Fluor Corp (FLR) 2013 Q4 法說會逐字稿

Good afternoon and welcome to the Fluor Corporation fourth-quarter and year-end 2013 conference call. Today's call is being recorded. At this time all participants are in a listen only mode. A question-and-answer session will follow Management's presentation. A replay of today's conference call will be available at approximately 8:30 PM Eastern Time today accessible on Fluor's website at www.fluor.com.

A web replay will be available for 30 days. At telephone replay will also be available through 8:30 PM Eastern Time on February 24 at the following telephone number, 888-203-1112, the passcode of 5357718 will be required. At this time for opening remarks, I would like to turn the call over to Mr. Ken Lockwood, Vice President of Investor Relations. Please go ahead Mr. Lockwood.

Thank you very much operator and welcome everyone to Fluor's fourth-quarter and 2013 year-end conference call. With us today are David Seaton, Flour's Chairman and Chief Executive Officer; and Biggs Porter, Fluor's Chief Financial Officer. As you know, 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 today. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on slide 2.

During today's call and slide presentation we will be making forward-looking statements which reflect our current analysis of existing trends and information. 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 filed earlier today, as well. 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 also posted in the Investor Relations section of our website at investor.fluor.com.

So with that, I would like to turn the call over to David Seaton, Fluor's Chairman and CEO.

On today's call we will review fourth-quarter and full-year 2013 results, and also discuss our outlook for 2014. If you turn to slide 3 I'd like to start with 2013 full-year performance. Net earnings attributable to Fluor for 2013, were $668 million or $4.06 per diluted share. Which is up from $456 million, and $2.71 per diluted share in 2012. Financial results of 2013 met our expectations, and we continue to be very encouraged by the significant and sustained progress of our Oil and Gas group.

Consolidated segment profit for 2013 rose to $1.2 billion, up from $769 million a year ago. Increased segment profit for 2013 reflects growth in Oil and Gas, Power and Government segments, partly offset by declining in mining and metals. Fluor's Oil and Gas business posted especially strong results with a 32% increase in segment profit, strong revenue growth and margin improvement. Consolidated revenue of $27.4 billion for 2013 was comparable with 2012, reflecting growth in Oil and Gas and Power which was offset, as I said, with revenue reductions in other segments.

Full-year new awards were $25.1 billion, comprised of $12.9 billion in Oil and Gas, $6.6 billion in Industrial and Infrastructure, and $4.1 billion in Government, with $1.5 billion in Power. Consolidated backlog at the end of the year was $34.9 billion, which compares with $38.2 billion a year ago, as I said, reflecting continued decline in mining and metals awards, and the fourth-quarter cancellation of our contract for Pascua Lama in South America.

If you would, please turn to slide 4 for some recent highlights. In the fourth quarter, the Oil and Gas segment booked new awards of $4.2 billion, including the North West Redwater refinery upgrade project in Canada, an additional scope on a major upstream gas processing project in Kazakhstan. Ending backlog for Oil and Gas segment rose 10% from a year ago, and at $1.3 billion sequentially to end 2013 at $20 billion. As you know, in January we announced the award of an engineering procurement structure in contract by Chevron and Apache for the proposed Kitimat LNG facility in British Columbia.

We are extremely pleased to be selected with our partner JGC for this strategically important project, which is on track to become Canada's first major LNG production and export terminal. We believe that winning this project positions us well for other full-scale LNG projects. In Industrial and Infrastructure the backlog at the end of the year was $10.5 billion, which is down from $17.2 billion last year.

This decline was driven by lower mining awards in 2013, and the fourth quarter cancellation of Pascua Lama, which I noted earlier, removing $1.8 billion from our backlog. While we continue to support the water treatment facilities for Pascua Lama, and helping wind down the project, our original EPCM contract has been canceled. Fourth quarter new awards in Industrial and Infrastructure were $340 million, including a number of maintenance contract renewals.

If you would, turn to slide 5. The Government group posted fourth quarter new awards of $1.1 billion, ending backlog in 2013 was $2.4 billion. In the Power segment, fourth quarter new awards were $146 million including early engineering on a proposed nuclear facility in the US, and renewal of several Power maintenance contracts. Ending backlog for Power was $2 billion, which compares to $1.9 billion a year ago. During the quarter, NuScale was selected by the Department of Energy to receive funding that will support the development, licensing and the commercialization of the Company's nuclear small mods reactor technology.

We're in the process of negotiating the terms of the agreement with DOE, which is expected to provide approximately $200 million in cost-sharing funds over the next four years. We are pleased with DOE's selection and NuScale, which we believe provides independent validation of our view of the commercial viability of a safe, reliable and scalable small module reactor technology. We are in the process of seeking potential investors, manufacturers and other supply chain partners.

With that, I will now turn the call over to Biggs to review the details of our operating performance, corporate financial metrics as well as our outlook for 2014. Biggs?

Please turn to slide 6 of the presentation. I want to start by providing some additional comments on our performance for the fourth quarter. Revenue for the quarter was $6.3 billion, which compares with $7 billion last year, namely due to a significant reduction in the mining and metals business line. Net earnings attributable to Fluor for the fourth quarter of 2013 was $167 million, or $1.01 per diluted share, which compares to a loss of $4 million or $0.03 per diluted share in 2012. As you may recall, the fourth-quarter net loss of $0.03 in 2012 was affected by $1.61 per share charge on an offshore wind farm project, a $0.17 per share benefit from the sale of our interest in a telecommunications company, and a $0.26 per share benefit from the favorable resolution of various tax items.

The effective tax rate in the fourth quarter 2013 was approximately 31%, including benefits from research and development tax credits, and a domestic production activities deduction which were partially offset by the adverse tax effect from a foreign loss without tax benefit. Fourth-quarter segment profit was $318 million, including improved contribution from the Oil and Gas global services and Government groups.

Turning to slide 7, Government results in the fourth quarter included approximately $57 million related to the favorable resolution of various issues with the US Government. There were essentially three separate events that made up of $57 million, and these are discussed in our Form 10-K. We assumed a certain amount of benefit to result from these items in our guidance, but we didn't necessarily expect all these issues to get resolved in the fourth quarter. While it may seem somewhat unique, it is similar in nature to the close outs we regularly see in the commercial business lines, we continue to seize a release upon resolution of the associated issues. Partially offsetting these benefits were increased proposal and other overhead costs in the Government group in the quarter.

With regard to Government backlog, beginning this quarter, we've elected to include the unfunded portion of our multi year Government contracts at Savannah River in Portsmouth, in order to be more comparable with industry practice. The fourth quarter of 2013 included new awards and unfunded backlog of $983 million. We will separately identify the unfunded amounts in our financial reporting going forward.

Moving to slide 8, as previously mentioned, Fluor's consolidated backlog at year-end was $34.9 billion. The percentage of fixed-price contracts in our overall backlog was 20% at quarter end, and the mix by geography was 36% US and 64% non-US.

Turning to slide 9, Corporate G&A expenses in the fourth quarter of 2013 were $65 million, which compares with $41 million a year ago. A significant rise in our stock price during the fourth quarter drove stock price driven compensation expenses higher by $12 million. G&A also demonstrated a more normal seasonal trend in 2013, which resulted in higher fourth-quarter expense.

Shifting to the balance sheet, Fluor's financial condition remains very strong, with cash plus current and non-current marketable securities totaling $2.7 billion. This compares with the balance of $2.6 billion a year ago. During 2013, the Company generated $789 million in cash flow from operating activities, repurchased $200 million worth of Fluor shares, and paid out $79 million in dividends.

At its most recent meeting, Fluor's Board of Directors voted to increase the quarterly dividend to a new rate of $0.21 per share, up from $0.16 per share. With regard to share repurchases, we repurchased $200 million worth of shares in the fourth quarter, and are in the process of repurchasing another $200 million worth in the current quarter. As a result, Fluor's Board has approved a 6 million share increase in the Company's share repurchase authorization, which after considering first quarter repurchases, will bring the total number of shares available for repurchase to over 12 million shares.

I will conclude my remarks by providing an update in our guidance for 2014, which is on slide 10. We are encouraged by the Company's strong prospects of continued growth especially in Oil and Gas. We are maintaining our EPS guidance for 2014 at the previously announced range of $4.10 to $4.60 per diluted share. We expect the first quarter 2014 to be lower than the fourth quarter 2013 as reported, and then expect to steadily quarterly improvement for the balance of 2014. Guidance for 2014 assumes that G&A expense will be in the range of $170 million to $180 million and effective tax rate of 32% to 33%.

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

(Operator Instructions)

Andy Kaplowitz, Barclays.

David, [LDS] margins had a nice uptick in 4Q, you had been talking about it. Do think you're still on track for the 5% margin that you alluded to in the second half of this year? Can you tell us how much of the improvement that you saw in 4Q based on better mix versus better pricing? Maybe a follow on to that, David, around do you have to take extra risk to get to these higher levels? Because you know, we do notice more [LSTK] work that Fluor's taking and maybe you could talk about that.

First, I am pretty bullish on where we are headed with oil and gas. The early wins that I mentioned, and have been in the press here the last couple of days, I think do a couple of things for us. One, it validates our ability to capture our fair share or maybe more than our fair share of some strategic programs, at margins that should see it rise. I stick with my previous comments about the margin going up.

I wouldn't predict when, but I think that I would be disappointed if we didn't start with a 5% as we get towards the end of this year, early next year. We are in the early beginning stages of these programs and as you say, there are some fixed-price projects that will be like the power and infrastructure programs, where significant profitability drops in at the end.

We have not seen our risk profile increase, based on the new awards that we are booking right now. Yes, there are some that are fixed-price in nature. But I would say that we feel very comfortable in taking the projects that we are on the fixed price basis, and that's not just in oil and gas, but I would say across the Company.

We feel pretty good about our ability to execute against that. I think the increase that you are seeing is part of the mix change. But, I think it's also a recognition that we've got a value proposition that lets us get paid for the value that we provide. I feel really positive about where we are and where we are headed. I have great confidence in our teams to being able to deliver the profitability that we expect.

David, that's really helpful. Maybe a similar question around backlog. Can you talk about your confidence that your overall backlog can rise from here as mining washes out here and as you continue to book oil and gas work? Do we need one of the big LNG projects to be booked in 2014 for oil and gas backlogs to continue to rise?

There's no doubt in my mind that backlog will increase as we get started in 2014.

Easy answer. Thanks, David.

Jamie Cook, Credit Suisse.

Nice margins on the oil and gas front. I guess, a couple of questions. One, your wins in oil and gas have been fairly impressive. Your market share is at unprecedented levels. Can you talk about your concerns overall with capacity that you have, given how much work that you've won?

I think the other dynamic that was very interesting last cycle, was -- I mean, the market got tight enough and you were in such demand that you got to a point where you really wouldn't do the feed work unless you pretty much had a higher than average probability of getting the EPC. Can you talk about where you are with your customers in that regard? And my last question is, you've won so much in oil and gas already, when you think about your prospect list for 2014, can you size that versus where we were bidding here last year, just because you've already won so much work year-to-date? Thanks.

I think we have just begun with regard to oil and gas. Granted, I think there are some very large programs that will come into backlog in the first half of the year. But there's still a lot more out there that we are pursuing. So I think that what's in front of us today is much bigger than what it was in the last cycle. And I think what we've done in how we've invested in our people and our tools and systems over the last two or three years, have really taken a lot of the question relative to capacity out of our equation.

We feel really good about the talent that we've got to execute these projects. We feel really good about how we've changed the game in how we plan to execute these projects. I think the teams have done an outstanding job. Now, whether that translates into higher prices, the market will tell.

We are pretty pleased with the margin and backlog that's going to come in over the next several quarters. As far as capacity, we feel good about where we are. The other element that I would suggest is that we have seen some of the projects get pushed a little bit.

Shell, GTL, which we were doing some work on is obviously been postponed if not canceled. [Sassels] has pushed out a little bit. So when you think about my comments a couple of quarters ago, I was worried about the craft content and whether we could turn the crank and add those kind of people. I was worried then, I'm not worried now. I feel really good about our ability to attract the best and brightest globally, frankly, on the craft side to get these things done.

I feel pretty good about where we are. As I've said to you guys before, I want a client's projects all the time, not just on a one-time basis. So, price gouging and doing those things don't make good strategic sense to me. We are going to be comfortable that we are getting the return we expect. So far, I would suggest that we are doing quite well in adding to the value that's in our backlog from a gross margin standpoint.

Okay. I guess, just one follow-up. On the quarter, while the oil and gas was great, and that's all that people care about, if you backed out the gains that you got in government, which I understand happened, but whatever. You look at the underlying profitability of government, the underlying profitability -- the declines that you saw in industrial and infrastructure, and the power business. Those businesses, I feel like the profitability were below what I would have expected. Can you talk about where the quarter on those business shaked out relative to your expectations? Then I'm done. Sorry.

There's a lot of moving parts. Biggs can comment on any specifics that he cares to. I would remind you guys that we are probably the only company in our space that's as diversified as we are, from a market perspective. If you go back a year and a half ago, we were really happy about the margins coming out of mining. And the margins coming out of industrial and infrastructure in general, and that will return.

There is a cyclical nature to our business, and I think our diversity and our focus on that helps us over the long term, provide profitable growth for our investors. I feel really good about that strategy of diversity.

Now, with regard to the puts and takes in the quarter, I think we are pleased with where we are, given those circumstances. As Biggs said in his prepared remarks, what would be considered by some when they read the data as one-time events, we don't look at it that way. It's profitability that we expected in the closeout of some of these projects and how the government deals with contractors.

Whereas it looks unusual, it didn't surprise us at all, given where we are. We didn't think that one of the settlements would actually come in the fourth quarter. So we are pleased it did.

I think the value of the margin in backlog and all of our market segments I'm pleased with, given where they are in their cycles. But I would also tell you that we are really focused on the cost side of the equation. And I think, as we go through -- to answer part of Andy's question -- part of it is that Peter in oil and gas has done a really good job of right sizing their organization and readying it for this next wave.

All right. Thanks. Congrats. I will get back in queue.

Jerry Revich, Goldman Sachs.

David, can you update us on your expectations for final investment decision on Mozambique LNG? How is that project tracking and can you talk about your intent to bid on the project? Should we look for similar full fabrication cost bid that you delivered on Kitimat? Thanks.

Yes, we submit our technical proposal in March, which is followed up, I think, in six weeks with a price proposal. I'm not exactly sure, it's close there behind. Then, they will go into a quiet mode and evaluate which ones -- which will be their contractor. We feel good about how we've worked with the customer, we feel good about the offering that we've got.

We are really pleased with our partner, JGC, and how they're helping us, and how we are helping them. So, we will see. But, I think any decision is probably late year and we will see where it goes from there.

David, just to clarify the decision by end of year. Do you made a final investment decision or down select, how will the process play out?

You probably have to ask Anadarko that. I know that they've extended some of the delivery dates in the past. I think that we're going to stick with the plan, that they make a down select decision in late this year and there never was a final FID in 2014, I don't believe. So, I think the final, final is sometime next year.

Okay. Thanks. US infrastructure opportunities, can you give us an update how the opportunity set for Fluor for bookings over the next 12 to 18 months based on the major projects you are evaluating?

We've had several proposal -- a lot of proposal activity that has taken place over the last little bit waiting on several programs. I think we are kind of in a lull, to be honest with you. I think the public/private partnership approach is gaining speed in the United States, and I think we've got a distinct advantage in that. I think state laws are having to look at how they allow that, because not all states allow for a public/private partnership approach. But I also think that a lot of the states have been emboldened by what Governor Cuomo's done in New York with Tappan Zee.

He moved that forward at breakneck speed, and I think with all of the issues that the US infrastructure is facing, we've got to do something. The governments can't afford it, so I think that PPP market is going to be the approach of choice. As I said, I don't know if anybody does it any better than we do. I feel pretty good about that market in the next -- I think that's got a lot longer tail on it than the oil and gas sector, frankly.

Some of those programs are going to be very large and the gestation period is going to be prolonged. I go back to my diversification comment. When you get to 2016, 2017, 2018 I think there's going to be some really positive news on the infrastructure front.

Thank you very much.

Brian Konigsberg, Vertical Research.

David, actually coming back to oil and gas. It's clear your enthusiasm for the project pipeline. I guess, curious about general discussions with project owners. We've been obviously hearing about pressures on operating cash flows, and decision making on deployment of capital, whether they proceed with projects that are on the board, or do they pay dividends or buy back stock, or other avenues of allocation. Are you seeing any type of pressure on the large projects in the pipeline at all? Or, is it smooth sailing and there's not a lot of over-reaction to that in the market?

I think the companies are doing what they think is right. I'm not -- that's above my pay grade to comment on their practices. But, we really haven't seen a whole lot of change recently.

Let me put some color on that. We have seen some change going back, probably three years ago, where a little more diligence is taking place by the project teams. The projects are getting so large that they're going through one more quarter for FID funding.

They're going for one more review with their boards. Kitimat is no different than that. So I think there is more scrutiny, but I don't think it's any different today than it was two years ago.

I think that we haven't seen anybody, other than Shell, cancel a project of any significance. But I think they are just rationalizing where they are going to spend their money. So I wouldn't say that it's any different, but I also wouldn't say it's smooth sailing.

When these guys are deciding to spend, you pick the number, $12 billion, $15 billion, $18 billion on a project. A lot of people take a big swallow and ask for more information. So, I think that's what's happening. I wouldn't say it's any different than it's been for the last two years.

Okay. Got you.

I would also say that there's no difference in what the mining guys are doing. Because I think what we are seeing, the mining guys dusting off some of these projects again. And looking at some rationalizations that we've seen take place with different cancellations. But, I don't think that you've seen them really pull back on the developments that are going to put ore on the water. That's what they get paid to do, and we are going to help them.

Actually that was my next question on the mining side. You have been the voice out there saying that we will see the return to some of these projects and there's been some more commentary about copper projects, specifically the shortage that might be emerging on that front. Maybe talk about, are you seeing something that could potentially hit in 2014, or is this more 2015 type of development and how substantial is it?

It's a lot of study work. Whether certain projects come back in the same scope that they were, is questionable. So, there's probably some re-scoping and some additional front-end engineering and technology selection work to be done. So, I'm not looking for any big stuff in 2014. I am looking for growth as we get into 2015.

If I could sneak one last one in. Biggs, I just noticed that the shareholders equity is down sequentially despite the fact that you had earnings in the quarter. Is that just a reflection of the backlog removal? Or are there other items playing in there?

Backlog removal wouldn't have affected shareholders equity other than earnings. You've got other [conference] of income and you've got share repurchases.

Okay. That explains it. Great. Thank you.

Steven Fisher, UBS.

Wondering if you still assume a typical, call it 4% to 5% margin in the government business for 2014? I assume the proposal cost that you mentioned were the reason for the sub 2% margins excluding the $57 million. As it relates to the margin assumptions, I know you kept overall $4.10 to $4.60 guidance unchanged. But was there anything notable that shifted around within that expectation for the year since October 31?

The last question first. I don't think there's anything real notable that would be shifting around. On the government group, you are right. I think that the margin expectation between 4 and 5 is a reasonable one for 2014. The 2013 fourth quarter did have that offsetting effect of the higher than normal proposal costs and also some increases. Otherwise, in overhead, which wouldn't necessarily be recurring.

So, those two things had some degree of offsetting the $57 million. Just to reinforce something there, the $57 million -- we started out looking at the fourth quarter and gave original guidance. We did assume there would be some benefit there. We just didn't assume there was going to be a full $57 million.

It really is, in nature, similar to what we have in other periods, and that's what causes some government group's margins to bounce around on a recurring basis, anyway. In this case, it's just a lot of it hitting in the fourth quarter and it happened at different times, reinforcing the notion and the fact that these really were three separate items. It's just unusual to have them all happening in one quarter. I would be reluctant to throw it all together as one $57 million number and treat it as a singular, absolutely distinct event.

Okay. That's helpful. Maybe, David, digging in a little bit more on the fixed price mix in oil and gas. If you could talk a little bit more about the basis of your confidence and the ability to price it appropriately. Is it, this time around, you are doing more engineering, getting that more completed before you actually start the construction? Or is it your approach to construction was more modular? What's the basis for the confidence and the pricing of that risk?

It's all of the above. As I said, we've taken a lot of time going back three years from a project that we lost spectacularly in the Middle East and did a ground-up review of how we are doing projects, how we estimate things, what is in our designs. What does it take to make sure we can mitigate the risk of construction? Is that fabrication? And I think all of the above have led to us being, I think, a lot more competitive in the market place, which I hope translates into higher margin.

But, I think I've got great confidence in how we've retooled the system. That system is, in its entirety, the designs that we are using, how we are applying our supply chain expertise, where we are buying things, how we are buying things, the partners that we choose to work with. And how we are going to execute the project in a much more efficient manner.

I think what we are trying to focus on is a better delivery of both cost and schedule to our customers. I think my confidence in this will lead to additional awards. Because we are going to be able to do it better than anybody else, and that's what we are focused on.

I know it sounds like motherhood and apple pie, here. But I've got to tell you what the teams have done in leveraging, as an example, the oil and gas guys leveraging the expertise from our power group, 100% of that backlog is lump sum. Leveraging the logistical capabilities of some of the infrastructure projects, and taking the lessons learned from that. What we've done on direct-hire construction and in lock step with what we've done to secure our position with fabricated modules, all of that goes into us having a much more competitive offering, with much more surety of execution.

Great. That's very helpful. Thank you.

Will Gabrielski, Stephens Investments.

Can I push a little more on oil and gas margins? I'm just counting, it's been three years since you were last over 4 and now you are back over 4. It sounds like you have the conviction that you are going to get another 90 bps or so between now and year end into that margin, I'm just curious. Is it an accelerating burn associated with the big wins you had last year or it something around the cost side or a combination of both that gives you some, at least, comfort that we are trending in that direction?

I think it's both. What we are seeing is, the payoff of the investment -- the investments that I just mentioned, it's effective utilization of our resources. It's the deployment or the results of the strategies around expanding our offerings in both in terms of market and in geography.

I think what the team has done has really opened the aperture of the market without risking the risk profile of the project. With that comes some efficiencies. So we are seeing improved margins in backlog, and part of that is because of how we've developed the strategies to deploy and execute. It's additional leverage from the use of -- utilization -- sorry -- the utilization of the people we have.

But, it's all of the above. I think we are starting as a Company, not just oil and gas. I think we are starting to click on all cylinders.

That gives me great confidence in saying that yes, we are going to put more margin over the next three quarters on the books for oil and gas, and I think you're going to see the overall margin improved for the bigger Fluor. So, I hope I'm not too overly optimistic, or sound too overly optimistic on the phone. But there's a lot of good things to be talked about, with where we are headed and the successes that we are having.

Okay. Was the Northwest upgrade also a lump sum EPC one?

No.

All right. When you talk about Mozambique LNG, or when you think about Anadarko, I guess, [since] you are doing the FEED for. How would the timing of that project shift if Anadarko wasn't involved or if there was a change in ownership? Is that something you think about, in terms of the SID targets and getting the EPC nod?

Well, I don't have any indication that they are looking to [parlay] us with that project. Obviously if they did, there would be a delay. There's not anybody waiting in the wings to pick that up. We haven't gotten any indication that a significant change is imminent.

Okay. Lastly, of you don't mind, on NuScale. I'm curious where one, where do you think the organic power margin is in 2014? If you want to comment on that. Two, where are you on the pursuing strategic alternatives or looking for partners and how much of that is embedded in the guide at this point?

Well, there's two questions there. I think the margin question was around power in general, without NuScale, is that right?

Yes, that's the first part.

I think that, that is a very competitive market right now. I don't foresee us getting back into double-digit margins any time soon with regard to power. However, I do think we are going to see some improvement as we move into 2014. We've got a lot of projects that have been bid and we are in the negotiation stages as we speak, whether we win or not, is yet to be seen. But I have confidence in growth, in power overall and improving the margins some in that segment, during 2014.

With regard to NuScale, we are still in the negotiation process with the Department of Energy on exactly what that sharing looks like. So, it's hard for me to predict what the expenditures will be. What I committed to you guys in the last quarter I maintain, and that is that Fluor's investment will not be what it was in 2013. What that exactly means, I can't tell you right now.

But I can tell you, when an FOA was that Good Housekeeping Seal of Approval that we needed to attract interest from investors. There's a lot of dialogue with certain investors that we are in other, less definitive, dialogues for FOA. Until the ink is dry on the FOA it's hard for me to say who is ready to write a check or become an owner.

I can tell you that there's a lot of interest from partners, both in terms of technology owners and power companies. There's significant interest in some of the suppliers for the equipment that will be required to build those facilities. So, we are a little bit behind what I hoped we'd be. But A, as I said in the prepared remarks, I think it was validation that the DOE selected only NuScale. I think that that was what we needed to get the dialogue and interest from potential investors to the table.

I will elaborate a little bit to help you with the math on NuScale. As David said, we are still in negotiation on the FOA arrangement. So, there's some things to be further defined.

Generally speaking, talking about an FOA award of just over $200 million, which would be over a four-year period. That's about $50 million a year that would come from the government as a match. So, our corresponding spend would be $50 million.

Now, having said that, you can't automatically plug in $50 million for this year for NuScale in our outlook, or in our guidance, because it will be influenced by two things. One is how much claw back there is, which is one of the things that gets determined in a negotiation, how far back to the past we effectively get some degree of match for, and secondly, what happens from the standpoint of selling down our interest.

Until we are done with the negotiation, until we are able to determine just how successful we are going to be, how fast in selling down the interest, it's hard to be finite as to what the expectation is for NuScale for the year. But, that at least helps you figure out what the ceiling is and what it will down off of.

It does. Thank you, Biggs.

Michael Dudas, Sterne Agee.

So, my thought -- my question is relative to the lull in infrastructure. The government mining, et cetera, looking at INI. Is there opportunities for Fluor to make some acquisitions to fill in some holes, or skill sets or technologies within that broad scope in 2014? It seems like you may have been fairly generous with the share repurchase and dividends. That there could be enough capital to show some opportunities there. Just wanted to hear your thoughts on that.

Well, I think what we've always told you is, if there's not any strategic reason for the cash, returning it to shareholders through dividend and share repurchases is the next usage. I think that, hopefully, the increase in the dividend shows you the confidence we have in our earnings streams over the next few years.

Also, recharging the repurchase program also shows that we've got an expectation of cash generation there. I can tell you that that does not hamper us from looking niche acquisitions. As I've said in the past, it's hard to move the needle for us because of our diversity. We are going to be very careful in how we look at acquisitional growth.

But I do believe that some level of acquisition over the next couple of years is needed to fill some skill gaps. But I can commit to you that we are going to be very careful in how we look at that and what pieces that we get. I go back to some of the other terms we've used around, like niche, to describe those acquisitions. I think we will stick with that.

I appreciate that and my follow-up is, David, maybe with the recent reorganization, internally promoting Peter to COO. What's the vision behind that? And are there -- if there opportunities for more cost savings, streamlining opportunities? Or is this an area to focus on getting better and deeper penetration with the current client base?

I appreciate that question. You know, we really flattened the organization so that we could be more nimble and agile with our customer base. We eliminated a layer of management, basically, so that both Peter and I can spend more time with the projects and with the customers. Clearly, there is a benefit from an overhead reduction, from the elimination of some positions.

But really, Peter and I looked at the commercial side of the business. Government still is a direct report to me. But when you look at the commercial business, looking for the synergies, looking for cost optimization, as I mentioned when we were talking about lump sum, some of it is becoming much more cost competitive in how we deploy our resources. No duplication of efforts.

So this was an opportunity for us to really get ready for the wave that's in front of us. I'm really pleased that Peter took that position. But, I think what I really like, is it created a lot of opportunity for the next wave of leadership in this Corporation.

I think from a long-term perspective, it gives me great confidence that we are here for the long-term. I'm certainly here for the long-term. But, I tell you, I'm really excited about this change and the effect it's going to have on how competitive we can be.

Excellent, David. Thank you.

Vishal Shah, Deutsche Bank.

David, I just wanted to get a sense of how you are thinking about the guidance for the full year. What are the puts and takes on getting to the upper end or the lower end of the range? Whether this government resolution was included in your 2014 guidance?

As I've said before, I'm not going to give guidance within guidance. I think we are comfortable with maintaining that guidance. As the question the last quarter was, how confident are you that you can stay in that range, if you don't win either of the LNG plants? You know, we've won the one that we wanted, because it starts early. So, it gives us confidence that we are within the range and right on target with what we expect from an internal earnings target perspective.

Great. I appreciate that. Within the INI segment, as you think about the profitability of that segment, at this run rate of revenues. Are we still looking at a 3% to 4% margin number for this year? Or is that going to be difficult to achieve?

Well, I think that the -- this is Biggs -- on INI, the run rate going into the third quarter was 4% or a little above that. It jumped up in the third quarter, the result of some significant milestones and favorable events. We said they wouldn't necessarily repeat themselves and that it would fall back down to that 4% or just above 4% kind of level going forward, and I think that is still our expectation. Keeping in mind that, yes, there is -- the mining activity is lower margin business.

Infrastructure is higher margin on average. But it does get driven somewhat by the timing of our hitting milestones and significant events which enable favorable profit pickups. We don't necessarily see quite as much opportunity in 2014 as we did 2015. That's why I would say, even though mining is slowing down, we're still probably going to be in that 4% or just above 4% kind of territory for INI.

Thank you.

Sameer Rathod, Macquarie.

It seems like more and more of your large projects are being won under a joint venture structure. How do we think about Fluor's profitably and cash flow with an increase in non-controlling interest deduction on both the income statement and cash flow?

Well, predominantly the joint ventures are accounted for on a partial consolidation basis. So, we pick up our share of revenues, we pick up our share of profitability. Therefore, the margin rate really is not affected by the fact that it's a joint venture versus something that we have, that we are the sole, prime contractor on.

From the standpoint of cash flow, likewise, we're picking up our fair share of the cash flows and nothing -- because it's partial consolidated, it really doesn't affect non-controlling interest at all. Because, we are just picking up our share as opposed to picking up 100% and having to back out a non controlling interest. For the most part, it should be fairly transparent or -- no real distortion occurring in margins in respect to the P&L.

Cash flow, it can be somewhat affected by virtue if cash build up in the joint venture. Then, we are all having to agree on how we take cash out. That's why when we look at cash availability, we -- first thing we look to exclude is the cash that's tied up in joint ventures or in advances from customers. That's really represents something that isn't immediately available, but over an extended period of time it is. It's just a matter of we are not the sole determinant of when the cash gets flowed back to the joint venturers.

Okay. That's very helpful. My next question, if I think about your prospect list, it seems like a lot of these larger LNG or natural gas-related projects are in some way dependent on emerging market growth. Given the recent volatility and number -- [half the] number of unexpected rate hikes, it seems like global GDP basis about 10% of the world's GDP just saw a big hike. How do you evaluate some of these larger projects in that context? How do you handicap the funding of these projects, given that liquidity is being gained from the market? Thank you.

That's a great question, our view into that -- obviously, I look at it -- we look at those trends and market conditions when we are doing our plans. But I think the best granularity comes from when we have our conversations with the customers on many of these programs. I think Kitimat is a great example of where they've seen the hikes because that product is headed to Asia, and they are on track to continue funding.

So, the challenge that we have, and this is something we spent a lot of time on, is which projects are we going to chase? And use that selectivity or create the selectivity set based on where we think these programs are going. So far, I think we've made wise choices of where we invest our money, in terms of proposals and efforts to get position for these projects. So, I don't see any macro economic issues or product flows changing anything that we are really looking at right now through 2014.

Alex Rygiel, FBR.

David, or Biggs, as it relates to your buyback activity, you obviously bought back $200 million in the fourth quarter and that was at the lower end of your range of $200 million to $400 million. But yet in the first quarter of this year, it appears as if you are on your way to buying back another $200 million. As we think about your buyback, should we think of it as a $200 million a year strategy? Or is that a $400 million a year strategy?

I guess to clarify, back to the $200 million to $400 million. When we said that, we said it would be over the next several months as opposed to in the fourth quarter. So, we really are executing right in line with that and going to the higher level of $400 million, and it's been accomplished over the fourth quarter last year, first quarter of this year.

From the standpoint of how to think about it, as David has already said, it always depends upon is there other higher, better use of cash is there anything else that we can get a greater return on. We always have to look at that. For that reason, and because you can't always predict those in advance, it's hard to say, here's what the expectation should be.

Having said that, I think if you looked back over the last few years, it's been around $400 million a year on average, even after considering the lower level last year. It was around $400 million in 2012, and it was above that in 2011. So, it's averaged around $400 million, but it's always going to be dependent upon -- it can be higher or lower depending on the combination of cash that's generated and what the other alternatives are, if there are any. We did increase the dividend rate to increase the cash distributed to shareholders through a different means.

That's very helpful. Secondly, as relates to LOGCAP IV, is the outlook for 2014 still around $1 billion in revenue?

Yes.

And has your methodology for accounting for LOGCAP IV in backlog changed?

Not on LOGCAP IV, no. That wasn't affected, anyway.

Perfect. Thank you. Nice quarter.

Andrew Wittmann, Baird.

I just had a question on the non-controlling interest lines. It looks like sequentially it's down a decent amount. Just wanted to know, if there is a specific project behind that, potentially the mining joint venture but maybe something else?

I'm glad you asked. It really is a good follow-on question to the one earlier about the new joint venture. Because I only answered what was going on with the new joint venture on the oil and gas side, as I said we participate being partial consolidation.

We did have on the mining side, one project last year, which caused non-controlling interest to go up and that was in fact Pascua Lama. You may recall back at the first of last year, we took responsibility for the Argentinian side where we had just had the Chilean side and when we did that it caused us to move from partial consolidation on that project to full consolidation. Then, that non-controlling interest went up. But now that work has first, wound down and secondly, canceled at least for the time being, then that reduces the amount of non-controlling interest we are going to have out of the mining business.

Anything else on a go forward basis? Is this $18 million level the right level you think going forward, Biggs?

It's going to bounce around. That is hard to project. I think, just keep in mind that it nets out at the bottom line, and it doesn't really affect our net P&L and it doesn't even affect our taxes, literally. It has a cosmetic effect on the tax rate, but it doesn't affect our absolute taxes. So, I understand it can create a complexity in modeling. For the most part, you shouldn't -- make sure at the end of the day it is neutralized.

Got it. One other question, on some of these projects that you announced after the quarter, some of the larger ones like the Clean Fuels project, Kitimat. Can you talk about what scope we should be expecting and maybe specifically to the Clean Fuels? We notice that this is a consortium there. Should we think about your role as more of an engineering construction management rather than the construction-type role in that project?

No. Actually that project is based on scope. Each of us has a vertical for the scope, EPC. If you remember, we did the FEED on that program several years ago. So, how that project divides up is basically one third, one third, one third. But, a little early for us to put out any numbers.

Got it. Okay. Thank you.

Ladies and gentlemen, that does conclude the time that we have for our question and answer session. I will turn the conference back over to management for any additional or closing comments.

Thank you, operator. I really appreciate everyone participating in our call this afternoon. I think our performance in 2013 was very solid. Particularly given the short decline that we experienced in mining and metals.

However, as I've said, our oil and gas, power and infrastructure and government businesses have all delivered marked improvement in -- over 2012. We continue to face headwinds, as we've talked about in mining and government as we move into 2014. But, we believe that we are in the early innings of a very major oil and gas investment cycle, that we are very prepared for.

Importantly, our oil and gas segment continues to gather significant momentum by delivering over 30% growth in its segment profit. Capturing the key awards that we mentioned and growing their backlog and positioning Fluor for substantial new award output in 2014, as well as beyond. With that, I really appreciate your interest and support of our Company, and we wish everyone a good day.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you for joining. Thank you for joining.