Fluor Corp (FLR) 2012 Q3 法說會逐字稿

Good afternoon, and welcome to Fluor Corporation's third-quarter 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 in approximately 8.30 PM Eastern time today, accessible on Fluor's website at www.Fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 7.30 PM Eastern time on November 7, at the following telephone number, 888-203-1112. The passcode of 8348591 will be required. At this time, for opening remarks, I would like to turn the call over to Ken Lockwood, Vice President of Corporate Finance and Investor Relations. Please go ahead, Mr. Lockwood.

Thank you very much, operator, and welcome, everyone, to Fluor's third-quarter 2012 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer, and Biggs Porter, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed, and we have posted a slide presentation on our website, which we will reference while making our prepared remarks.

Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide 2 of the presentation. During today's call and slide presentation, we will be making forward-looking statements, which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of those risk factors in the Company's Form 10-K, which was filed on February 22, 2012, and in our 10-Q, which was filed earlier today.

During this call, we may discuss certain non-GAAP financial measures, and 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. So with that, I'd like to turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Ken, and good afternoon, and thank everyone for joining us. Today, we'll review our third-quarter results and discuss guidance for the balance of this year, as well as our initial guidance for 2013. Before we start, I know the storm has probably impacted many people on the phone quite a bit. Please know that you're in our thoughts and prayers, and hope for a speedy recovery, from what is a really, really terrible storm.

To start I'd like to start on slide 3 and start with the third quarter. Net earnings attributable to Fluor for the quarter were $145 million, or $0.86 per diluted share. Consolidated segment profit for the quarter was $278 million, which compares to $236 million a year ago. Our earnings results for the quarter were strong compared to last year, but they were impacted by a lower-than-expected award fee on the LOGCAP IV project, a higher than anticipated effective tax rate, and foreign currency losses based on the US dollar. Consolidated revenue for the quarter was $7.1 billion, which is an increase of 18% over the $6 billion we reported a year ago. Third-quarter new awards were sizeable at $6.3 billion. Awards were very broad-based, with $2 billion in oil and gas awards, $2 billion in government, $1.7 billion in industrial and infrastructure, and $581 million in power. Consolidated backlog declined for the quarter to just under $41 billion, due mainly to the removal of two mining projects, which totaled $2 billion.

Turning to slide 4. Oil and gas new awards for the quarter included a propane production facility for Dow Chemical in Texas, and a carbon capture and storage project for Shell in Canada. Following the successful feed project, Fluor was also awarded a contract for Phase III of the Malampaya Deep Water Gas-to-Power Project in the Philippines. The ending oil and gas backlog is now at $19.2 billion, and represents a 31% increase over last year. We see continued strength in that market, as evidenced by a very active front-end feed project slate that continues to track a number of new prospects across the oil and gas and petrochemical market globally. While we expect the natural gas prices in the US to remain attractive for petrochemical and other gas-related programs, the sluggish economy and an uncertain regulatory environment could delay our clients' investments and decision timeline.

The industrial infrastructure segment posted third-quarter new awards of $1.7 billion, including approximately $700 million for the I-95/395 managed toll lanes project in Virginia, and a blood fractionation project in Georgia. Backlog at the end of the quarter was $16.2 billion, which is down from about $19 billion last quarter. This decline was driven by the recent softness in the mining new awards, strong revenue burn on existing projects, and the removal of two significant projects from backlog, which we spoke of. As you have all been hearing, a number of mining companies are reducing their capital expenditures as a result of slowing demand for commodities. While the near-term prospect list is shorter than expected just a few months ago, we continue to view mining and metals as a significant long-term market in which Fluor will maintain its leadership position. Now switching to infrastructure business line, demand for transportation projects remain solid, and a number of bids have been submitted that could have a meaningful impact over the next several quarters. I have just a brief comment with respect to the Greater Gabbard project. Hearings on arbitration of our claims have been completed, and we're awaiting the decision of the arbitrators.

Please turn to slide 5. The government segment reported new awards of $2 billion, which compare to $1.7 billion last year. Bookings in the quarter included LOGCAP IV task orders, as well as annual funding amounts for our Department of Energy contracts at Savannah River and Portsmouth. Ending backlog for the government segment rose to $1.6 billion. As mentioned, the government group's operating results were significantly impacted by a lower-than-expected award piece score, which resulted in an adjustment of our fee assumption on the LOGCAP IV contract. While the ratings we received from the US Army were still very good, they were below our previous rating, and based on the contract, drove a disproportionate reduction in our award fee.

The government segment continues to focus on existing programs and expanding its portfolio of service-related work. During the quarter, the DOE exercised its option to extend our contract at the Savannah River site for an additional 38 months, which takes our contract through September of 2016. With regard to services work, the Fluor team has been selected by the US Army sustainment command to participate in the US Army's Eagle Logistics Program, which will allow us to compete for future task orders. Finally during October, the Department of Defense selected another Fluor JV to perform base operation support at the Rock Island Arsenal in Illinois, as well as six other locations in Illinois. This is exactly the kind of growth opportunity that the group has been targeting.

Global services segment booked $165 million of new awards. We took its ending backlog to $1.8 billion. They're pursuing a number of new long-term contracts with major industrial customers. The power segment booked $581 million in new awards in the quarter, including award for the Phase I of 175-megawatt solar photovoltaic energy facility in California. They also received a limited notice to proceed on Dominion Energy's combined cycle facility in Virginia, full notice to proceed is expected in the third quarter of 2013. Backlog improved to $2.1 billion from $1.1 billion a year ago. The power segment operating results included the costs associated with ongoing research, development, investment activities in NuScale. While we had initially expected a decision on the FOA funding before the election, it now it appears unlikely. We remain hopeful that the decision will be reached soon.

Before I turn the call over to Biggs, I wanted to cover a few strategic actions that we have recently undertaken. Please turn to slide 6. As we have discussed, we're keenly interested in expanding our vertically-integrated service offering, which we believe will be a key success factor in executing more construction projects on a direct basis. To this end we recently formed a joint venture with AG&P in the Philippines, which augments our capabilities in fabrication and modularization. In terms of regional expansion, AMECO, our equipment company, has acquired a company in Mozambique, which expands our footprint in Africa and positions Fluor's overall support opportunities in oil and gas segment and other markets in that rapidly-growing region. With that, I'll turn it over for now to Biggs to review some of the details of our operating performance, as well as the corporate financial metrics for the quarter. Biggs?

Thanks, David. Good afternoon, everyone. Please turn to slide 7 of the presentation. With regard to our earnings results for the quarter, I want to expand on David's earlier comments regarding unusual items. Late in the quarter we received our award fee score of the LOGCAP IV contract, which was slightly below our expectations that were established by our previous score. Based on the structure of the contract, a modestly lower score can dramatically effect our share of the available fee pool, so even though the reduction of the score was slight, the resulting impact in the third quarter was approximately $20 million or about $0.08 per share, the majority of which is a catch-up effect recorded in the quarter The second item I want to comment on is the impact of foreign exchange, which totaled just under $8 million in the third quarter or approximately $0.03 per share. Without getting overly granular, while the Company has both natural hedges and financial hedging instruments, movement in major currencies during the quarter can have impact on the income statement.

Moving to slide 8, Fluor's consolidated backlog was $40.8 billion, which is down from $43 billion last quarter. The percentage of fixed price contracts in our overall backlog was 14% at quarter end, a slight increase from the prior quarter, due to the booking of the I-95/395 road contract. As we expected, the geographic mix of the backlog is starting to shift, with US-based backlog now at 25% of the portfolio, which is up from 18% last quarter.

Moving to corporate items on slide 9, G&A expense for the quarter was $41 million, which was up from $37 million last year, mainly due to the effect of a higher share price on stock-based compensation expenses. The effective tax rate for the quarter was 35%, which was somewhat above our expectations for the quarter. The effective tax rate was impacted by the payment of additional foreign taxes from the settlement and audit, and a reassessment of certain tax exposures. For the full year, we continue to expect the tax rate to be in the low 30s.

Shifting to the balance sheet, the consolidated cash and marketable securities balance totaled $2.8 billion at quarter-end, which was up about $300 million over last quarter and even with a year ago. Cash provided by operating activities was a strong $429 million during the quarter. This positive result was driven by earnings sources as well as improvement in project working capital balances. Capital expenditures for the quarter were $68 million, which compares with $79 million a year ago. Most of our CapEx is directed toward the equipment business line and our global services segment. Through nine months, our CapEx is trending below last year. During the quarter, we repurchased over 600,000 shares for $31 million, and paid out $27 million for our quarterly dividend. Shares repurchased for the quarter were lower than planned, due to the timing of cash flow receipts versus our window for buying shares. We anticipate the share repurchases could increase in the fourth quarter as we look to buy shares on an opportunistic basis.

I will conclude my remarks by providing an update on our guidance for 2012 and 2013, which is on slide 10. We are raising the lower end of our EPS guidance for 2012 to a range of $3.60 to $3.80 per share, from the previous range of $3.50 to $3.80 per share. This new range includes a pre-tax gain of approximately $40 million related to the recently-completed sale of our interest in Citylink in the UK, which will be included in our fourth-quarter results. For 2013, we are establishing our initial EPS guidance at a range of $3.85 to $4.35 per share, reflecting potential for growth in all business segments except industrial and infrastructure, which is experiencing a slowing, and new mining and metals awards as commodity demand weakens. It also reflects a level of caution due to the economic and market uncertainties that we are seeing. Our guidance for 2013 assumes that G&A expense will be in the range of $160 million to $180 million and an effective tax rate of 32% to 35%. With that, Operator, we're ready to take questions.

(Operator Instructions)

We'll go first to Andy Kaplowitz with Barclays.

David, you talked about in the release and on the call about the uptick in oil and gas and how it may not fully benefit financials until 2014. Are you talking about backlog moving to the right potentially, or do we still expect a lot of these, or at least some of these oil and gas projects to be awarded next year, specifically in the US?

Well, I'm cautiously optimistic, Andy. I think when I look at where we are with our oil and gas business, I think we've turned the corner, and I really expect a pretty good ramp-up in project activity, both in terms of backlog and earnings. As I said in the prepared remarks, my question is, we've been working on lots of projects in the Gulf Coast, that hopefully, as we move into next year, they are going to the EPC phase of the project, but that assumes that you've got a supportive regulatory environment. I'm hedging my bet a little bit with regard to that. The economics of the projects look good. Our relationships with the customers and moving them from feed to EPC is very strong, so I feel I'm pretty bullish about oil and gas from a standpoint of backlog and earnings, but I think the real ramp-up is probably latter half of next year and then obviously into 2014 and beyond, but I really think we're in a really good place right now, looking at the future.

That makes sense. Let me stick with oil and gas and if I ask you about the margins, you know I'm going to ask you, they've ticked down a little bit sequentially. We knew they weren't really going to go up in the second half of the year, but you haven't done this kind of revenue for three years, and you've got pretty low margins, so is this just a mix issue again? And why isn't utilization helping at least a little bit here, and how confident are you still in the improvement in 2013?

I thought Jamie was on maternity leave? I'm kidding you, Andy.

I've got to rep for her.

I think it is a mix issue, and the leverage comment that you made is really attributable to when we go into the EPC phases of the projects. Even though I would say some of the feeds we are working on are as large of feeds we've ever worked on. So there will be some leveraging as we get into late next year, but that leverage calculation is really kind of a 2014 phenomenon, but I tell you, I'm pretty bullish right now on our oil and gas awards backlog and potential earnings.

Okay, that's helpful and Dave maybe just a clarification on the mining cancellations. Was the majority of it the Peru project, or was it kind of half and half between Peru and Australia?

Mostly Peru, probably two-thirds Peru and one-third Australia.

Okay, that's great. Thank you.

We'll take our next question from Tahira Afzal with KeyBanc.

I guess my first question is, as you look at your 2013 outlook range, on the bottom end, are you building in some incremental caution on mining projects that are in your backlog, or is your assumption that those will likely go ahead, and the incremental risk is more due to prospects versus what's in your backyard?

I think backlog is solid. I think we've been pretty conservative in how we put things in and how we take things out, so I don't think it's a backlog issue. I think it's the softness relative to new awards for the last few months of this year and into next year.

Okay, and the second question is in regards to the Tappan Zee bridge project and as we talked to the DOT, in recent years seems you have been singled out as the only team that is going to negotiate on the project. It's pretty significant project in many ways. Would you talk about what it means for Fluor in terms of reputation, as more of these alternate financing large projects go through, and really what it could mean in terms of capacity bottlenecks, as we start to see more of these projects ramp up in the US?

It wouldn't be appropriate for me to comment on Tappan Zee. It's in active procurement and I read the same things you read. I think from a market perspective overall, though, I think you see the reports on the aging infrastructure in the United States. I think that projects like San Francisco Bay Bridge, the Denver Light Rail, projects in Virginia, and I think we've built up a really good resume that puts us in a leadership position to capture a fair share of that infrastructure rebuild or new build, so I think the guys have done a really good job to position for the future, and I think we'll be a major player in those projects going forward.

I have one last question, and I'll hop back in the queue, and that was NuScale. Clearly the DOE funding seems to be a little slow in coming out. Any updates over there would be appreciated. Thanks a lot.

To be politically correct, or lack thereof, I think it's held up in the normal bureaucracy that we see relative to the FOA. We're still continuing with our investments and the technology that we believe in for the future, and we're going to invest in a prudent manner based on a schedule that makes sense, and when we have delays in FOAs and things like that we just continue on and make sure that we're being prudent in the investment that we make.

Thank you very much, David.

We'll go to George O'Leary of Tudor Pickering.

First question, with the industrial infrastructure segment, and kind of recent incremental weakness in the mining sector, has your posture changed at all in terms of infrastructure projects beginning to offset that potential weakness in the mining segment? Can you talk about that, even if just qualitatively, how you are thinking about that segment overall?

Well I think there's still -- it's not a weak market. There's still a fair amount of backlog that are continuing to move. I think if you listened to the Barrick release, there's actually growth on a project where we're taking over some new scope, which is a good news scenario. We've announced a couple of feeds on some other projects in Russia and otherwise, so the industry is just I think taking a deep breath in the face of the economy that we all see, and the case of the two that we have taken out of backlog, I wouldn't categorize them as being cancelled. I'd categorize then as being delayed beyond what we think is prudent to keep it in backlog, so overall, I would comment that even though we're seeing softness, there's still bright spots in that market, particularly with the projects we have in backlog.

Relative to what fills up what, we're very proud of the diverse portfolio that we've got, whereas all-in-all, with ups and downs, we're showing growth, double-digit growth in terms of EPS, depending on where you choose to place your number, and that's a testament to the portfolio. We've enjoyed the mining boom. We've taken advantage of that work, and now we're turning the crank on EMC and some other things, oil and gas and some other things, that from a portfolio standpoint keep us in that northerly growth trajectory on the curve. So I think this is just -- the way I look at it is, even with the puts and takes and having the economic headwind, we're showing continued growth year-over-year and we're pretty pleased with that.

Okay, that's very helpful. Thanks for the commentary there, and maybe switching gears a little bit. Are you guys seeing incremental refining opportunities in the US, just kind of given where crack spreads are? We're seeing increasing light oil production specifically from shales, in tandem with all of the gas that we've seen online?

We are seeing some feed work in our refining segment which is pretty positive in North America, and I think as well as we look outside the United States, so it's coming back. I think the projects might be a little bit smaller than we saw in the last wave, but there is still a significant opportunity for us there, based on the feeds that we're already doing.

Thanks very much.

We'll go to Steven Fisher of UBS.

Just a clarification on the guidance. Can you just give us a sense of what your assumptions are on buybacks, and the level of NuScale investments in the guidance for next year?

Okay, sure. On share buyback we didn't assume any, as I said in the comments, to expect that pace to pick up somewhere in the fourth quarter but we don't layer it into any of the guidance from an EPS standpoint. From the standpoint of NuScale, this year, we expect in supporting the FOA costs, but not getting -- or the FOA activity, but without getting an FOA award in, will run at a $0.25 to $0.30 effect of our NuScale investment for this year. Next year, we would expect it to be roughly in line after getting the FOA award so spending will go up, but it will be offset by additional funding.

Okay, and then David, which specific regulatory aspects are you most concerned about on the domestic oil and gas projects? Is it really just around the extent of gas exports we support, versus how much we're going to be using for domestic manufacturing? Is that what needs to be worked out?

You really want me to stick my finger in the eye of one of the regulators? No, I mean all these projects are particularly in the Gulf Coast. There's obviously, the EPA and those types of permits that typically either don't fit the time scale that we're looking at, or delayed for some reason. I don't think it has anything to do with the debate of whether the US should export gas or not. It's all based on the typical project approvals. Most of these projects are in states, obviously Texas, Louisiana, and some other places, that are looking at economic development and job growth, so I think there's going to be some sufficient support there, and hopefully support as we go towards the federal permits that are required.

Okay, so it's really just a permitting-type issue?

Right.

Okay. Thank you.

We'll take a question from John Ellison of BB&T Capital Markets.

Would you be able to discuss the deepwater opportunities you're seeing and Fluor's role on an EPC basis, and if you're bidding this work as part of the JV or consortium, does it result in lower effective margins?

No, I wouldn't say it would actually lower margin on a JV basis. We have chosen to work with others on deepwater and offshore programs, and we're going to continue to do that. I think we're going to be able to compete, not only with the offshore pieces of it but the components that make that up when I mentioned modular construction and fabrication, and that's what we're going to play a big role in that marketplace.

Right, and also has there been any change in the amount of I guess fixed price versus cost reimbursable work that you're currently bidding on?

It's kind of a mixed bag. I think we're seeing a little bit of an uptick in fixed price work. Obviously, most of the infrastructure programs are fixed price, power is typically fixed price, and we are seeing, modestly so, some interest from the oil and gas guys relative to lump sum, but again, it's not going to move the needle that much in the grand scheme of things.

Right, and just one follow-up real quick. Are you seeing any end markets where capacity is tightening or where you've been trying to push for higher prices?

Well, I think we're trying to make as much money as we can without damaging the relationships with our customers. We haven't necessarily seen any pressure to move up. We think we get what we deserve based on our calculations, but I do believe that margins are improving.

Okay, well, thank you so much.

Andy, you can tell Jamie I said that.

We'll take our next question from Michael Dudas of Sterne, Agee.

David, when do you think the crank is going to get picked up on the power market?

Well, we're working on several front ends on gas. I think we're still waiting on the regulatory side, the emission side, relative to the coal fleet. We've got several projects that are pending. On natural gas, we're seeing significant activity, but I think that's predicated on need. We are seeing reserve margins drop to where they typically will pull the trigger, but I think that the big question mark is, what are the generators have to do relative to whatever the environmental regs say on the existing fleet, and then what impact does that have on new generating capacity, and what the fuel source will be. I think that as we get into the back half of next year, we're certainly hopeful, and are planning on a fair amount of uptick in our power market, but I think really a resurgence is probably into 2014 before we see anything significant.

I appreciate that. My follow-up question, David is, as we look to maybe pushing things out 2013 into 2014, especially looking at North America, do you anticipate a pretty strong tight construction services market or EPC market in the let's say second half 2013 through 2015, 2016 time period, given what you're seeing on the drawing board and what regulatory and other political issues come together to allow to occur?

That's a great question. I think I'd look at it holistically and would suggest that there's been a lack of confidence over the last probably two years, relative to a lot of capital spend, that is now starting to create a back-up or a huge slug of work coming at us. I think we're seeing some of the supplier network tightening, but it's tightening because of lack of performance on some of the projects that were taken in the last year, so some of that supply network is challenged, and may not frankly be around for us when we start this boom again. So I think in general, that slug of work has been pushed to the right, and on the scale, that just means there's going to be more of it. So as we get into late 2013, early 2014, you'll see some tightening there. With regard to labor, that's always been a challenge, and I think it's going to be an acute problem in the Gulf Coast. We've done a lot to invest in the people we're going to need, both in terms of the engineering and project management types of folks, but we're spending a lot of time and effort in building the craft capability again in the Gulf Coast, because we're looking at direct hire on most of these projects.

Excellent, David, thank you.

We'll go now to Brian Konigsberg with Vertical Research.

Just quick question, on the guidance, if you exclude the gain you're expecting in the fourth quarter, it looks like the fourth quarter earnings is a little bit lower than Q3, it's probably actually lowest of the year. Is there anything to read into that as we use that as a springboard into 2013? Is the pace slowing down a little bit before they pick up again? Can you just comment on that?

Well I think the two big moving parts going into the fourth quarter are that gain on the Citylink sale. For the full year, we have the impact of the LOGCAP fee adjustment that we recorded this year, and it adds a little bit more in the fourth quarter, about another $5 million of effect in the fourth quarter. But the other drivers in the fourth quarter are the normal ramp up in overheads that we see. There's really nothing else that I would say approaches something that creates a different kind of run rate going into next year, once you get back to the normal cyclical nature of things, and have strong quarters going into the first quarter of next year.

And just on buyback, Biggs, maybe for you again. So you were light as far as buyback allocation in Q3, but you're saying things will pick up in Q4 likely. But you had a fairly depressed stock price during the quarter. I'm just curious what the mind set was why you were not more aggressive and why you're intending to be more aggressive from here on out?

Well if I could do it all over again and go back, we probably would have purchased more in the third quarter. We track it against cash flows, and we've been pretty consistent in saying we spend cash as it becomes available, and if there's no greater use for it internally, and as we were moving through the quarter, cash wasn't generated at the rate it was later on, and then we were past the window period in which we could operate, so we just weren't able to get that much done in the quarter based upon the timing of cash flow and the visibility that we had, but we ended the quarter strong, we have plenty of cash on the balance sheet. We absolutely know that going into this open window period, so we expect this point in time to be more active.

If I could just sneak one more in, maybe for David. Just in the Middle East where you're seeing some projects, it looks like they're starting to get off the ground, particularly in Kuwait. I'm just curious what the opportunities that you see in that region, specifically primarily on the oil and gas side over the next, say, 6 to 12 months.

Well I think that's a region that has pushed some projects out and in several countries there that we're active, and we're tracking pretty closely with a lot of them. Kuwait specifically, you probably read the same things I did relative to their parliament being dissolved, and the trials and tribulations that go on that. They seem to be still on track for the fourth refinery as well as the clean fuels programs at the two refineries, and we are looking at a couple of the packages on an EPC basis. Saudi continues to be a great place for us. The UAE, I'm very bullish about the UAE. Qatar in terms of oil and gas and infrastructure, so the Middle East is pretty special to me, and I keep close tabs on it, and it will always be a growth engine for us.

Thank you very much.

Over to Jamie Cook of Credit Suisse.

Actually this is Andrew Buscaglia on behalf of Jamie Cook.

I was going to say that second birth lowered your voice quite a bit, Jamie.

It's a change of the season here. So quick question, on competition, I know you mentioned the pricing environment a little bit, but can you comment a little bit more on what you're seeing competitively? Specifically you noted Asian competition potentially having some issues, but what are your thoughts there?

Well, I mean competition is always fierce. It doesn't matter whether it's a buyers or a sellers market, it's always fierce, and we would like to believe that the value proposition that we give that separates us and I think that generates better margins. I think that from a competition standpoint, I mean I didn't really mention the Asians, you did, but I'll take your lead there. A lot of them are very full with projects we're glad they have, but on the other hand there's Asian contractors that we're partnering with, that I think give us an advantage in the marketplace, and we're very keen on those partnerships. But I think, like I said, this is a very competitive marketplace and we tend to beat one another up quite a bit, but I don't see any reason why in the near term, more because of the way we're doing our business and the value proposition that we give, that we shouldn't improve our margins over time, particularly in oil and gas.

Okay, that's helpful and just my next question, I know there's a lot of discussion on mining, but is there -- specifically with the cancellations, but looking into 2013, is there potential for any other large projects that you're nervous about getting cancelled? Or just your thoughts there in terms of what's embedded in your mining outlook?

Not particularly worried about cancellations. I think future awards obviously could be a problem, but this is kind of interesting. It's always been, when the commodity prices drop is when some of these programs get delayed or cancelled. We seen iron ore drop, obviously, and it's very well known that our Outer Harbor Port Headland project is postponed indefinitely, but I do not think cancelled, but when you think about gold and you think about copper, two commodities that we do a lot of work in, those commodities haven't appreciably dropped to the levels where you see cancellations. As I said, I think we're kind of seeing mining companies take a deep breath, but clearly, as we come out of this economic mire, those commodities are going to be required for economic growth and they're going to have to turn the crank back on, once those signals are there, and seen as solid signals.

Okay, thanks.

And now to Alex Rygiel of FBR Capital Markets.

David, could you expand a little bit more upon exactly why the LOGCAP IV fee was a little bit lower than expected, and what is included in your guidance for the next 12 months?

Well, I think Biggs talked about it, and Biggs, help me here if you feel it's required. Basically, at the end of the quarter, the award fee board convened and gave us our award score, which gave us a lower than expected score, and that relates into a pretty dramatic declining scale in fee available to us, so the charge, or not the charge, the adjustment that we made is for previous quarters plus this quarter, so as Biggs said, you can't take that amount and multiply it times a quarter and get to a run rate. and I don't think I'd want to get into what we put into individual projects relative to the overall portfolio, but clearly we're less optimistic than we were, because we had to adjust, as we pulled together the guidance for 2013. Biggs, I don't know if you got anything else?

Well maybe just put it in perspective a little bit. It was about a 7% decline, and our score resulted in about a 40% decline in the amount of fee pool that was available so the slope of funding of the pool is pretty severe for just small changes in the score in the territory which we're operating in, so it really wasn't a bad score. It's just a slight change to it, but it has a big effect on the funding of the pool.

For the rest of this year, we're not projecting any change. We don't receive another score. Don't expect one between now and the end of the year, so don't expect any change, be pretty clear on that with respect to this year's outlook. Obviously our objective is to do better next year, but as David said, it doesn't make sense to put a lot of line item guidance project by project out there.

Is there anything that's structurally changed with regards to that contract as it relates to services or complexity of the environment, that might have indefinitely kind of lowered the profitability of that opportunity?

No, none whatsoever.

That's it for me, thank you.

We'll take our next question from Andrew Wittmann, Robert W. Baird & Company.

David, just kind of more broadly on federal, just step back here, obviously LOGCAP has been a really big significant portion of your federal business, but you mentioned a couple of wins in your script that we saw. Can you just talk about what else you're looking at today, and what your overall outlook for federal could be as we head into next year? I know you said top line up, but is there margin opportunity there as well? Could you just give us some color, as we head into the election next week, actually?

I don't even want to go there. Oh, the election next week I don't want to go to, so I've already voted. And I hope all of you have. I think with regard to LOGCAP, we don't anticipate any change in the current LOGCAP contract for next year. With troop withdrawal in 2014, we will probably see a little bit of an uptick before we see a decline. In the meantime, we're focused on the services area and what we call BOS contracts or base operating support contracts. As I said we won Rock Island, we won Jacksonville in a previous quarter. We're pursuing several of those. In addition, there's a couple of procurements right now ongoing in the DOE, and we feel like we're in a pretty good position to pick up some of those. So I think all-in all, the government market is a good solid business for us but clearly, after 2014 without LOGCAP, it's a little bit hard to predict but it's a solid base business and we get a good return on our investment there.

Great, and then just two quick ones for Biggs. Tax rate up next year. Is that just doing more work domestically or is there something more fundamental that's leading into the increased tax rate expectation?

No, I don't think that there's any messaging in there. We gave a range. I think the range is still, it overlaps with what we had for this year. I think that we would like to drive it down. We have some strategies to try to drive it down, but we aren't going to go and count on that at this point in the guidance.

Got it and just in the FX, the $0.03, is that $0.03 versus your prior expectations? Is that $0.03 year-over-year? I'm just trying to understand how this call-out of FX is maybe different from maybe in terms of impact?

Sure, well there was no hit from FX the first two quarters of the year, it was pretty much a wash, so this quarter stands out over the course of this year, in that there was this hit. and it really is substantially driven by the devaluation of the dollar that occurred over the quarter, which was pretty sharp. June 30 was relatively a high point for it, and then it fell over the quarter, and had a negative effect on the extent that we were holding the dollars around the world. So I think this was an unusual event. I certainly don't want it to recur and don't think there's any reason why it should.

Okay, thank you very much.

And next to Will Gabrielski of Lazard Capital Markets.

So just in terms of 2013 guidance, you are going to accrue next year at the current score you've got under LOGCAP, right? And that's embedded in guidance?

As we said, we really didn't want to get into individual projects and what makes up our guidance, so I really wouldn't want to comment on that.

Okay, I understand that. Can you provide the score you received versus what you were accruing at?

I'd prefer not to do that either.

No problem.

Sorry. I wish I could be more accommodating.

But to be clear it's really a very small change in the raw score, so it doesn't help you a lot anyway. It's just a very small change, but it had a big effect.

No, I understand that. I think just all of us were covering KDR for years and watching how the LOGCAP score can impact the accruals, and then the true-up you get when you get a new score. I was just wondering if your guidance next year assumes an improvement and you'd be accruing at a higher rate or not.

I'd rather not say.

Fair enough. On the oil and gas market in the 3-4, I'm just wondering, is the bookings you saw in Q3, is there a better mix in that downstream-oriented work where there's more engineering hours involved maybe than we've seen on the work you booked over the last two or three years, including last quarter, which had a lot of big dollars associated with it, but not necessarily a lot of dollars where you're earning a market on it? Is that kind of the upstream?

Well as we said in the past, it's really about margin dollars, not margin percentage, but just from a color standpoint, we've got a couple of programs in there that have significant CFM, one of the projects in Canada specifically, where we're burning at a higher rate today than we have been, and I think the projects that were coming into backlog are more EPC type projects with not the same impact on CFM.

Okay, fair enough. On NuScale, I think you said $0.25 to $0.30 was the impact now in 2012, was that correct?

Yes.

So that's a little bit higher maybe than I thought a quarter ago, and I'm just wondering A, what's driving that and then B, if you were to be successful in the FOA, what would be the strategy with the NuScale after that? Would you look to monetize it, would you look to partner with somebody from manufacturing, or would there be something else involved beyond just getting the R&D grant from the government and moving forward and progressing on a standalone basis?

On the first question, it is a little higher. Its been driven by the need to support an FOA schedule, an FOA activity, but unfortunately without the benefit of having the award benefit this year. So even if the award occurs here in the next few weeks, it wouldn't be definitized and therefore wouldn't create a flow of funds in the offset to the expense line until next year, so it's a combination of those things, which cause the number to be a little bit higher. We certainly kept that in mind, in terms of managing the spend, but it has driven it up a little bit. In terms of strategy?

Yes, in terms of strategy we're continuing to have dialogue with manufacturers and other potential investors. I think what's happened with the delay of the FOA is some of those folks are saying well why don't we just wait and see what happens, the FOA, at least, in terms of what we were told, should have been awarded in August and then September, and then October, and now here we are on November 1 so I think it's stuck in a do loop somewhere in Washington but it doesn't change our opinion in technology or its application, nor does it, I think, lessen the interest in NuScale from outside parties that we would expect to bring in as partners.

Okay, fair enough. Lastly, you mentioned US refining as a market where you're seeing some activity. I'm just wondering from background, what, there was a big refinery upgrade cycle, so we could go ahead and process Canadian crude and heavy crude, and now we're looking at light crude coming out of the shale formations which was brought up earlier. So what would these types of projects entail? Maybe in terms of scope or dollars, or what would you be looking at to maybe retrofit those refineries to be more efficient in processing light crude out of the shale?

Well I think they're ready for a crude mix, including heavy crudes. The project specifically, that upgraded to give them that balance are the ones that put in the cokers to be able to deal with that heavier crude, but I don't think it necessarily changed their ability to refine the lights. I think you're seeing a rationalization of the market, and where those product slates are, so you're going to see process units that help them get to a specialty market. You're going to see some capacity increases when it comes to diesel, which really hasn't done a lot of work on, and I think you're going to see a fair amount of compliance projects, that not only improve the environmental outputs, but also incrementally improve capacities.

Okay, thank you very much. I appreciate you taking the time.

We'll go to John Rogers, D.A. Davidson.

I just want to go back to one of your comments about forward or backward integrating, I guess, in terms of -- or vertically integrating, I guess, was your term. How far away are you from making a major acquisition or investment in there?

Well, I think the beauty is we've always had that capability, and it doesn't take a massive investment for us to have that capability. That's part of the strength and breadth of the Company to begin with. So incrementally things like AG&P in the Philippines is a very nominal immaterial amount from an investment standpoint that projects our capability greatly in that fabricated module market. There are others that we're looking at, that I would not like to mention, but we're actively looking at improving that skill set. From a construction standpoint, it's taking advantage of the skills and capabilities of our superintendent network that we enjoy now, and frankly, giving them more surety and longer-term employment which we are an employer of choice in that market, and it allows us to provide that stability. So, I think there's a fair amount of training that will have to take place for that next generation of construction worker, and again that's something within our skill set and something we've done quite successfully over the history of our Company.

Okay, and separately just on the I&I business, the margins that you saw in the current quarter and this may be in the Q, but were there some close outs or anything that elevated those margins, because I'd just assumed with the mining mix, that those continued to drift lower and then reverse as that changes maybe next year?

We had the financial close on the I-95 project, gave us a little bit of an up lift there, and the general projects performed well, so it was a good quarter for them.

Okay, great. Thank you.

We'll take a question from Robert Connors of Stifel Nicolaus.

I was just looking at, that despite the EPS, it looks like the operating cash flow was pretty strong in the quarter. Just wondering what drove that, was it advanced billings or collections of some receivables out there?

Well, I think you're right. Cash flow was good for the quarter from operations. It was driven by earnings, but as noted, improvement in working capital. It had gone the other way for the first two quarters, so was very satisfied to see it improve here in the third. and it goes back to my comment earlier about conservatism going into the quarter about use of cash. It obviously turned during the course of the quarter, and we did have the good cash production that we, of course, wanted. From a standpoint of individual drivers, I think it's more the absence of some of the ones which held it back in the first two quarters. I commented previously on last quarter call that we had a big advance that we were burning off, and that had been a use of cash, and we had some projects that had been winding down that were using cash, and so a little clearer runway in the fourth quarter on those and had good performance overall.

And then just regarding the corporate G&A scene for 2013, looks like it's going to be relatively flat year-over-year. Is that a factor of some cost reduction initiatives as maybe I&I scales down or is it more so maybe going to be tied to the top line?

No, I think we've been very active in controlling our cost and I think we've done a really good job of making sure that people are spending overhead dollars like it's their own money, so I think we've seen good behavioral change in the organization that I think is sustainable, which helps us longer term.

And then David, if I could ask the oil and gas backlog question, I guess in a little bit of a different way though, more qualitatively. Is that if you were to look at not necessarily the dollars but really the man hours in backlog as you go into 2013, can you just, I guess qualitatively describe, is it materially up versus where you were at this point about to enter 2012, as far as man hours?

I think it will be materially up if you take January 2013 versus January 2012. We're really starting to build some power there and then the EPC phases will follow.

Okay, thanks a lot.

And at this time I'll turn things back over to Mr. Seaton for any closing or additional remarks.

Thank you, Operator. I really appreciate everyone participating on the call this afternoon. To kind of follow on to some of the last questions, I want to reiterate a couple of points that we made today. Number one, we're on track for 2012, and we expect to perform towards the higher end of our original guidance range for the year, and we continue to track a robust list of opportunities in oil and gas and petrochemicals, as well as infrastructure. However, we think it appropriate to use a little bit of caution in establishing our guidance for 2013, because of the continued weak global economy and the deferral of some of the major mining programs. From a midpoint of our guidance for this year to a mid point of our guidance for 2013, we're projecting a growth in double digits, 10%, which I think seems very reasonable in this environment. With that, we greatly appreciate your interest in Fluor, and we hope you have a great day. Thank you.

Once again, ladies and gentlemen, that concludes our conference. Thank you all for your participation.