Fluor Corp (FLR) 2012 Q4 法說會逐字稿

Good afternoon, and welcome to the Fluor Corporation fourth-quarter and year-end 2012 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 call will be available at approximately 8.30 PM Eastern time today accessible on Fluor's website at www.Fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 8.30 PM Eastern time on February 26 at the following telephone number. 888-203-1112. The passcode of 908-8046 will be required.

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

Thanks, operator. Welcome, everyone, to Fluor's fourth-quarter and 2012 year-end 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. 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 our risk factors which could potentially contribute to such differences in the Company's Form 10-K, which was also filed earlier today.

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'd like to turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Ken, and good afternoon, everyone. And thank you for joining us. I'll apologize ahead of time for any sniffles or coughs that occur during my answers or prepared remarks. I'm fighting a little bit of a cold here. But, as Ken said, today we want to review our fourth-quarter and full-year 2012 results, and discuss our outlook for 2013.

If you'll turn to slide 3, I'd like to cover the 2012 full-year performance. Net earnings attributable to Fluor for the year were $456 million, or $2.71 per diluted share. Which compares to $594 million, or $3.40 per share, in 2011. Our financial results for 2012 were impacted by the unexpected adverse arbitration decision on the Greater Gabbard claim, which we announced back in November. After our thorough evaluation of the arbiter's decision, we booked a pretax charge of $416 million, or $1.57 per diluted share, on an after-tax basis. Excluding this charge, net earnings attributable to Fluor for 2012 would have been $4.28 per diluted share.

Segment profit results for 2012 reflected strong double-digit growth in oil and gas and global services, with strength in industrial and infrastructure. Notwithstanding the Greater Gabbard arbitration decision. Fluor delivered, in that case, a quality project, which is generating electricity at a rate that the client has said is ahead of their own expectations. As you are aware, we expect arbitration proceedings in the client's counterclaim to commence in the spring.

Consolidated revenue for the year was a record $27.6 billion, representing an 18% increase over last year. Due in part to strong growth in oil and gas segment, as well as mining and metals business lines. New awards for 2012 were strong at $27.1 billion, including $12.6 billion in oil and gas, $9.5 billion in industrial and infrastructure. Consolidated backlog at year end was $38.2 billion, which compares to $39.5 billion a year ago. In addition we have seen improvement in the margin of our backlog over the last several quarters.

Now please turn to slide 4. Oil and gas awards in the quarter include a petrochemical facility for BASF in Europe and Asia. And a petrochemical facility for Braskem in Mexico. Oil and gas backlog ended the year at $18.2 billion, which represents a 21% increase over a year ago. The oil and gas group continues to see strong demand for front-end engineering contracts, especially for petrochemical facilities. As we move through 2013, we expect a balanced slate of new awards, with major prospect across upstream, downstream and petrochemical markets.

The industrial and infrastructure grew. The backlog at the end of the year was $15.5, billion which is down from $20 billion a year ago. This decline was driven by significant progress on existing mining projects, coupled with the cancellation of two mining projects in the third quarter of last year that totaled $2 billion. Fourth-quarter new awards were $3 billion, including significant additional scope on the Pasca-Lama copper mining project in Chile and Argentina for Barrick Gold. The I&I group also booked a program management contract for Ma'aden's large new phosphate complex in Saudi Arabia.

Within the infrastructure business line, demand for large transportation projects remains solid. And the fourth quarter was a great indicator of how strong this market is expected to be for Fluor. In November, we were selected as the EPC contractor for the Horseshoe interchange project in downtown Dallas. In December, the New York Department of Transportation selected a Fluor-led team to build the Tappan Zee Bridge north of Manhattan. We expect to book Fluor's share of these two projects totaling approximately $1.7 billion into backlog in the first quarter of this year.

Turning to slide 5, new awards for government group in the fourth quarter were modest, due to the timing of the LOGCAP IV task order awards. The group expects that task order awards under this contract will remain strong through 2013. Ending backlog for the government segment was $978 million, which compares with $1.1 billion a year ago.

Moving to global services, this segment booked $211 million in new awards during the quarter, including maintenance agreements for major chemical, mining and steel production clients. Ending backlog was $1.7 billion. They are beginning to see modest improvements in the US economic picture, as they pursue new long-term contracts with major industrial customers.

Power segment new awards for the fourth quarter were modest at just under $100 million. And ending backlog at $1.9 billion. The group is currently working on a number of gas-fired and solar projects, in addition to maintaining power facilities across the United States. Looking at 2013, the group expects opportunities for new gas-fired plants, alternative energy, including solar, as well as plant betterment programs. With that, I'll now turn it over to Biggs to review some of the details of the operating performance and the corporate financial metrics for the quarter. Biggs?

Thanks, David, and good afternoon, everyone. Please turn to slide 6 of the presentation. I want to start by commenting on our performance for the fourth quarter. Revenue in the fourth quarter was up over 12% from a year ago to $7 billion, mainly driven by significant growth in the oil and gas segment. Regarding our earnings results for the quarter, there are obviously a number of moving parts, some of which were considered in our guidance and some that were not. So I think it would be helpful to summarize them for you.

To do that please turn to slide 7. The as-reported EPS for the fourth quarter was a loss of $0.03 per share. The Greater Gabbard charge was a negative of $1.61 per share, which was not included in our guidance or in current analyst consensus estimates. The fourth quarter benefited from several positive items, the first of which was the sale of our equity interest in a telecommunications joint venture in the UK, which yielded a $43 million pre-tax gain, or approximately $0.17 per share benefit in the quarter. We talked about this on our last call and it was included in our guidance.

Next was renegotiation of the terms of our LOGCAP IV contract to a fixed-fee arrangement. You'll recall that in the third quarter, the government group's operating results were significantly impacted by a lower-than-expected LOGCAP award fee score, which resulted in a downward revision of our fee assumption for the year.

During the fourth quarter, we reached an agreement with the client that changed the contract from an at-risk award fee to a fixed fee. This resulted in a $17 million improvement in the quarter, or approximately $0.07 per share, that was not in our guidance for 2012. Furthermore, I should add predictability to our fee recognition in 2013 and beyond.

Finally the lower-than-expected tax rate in the fourth quarter includes the release of previously unrecognized tax benefits, and a net reduction of tax reserves totaling $43 million. Reflecting the favorable resolution of a number of items. The lower tax rate generated a benefit of about $0.26 per share in the fourth quarter, which is about double the amount we expected. After considering all of these puts and takes, we posted strong underlying fourth-quarter results in oil and gas, global services and I&I. We also reduced G&A expenses in the quarter.

Moving to slide 8, new awards for the fourth quarter were $5.1 billion, including $3 billion in industrial and infrastructure awards, and $1.7 billion in oil and gas awards. Fluor's consolidated backlog at year end was $38.2 billion, which is down modestly from $40.8 billion last quarter, as revenue burn outpaced new awards of $5.1 billion in the quarter. The percentage of fixed-price contracts in our overall backlog was 15% at quarter end. And the mix by geography held steady at 25% US and 75% non-US.

Moving to corporate items on slide 9, G&A expense for the fourth quarter was $41 million, below the $61 million reported a year ago due to a number of contributing factors, but primarily due to improvements in foreign currency positions and lower executive bonuses. The full-year tax rate of 22% was below our original estimates, due to a number of favorable contributors I've already reviewed.

Shifting to the balance sheet, Fluor's financial condition remains very strong. With cash plus current and non-current marketable securities totaling $2.6 billion. This compares with a balance of $2.8 billion a year ago. During 2012, the Company generated $628 million in cash flow from operating activities, repurchased $389 million worth of Fluor shares, including $225 million during the fourth quarter, and paid out a total of $129 million in dividends. Finally, at our most recent meeting, Fluor's Board approved an 8 million share increase in the Company's share repurchase program, bringing the total number of shares available for repurchase to 11.8 million shares.

I will conclude my remarks by providing an update in our guidance for 2013, which is on slide 10. In 2013 we remain encouraged by the opportunities across our diverse end markets. And are maintaining our EPS guidance at the previously established range of $3.85 to $4.35 per share. Consistent with how we expect oil and gas revenue and margins to progress, we expect our quarterly earnings to grow as we go through the year, as well.

We have included R&D expenses that equate to approximately $0.20 per share for NuScale in 2013. In addition, our guidance assumes G&A expense of approximately $165 million to $175 million. And an effective tax rate of 33% to 35%. We expect capital expenditures of approximately $350 million. With that, operator, we're ready to take questions.

(Operator Instructions)

Jamie Cook, Credit Suisse.

A couple questions. David, you brought it on yourself. You said that margins and backlog had improved. So, can you talk about specifically what you're seeing in oil and gas, as some of your peers have come out and have talked about capacity tightening on, in particular, in the US Gulf Coast, if you're seeing any of that? And what the impact and implications are for margins in the construction market longer-term? And then you also said awards would be more, it sounded like balanced throughout the year, relative to before I think it was more back-end loaded. So you sound a little more constructive there. And last, ex the noise in I&I, your margins were really good at 5.1%, so what drove that? And is that a function of some of these mining projects getting closer to completion? Sorry, I was out of the loop for a while so I had a lot of questions.

You only get one question, Jamie.

I know, but I was out for three months so I get more.

Okay. We'll give you a free pass. I threw you a bone there on the margin question. And I'll answer that and where I think the markets are headed. And probably answer some of the questions for the others. Then I'd ask Biggs to talk a little bit about the I&I margins specifically. We are seeing, I think, a pretty strong opportunity list within oil and gas. And it is very diverse both in terms of market and geography. We've been very successful in obtaining the front end design on a number of programs. And, assuming that the regulatory environment is positive, it should be balanced as we go through the year. But I still think the significant EPC awards are back half of this year and into '14.

So I think we've got the opportunity, I believe, just from the sheer amount of work that's coming, to grow past where we were in the refining boom as we get into '14. We have seen improvement in margin in our backlog, which is a good indicator of, obviously, future earnings. And that's a function of, I think, the value proposition that we hold with our customers. But I think we are seeing a little bit of tightening. But more in terms of making sure that the operators have access to the teams that they want. Which does look a little bit like the '07,'08 time frame where they are making sure they've got the project teams committed to their long-term programs. And with that it allows us to enjoy a little bit better margin. So I think the message is over the last half of this year and into '14 we've got a pretty good growth story in oil and gas. We've already seen improving margins in our backlog. And we continue to see that continue as we go through '13. Which obviously results to better margin as we get into the back half of '13 and into '14.

Biggs, do you want to comment on the I&I?

Sure. I'm not sure if you're asking broadly about margins in I&I. I'll try to address them both. The things that were already pointed out with respect to what affected margins in the quarter included the renegotiation of the LOGCAP contract in the federal government group. And then within I&I the sale of the equity interest, and the $43 million gain on that certainly had a positive impact on margin. Beyond that, there are some other favorable items. Most notably, good performance on infrastructure projects within I&I. So underlying very good performance and a couple other things which weren't anticipated, or which would have caused a little bit of an uptick in the form of the UK sale.

But Biggs, are I&I margins now structurally higher just because, as we were getting to the latter end of some of these projects? Because ex Gabbard and the gain, your margin was like 5%. I haven't seen a margin in I&I like that in a while. And I know you can't straightline it but are we now more in the mid-4%s, or low 4%s? How do we think about that?

I don't know that I want to get to the point of giving the line item margin guidance for I&I. But, as we've said for quite a while, as mining goes down, that's lower-margin activity. And as the infrastructure business grows, that's higher-margin activity. So you would expect I&I margins on that basis to be migrating upwards over time.

Okay. Thanks. I'll get back in queue.

Andy Kaplowitz, Barclays.

It's Alan Fleming standing in for Andy. I wanted to touch on the I&I revenue this quarter. It was down a bit sequentially. How should we think about that going forward? And should we be concerned about a faster decline in mining-related revenues?

No, I don't think so. We announced the Pasca-Lama additional scope, which is certainly a big part of that. I think we saw mining over the last probably three quarters take a breath. And you also saw the changes in management in basically every senior mining house around the globe, where those new management teams are going to take a little bit of time to prioritize their capital requirements. We haven't seen any of the things that we're looking at cancel. But I think they may move a quarter just because of new management teams. So I think that has an impact on backlog and revenue.

At the same point, we're starting the front end on some pretty interesting programs in I&I. And we're on the very beginning pieces of things like Tappan Zee and the like. So I think we're at a transition point in I&I where we're seeing the major programs curtailed a little bit for the short term. At the same time, we're seeing some of the newer things come in. And I think that's also lends itself to the margin question that Jamie asked, where we are working off some lower margin and putting in its place different kinds of projects at higher margin.

Okay. Thank you. That's helpful. And then, if I could switch gears and ask you about NuScale, and get some updated thoughts on that. If I'm correct, it looks like you did scale back your guidance for R&D related to NuScale expense in the outlook this quarter. So how should we read that?

I still have great faith in the technology. I think it's part of the energy mix. Obviously, we're disappointed in the fact that the Department of Energy failed to do what they said they were going to do relative to FOA. But needless to say, we're still bullish on the technology. However, we've taken some action to make sure that we're being prudent. As you saw, I asked John Hopkins to go take that job. He's a senior executive with Fluor who is retiring. Because we needed to make sure we had a strong management team to look at how they were spending the money and where they were headed.

I'm happy to report that John has made some changes, has lowered the overhead associated with the current day-to-day operation, is very keenly focused on bringing in additional investors. And that looks very positive in the very short term. But in our planning, obviously, we've got to plan based on not having any additional investors. And that's why we've got the $0.20. But I think the lowering of that, frankly, is in looking at a different execution program relative to getting this technology to the NRC for approval.

I feel good about where we are. I feel good about the changes that have been made. And we're just going to be very prudent in how we go forward. One of the things within the FOA that doesn't get a lot of publicity is the fact that within that FOA there is a requirement around the spend. And the amount of money you have to spend to show progress for the government to qualify for the FOA funding. And without that we've got an ability to turn it down a little bit until we're a little bit further down the road, and we feel comfortable with where the technology is.

To David's point, before in our guidance we'd assumed that our gross spending went up and got offset by funding from FOA. And that net number was the $0.20 per share we gave previously. Now, without FOA funding, we're still at $0.20 per share by taking down the total spend number.

Okay, guys. Thank you very much. I appreciate it.

(Operator Instructions)

Alex Rygiel, FBR.

I got a few minutes to read your 10-K, and it looked like last year 63% of your year-end backlog was to be recognized in 2012. What was about $25 billion. And this year you're saying about 55% of your year-end backlog is going to be recognized in 2013. So that suggests that you're expecting to burn about 16% less or so year-over-year. I know you don't give revenue guidance but should we be thinking that possibly revenue is flat to down here in 2013? Or are you seeing maybe a shift mix towards faster burn projects that just haven't come through yet?

I don't think you're reading of it is consistent with what we see. I think there is a little bit of a mix change. Just look at oil and gas where we've got a tremendous amount of front-end work, which is obviously quick book to burn, low revenue, higher margin types of programs. That are obviously the precursor to the EPC projects coming into backlog. I understand what the case says, but I wouldn't necessarily agree with your assumption there.

We would expect revenue growth in 2013.

And then just a quick follow-up. If we back out a lot of these one-time items, it looks like the $1.58 was really adjusted down to about $1.08, which was right on the mark and right within your guidance for the full year. Gets you to $3.78. But you did previously have guidance that had a range as high as $3.90. Was there anything in the fourth quarter that maybe seemed to fall a little bit short? Or was everything, for the most part, right on the mark?

We were right on the mark.

Good to hear. Great quarter, guys.

I'd just add in, maybe you have to have listened very carefully, but on the tax, we did assume we were going to get a tax pick up. We just had a bigger one than we anticipated. So versus our guidance, I would not have backed out the entire tax benefit. Maybe 0.50 of it.

Fair enough. Nice quarter.

Steven Fisher, UBS.

Just to follow-up on Alan's question earlier, your I&I book-to-bill was positive in the quarter. And you've got those two bookings coming up in the first quarter. But I know it's generally going to be a little bit lumpy. But I'm curious if you have any visibility as to when you think the book-to-bill in the I&I segment could sustainably reach positive territory?

I think I'd answer it two ways. I think we are seeing, as we get in through this year, additional mining opportunities, which will pick up. And then there's a fair amount of infrastructure programs that will be bid during the year, with closings scheduled towards the end of the year. Fourth quarter, if not first quarter of '14. So I think it's probably going to be, as you said, lumpy until we get towards the back end of the year. We could see some further decline early this year. But not markedly so. And I think steady as she goes within I&I.

Okay. And then just another follow-up. I think you mentioned that there was some potential buyers in the short-term on NuScale. Did I hear that correctly?

Yes. Investors.

Investors, okay. So does that mean that there could be a sell down in your stake before any next FOA?

Could be. It depends on what the investors want to see.

Okay. And if that would be the case, then presumably you're $0.20 should be something lower than that.

Correct.

Okay. Great. Thank you.

Brian Konigsberg, Vertical Research.

Just hitting on I&I one more time, just on the backlog, it looks like you were down, I think, around $750 million sequentially. You guys had a huge order quarter. You guys burned $2.8 billion of revenue. I don't know why backlog actually would have been down. Was there something that came out of backlog that we should be thinking about there?

Primarily there was a downward adjustment for some customer-furnished material being taken out of scope.

Customer-furnished material? Okay.

That was the primary driver. There was a number of things going on. The biggest single one would have been that.

Got it. And just touching on the US market, it does sound, like you were saying, tightening a little bit. People want to get in line with the A team. Just curious as far as your outlook in regards to labor capacity in the market, do you see that as being an issue and an impediment to some of these projects getting off the ground? Or is there going to be enough, the ability to bring more laborers in to execute these projects as being planned? Maybe you could just comment on that.

Yes. It's a good question. If you think about the professional staffs, the project management people, engineering, and the like, we feel pretty good about where we stand in being able to increase that capacity pretty significantly over the short term, based on when these projects actually get their sanctioning. So we feel very good about our ability to turn that crank and add folks. I think the challenge is going to be in the craft. And we are seeing a tightening in that market. That's driven primarily by retirements from the industry and aging workforce. And fewer people coming into the market. Now, we've already started re-creating our training centers in the Gulf Coast. We had a great following of construction management and superintendent kinds of resources. And with that brings the best craft.

I feel very good that we'll be able to satisfy our needs. Because I do believe we're one of the, if not the, employer of choice, both in terms of engineering but also of craft employees. So I do see a tightening, which I think will manifest itself in increased wage rates. And I think we'll have issues early on in this next boom -- which I do think it's a boom -- with productivity in the early stages. But that's why we're spending so much attention on training and vetting these folks, and having the right certifications for their skill sets.

Great. Thank you very much.

Tahira Afzal, KeyBanc.

Congratulations on a good quarter outside of Greater Gabbard. My first question is, as you folks start to see some of these larger bookings potentially coming in on the oil and gas side, you mentioned they're back-end loaded this year, and more into 2014. So, as you look at your margin trajectory within oil and gas, and when it starts to sustainably go above that 4% mark, should we expect that's possible this year? Or is that something, should we be looking at this as being more of a transitional year for those margins?

Did Jamie put you up to that question? (laughter)

No. But I am --.

I'm kidding you, Tahira. I'm kidding you. I wouldn't venture a comment on when the margin would eclipse that 4% mark. I would suggest that we are driving hard to eclipse that number as we get through this year. We are seeing a marked improvement in those opportunities. But partially because of the scope that we're taking on and the types of projects that fit our capability the best. I think Peter Oosterveer and his team have done a very good job in securing just about everything we were really chasing in some form or fashion. And in that, I think you're going to see a continued improvement in margin.

Got it. Okay. And then my second question is really tied to what you were asked earlier. If you look back through your analyst day and the strategy laid out last year, you were hoping to self-perform more of the work and capture more of the margin. As you look at the US market, and given the prospects of higher labor costs, craft labor costs going forward, how do you assess that risk? Has anything changed in terms of how much self-perform risk you're willing to take?

No, we're right on target. As I mentioned, you will see some escalation in rate. And potentially degradation in productivity. But we know how to deal with that. Both in terms of how we contract, as well as in terms of how we manage our resources. There's a lots of contracts that we've done in power, as an example, where we've carved out the wage rate issue. And we are looking at models that allow us to share that risk with our customer. We will do some of these programs on a fixed-price basis. But we're already down the road on increasing that craft performance, or craft amount, and understanding what that performance is. And we feel very comfortable about where we are in terms of being able to manage effectively the craft risk. Both in terms of wage rate as well as productivity.

Great. Thank you very much.

Michael Dudas, Sterne Agee.

David, could you calibrate for us the amount of feed work that you are working on and bidding currently in 2013 versus what you worked and bid on in 2012?

It's much more than 2012. Both in terms of where we are in the execution of the feed that we brought in, in 2012, as well as the number of new feeds that we're either in negotiations on or in a bidding circumstance with. I think that it's got the opportunity to eclipse the amount of feed work we did in the 2007-2008 timeframe.

And that should last into 2014, I guess, as the cycle works out as you think?

Yes. Those are going to translate into EPC awards as we get towards the back half of this year and into ' 14. But these projects are 36-, 48-month kinds of programs, and some cases even longer. So the earnings tail goes into '17-'18 on many of these programs.

And my follow-up, David, is, moving away from the US, there's quite a bit of interest from investors and such, how does the rest of the world look on some of your opportunities -- Middle East, Southeast Asia? Is Australia going through a major pause? Do you see Australia getting things settled if the taxes and the currency issues work their way out later into the year? Just a sense of how the rest of the world looks and how it's going to impact Fluor's ability to grow business this year.

Obviously with 75% of our business outside of the United States, we've continued to grow outside. And it's across the board. Infrastructure in the Middle East, which is new phosphate mining. So we've been able to diversify geographically within -- excuse me, diversify from an industry perspective geographically. If that makes sense. So we've been able to take more projects across the board than, I think, in our history. Which bodes well for, I think, the sustainable growth model that I think we're in the middle of. The Middle East is obviously a growth area for us. There's been a lull in bidding but it's going to pick up as we go through this year. Southeast Asia and China are continuing to be positives for us.

Australia, I wouldn't say that everybody took a breath. I think BHP was holding off on Outer Harbor. It was such a big program that it looked like Australia was in decline, but I don't think so, looking at what we're doing with the oil and gas guys, as well as other mining companies. And BHP's got signs that restarting some of those programs isn't in the too distant future. Canada is still a big place. A lot of opportunity there in terms of oil sands, pipelines. We feel good about our position there. We feel good about our position in LNG now with the win in Mozambique for Anadarko, and what that does for our ability to compete in that market.

So I feel very bullish about things outside the United States. And I think the only limiting factor within the United States is what the regulatory environment's going to be. But I think we're poised to significantly increase the jobs that we would create. And I don't think anybody's going to try to stand in the way of that. Particularly when most of these programs that we are working on in the Gulf Coast are on existing facilities that are already permitted for that purpose.

Excellent. Thanks, for your thoughts.

Andrew Wittmann, Robert W Baird.

I wanted to just dig in a little bit on the margins in the quarter. Really starting with the federal. Obviously, restructuring the LOGCAP benefited the quarter. I'm picturing it as a reversal of what happened in the third quarter, offsetting. But on a go-forward basis, your federal business has been a mid 4% type margin business. Is that the right way to think about the federal business, at least in the near-term now, returning to those levels after the restructuring of the LOGCAP contract?

I think if you look at -- the way to look at the government business is more or less looking at it from a full-year basis. Because, as you say, there was the fourth-quarter pick up, offset a third-quarter charge. The other anomaly in the year was the loss of the arbitration on Embassy project. So maybe normalize that out. But beyond that, I think the larger rates for the year ought to look pretty normal.

Got it. And then just following up on Jimmy's question earlier on margins and I&I, you can get to the 5% number with some of the announcements, backing out the gain for the UK JV sale. But you also mentioned in your K, that at least in the year there was about $60 million of closeouts that you booked. My question is, how much of that came in the fourth quarter? It's 19, 20 and 21 were the three project closeouts. Which one of those were in the fourth quarter, just to give a sense of what maybe the underlying margin was in I&I?

One of them would have been in the fourth quarter. One of the bigger ones. But there's always going to be closeouts. You shouldn't look at a project closing out and saying --oh, that represents some non-recurring source of income. Because if we perform well, and if we mitigate risks as we go along, then as we get to the end of the contracts, we would expect to have favorable performance. I think that there was maybe a little bit more in the fourth quarter than is typical, but quarter to quarter we're going to have those kinds of fluctuations.

Yes, absolutely.

And I think the other point is, those are typically lump sum projects. And the back-end loading of that is by design. So the more we have those infrastructure programs that happen to be lump sum in our portfolio, the more predictable that end game's going to be. I wouldn't say that there was anything that was really unplanned in the quarter. Things happened as we expected. And we were able to release the money associated with certain risks that were no longer risks.

That makes sense. If I might, just one final question here on Greater Gabbard. I just wanted to be clear on this one. The liquidated damages for $150 million, that was already part of the write off, if I'm not mistaken. I just wanted to clarify that. And then, it looks like in the K you highlighted $100 million of potential for counterclaim. Is that the maximum liability that you're seeing? It would be $100 million if it goes against you, and nothing more? Just to be clear.

You're correct on the LD. And yes, you're correct on the second question.

Great. Thank you very much.

John Rogers, DA Davidson.

David, I just wanted to follow-up on your comments relative to the boom you're seeing, or hopefully seeing, in North America. The projects, as they start -- the EPC release in, hopefully, late 2013-2014, do you expect these to come out as single individual large projects, or in increments? I just want to understand how you think this surge in activity plays out, and for Fluor.

I don't think it's going to be one big slug of work that comes out. I think it's going to be phased. I'll give you an example. We've already announced the PDH project that we are working on for Dow. That's a precursor to the cracker. So you're just kind of marching upstream there.

The same thing is true with the other petrochemical and gas-to-liquids programs that we're working on. Obviously, we've done the majority of the feed work on those facilities, just talking about the Gulf coast. So we know how that's going to work out from a sequencing standpoint. There will be other contractors involved in some of these programs where they have a specific skill set or expertise. And we will actually be partnering with some on some of these larger programs to take advantage of their skill set. And obviously some of these things are pretty large, and we want to make sure that we're prudent in how we manage the risk associated with them.

And how are the customers in terms of -- I know it's always difficult but as you start negotiating pricing and terms, are they pretty amenable to cost-plus work for most of this?

In some cases, they are. I'd say it's a mixed bag of the -- I'm just talking about oil and gas in the Gulf Coast. It's a mixed bag of reimbursable and partial lump sum. As I mentioned around the question around craft labor, they recognized that, for them to get a lump sum on some of these things, it would be a very large number in order to accept the kind of risks associated with wage rates, as an example. And they're not willing to pay that premium. Nor do I think it's prudent for them to do so.

So I would say the negotiation is really what's in the best interest of the asset and the business model that our customer has. And within what timing are these projects going to do. I think you're going to see some sequencing just because of the fear of lack of labor, craft labor. I'm not as concerned as others are in that. We know how to do that. And do that very well.

Okay. And just one quick follow-up. Biggs, how many shares are you assuming in the $3.85 to $4.35 guidance?

We took basically our year-end share position and just had to adjust it for anticipated dilutive shares above and beyond that. We didn't assume in the EPS guidance any change from additional share repurchases. Not that we won't do them but just that we don't incorporate that in.

Okay. Just want to be clear. Thank you very much.

Sameer Rathod, Macquarie.

I think there's been a lot of talk about the prospect of ethane crackers. I was wondering if there's a rule of thumb on how much derivative work there could be behind the crackers and what kind of time. What would the timing be on that? And also I was wondering if you had any thoughts on the market for on-purpose olefin ex ethylene in aromatics? And perhaps commenting on Fluor's experience there, as well?

From an experience standpoint, we've got great experience, from soup to nuts, down that molecule chain, including aromatics plants. I was actually involved in a very large one in Saudi Arabia back in the '90s. So we do have great capability across that value chain. I'm not sure there's a rule of thumb. When you think about petrochemical manufacturing in the United States, there really hasn't been any investment in that market for probably at least 1.5 decades. So you've got new products, you've got new capacities, you've got a global supply mix that will shift in this process, with, I think, going further down in that molecule chain, when you start thinking about carbon fibers and the use of those in things like automotives and airplanes and everything else.

So I think, given the economics right now, with gas sub $5, $6, I think you're going to see a significant build out. But I think it will be in terms of new crackers, up-rating or debottlenecking of existing crackers, both of which fall well in our capability. I think you're going to see capacity increases on existing process units, as well as new process units. So it's a mixed bag. But if the economics hold for any period of time, I think you're looking at a pretty significant long-term investment in that market in the United States, and the whole shift in where a lot of these projects are shipped. You think it's a world commodity, some of these plastics and fibers. You're going to see more going from the Middle East to Asia and India, and less coming to the United States because they're going to be able to provide them here. And just the transportation savings alone makes it profitable over the longer-term. So I think it's a fundamental shift in petrochemical production right now. And I don't think it will only just be ethane crackers. I think you're probably going to see some naphtha crackers as well.

Right. How about the other olefins like polypropylene or butadiene, given that ethane primarily produces ethylene?

Ethylene is not the end game. It's all about polyethylene, polypropylene, going further down, MDI, TDI, the fibers chain. It's pretty holistic. They won't ship ethylene.

So my last question is, do you think the derivatives market will be bigger than the first wave of ethane crackers?

In terms of number of projects, yes. And I'd say in dollars it's probably equal to if not greater.

Okay. And the timing would be a few years after the ethylene buildout, or would that be concurrent?

I think it will be sequenced. It won't be concurrent. But it won't be when the ethylene's available. You're looking at a balance in those plants. But, as I said, I think we're on a pretty sustained growth curve opportunity here, just on the back of shale gas in the United States for the next almost a decade. I think it could have that kind of tail on it.

Okay. Wonderful. Thank you for your time.

Robert Connors, Stifel Nicholas.

With the petrochemical feed activity as robust as you've been stating, I was just wondering if -- and as they transition into EPC in the back half of this year and 2014, has Fluor or any of your clients begun to place procurement on some of the longer lead time items that are involved in some of these plants?

Not on the ethylene crackers. But obviously the PDH programs we're working on, we're well into the EPC. So in that case, yes. But the big stuff, we're still determining exactly what we need through those feed programs. So I really don't anticipate large commitments until the back half of this year.

Okay. And then just on the global services margin, it's been pretty robust but declining sequentially since about the second quarter of this year. I was just wondering if this is the effect of transitioning to, say, more later cycle AMECO type work versus what's probably been some pretty strong O&M work? And if so, where do you think -- or how long do you think such a transition begins to take?

On the O&M work, it's been a pretty tough market for the last four or five years. So obviously that's depressed margin in that market. But it's a good business. And we're starting to see -- we're actually starting to see customers go back to the old model of picking two or three really close companies to them, and create alliance style agreements. So we're seeing some of that come back. And with that, I think, comes a little bit of a margin advantage because they do see the value that that long-term commitment on both sides has to that equation. AMECO continues to grow. And obviously that is part of that mix. And that's going to bode well when you start looking at direct hire construction and the use of our own equipment, and the leverage associated with that.

And just building on that comment, do you think just on strategic alliances outside O&M we could see any near-term announcements, like the alliances you have with Dow and BASF? Any new announcements?

I don't see any coming in the near term.

Okay. Thanks a lot.

Will Gabrielski, Lazard.

Biggs, can you talk about the CapEx guidance for '13 and where that's going? And then how you're thinking about '13 from a cash generation standpoint, as maybe that will help us model the buyback from here. Thank you.

Sure. In terms of the CapEx guidance, the biggest requirements have been for AMECO. And that is growing because of the additional opportunities we see around the world, including in Mozambique, after having made the acquisition there. We think that's a great growth markets and great IRR associated with it. So we are funding that. But there's also some internal spend. We have some long-term major office replacements that, we're presuming at this point in time, we finance internally as opposed to through a lease or some other arrangement. So there's some dollars in there for that. And there's some O&M projects that we've considered also in the guidance.

In terms of cash flow for the year, this last year, 2012, there was a use of working capital tied to a decrease in advances. And also for an increase in the business associated with growing revenues. We would expect both those things to continue into 2013. So 2013 cash flow, at this point, may look a lot like 2012 from an operating cash flow standpoint. But keep in mind that an awful lot of that gets tied up in timing and ebbs and flows of project cash flow. So it's always more meaningful to look at it over a longer period without a cut off end of the year. And that's why we look at, as well, in terms of what we do from a capital deployment standpoint. We're not hard coded on an annual cash flow target. So hopefully that helps.

Our philosophy with respect to capital deployment remains very much the same, in terms of we obviously want to drive cash flow, we want to maintain the A-minus credit rating, its flexibility within that. But we'll look for opportunities to invest in a high return. And, absent those, [above] 16 of the dividend, irrespective. And absent those other opportunities, we will look to repurchase shares as excess cash becomes available. Just won't get ahead of it.

Okay. And not to belabor the point, but in terms of your -- if you look at the mix of backlog right now, and where your cash is held, it would seem that there's still a disproportionate waiting internationally in your cash balance. But most of the growth opportunity sounds like it's shifting a little bit back towards North America. How does that play into how you think about that overseas cash?

You're right. Over time we expect higher shift back, as you say, of the total backlog to the US. Although we expect substantial growth internationally, as well. So we'll see how it plays out from a percentage standpoint as we go through time. Right now there is $1.7 billion -- or at the end of year there's $1.7 billion of our $2.6 billion total cash was international. So a lot of it overseas. As the US cash balance grows, certainly it becomes more efficient to use that domestically for whatever purpose. But the most important thing is you get the cash generation irrespective of whether it's domestic or international. And that gives us the greatest opportunity.

I want to just put a point on one thing you mentioned. And that is, even though we do see a significant opportunity in the United States, I still see the majority of our business being outside the United States for some time to come.

I hear you. Just in terms of the weighting of backlog, maybe shifting a little bit back towards North America. Just one last question, David, if you don't mind. On the power business, can you just give an update on the Dominion project, and how maybe that's progressing towards financial closure or not? And then just broadly speaking, within power, what your expectation for the year is from an awards standpoint, and then visibility beyond that? Thanks.

I think new awards in power, I'm modestly optimistic. I think there's some things that have to go forward relative to gas and some of the renewables. I don't think it would be prudent for me to comment on Dominion.

Okay. That's helpful. I appreciate it.

Steven Fisher, UBS.

Just a quick follow-up. Can you just talk about how you expect your Afghanistan work to ramp down over the next couple of years? I'm just wondering, based on troop counts, do you think you could run off 0.50 by the end of 2013, and then maybe the other 0.50 by the end of '14? I think maybe last quarter you said it would be a pick up before it winds down.

That's a great question. We're doing all the scenarios that the military has asked us to do on the back of LOGCAP. I think what typically happens in a drawdown is these services that the military is doing has to still be done when there's military in theater. And that's when they turn to us. So you actually see a little bit of a rise in our activities as you go through a drawdown. We have not gotten anything, other than the things you've heard in the press, that would suggest that you're going to see a significant drawdown in '13. But as we anticipated, '14 will be when we start to see that come down. But I don't think it's going to be appreciably different in '13 than it was in '12.

Okay. Great. Thank you.

Okay, I guess we're to the end of the questions. And thank you, operator, for handling that for us. And thanks to everyone for participating on our call today. As we've said, we believe the underlying performance of the Company in 2012 was extremely strong. During the year we returned over $500 million in cash to shareholders through dividends and the repurchase of 7.4 million shares. And we continue to maintain one of the healthiest cash positions in the industry.

Looking at 2013, we're very optimistic about the opportunities, as you've heard us speak. We see opportunities across the industries and geographies that we work in, primarily oil and gas and petrochemicals and infrastructure, I think, in the near-term. And we expect to deliver solid results in line with our guidance. With that, we really appreciate your interest in our company, as well as the confidence you have in us. So thank you. And, everyone, have a great day.

Again, this does conclude today's conference. We thank you all for your participation.