applicability for that. And I think that is where it will first be deployed.

That's pretty interesting, actually. I guess my second question is in regards to the opportunity on the chemicals side that you talked about earlier on. Obviously, the [shales] in the US have provided an interesting opportunity for bailout in the US. As you look at that opportunity for you, do you feel that you are disadvantaged to some degree not having a cracker technology of your own? Or do you feel that the successes you've had internationally, you can replicate them here without a cracker technology?

Well, I don't think we need a cracker technology to be successful. We made a concerted decision several years ago to remain agnostic in that market and I think that actually gives us an advantage over companies that do have those technologies. Because when you look at many of these programs, the upgrade of the cracker itself is only a small component of the total. And we have the ability and the experience to do the entire facility where maybe some of the other competitors do not. It's a market that we've worked in forever and we are quite comfortable in being able to compete in those markets.

Will Gabrielski, Lazard Capital Markets.

Hi, so I wanted to follow up on that. I was going to ask about technology also and maybe press you a little bit on that answer, but in term -- obviously buying NuScale as a technology acquisition, you talked about some other technology acquisitions in the quarter. And then going forward, I guess, maybe historically, technology hasn't been as important. Any reason to think that might change going forward? And if you look at how companies like KBR or CBI position their technology platforms, do you view any new risks associated with not having a technology?

No, I think we're just being selective. When you look at Goar, Allison and the technologies there, it completes our sulfur plant expertise and when you think about any of the Oil & Gas that's being explored and extracted now, there's a high sulfur content. So it's market leading us to have that full capability to deal with those fuels. I don't see -- I mean I think that this is 2 examples where we're going to look to take a position in a technology to secure a market position. But I don't think we're disadvantaged by not -- it's just like cracker technologies, it's interesting, but our customers, frankly, have commoditized that market.

We want to be sure that we are only buying technologies that create a position for us in something that is a longer-term play than what we have seen than some of the other technologies. I don't want to signal that all of a sudden, Fluor is going to be this big technology-driven company and the R&D associated with supporting that. But we are going to be selective and look for acquisition opportunities that may or may not house a technology position or patent of some sort, but clearly, when they are opportunistic like Goar, Allison was and like NuScale, I think you will see us be opportunistic there.

Okay, I'm curious on the Oil & Gas margin, if you could drill down a little bit more this quarter and then your visibility on 2012 and maybe how far away you are from a crossover point in revenues where you're absorbing fixed costs and it will be consistently back over 4%?

Well, I think as we get into next year there's a couple of comments I will make associated with that. One is, when you look at the current backlog, we haven't had the sizable piece of that being in the refining sector. Although, as you saw in our release, and in our comments, prepared comments here, about the refinery in Canada, it's a market that clearly is starting to come back and we will participate in it. And the significance in that is that, that particular piece of the market has a higher engineering content than say, an upstream project. I think petrochemicals are pretty consistent with the refining sector. So we're starting to see petrochemicals come back, we're starting to see some of the refining programs come back, but right now we're sitting with majority of our backlog being upstream.

So, from a margin percentage basis, it might look lower, but from a profit dollars perspective, we are quite happy. As we get into next year and into '13, I think you're going to see a lot more Petrochemical & Refining in our backlog and we will start to see the leverage result. I think that we experienced when we were in the height of the boom, one in '08 -- '07 '08 timeframe. So, I think we're at the bottom. The projects that we are bringing in are not margin challenged the way we look at it. We are not necessarily buying backlog. We are absolutely looking for profitable backlog to put in and I think that within the E&C sector, you will start to see improvement as we get into next year.

Richard Paget, WJB Capital.

The new award level in government services was the highest in awhile. And I know it's -- part of it is the annual [re-up] of Portsmouth and Savannah and you had some LOGCAP task orders in there, but did you get the sense that maybe some of this is agency spending before austerity measures really kick in, in a spend it or lose it type scenario? What early indications are you guys getting of your particular programs and what they might look over the next couple of years?

Absolutely not, on the first question. The significance in the LOGCAP is the US government changed their authorization process or at least caught up so it was almost like a double-dip for us in LOGCAP this quarter which grew the backlog and as you can appreciate, in that business, it is a [book and burn] business. So I do not, in any form or fashion, believe that the government spending to use it or lose it. We are not seeing, even with the rhetoric you see in the newspaper, a plan to reduce the number of heads in Iraq or Afghanistan. And what I mean by that is, we're basically charged with the [quarantine] of the troops and the associated NATO forces.

And it's about numbers of heads, not what that head looks like. So a warfighter eats the same food, gets the same laundry service and everything else, the same number of beds that we provide and that may change to more of a policing and nation-building activity. So, from that standpoint, we don't have any indication that any time soon, you're going to see a dramatic decrease in the number of heads that are supporting those actions in Iraq and Afghanistan.

All right, and then David, you talked on the last call about some of the FEEDs that you were working on that could translate as much as $30 billion in back-end project. Has that number changed at all?

No, not really. I mean, some of them have gone in into backlog and they have been replaced by others. I still think, as I said, there is a robust prospect list, but there is also several FEEDs that we are doing in Oil & Gas and in Mining that will translate into major EPC awards as we get into next year. There's some very large programs we can't talk about right now that we already (technical issue) have that are awaiting a permit here or a decision by a customer there. But I see great growth opportunities based on the FEEDs that we are doing because those FEEDs I see going to EPC phase. They're not [dreams] being looked at, the arithmetic is marginal. All of these programs have good returns for our customers and they are very bullish on their spending habits.

Brian Konigsberg, Vertical Research.

Just coming back to awards in backlog, just focusing more on the Oil & Gas side. You had discussed a couple of the FEEDs that were expected to go to EPC and previously, you talked about potentially reaching record backlogs in the Oil & Gas segment by the end of 2012. I mean, from what you see today, do you still see that as a possibility?

I see it is a possibility, yes. I mean, I think that, that market is poised to really turn back to what we saw a couple of years ago. I don't know that I would categorize it as record backlogs within E&C but certainly, it will be a significant contributor to growing backlog for the Corporation.

Got you. And just shifting over to the Power segment, you saw a big step down in margins which I think you had anticipated previously. Just looking into 2012, are you anticipating that you'll remain at these levels going forward?

I think it won't be at the historic averages but I think it is going to improve as we get through next year. Understand that our expense on NuScale will flow through that segment. So, it's apples and oranges when you think about the ongoing EPC work that we are doing and then the investment that will flow through that segment.

Rob Norfleet, BB&T Capital Markets.

Just a couple of quick questions. One, David, could you just speak a little bit about the competition that you're seeing in markets? I mean, understanding that CFM [content] is impacting margins obviously in Oil & Gas right now, but does the work that you're booking currently in backlog, is that at a higher margin than what you're currently reporting now?

I'm not sure I'd want to answer that question, but I'd give you this. We are seeing improvements in a lot of the markets and we're greatly positioned, I think, in most of those. I think the whole margin issue is going to be lumpy as we go through the years. I do not -- I still see predatory pricing on the part of some of our competition and frankly, I'm quite happy to stay out of that [foray] and pick the projects where our value proposition is recognized and appreciated by our customers. And I think that will result in better margins as we go forward, particularly in E&C as well as Power.

Okay, and as it relates to NuScale, I mean, do you see any potential offsets to the annual R&D expenditure looking to [ascend] starting in 2012 and probably running into '13 and '14, such as, for instance, setting up of a first customer or obviously there's been discussion that there could be SMR R&D spending in the 2012 budget?

I think that what we have done is the $0.15 to $0.25, I think is the upper end; clearly it is a range. But I look for more investors in that organization including potentially federal funding that would reduce that EPS drag as we get into the latter part of next year and certainly into 2013.

Okay. And my last question is, are you seeing, obviously, with the size of the backlog given where it is now, any markets in terms of markets we serve in which there are any capacity constraints?

No, I don't see any capacity -- not on our side. I think what we've been able to do around the tools development that we have done, the training that we've done, our people development process, I really don't see any constraints in our ability to continue to grow.

Steven Fisher, UBS.

Just starting on NuScale. Can you just talk a little bit about how you see the customer development playing out? I know you said you see the US market developing first, but what visibility do you have to who the first customers might be for that product?

There is -- that's a long list. Frankly, I don't think I want to cover that here. But there are many customers that have expressed interest in this technology. Their trepidation was, was this technology going to be around for them? Most of them prefer this technology over others. They are enamored with size capabilities of this particular small modular reactor and we expect to have several of those customers, part of our program as we move into 2012 and 2013.

Okay, and then over to Mike, in terms of the cash and the buyback. Would you expect that buyback would only come from domestic cash. I know you talked about that in the context of doing a bond offering last quarter, and if so, then what would you plan to do with the cash that is outside the US?

That's a good question. Initially, it would be with domestic cash; we do have fairly aggressive program of bringing back dividends from outside the US and we'll continue to do that to repatriate the cash from outside the country as it makes sense. Also, the pace of our share buybacks throughout next year and subsequent years will also be a factor of how much cash flow we generate and as we generate more cash during various periods of time, we will look at using that to buy back shares.

Robert Connors, Stifel Nicolaus.

Dave, if I sit back here and just think about it and beat the Oil & Gas margin horse continually, (laughter) 2011, I think of as the year that FEED, as you said 2012 is going to be the year of procurement AKA CFM. So is it really like 2013 and beyond, I'm not asking for guidance, but when we start to see the fruits of your labor, when we start to recognize some contingency [fallback] and profit recognition from successful completion of projects?

Well, I will answer it this way. It -- I guess '11, I'm not sure I would categorize it as the year of FEED, because we still have a fair amount of EPC flowing through the books of Energy & Chemicals. But from a FEED -- the number of FEEDs felt like '06, '06, '07 and I think what we're finding is these programs continue to get larger. And these programs continue to have longer schedules than we have seen if you go back to the 2006 timeframe. So, I guess the way I would categorize it is we are going to continue to grow in that business quite dramatically, but I think there is a longer tail to it than what we have seen maybe when you look at the '06, '07 timeframe. So I think the earning streams will be longer.

And then for Mike, I mean the tax guidance on 2012, is there anything that would -- we need to see that would push you into the higher end because you've got about 80% of the backlog on an international basis. I'd think that we'd probably be more towards the lower end at 32% in 2012?

It's really just going to depend on our mix quarter-to- quarter and we do have a lot of little items that will impact that, plus or minus. We had a couple favorable items this quarter that drove us down to 30% tax rate. There's not -- no particular thing to look at that will drive us from one end of the range to the other.

Alex Rygiel, FBR.

Thank you. Mike, just expand on that last question as it relates to your EPS guidance for next year. Is it simply a function of your tax assumption of 32% to 35% that creates the range?

Alex, no, I mean, it's a lot of variables that create that range; it is not just tax. We do -- like we talked about, there is some uncertainty in the global markets. There's obviously variability, which we move forward on various projects. There's an awful lot of factors out there. It is still early on for us for 2012 guidance to have a precise number for the year. So it's just a reflection of where we are in the process, where we on the calendar and it -- there's just going to be a lot of moving parts in 2012.

Fair enough. And David, your fixed-price work as a percent of revenue in backlog has obviously been shrinking now for some time. Can you directionally help us to understand where that may fall out over the next one year to two years? Are you strategically moving away from fixed-price work or is it really just a function of your mix?

It's a function of the mix. We expect to probably increase the lump sum fixed-price component in the backlog, but it's not like it's going to flip. There -- we may get back up to the 30% to 35% range. When you start looking at some of the power programs that come in, those are all lump sum. Most of the infrastructure work that we do is fixed-price. In E&C, we've been successful in a couple of cases, recently, on smaller programs, but we're growing that capability and are quite comfortable in a lump sum environment But I think as you look out over the next couple of years, I don't think you're going to see dramatic swings in that mix.

Avi Fisher, BMO Capital Markets.

In the oil sands, you were talking about it before in the refining projects up there. With the narrowing sweet-and-sour spreads, I'm understanding that some of the big projects are going to be broken down into smaller phases. I wondered if you can comment on that and how that would impact your bookings and your contract pursuits there?

It doesn't impact what our plans are at all. As a matter of fact, when you look at the oil sands projects, the mining projects, we're continuing to see those programs move forward. I think there is maybe some that will be questioned from the marginal -- some of the marginal players. But, clearly, they've increased their production. They've got to put it somewhere. And so, the upgrading and refining work associated with that, I think, is only going to increase.

Another quick question; I didn't hear this earlier. The NuScale investment, are we going to have to see somewhere down the road a bigger capital investment for fabrication there?

Within NuScale, there will be, but it won't be funded by Fluor --

Got it. Okay.

By partners that we bring in.

Got you, and one last quick question, I just thought a note on Bloomberg about some disruptions at the Conga project in Peru. And I just wanted to get a sense, is this part -- what is the expected burn rate on that project and is disruption in mining projects part of the ebb and flow of mining projects?

It's part of the ebb and flow of mining projects. I can't think of a mining project that we've done in history or have planned that we don't expect some unrest. And it is just plowed into how we execute the project, how we protect the asset and how we protect our people. Unfortunately, it is just business as usual.

John Rogers, D.A. Davidson.

I just wanted to follow up as well on the mining side of it, how much is left out there in terms of project opportunities? I mean, it's -- you've had a pretty good roll here, and just given the state of commodity pricing and where we are, I mean, what you see out there in terms of planning and expectations?

Well, I think when the commodity -- we watch that pretty closely and when there is a drop like we saw over the last couple of months, we get a little nervous. But the teams went back to validate with our customers, what their plans were and in each case, there were no change in their view of continuing to grow. I think when you look at the growth patterns over the next, say, two decades, there is significant need for additional capacity in just about every mineral you can think of, including iron ore. I think you'll see and that is why I think you're going to see some of these bigger programs continue to go, because the bed is in the out years, it's not based on the commodities that necessarily -- the spot commodity markets.

In days gone by, a lot of them mining projects would just absolutely stop. We have not seen anything like that and I'm quite bullish as we go into next year and beyond that, you're going to continue to see us book significant mining projects. So with that, operator, I'd like to thank you for your help and thanks to all of the participants this afternoon, this evening. I think a couple of the key takeaways that I want to leave you with are that our prospects and markets remain significantly strong. We're actively engaged in positioning the Company for future growth and I think there is great opportunity for that as we go through 2012 and into 2013. And in that regard, we talked today about a few of our investments that we have made recently in technologies and I believe that contributes to that long-term view and the long-term success story that we're building here.

As we have mentioned during the call, our focus will continue to be on growing net income and earnings per share, with the midpoint of our guidance for 2012 equating to a year-over-year increase of 9%, with investments included in that. Our Company is extremely strong. Our backlog is at record-level cash; it's at record level and the market fundamentals, even though there is a little bit of nervousness from time to time, I think bode really well for our continued earnings growth and continued shareholder value creation. With that, again, I appreciate your interest in our Company as well as your confidence in our future. Everyone have a good day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may disconnect at this time.