Fluor Corp (FLR) 2014 Q4 法說會逐字稿

Good afternoon and welcome to Fluor Corporation's fourth-quarter and year-end earnings conference call. Today's call is being recorded. (Operator Instructions).

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. The web replay will be available for 30 days. A telephone replay will also be available through 11 AM Eastern Time on February 24 at the following telephone number: 888-203-1112, the pass code of 325-3699 will be required.

At this time for opening remarks I would like to turn the call over to Geoff Telfer, Vice President of Investor Relations. Please go ahead, Mr. Telfer.

Thank you, operator. Welcome to Fluor's fourth-quarter and 2014 year-end conference call. Today we are presenting to you from Amsterdam where we are here for the opening of our new office in the Netherlands. With us today are David Seaton, Fluor Chairman and Chief Executive Officer, and Biggs Porter, Fluor's Chief Financial Officer.

Our earnings announcement was released this morning before the market opened. We have posted a slide presentation on our website which we will reference while making 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 filed earlier today.

During this call we may discuss certain non-GAAP financial measures. Reconciliations of these amounts with comparable GAAP measures are reflected in the earnings release and are posted in the Investor Relations section at our website at investor. Fluor.com. Now I will turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Jeff. Good morning to everyone and appreciate you joining us today. On today's call we'll review our fourth-quarter and full-year 2014 results and discuss our outlook for 2015. But before we move to the next slide I'd like to make some introductory remarks.

2014 was an important year for Fluor relative to our growth as well as our competitiveness. Throughout 2014 we continued down a deliberate and purposeful path to improve client service, staying in tune to their needs and improved capital efficiency with greater assurance relative to cost of schedule certainty on the major projects that we are doing for them.

Our customers are focused on capital efficiency so they can continue to invest and we are helping them do that. We have been on a three-year path to strengthen our competitiveness and create profitable growth for our shareholders. At the same time we've also positioned our businesses to provide clients with integrated solutions, competitively offering them the breadth of our knowledge capabilities and service.

As a result we believe we are in a better position today to compete and win new work regardless of the market conditions. The pipeline of projects has not diminished. Back in June of last year I mentioned that we had a pipeline of Oil & Gas projects totaling some $50 billion. Even though we have booked a number of those in the second half of 2014, the pipeline of prospects today is still roughly the same size.

Since June we have had success in booking the Fort Hills project in Canada, the Sasol cracker in the Gulf Coast, PEMEX's Tula Coker, the RAPID project in Malaysia for Petronas, and then last week the NEXUS pipeline.

To summarize, 10 billion projects off the original list were awarded to us, $2 billion was lost or canceled, and $10 billion in new prospects have been added. With that we feel confident that our opportunity set remains in very good shape.

The exact timing of the awards, however, is uncertain and you've heard us use the term lumpy before and that will not change. The lumps may occur over a longer period of time this time, which makes for a longer, more sustained cycle, not the end of a cycle.

In our mind there is too much use of the word headwinds. Headwinds, as seen in the marketplace so far, affect a part of the oil patch on which we do not depend. More importantly, there is still tailwind -- sorry, more importantly, there is still a tailwind for longer-term growth, it's just blowing a bit softer and will cause the time over which the spending occurs to extend.

Low cost gas is still a positive driver and there are customer decisions that are affected by oil; they see current pricing as temporary. Although there will be some delays in some cases, customers will ultimately make the decision based on those long-term expectations.

So with that let's look at the 2014 full-year results beginning with slide 3. Net earnings attributable to Fluor from continuing operations were strong at $715 million or $4.48 per diluted share, which compares with $668 million or $4.06 since per diluted share a year ago.

Consolidated profit for 2014 rose to $1.3 billion, up from $1.2 billion a year ago. The growth in segment profit I think reflects growth as expected in Oil & Gas and Power, which was offset by declines in Industrial & Infrastructure, Government and our Global Services segments. Segment profit margins were 5.9% which compares 24.4% a year ago. Oil & Gas margins improved to 5.9%, up from 3.8% a year ago.

Consolidated 2014 revenues was $21.5 billion, down from $27.4 billion a year ago, mainly due to significantly lower revenues in the mining and metals business segment.

Full-year new awards were a record $28.8 billion including $19.7 billion in Oil & Gas, $4.7 billion in Government, $3.3 billion in Industrial & Infrastructure and $1.1 billion in Power. Consolidated backlog at year end was $42.5 billion, up 22% from $34.9 billion a year ago.

If you would please turn to slide 4. The Oil & Gas segment booked $4.9 billion in awards, as I said, including the projects that I spoke of earlier in this call, the Sasol Chemicals, the Ethane Cracker on the Gulf Coast, the PEMEX Tula Refinery Coker project. And with that ending backlog for the Oil & Gas segment rose 42% from a year ago and 1.9% sequentially to end 2014 at a record $28.4 billion.

Fourth-quarter new awards in Industrial & Infrastructure were $712 million including the A9 Holendrecht-Diemen road project here in the Netherlands. Ending backlog for the Industrial & Infrastructure decline as we continue to work off our mining and metals project. We closed the year with backlog of $7.3 billion compared with $10.5 billion at the end of a year ago.

Turning to slide 5, the Government group posted fourth-quarter new awards of $157 million. Ending backlog for that segment of 2014 was $4.7 billion. In the Power segment fourth-quarter new awards were $528 million including a five-year contract extension to perform maintenance at the Diablo Canyon nuclear plant in California. Ending backlog for Power in 2014 was at $2.1 billion, up slightly from a year ago.

With that I will now turn the call over to Biggs to review some of the details of our operating performance and corporate financial metrics for the quarter. Biggs?

Thanks, David, and good morning, everyone. Please turn to slide 6 of the presentation. I will start by providing some additional comments on our fourth-quarter performance then move to the balance sheet.

Revenue for the quarter was $5.5 billion, which compares to $6.3 billion a year ago. As expected, overall revenue for the quarter was down fairly significantly year over year, mainly due to the continued reduction in mining activity, along with an upstream coal bed methane gas project in Australia which is completed.

EPS from continuing operations for the fourth quarter was $1.41 compared to $1.01 a year ago. This quarter's EPS includes the benefit of a lower effective tax rate of 23% primarily due to the favorable resolution of tax audit issues, as well as lower share count as a result of our share repurchase program.

Turning to slide 7, corporate G&A expenses for the fourth quarter were $53 million, down from $65 million a year ago. The decrease was mainly the result of lower stock price driven compensation costs.

Shifting to the balance sheet, Fluor's financial condition remains very strong with cash plus current -- noncurrent marketable securities totaling $2.4 billion. This compares to $2.7 billion a year ago.

In 2014 the Company generated $643 million in cash from operating activities and returned over $1 billion in cash to shareholders through share repurchases and dividends.

In November the Board of Directors authorized an increase in existing share repurchase program by 10 million shares. We issued $500 million of debt and repurchased approximately $500 million of shares in the fourth quarter. The Company plans to repurchase another $500 million of shares over the course of 2015.

Moving to slide 8, Fluor's consolidated backlog at year end was $42.5 billion. The percentage of fixed-price contracts in our overall backlog was 19% at quarter end and the mix by geography was 34% US and 66% non-US.

I will conclude my remarks by commenting on our guidance for 2015 which is on slide 9. As stated in our release, although we continue to closely monitor the capital spending plans of our major Oil & Gas clients, at this point in time we believe the effects from slower spending by our customers on our earnings per share guidance will be significantly offset by the positive effects of our announced share repurchase program.

However, we believe the upper half of the range, while still achievable, has become more challenging. We are accordingly expanding the 2015 guidance range slightly to $4.40 to $5.00 per diluted share. This guidance excludes the effects of previously announced termination settlement of Fluor's US defined-benefit pension plan later in 2015.

Our guidance for 2015 also assumes G&A expense in the range of $190 million to $200 million, a tax rate of 33% to 35% and capital expenditures of approximately $300 million. We don't give quarterly guidance, but, in looking at the first quarter of 2015 versus the fourth quarter of 2014, I think there are a few things people should keep in mind.

These include the tax benefit we recorded in the fourth quarter from the resolution of audit issues and the benefit to compensation expense of the mark-to-market of our share-based compensation.

I wouldn't necessarily characterize these as unusual because they have happened before and they or other things with similar positive or negative effect make happen again. But having said that, these are not items we expect to occur every quarter. We expect this year's first quarter to look more like last year's first quarter with EPS building throughout the year. With that, operator, we are ready to take questions.

(Operator Instructions). Andrew Kaplowitz, Barclays.

David, how should we think about your backlog going forward? You mentioned lumpiness and I think consensus from our side is that Oil & Gas could have some pressure here on the backlog going forward. Can you maintain your overall backlog?

And then how much risk is there to projects currently in backlog? I know you guys probably noticed sort of the PEMEX delays that they talked about over the weekend. So we often get that question, sort of the quality of the backlog. Maybe you can talk about that.

Yes, I think when you look at the current backlog we feel pretty good about what is in there. A lot of the things that have been announced that have pushed a little bit to the right, really the majority of that is not in our backlog at this moment. I think over time we have been very conservative in what we take in and how confident we are in that going forward.

So I don't really see a lot of risk in our current backlog from a cancellation or a delay perspective. However, when you look at what is not in our backlog but we anticipate it to be in our backlog as we get into the first half of the year, some of it has been pushed to the right.

So maintaining the record backlog and improving upon that in 2015, we don't have as good a feel for that. But again, that really doesn't impact 2015, it more impacts 2016 and 2017 when you think about the burn of some of these projects.

As I said in my opening remarks, I've been in front of a lot of customers over the last couple of weeks, particularly in the Oil & Gas business. And for the types of things that we are chasing, they feel pretty bullish about them going forward, it is just a matter of when.

I think they have got their own challenges with their investor base that they are dealing with, and they are taking one more look and a deep breath before they start pulling the trigger on some of these programs. But I would also say that is okay.

We feel good about the fact that we have taken the efforts over the last three years to become much more competitive and, in fact, are already showing customers that we can help them become more capital efficient in terms of how they spend.

So, I think that over the last three years we have done all the things we need to do to be very, very competitive in a market that is like it is right now with volatility or not.

Got it. So I wanted to ask you in that context, David, about Oil & Gas revenue -- I mean I will let Jamie ask you the margin question on 4Q. But when we look at the evolution of Oil & Gas revenue in 2015, I mean it was pretty low in the quarter, obviously very high margin.

I guess we are concerned a bit about a slow burn here for a lot of the E&C companies. And so, why wouldn't slow burn be an issue for you guys too as we look at 2015? And is that maybe a reason why you kind of expanded the range and talked about getting rid of the high end, is that the biggest reason?

Well, I mean I think I will go back to what I said about backlog. We feel pretty good about what is in backlog. But in terms of E&C, we are at the beginning stages of some very, very large projects where you are in the design phase, you are early in the procurement phase and you are not anywhere close to being in the field in construction. So it is kind of a dip from a revenue burn perspective based on the timing of some of these projects, not because of some delay or fear of delay.

And, Andy, on the high end, we didn't get rid of it. We said it could be more challenging, which is a nuance, but we didn't take it off the table.

Robert Connors, Stifel.

I was just wondering for -- to get a little bit of a color on the flavor of the $10 billion of prospects that did start to come into your feed list in the back half that sort of canceled out the $10 billion that you had won, by upstream versus downstream as well as geography?

Well, I think it is pretty clear that there is not a whole lot of upstream in terms of exploration and production. But I would remind you again that we are really not exposed to most of the E&P side of the equation. But when you look at midstream pipelines, when you look at refinery and petrochemicals, all of those are seeing new prospects.

I would say that regionally there is still a lot in the United States, but there is also work in Canada, the Middle East as well as Asia that are part of that $10 billion that has come in.

I think the interesting thing is that, because of the efforts that we took around competitiveness, it has actually opened a bigger window for us. And we feel confident in being able to go after some projects with some really good customers that maybe has a different contractual approach.

But again, I would remind you what Biggs says, our backlog right now is 19%, I think it's 19% fixed price. So even moving that up into the low 20%s doesn't take us back to the max that we have seen in years gone by of 50%. So we are being very measured and very conservative and cautious, but I think the actions that we have taken have actually opened the aperture of opportunity for us globally.

And then, Dave, I guess stepping back one of my bigger questions is since you took over you made Fluor a leaner, flatter sort of organization. And one of the benefits we saw is that when mining rolled over you were able to roll a lot of that capacity into the Oil & Gas side.

So just going forward, if we are in a sustained sort of slower Oil & Gas CapEx spending environment, I am just wondering if we could see possibly a material sort of just downsizing just on the Oil & Gas side because now Oil & Gas and mining are sort of firing on all cylinders.

You know, that is a great question. I think what we have done over the last couple of years has really perfected the dispersed execution model. And what that means is we have been able to right size the -- we have right sized each of the offices and are able to move the work around.

So I think from the standpoint of a workforce we have got a much more stable workforce today and going forward. So I don't see a lot of headwinds, to use the term we don't like to use, less tailwind relative to the population that we have.

But what this has also allowed us to do is this too shall change and we are ready to grow. I mean we really have the ability to turn those levers now and not have any issues relative to a big piece of the talent that we need access to. We still have the challenge on the craft side from a skill set perspective, but we are working on that now.

So we have had the ability in a little bit of a slow down to kind of do a little bit of a check and see where do we need to spend the training efforts and it allows us to focus on the craft side. So I feel really good about where we stand from a human resource perspective and the ability to turn that crank very quickly when things improve.

Jamie Cook, Credit Suisse.

Hi, good morning, this is actually [Ben Shou] on for Jamie. I guess Andy set me up with this one. I just want to talk about the Oil & Gas margins in the quarter, 7.3%. I guess can you talk about that a bit? It looks like there might have then some favorable closeouts there? And also how should we think about that going forward just given the uncertainty in the market and as projects ramp to construction? Do you think (multiple speakers)?

Well, I think -- go ahead, sorry.

I mean do you think you can hold call it 5% margin in 2015?

2015, yes, I think we can hold 5% margin. I think I would go back and make two comments. One is the comment around the timing of where we are in the cycle of the individual projects where the type of revenue we are burning is more services based. There really wasn't any closeouts during the quarter that pushed that up.

But I would also say that in the changes that we have made to the organization, we've clearly become more profitable in terms of the returns that we are expecting from these projects. So I feel pretty comfortable in saying that margins should start with a 5% going for quite some time within Oil & Gas.

I think for next year it may start out in the 5% range, but there is certainly the potential for it to go up into the 6% range as well and end up pulling out in that territory for the year.

Okay, got it, that is helpful. And then I guess moving to your other businesses, it looks like the orders in Power and I&I were pretty solid. Can you talk about the ability for you to grow backlog in those two segments throughout the year? And then I'll (multiple speakers).

Well, I think Power has become, if you can believe it, more competitive. There is a lot of people that don't have the diversity that we have that are forced to make some, in my opinion, some poor decisions on what they expect and what they will accept.

I do believe we are in a good position to grow backlog in Power over the short term. And I feel good about our position regardless of the fuels choice. So when you look at Diablo Canyon, being able to re-sign that agreement in the nuclear space, when you look at some of the shutdown turn around work that we do, gas is obviously driving the ship there. So I feel pretty good about growing backlog in Power, but I'd just caution that there is some really heavy competitive pressures there.

When you look at the industrial market we are seeing some pretty significant new opportunities in terms of the Life Sciences piece of that business. We're also seeing the manufacturing side with a fair amount of new capital expenditures that we are looking at.

And again, in that particular segment it is pretty global in nature, in the Power segment it is primarily North America. But obviously that gives us the rest of the world to kind of leverage in utilizing this dispersed execution model that I spoke of earlier.

Tahira Afzal, KeyBanc.

Congratulations on a good quarter. First question is we have seen you just release something with NEXUS. When we track all the major pipeline projects in North America, and this is outside of Keystone, (inaudible) is up to more than [100 billion to 150 billion] potentially, that is supposed to be awarded between the next couple of years.

So, I know some of you might see some timing issues in your more traditional Oil & Gas market. Do you see the opportunities on the pipeline side as potentially being a meaningful offset, especially into the second half and 2016 time frame?

Absolutely, absolutely. We saw that coming years ago and actually Peter and his team, when he was running E&C, put together a small group to focus exclusively on the major pipelines. The Keystone pipeline is so politicized we had to look elsewhere. But your numbers are the same numbers that we look at and I think there is great opportunity in terms of pipeline replacement programs as well as the new things like NEXUS.

And I think we've formed some really good relationships with our customers in terms of how we're going to execute those things. And again, look for that capital efficiency where we can find it. So it is -- I think it is a good growth story as we go through the next two or three years.

Got it. And second question is on really market share gains for yourselves. From what I hear at trade shows you remain very disciplined in bidding, and a lot of your recent gains have really come from being able to market cost savings for your clients.

As you go into an environment which is tougher, does that net-net provide more opportunity for you for market share gains or is disciplined bidding going to really keep it around flatfish?

I think there's great opportunity. As I have said, I mean, I think we've kind of changed the game relative to how we develop these projects with our customers and really look at how do we change the traditional approach with our customers to make sure that we are getting the best bang for the buck.

I think there is over the years some -- maybe some fat has gone into these capital programs where they are really happy when their facility operates at 120% of nameplate capacity when basically all they wanted was 100% of nameplate capacity.

And I think that is something that our customers are looking at and saying we just can't afford that. And luckily we are ahead of the game. We are way ahead of the game in terms of being able to demonstrate how to lower those capital costs to our customers.

So regardless of the competitive situation, we feel like we are in the best position to give them the best asset at the best price and at the same time maintain the profitability that we expect. So, I think we've kind of changed the game here and I think that is going to bode well for us for many, many years to come.

Jerry Revich, Goldman Sachs.

I'm wondering if you gentlemen can just talk about out of the $50 billion pipeline, can you give us just a rough flavor of how the regional breakout compares to your current backlog and maybe touch on how big the prospect list is in refining specifically?

I think it is pretty much all over the globe to be very honest with you. I would say that in the near-term it's still heavily weighted towards North America, but the opportunity set is very global. I mean three or four countries in South America, three or four countries in the Middle East, China, the non-sanctioned piece of Russia, Southeast Asia -- I mean there is just a lot of work out there that is pending.

I would say it is heavier on the petrochemical side right now than anything else. But it is not vastly bigger than the refining opportunities or frankly some of the upstream opportunities that still make the cut relative to the decisions that need to be taken.

And again, a lot of these projects are getting bigger so the gestation period is longer, which kind of speaks to that lumpiness that we mentioned earlier. But as we go over the next 12 quarters I feel pretty good about solid growth in that marketplace over that longer period of time. And that is just Oil & Gas.

When you look at Infrastructure there is growth opportunities there. I mentioned Power and the Life Sciences side of our business, there is opportunities in our Government business outside of the US Federal Government.

So I think we still have a pretty good growth story, I just think we've got a temporary cooling based on one -- well, two commodity prices -- copper and the barrel of oil.

But I would remind the audience here that it was only about four or five years ago that our oil company customers were making the same capital decisions on $50 oil, so that is not that long ago. And I would also remind everyone that people suggested the sky was going to fall if it ever went above $100 a barrel.

So you've got to look at the stuff in the long-term and I frankly think that in terms of our business and in terms of the Oil & Gas Company's business, it is a good time. It is a buying time, if you will, in terms of capturing those projects that matter. And I think our client relationships and our performance prove that we are in the best shape to capture that.

And, David, a couple of years ago at the Analyst Day you spoke about building a skill set analogy and obviously your venture with JGC has gone pretty well for you folks. What are the strategic priorities for you during this cool off period?

Any other technology (inaudible) I guess areas that we should look for you folks to build out? Or any other strategic combinations -- relationships I mean, not consolidation, that would make sense for you folks?

Well, I think it is in a couple of areas, it is not as specific as LNG but we're going to continue to focus on our supply-chain capabilities in terms of how we buy, where we buy, the development of new suppliers and all of the logistics that go with it.

I mean a lot of these programs now are as much about the logistics as they are about the technical capabilities of the engineering piece. We're going to continue to grow our direct hire construction and our fabrication capabilities to service the customers where we need that help.

Again craft labor being a pinch point, we are making sure we have got the capacity to take it off the site into a fab yard where you have got a controlled environment which I believe increases the quality and surety of delivery. So I feel pretty good about doing this.

I guess the other comment that I would make is this really isn't a cooling off period; this is an opportunity to kind of look at the future and grow from there. So the glass -- this isn't just an opinion, I mean the glass is half-full, it is not half empty, as most people are reporting.

Alex Reichel, FBR Capital Markets.

Nice quarter, David. A couple quick questions. First in the I&I segment, that segment has started obviously to stabilize post the mining cycle. Do think margins of 6.5% 2014 is that new norm or does that include some of the benefits of project closeouts from the mining cycle?

It does clearly include some of the benefits of closeout in mining cycle and we've had really good performance on infrastructure as well in 2014. So those margins are higher than what we would expect going forward, it should move back more towards the norm of 4% to 5% over the next year.

That's helpful. And then as it relates to some of the pipeline projects like NEXUS or Los Ramones, can you talk about how Fluor is going to be controlling the critical path? And how should we think about margins in the pipeline business for Fluor? Are they closer to the Oil & Gas average or are they going to be more like the mining segment given the quantity of materials associated with pipelines?

Well, it is a different kind of -- it is more of a logistics and a supply chain program than the traditional Oil & Gas, so I'd say it would moderate more towards the mining side, but not vastly. But controlling the critical path of those projects is controlling the supply chain and assuring delivery of what you need when you need it.

And as I said, we've spent a lot of time and effort on that we will continue to do so. So I feel pretty good about being able to control our own destiny on those projects.

Steven Fisher, UBS.

Guys on the Power profitability at $12.1 million, I'm not sure if there was something specific in there that drove it up, but it's certainly a new higher level. Is this a level that you think we can build off of from here or should we still expect it to be up and down for a little while?

Well, I will let the Biggs talk a little bit about it, but I'd say that we have kind of bottomed -- we bottomed out in Power and are starting to see growth in front of us. We have also just started some pretty large projects, so again you are kind of in those early stages. Biggs, have you got any --?

The other thing affecting Power on a segment reported basis is that on this scale the recovery we recorded from our DOE cost share was a little bit higher in the fourth quarter so that improved the segment results as well.

Okay. And then over on the Oil & Gas side, David, you have talked about this a number of times on this call already. But can you just maybe talk a little bit more about why you think we are not going into say a couple years down cycle in Oil & Gas?

What is it that your customers are telling you? I know you said they are still optimistic, but why couldn't this be a couple year downturn before we pick back up again? I think that is kind of one of the key debates (technical difficulty) investors right now.

Well, and I guess -- that is a great question and I would kind of preface it by this before I get to the answer. Each of the oil companies have said that they are going to limit their capital spend, which says that the marginal projects are probably going to get delayed further. But when we look at going after a piece of a customer's capital spend we spend a lot of time on which projects are going to go forward.

So I think when you look at what we are focused on, they are on the projects that matter. I had a conversation with one customer last week, as a matter fact, and they said, you know, we still have got to add 200,000 barrels just to tread water.

So these companies are going to continue to replace their reserve base, they are going to continue to look at value added products, they are going to continue to improve their businesses. They are just going to be a little bit more thoughtful in which projects go forward and which projects need a little bit more work.

But clearly, as you can see with our new awards for this quarter, decisions are still being made. NEXUS being a great example where in the first quarter they have made the decision to go forward with these products based on their customer needs.

So, yes, I think drilling rig count is a problem, but we don't do that business. I think some marginal field developments may take a little bit of a breath, but again that is not something that our backlog is exposed to. But at the same token low prices are really exciting to the chemical producers, as an example.

So again, I think that you really can't paint Fluor or our market with the same brush as the -- as is being painted for the Oil & Gas market. So, A, we are choosing the right projects that are going to go forward and are being very, very successful on. B, we've taken the effort to become much more competitive and profitable. And, C, I don't think this is a long -- I mean it depends on what long-term -- how you define long-term.

I think that 2015 is going to be a little bit of a hard year relative to order intake, but it really doesn't damage our growth potential for necessarily for 2016, 2017 and beyond.

Andy Wittmann, Robert W. Baird.

David, I wanted to get your perspective a little bit on the change in the executive compensation plan that was announced a couple of weeks ago. Previously the long-term plan was based on gross margin of new awards and new awards in total. It looks like for 2015 the emphasis has been placed on EPS growth over a longer period of time as well as return on assets employed.

Given that what is the thought process around that? Is that just a recognition that there is going to have to be a little bit more operational focus from the Board given that the award slate is maybe slowing down? Is this just a pivot point? I think some perspective as to why those changes are made would be helpful.

Disclosure laws, it is pretty simple. I still believe, and many of our people are still compensated on the basis of new award margin and percent margin -- dollars and percent margin because I think that is the best indicator of future health and future earnings of the Company.

We are not going to disclose the metrics around there. So, what we have done is we have changed -- we have changed to EPS and returns specifically to avoid disclosing something that we think is a competitive metric.

Got you. So in the past you have been able to not disclose and still be incentivized on that, but in the future there was some change that you didn't feel like you could still do that and (multiple speakers)?

Correct.

Okay.

Correct.

Okay. Great.

To kind of the undertone of your comment, we have always been focused on both growth as well as delivery. So regardless of what we change it to our focus is still on flawless execution and certainty of cost and schedule to our customers.

Got it, that is helpful. Just for Biggs on mining. You guys have given, over the last year as mining has been in focus, some detail as to what that business is doing. Can you give us, now that 2014 is in the books, what the revenue contribution was for 2014 and kind of what your thought is on relative change here just for mining as we move into 2015 so we can get our arms around what that might look like?

I actually don't think that we have been disclosing what the revenues are of mining versus infrastructure. We have from time to time reported the backlog number from what was mining and if I get it I will give it to you before the call is over, I don't have it right here in front of me. So I will have to look for that.

Adam Thalhimer, [B&T Capital Partners].

Good morning, guys, congrats on a nice quarter. David, you said you have met with executives of some of your large customers in the Oil & Gas segment over the past few weeks and they still want to move forward on projects. I am just curious, are they asking you for any concessions say, hey, if you cut your price a little bit it will help us kind of move this thing forward or has that not really come up?

No, it has come up but I think the dialogue is more around proper scope management and effective implementation of the supply chain things we're talking about. We have had some customers that have asked for a unit rate kind of reductions but not significantly so.

And to be honest with you, I believe that is a little shortsighted because that is not where the real money is. The real money is in the supply chain and how we implement construction.

Okay, and then in the Oil & Gas segment, I'm still trying to get a sense for when some of the larger projects move into the construction phase. I mean, is that kind of like -- for some of the largest projects you are working on, is that the middle of 2015, is it early 2015, is it late 2015?

Well, I mean if you think about the three crackers, we are already in the field on all three of them in some form or fashion. And -- because they are still in the early stages. So on some of the big stuff we're already out there.

Typically you are going to look at from the award of the EPC you are going to look at, I don't know, six to nine months before you really get into the field in earnest. So we will be going into the field in some of the projects in 2015 just on plan. There's a couple that have been pushed to the right just a little bit.

But I guess the point I'd make is that we haven't had any cancellations, all we have had is delays in terms of FIDs and which quarter or which fiscal year those things go forward. Which speaks to the comment I made about how sure we are about what we take into backlog and which projects that we go after. So we are kind of hitting the field in some cases now and we will continue to do so as we go through the year.

Brian Konigsberg, Vertical Research Partners.

Just coming back to the opportunity set on the petro chem cracker, so we have had six come to market already. And you noted there is -- in the pipeline there is a number of additional opportunities. So do you believe the US -- or I'm not certain if that is specific to US, but can US be meaningfully more than six crackers? I'd love to get your take on that and, if not, where the other opportunities reside.

Well, they are in North America ,the ones I am speaking of. And I think there is room for more.

Okay. And then just second question, I noticed in your 10-K you are noting that the burn rate -- and just coming back to the question just around burn in 2015 -- 44% of your backlog will be burned in 2015. And actually a that is a pretty marked slowdown from what we saw last year. It actually implies the revenue coming from backlog is down maybe 1% in 2015 versus what you had in 2014.

And I am not certain how much you could comment on this, but if you just take the consensus number it would suggest that the book and burn revenue in 2015 would have to almost more than double, which I guess is -- seemed to be tough just considering the backdrop we are talking about. Is that the right way we should be looking at it? And if so, I mean why would that consensus number be close to being right?

Well, let me start and I'll ask Biggs to give his thoughts. As I said earlier, we are kind of in a situation where you are in varying stages of projects. And the burn on these projects is heavily weighted towards the back end once you -- we get to the field. Because at that point you've purchased most of the equipment materials so you are getting towards the end.

On all of the three crackers that I spoke of you are still in the early, early stages even though we are already in the field in some cases. I've give an example, we are in the very early stages of the cracker construction at Dow, we are in the very early stages in Sasol and we are a little bit further along in CPChem.

So the burn in 2014 was minimal on all three of those relative to the overall revenue burn. I think the most important metric, frankly, is the margin burn and the fact that we are improving our margin performance over the last probably eight quarters across the board and specifically in Oil & Gas. I don't know, Biggs, if you would like to comment?

I will just make a couple comments. The 44% is down from what we would have printed last year at this time in the 10-K. However, I think as things turned out the percentage burned off in 2014 was probably below what we expected when we printed the 10-K last year.

If you recall, in 2014 we didn't have as many projects move into construction as soon as possible, so revenues were down a little bit more -- or down below what we initially expected. And so, there might not be that big a difference between the burn rate we actually had last year and what we expected this year.

I do think that revenues are going to grow in 2015, it should be double digit, we would estimate 10% or higher. And then when you fit all that together I think that at the end of the day our book and burn for this year on the Oil & Gas side isn't expected to be too different from what we had in the past.

Michael Dudas, Sterne Agee.

David, could you comment on outlook for large infrastructure projects? Could we anticipate maybe a $1 billion type project that could get booked in 2015 or maybe others? And is it certainly driven by public-private and some of the financing schemes away from stuff that could be coming out of Washington and added clarity on infrastructure spend?

I think public-private is clearly the approach of choice in terms of North American infrastructure. I wouldn't comment on whether there is a $1 billion one in the works. I would just say that there is a lot of them in the works, but again, the development phases of those are significantly longer than the development cycle of like an Oil &Gas project, if you will.

So, I think that there is a couple of projects, as I said, in North America that we are focused on. There is a couple that are between say $300 million and $700 million. But I would say there is not anything in the current view that would book in 2015 that is over $1 billion.

My follow-up would be on the Middle East. Some of the budget numbers given where energy prices are from the national oil companies, do you feel comfortable with some of those numbers that are put out there? And are there any political issues in that region right now that could cause some pullback or shift in the mix of budget or spending in that world that relates to Fluor?

Well, as you know, I lived out there for a long time and stayed very close to that part of the world. I would categorize it this way: this is no different than the last three or four times I have seen oil drop.

I told you guys when we were in Houston back last year, I mean I remember when it hit $17 a barrel in 1997. If you go back two years prior to that it was $11. And the capital spend of our customers to maintain that reserve base stayed very robust.

So I think the NOCs are no different than the IOCs in terms of what their long-term views are and they are okay when you got $50-$60 oil. So I guess the hedge I would make is if we see a significant drop, which I don't anticipate, in oil price you could see some change. But at the current levels they are still looking long-term and I really don't see any significant change I think in the near-term in their spending habits.

Politically, I mean, you read the same papers I do. I mean, the place has always been a little bit difficult in terms of how things go forward. And I don't think that has changed today.

I will say that it doesn't worry me particularly what is going on right now in terms of the short-term impact on business even with the strife that you have seen and the terrorist activities that are going on. It is still a great place for us and our customers aren't changing their spending habits at this point.

This is Biggs. Unrelated to that question I just want to follow up on the earlier question on mining backlog. The amount of mining backlog at the end of the year was around $2.5 billion. So with that we can go to the next question.

Anna Kaminskaya, Bank of America-Merrill Lynch.

My first question was regarding -- just going back to Oil & Gas margins -- just with some push out of the energy CapEx in the US and seemingly more labor availability, does it enhance your margin on existing projects at all or just given most of it is cost-plus doesn't really change the profile?

I don't think the fact that it is cost-plus changes the profile. I still feel that we are in a good shape relative to us being able to deliver the margin that we anticipated when we took it into backlog. I don't see any change -- any market change there at all.

Okay, so you don't think it helps your margin, or enhances it?

I don't think it hurts or helps.

Okay. And then just if we think about just changes to your business model, you talked a lot about more fabrication capabilities and logistics investments. Does it change your soft margin profile in the Oil & Gas business just in terms of cyclicality and if we do go into the downturn?

No, I don't think it has any impact and I am not sure what you mean by soft margins necessarily. I mean clearly, if we are going to control the critical path of the schedule, as I've said before, we have got to do certain things ourselves, which in some cases is margin in the past that others earned as a subcontract. So that does help us to that degree.

But relative to backlog and what we're going after, that approach has already been embedded in how we have taken those projects into backlog.

I would just add that the fabrication assets that we have added have been through joint ventures. So that cost is a shared cost, it gives us an adequate degree of control over the critical path, as David stated. But it is done on a fairly efficient basis for us.

John Rogers, Davidson.

Two (multiple speakers) follow-ups. First of all, I guess for Biggs maybe. In terms of cash flow, last couple of years it has matched up with net income pretty well, should we expect the same in 2015?

Yes, I can actually even add some commentary on 2014. We actually had about a little over $200 million that we would've expected in 2014 that came in in early January. So was expecting a bigger fourth quarter than what we actually had. That money came into 2015 instead and so that is obviously helpful to 2015.

Having said that, I have to also note, so that everybody doesn't forget about it for the first quarter, that we did have a $300 million settlement payment that we made in January as well. So if you are looking at it without that consideration you'd say we should expect a very good year for 2015; it will be tempered by the fact that we made that payment.

And then, David, just following up on your comments relative to controlling some of the critical path and supply chain and you have mentioned fabrication. But are there other areas that you can point to now that you think you have notable and significant competitive advantages in terms of controlling the supply chain and (technical difficulty) areas that you want to get better control of?

I feel good about where we are, but it goes back several years in the work that -- in Oil & Gas that Peter Oosterveer and his team did in terms of looking at the capital efficiency of the programs.

And what I mean by capital efficiency is are we designing Serial Number 1 that has a significant cost associated with it and a risk or are we developing scopes that don't have Serial Number 1 equipment in it that are tried and true? Are we designing based on design margins that are reasonable or have we allowed the customers to layer those such that steel's bigger, pumps are bigger, motors are bigger, those kinds of things?

So the first part of it is around the physical scope that is there. I think our ability to control our own destiny in the fabrication yards to, A, ensure our position in the shop; B, to manage the quality and the performance of those shops is critical in terms of cost and in terms of delivering those modules when and where they need to be.

I think in terms of construction in a process plant the critical path runs through the piping account. Well, on a direct tower basis that is the scope that I want to do ourselves because, again, you are controlling your own destiny and the critical path schedule.

I mean I could go on and on and on on the things that we have done to improve our ability to perform effectively there. So I mean, there is a lot that we have done that gives us comfort that we can continue to perform for our customers and be best in class.

And we have no further questions at this time. I will now turn it back to our speakers for any additional or closing comments.

Thank you, operator, and I appreciate everybody participating on our call today. But as I have said in my opening remarks, we are focused on maintaining our competitiveness and growing our profitability. And I think what we've got in front of us clearly allows us to do that.

I think both are essential for growing shareholder value and attracting the right talent and meeting and exceeding our client expectations. Again, we've done a lot of work around making sure that we are being thoughtful to our customers around the competitiveness that they need in the capital efficiency, but we are doing so in terms of being able to provide an integrated cost effective solution to the issues that they are dealing with.

I believe we've taken and will continue to take the actions that we need to be more competitive in a pretty volatile market. But again, not at the expense of profitability, which I believe is a true credit to our leaders and our employees.

With that I greatly appreciate your interest and confidence you have in our Company and we wish everyone a good day. Thank you.

This does conclude today's teleconference. You may now disconnect. Thank you and have a great day.