Fluor Corporation (FLR) Q3 2011 Earnings Report, Transcript and Summary

D. Michael Steuert - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Kenneth H. Lockwood - Vice President of Corporate Finance and Investor Relations David T. Seaton - Chief Executive Officer and Director

Yuri Lynk - Canaccord Genuity, Research Division Jamie L. Cook - Crédit Suisse AG, Research Division Brian Konigsberg - Vertical Research Partners Inc. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division Steven Fisher - UBS Investment Bank, Research Division Scott J Levine - JP Morgan Chase & Co, Research Division Richard Paget - WJB Capital Group, Inc., Research Division Andy Kaplowitz - Barclays Capital, Research Division Robert Connors - Stifel, Nicolaus & Co., Inc., Research Division Will Gabrielski - American Technology John Rogers - D.A. Davidson & Co., Research Division Avram Fisher - BMO Capital Markets U.S. Robert F. Norfleet - BB&T Capital Markets, Research Division Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Good afternoon, ladies and gentlemen, and welcome to the Fluor Corporation Third Quarter 2011 Conference Call. Today's call is being recorded. [Operator Instructions] A replay of today's conference will be available at approximately 8 p.m. Eastern Time today, accessible on Fluor's website at www.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 8:30 p.m. Eastern Time on November 9 at the following telephone number, (888) 203-1112. The passcode of 5931473 will be required. At this time, for opening remarks, I would like to turn the conference over to Ken Lockwood, Vice President of Investor Relations. Please go ahead, Mr. Lockwood.

Thank you, operator. Good afternoon, and welcome to Fluor's Third Quarter 2011 Conference Call. With us today are David Seaton, Fluor's Chief Executive Officer; and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed. We have posted a slide presentation on our website, which we will reference while making prepared remarks today. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on Slide 2. During today's call and slide presentation, we will be making forward-looking statements, which reflect our current analysis of existing trends and information, and there is an inherent risk that actual results and experience could differ materially. You can find a discussion of those risk factors in our 10-K, which was filed on February 23, 2011, and in our Form 10-Q filed on August 4, 2011. During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are posted in the Investor Relations section of our website at investor.fluor.com. With that, I'll turn the call over to David Seaton, Fluor's Chief Executive Officer. David?

Thanks, Ken. Good afternoon, everyone, and thank you for joining us here today. Before I get started, I'd like to briefly comment on the tragedy that we experienced over last week in Afghanistan. As you may have read last Saturday in Kabul, a convoy transporting NATO military personnel and civilian contractors were attacked. A suicide car bomb with over 1,500 pounds of explosives struck an armored carrier within this convoy. Regrettably, 13 people lost their lives in this attack, including 7 Fluor LOGCAP employees. This is a very difficult time, and we would like to express our thoughts and prayers for the families and friends of those who lost their lives in this tragic, tragic event. Getting onto the regular presentation. I'd like for [ph] to turn to Slide #3 and talk a little bit about our financial results. I want to start by covering some of the highlights of the third quarter. Consolidated revenue in the third quarter totaled $6 billion, which represents a 10% increase over third quarter of 2010. Net earnings attributable to Fluor in the quarter were $135 million or $0.78 per diluted share. Our segment profit totaled $236 million, including a $38 million pretax charge for additional costs associated with the Greater Gabbard project, mainly associated with the installation of subsea cabling. As you know, challenges in the cable installation process had been largely caused by the bankruptcy of a critical subcontractor back in January. This forced the project to secure alternative vessels and a cable burial equipment. The project is progressing and is now approximately 90% complete. Importantly, turbines are generating power that is flowing into the grid, and we expect to be substantially complete with the overall project in early 2012. Moving back to our results for the third quarter. Our strong market position has once again enabled us to book substantial new work and grow our backlog to a new record. This third quarter new awards totaled $6.7 billion, including a good mix across a diverse portfolio. As a result of our strong bookings in the quarter, our backlog grew by $1.5 billion to a new high of $41.8 billion. If you would turn to Slide 4. The Oil & Gas segment had new awards, $1.6 billion in the third quarter, including an upstream award for a topsides facility for an offshore platform in Canada and additional scope on a large petrochemical project in the Middle East. Ending backlog for Oil & Gas segment is $14.6 billion. And we continue to work on numerous front end programs, several of which have recently been announced. Our Fluor offshore solutions unit was awarded the Front-End Design and Engineering, or FEED contract, by Abu Dhabi Marine Operating Company for a new offshore facility located at the Nostra field off the coast of Abu Dhabi. Nostra full field development project, include 7 well-head towers and facilities including gas processing, oil separation, a utilities' platform as well as living quarters. It also includes infill subsea pipelines and export pipelines. This is Fluor's third major offshore FEED within the last year for this very important customer. The downstream group was awarded a contract by North West Redwater Partnership to provide FEED services for their new refinery in Alberta, Canada. Fluor will be responsible of 2 of the 4 process units for this large refinery complex that will upgrade oil sands bitumen, and we expect to secure the EPC contracts after the completion of the FEED phase. I also want to point out that during the quarter, we made an investment in a leading software recovery technology with the acquisition of Goar, Allison & Associates. This acquisition further strengthens our sulfur group with the addition of 2 patent technologies, one of which is a unique sulfur degassing process that has become a technology of choice for many of our customers. Turning to Industrial & Infrastructure. The group had another great quarter with new awards of $2.8 billion. The largest award in the quarter was processing facilities for Newmont Mining, their Conga project in Peru and a self-performing EPC contract within our infrastructure segment and earthworks activities at the same site. The segment's backlog rose to $22.3 billion, which is a 29% increase over last year. The Mining & Metals business line continues to work on a lengthy list of FEED contracts, and while recent volatility in metal prices has caused some uncertainty in the market, there is no evidence that our mining clients have slowed their capital investment plans. Moving to Government segment. The group booked $1.7 billion in new awards during the third quarter, including the annual funding of both the Portsmouth and Savannah River contracts for the Department of Energy and an increase in funding for LOGCAP IV task orders in Afghanistan. Ending backlog rose to $1.8 billion, which is up from $1 billion a year ago. The group continues to perform very well, as evidenced by the 24% increase in the segment's profit from a year ago. Global Services Operations & Maintenance business line booked $302 million in new maintenance contracts and renewals of existing long-term contracts. Solid profit contribution from the equipment. The temporary staffing business line helps this segment grow profits by 11% over the third quarter of 2010. Although market conditions continue to be very weak, the Power segment had new awards of $470 million in the quarter, including a major environmental compliance program for alumina here in Texas. During the quarter, we also announced the award of the engineering procurement and construction contract for a new 540-megawatt combined cycle gas-fired power project in Texas. Once the client receives its final EPA permit, we expect to receive the full notice to proceed, and we'll take the project in the backlog at that time. Please turn to Slide 5. Last month, we announced that we had become the major -- majority investor in the NuScale power small modular reactor technology company. This company expects to invest approximately 30 -- we expect to invest approximately $30 million here in 2011. This move acknowledges our belief that small modular reactors, or SMRs, will be a commercially viable alternative for the next generation of nuclear energy deployment. Now we're very excited to be part of that. In addition to making an investment in the company, NuScale, Fluor has secured the exclusive rights to provide engineering and construction services for the future of NuScale SMR facilities that are installed. We also recently announced the formation of a project, Pacific consortium, the GE Hitachi Nuclear Energy as an engineering, procurement and construction partner to pursue the nuclear new build projects in Poland. As you may remember, we have quite a presence there with the office in Gliwice. Poland's power utility is expected to complete its vendor selection in mid-2013 and has targeted 2020 as the commercial date of operation for its first nuclear power plant. In summary, Fluor had another strong quarter of new bookings, which has resulted in the 6 consecutive quarter of backlog growth. We continue to be very positive about our prospects for growing in the out years. While there are continuing concerns about the global macroeconomic environment that we live in, we have not seen any material change in our clients' capital spending outlook up to this point. Now I'd like to turn it over to Mike to review some of the details of our operating performance and the corporate financial metrics, as well as our financial outlook for the balance of this year and our initial guidance for 2012. Mike?

Thank you, David, and good afternoon. The detailed results for each operating segment can be found in the earnings release and in the 10-Q. My comments today will focus on a few highlights and corporate items. Please turn to Slide 6 of the presentation. As David mentioned, gross consolidated backlog increased to a record $41.8 billion at the end of the quarter. The percentage of fixed price contracts and overall backlog was reduced to 14% from 24% last quarter. The main driver of this change from the prior quarter was the result of a client -- from the [Indiscernible] projects in Australia, electing to convert that contract from fix priced to cost plus. Secondarily, the great majority of our new awards in the quarter were cost-plus contracts. Backlog for projects outside the U.S. now stands at 80%. Now moving onto corporate items on Slide 7. G&A expense for the quarter was $37 million, which compares with $40 million a year ago. The effective tax rate for the quarter was 30%. Let me shift to the balance sheet. The consolidated cash and marketable securities balance totaled $2.8 billion at quarter end, up from $2.5 billion a year ago. We've repurchased a total of 4.2 million shares during the quarter for $241 million, which completed the company's previously announced share repurchase program. As we announced today, the company authorized a new 12 million share repurchase program. During the quarter, we also paid $22 million in dividends. Capital expenditures for the quarter were $79 million, which compares with $88 million a year ago. And late in the third quarter, the company completed a very attractively priced $500 million offering of 10-year unsecured notes to be used for general corporate purposes and to enhance our cash balance in the United States. Overall, Fluor's financial condition remains robust, and we are very well positioned to fund the growth that we expect to see ahead of us. Finally, let me conclude my comments by talking about our guidance for the remainder of 2011 and for 2012, which is shown on Slide 8. The company's guidance for 2011 EPS has been narrowed to a range of $3.20 to $3.40 per share, reflecting the strength of our recent operating results. Looking ahead to 2012, the company expects varying levels of profit growth for all business segments except Power, which continues to experience particularly weak market conditions. The company is establishing its initial guidance for 2012 at a range of $3.40 to $3.80 per share. This range includes an estimated $0.15 to $0.25 per share impact for the continued funding and operations of the company's recently announced investment in NuScale Power. Going forward, beginning in the fourth quarter, Fluor's share of NuScale's results will flow through the operating -- will flow through as an operating expense in the Power segment. In 2012, the company expects robust revenue growth due in part to growing client-furnished materials, or CFM, which may put pressure on margins. Our focus will be to continue the growing net income and earnings per share on an absolute basis. In addition, our guidance for 2012 assumes G&A expense will be in the range of $170 million to $190 million, capital expenditures of $250 million to $300 million and an effective tax rate of 32% to 35%. Operator, with that, we're ready to take questions.

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

Okay. To answer your first question, no, the share repurchase program we announced today is really not reflected in our guidance for next year in terms of impact. I'll start, but I'll let David also help on the earnings guidance. It does not reflect any issues or problem projects out there that are on the horizon for us. Obviously the range is fairly consistent with the range that we've given in terms of what's the range that we've given in prior years. It does reflect a fairly high level of global uncertainty at this point. It also reflects -- this is early November of 2011 so we have a ways to go to get into 2012. And normally, we do adjust our range as we go through there. There's clearly some uncertainty being this far away. But I wouldn't be concerned about that. Jamie L. Cook - Crédit Suisse AG, Research Division: But there's not a margin issue or there's not an issue where you have stuff in backlog that you don't expect to move forward so that the burn rate for 2012 is unusually low?

No. In fact, my comments -- I'm trying to make the comment, I think our burn rate's going to be fairly robust in 2012. We do have a slightly different business mix. Mining is still very strong, the Oil & Gas side, the offload of upstream activity, and we're seeing increasing amount of some offshore activity that has a lot of CFM in it. So I think we'll see margin pressures not because of anything in terms of project issues, it's more of a mix issue and a reflection of the fact that we do have substantial CFM. Jamie L. Cook - Crédit Suisse AG, Research Division: Yes, it still implies single-digit EPS growth, I don't know. So it's Mike being Mike?

I don't know about that, Jamie. Jamie L. Cook - Crédit Suisse AG, Research Division: Well, all right. So Mike -- so David, sorry, I don't know if you want to comment. And then just the expected payoff on NuScale, I think some investors feel like the investment's a little high and over what time period do we actually see this thing pay off?

Yes. I think Mike might hit on the head relative to our guidance. I'm pretty bullish on what we've got in backlog. There's nothing in backlog that we're concerned about, being removed or slowed. We're kind of at that inflection point that we've been talking about for a couple of quarters relative to E&C's earnings for several major projects that have yet to be booked into that backlog. But we clearly see Energy & Chemicals growing as we move into next year. You know what, I don't know if it's Mike being conservative or me being conservative. I think the range, as Mike said, is consistent with what we've done before, and there is a drag because of the expense of the NuScale investment. On NuScale and specifically on that market, I think that the small modular reactor market has a potential to be huge. I think when you think of Fukujima and the older technologies and then you look at security issues and otherwise, I think the market for this size reactor in series is part of the way of the future. I really believe in this piece of the market. We're looking at it on a year-on-year basis. We were able to take the stake at a very low cost, and we'll continue to invest in it as we go through the years. We're looking at completing the CDC or the design license sometime between now and '14. And we will be prudent in how we manage that investment. Obviously we believe that we helped this company attract other investors, and our expectation is to bring them in as part of this program, which shouldn't limit the amount of expense we have to put in until we see profitability being returned. I think the overall investment will be very positive to the company in the out years, and the ability to do the engineering construction on these around the globe is a position that we're very happy with.

And we'll take our next question from Yuri Lynk with Canaccord Genuity.

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

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

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

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

We will take our next question from Andy Kaplowtski (sic) [Andy Kaplowitz] with Barclays Capital.

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

Andy, they are moving. I think we'll see a ramp up certainly in the first half of 2012, you see on a quarter-by-quarter basis, you'll see revenue ramp up in I&I. I believe also seeing some of that, a little bit of that this year but certainly not to the extent that, that backlog has grown.

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

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

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

And we'll take our next question from Scott Levine, JPMorgan. Scott J Levine - JP Morgan Chase & Co, Research Division: So you just indicated that you don't see anything changing with regard to the bias toward international, but you have had a couple of new announcements here and there in the U.S., including couple of potential ones here with power coming back. So I mean I guess I would ask are you at all incrementally optimistic that parts of that business start to come back over the next year versus maybe 6 to 12 months ago? And which businesses do you see emerging first as growth drivers within the U.S., if and when the market ever comes back for you?

Yes. I don't want to be too pessimistic about the United States. I think that you kind of see the press like I do, and I wish it was this November we would have the election, not to give you any opinion on where I stand politically but I just don't think many people have the courage to make a lot of decisions before that election. I wish it was already over. I believe that Power will continue to be a major segment for us in the United States. When you think about what they've been able to deliver over the last couple of years from an earnings perspective, that will return. I believe that once the EPA starts to permit some of these gas programs that are waiting, I mean there's probably 2 or 3 projects right now that we've won in the Power segment but they're waiting on their [ph] permits. So I think that, that market is very important to us. We have a great position in it, and that's regardless of the fuel source. I think another piece of that particular market is the environmental compliance programs that are coming. You saw where we announced the Luminant program. That's the first of quite a few projects in that particular segment of Power. So I'm pretty bullish about the out years. I think they're at a point right now where they're finishing many projects and taking up those earnings. And I think we're going to start to see our backlog improve in Power as we get towards the middle of next year. I think another market that will provide work for us is a historic market for us, and that's in the petrochemical and chemical market. There are several programs that our customers are looking at, to take advantage of the gas play. We're positioned for several of them. But I think there's also a fair amount of upgrading that's going to take place in the existing facilities because they've been starved of capital over the last decade for the investments primarily been outside the United States. I still believe that we're one of the preeminent players in infrastructure as it relates to the public-private partnership approach to that market. So I feel that those are just 3 that I think will help us grow but we're not going to wait on it. That's why we've been so aggressive in looking outside of the United States and changing the mix of our projects. Scott J Levine - JP Morgan Chase & Co, Research Division: That certainly makes sense. And maybe as my follow-up there, could you comment on the circumstances regarding the conversion of the Gladstone contract to cost plus, what motivated that, and may be your comfort level around executing in additional work in Australia?

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

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

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

On the latter part, I'm not sure. It's a little premature to answer that question. I think that when you look, as you said, the coal retirements -- but I also think that you have some older nuclear plants in the fleet here in the United States that will be coming up for operating permit renewals. And I think in some cases, they may be constrained in how well they can do that. Those were huge power loads that will come off the system. And I think this is an example of one of the technologies that will be employed to replace those megawatts, both on, like I said, the nuclear business but also on coal. I think that and the business plan that NuScale has, that looks at the United States first. I think that most of the world is looking for the NRC stamp of approval, which is why we're focused on that design certification. And my guess is that you'll see the first units deployed here in the United States. But then I believe that it will very quickly become something that is used on more of a global scale than in the United States. So I think all in all, in the out years, I see more outside the United States than I do inside the United States. The design of this facility, the safety, it's completely passive. You don't have the same kind of situation that you would have -- that we experienced to Fukujima. So I think it's going to start in the States, and we'll replace some of those megawatts. But I also think there's a security aspect to it. When you think of some of the key installations around the United States, whether it's the New York Stock Exchange or whether it's a military installation, I think there's great applicability for that. And I think that's where it will first be deployed.

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

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

We'll take our next question from Will Gabrielski with Lazard Capital Markets.

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

No, I think we're just being selective. When you look at Goar, Allison and the technologies there, it kind of completes our sulfur plant expertise. And when you think about any of the oil and gas that's being explored and extracted now, there's a high sulfur content. So it's kind of the market leading us to have that full capability to deal with those fuels. I don't see -- I think that this is 2 examples where we're going to look to take a position in a technology to secure a market position. But I don't think we're disadvantaged by just like cracker technologies. It's interesting, but our customers frankly have commoditized that market. And we want to make sure that we're only buying technologies that create a position for us in something that's a longer term play than what we've seen in some of the other technologies. I don't want to signal that all of a sudden, Fluor's going to be this big technology-driven company and the R&D associated would be supporting that. But we are going to be selective and look for acquisition opportunities that may or may not house a technology position or a patent of some sort. But clearly when they're opportunistic like Goar, Allison was and like NuScale, I think you'll see us be opportunistic there.

Okay. I'm curious on the Oil & Gas margin, if you could drill down a little bit more this quarter and then your visibility on '12 and maybe how far away you are from a crossover point in revenues, where you're absorbing fixed cost will be consistently back over 4%.

No, I think as we get into next year, there's a couple of comments I'll make associate with. One is when you look at the current backlog, we haven't had the sizable piece of that being in the refining sector. Although, as you saw in our release and in our comments, prepared comments here about the refinery in Canada, it's a market that clearly is starting to come back, and we'll participate in it. And the significance in that is that, that particular piece of the market has a higher engineering content than, say, an upstream project. I think petrochemicals are pretty consistent with the refining sector. So we're starting to see petrochemicals come back. We're starting to see some of the refining programs come back. But right now, we're sitting with the majority of our backlog being upstream. So from a margin percentage basis, it might look lower. But from a profit dollars perspective, we're quite happy. As we get into next year and into '13, I think you're going to see a lot more petrochemical and refining in our backlog, and we'll start to see the leverage result, I think, that we experienced when we were in the height of the boom, what in '08, '07, '08 timeframe. So I kind of think we're kind of at the bottom. The projects that we're bringing in are not margin-challenged, the way we look at it. We're not necessarily buying backlog. We're absolutely looking for profitable backlog to put in, and I think that within the E&C sector, you'll start to see improvement as we get into next year.

We'll take our next question from Richard Paget with WJB Capital.

The new award level in Government Services was the highest in a while. And I know it's part of this annual re-up of Portsmouth and Savanna, and you had some LOGCAP task orders in there. But I mean did you get the sense that maybe some of this is agency spending kind of before austerity measures really kicked in, in a spend it or lose it type scenario? And what kind of early indications are you guys getting of your particular programs and what they might look over the next couple of years?

Absolutely not on the first question. The significance in the LOGCAP is the U.S. government kind of changed their authorization process or at least caught up, so it was almost like a double dip for us in LOGCAP this quarter, which grew the backlog. And as you can appreciate in that business, it's a book and burn business. So I do not in any form or fashion believe that the government's spending to use it or lose it. We are not seeing, even with the rhetoric you see in the newspaper, [ph] a plan to reduce the number of heads in Iraq or Afghanistan. And what I mean by that is we're basically charged with the care and feeding of the troops and the associated NATO forces. And it's about numbers of heads, not what their head looks like. So a war fighter eats the same food, gets the same laundry service and everything else, the same number of beds that we provide, and then they change to more of a policing and nation building kind of activity. So from that standpoint, we don't have any indication that anytime soon, you're going to see a dramatic decrease in the number of heads that are supporting those actions in Iraq and Afghanistan.

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

Yes. Not really. I mean some of them have gone into backlog and they've been replaced by others. I still think, as I said, there's a robust prospect list but there's also several FEEDs that we're doing in oil and gas and in mining that will translate into EPC or major EPC awards as we get into next year. Those are very large programs. We can't talk about it right now, but we all already have that are awaiting at a permit here or a decision by a customer there. But I see great growth opportunities based on the FEEDs that we're doing because those FEEDs I see going to the EPC phase. They're not dreams being looked at but the arithmetic is marginal. All of these programs have good returns for our customers, and they're very bullish on their spending habits.

We'll take our next question from Brian Konigsberg with Vertical Research.

Dave, just coming back to awards and backlog, just focusing more on the Oil & Gas side. You guys discussed a couple of the FEEDs that were expected to go to EPC and previously, you talked about potentially reaching record backlogs in the Oil & Gas segment by the end of '12. I mean from what you see today, do you still see that as a possibility?

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

Got you. And just shifting over to the Power segment. You saw a big step down in margins, which I think you had anticipated previously. Just kind of looking into '12, are you anticipating that you'll remain at these levels going forward?

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

We'll take our next question from Rob Norfleet with BB&T Capital Markets. Robert F. Norfleet - BB&T Capital Markets, Research Division: Just a couple of quick questions. One, Dave, could you speak a little bit about the competition that you're seeing in the markets? I mean understanding that CFM content is impacting margins obviously in Oil & Gas right now. But is the work that you're booking currently in backlog, is that at a higher margin than what you're currently reporting now?

I'm not sure I want to answer that question but I'd give you this, we are seeing improvements in a lot of the markets, and we're greatly positioned, I think, in most of those. I think the whole margin issue is going to be lumpy as we go through the years. I do not -- I still see predatory pricing on the part of some of our competition. And frankly, I'm quite happy to stay out of that foray and pick the projects where our value proposition is recognized and appreciated by our customers. I think that will result in better margins as we go forward, particularly in E&C as well as Power. Robert F. Norfleet - BB&T Capital Markets, Research Division: Okay. And as it relates to NuScale, I mean do you see any potential offsets to the annual kind of R&D expenditure looking too soon, starting in '12 and probably running into '13 and '14 such as for instance, signing up of a first customer or obviously, there's been discussion that there could be money for SMR R&D spending in the 2012 budget?

I think that what we've done is the $0.15 to $0.25, I think, is the upper end, and clearly it's a range. But I look for more investors in that organization, including potentially federal funding that would reduce that EPS drag as we get into the latter part of next year and certainly into '13. Robert F. Norfleet - BB&T Capital Markets, Research Division: Okay. And my last question is are you seeing, obviously with the size of the backlog given where it is now, any markets in terms of markets whom we serve in which there are any capacity constraints?

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

We'll take our next question from Steven Fisher with UBS.

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

That's a long list. Frankly, I don't think I want to cover that here. But there are many customers that have expressed interest in this technology. Their trepidation was, was this technology going to be around for them. Most of them prefer this technology over others. They're enamored with size capabilities of this particular small modular reactor, and we expect to have several of those customers, part of our program as we move into '12 and '13.

Okay. And then over to Mike in terms of the cash and the buyback, would you expect that buyback would only come from domestic cash? I know you'd talked about that in the context, including that bond offering last quarter. And if so, and what would you plan to do with the cash that's outside the U.S.?

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

We'll take our next question from Robert Connors with Stifel, Nicolaus. Robert Connors - Stifel, Nicolaus & Co., Inc., Research Division: Dave, if I sort of sit back here and just think about it in sort of beat the Oil & Gas margin horse continually, but 2011, I think of as like sort of the year of the FEED. As you've said, 2012 is going to be the year of procurement, a.k.a. CFM. So is it really like 2013, beyond, I'm not asking for guidance, but when we start to see the fruits of your labor, when we start to recognize some contingency flow [ph] back and profit recognition from successful completion of projects?

I'll answer it this way. It is -- I guess '11, I'm not sure I would categorize it as the year of FEED because we still have a fair amount of EPC flowing through the books of Energy & Chemicals. But from a FEED -- the number of FEEDs felt like kind of '06, '06-'07. And I think what we're finding is these programs continue to get larger, and these programs continue to have longer schedules than we've seen, if you go back to the '06 kind of timeframe. So I guess the way I would categorize it is we're going to continue to grow in that business quite dramatically, but I think there's a longer tail to it than what we've seen maybe when you look at the '06-'07 kind of timeframe. So I think the earnings streams will be longer. Robert Connors - Stifel, Nicolaus & Co., Inc., Research Division: And then for Mike, I mean the tax guidance on '12, is there anything that would -- we need to see that would push you to the higher end? Because you got about 80% of the backlog on an international basis. I think that we'd probably be more towards the lower end at 32% in '12.

It's really just going to depend on our mix quarter-to-quarter, and we do have a lot of little items that will impact that plus or minus. We had a couple of favorable items this quarter that drove us down that 30% tax rate. But there's no particular thing to look at that will drive us from one of that range to the other.

We'll take our next question from Alex Rygiel from FBR. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: Mike, just expand on that last question. As it relates to your EPS guidance next year, is it simply a function of your tax assumption of 32% to 35% that creates the range?

Alex, no, there's a lot of variables that create that range, it's not just tax. As we talked about, there's some uncertainty in the global markets. There's obviously variability, which we move forward on various projects. There's an awful lot of factors out there and it's still early on for us, for 2012 guidance to have a precise number for the year. So it's just a reflection of where we are in the process, where we are in the calendar. And there just could be a lot of moving parts in 2012. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: Fair enough. And David, your fixed price work as a percent of revenue in backlog has obviously been shrinking now for some time. Can you directionally help us to understand where that may fall out over the next one to 2 years? Are you strategically moving away from fixed price work? Or is it really just a function of your mix?

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

We'll take our next question from Avi Fisher with BMO Capital Markets.

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

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

And I don't know if there was a question -- I didn't hear this earlier, the NuScale investment, are we going to have to see somewhere down the road a bigger capital investment for fabrication there, or?

Within NuScale, there will be but it won't be funded by Fluor. By partners that we bring in.

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

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

And we'll take our final question from John Rogers with D.A. Davidson. John Rogers - D.A. Davidson & Co., Research Division: I just want to follow up as well on the mining side of it. How much is left out there in terms of project opportunities? I mean you've had a pretty good role here, and just giving the state a quality price and where we are. I mean what do you see out there in terms of planning and expectations?

Well I think when the commodity -- we watched that pretty closely and when there's a drop like we saw over the last couple of months, we get a little nervous. But the teams went back to validate with our customers what their plans were. And in each case, there were no change in their view of continuing to grow. I think when you look at the growth patterns over the next, say, 2 decades, there is significant need for additional capacity in just about every mineral you can think of, including iron ore. I think you'll see -- and that's why I think you're going to see some of these bigger programs continue to go because the bed is in the out years. It's not based on the commodity, necessarily the spot commodity markets. In days gone by, a lot of the mining projects would just absolutely stop. We have not seen anything like that, and I'm quite bullish as we go into next year and beyond that you're going to continue to see us book significant mining projects. So with that, operator, I'd like to thank you for your help, and thanks to all of the participants this afternoon, this evening. I think a couple of key takeaways that I want to leave you with are that our prospects and markets remain significantly strong. We're actively engaged in positioning the company for future growth, and I think there's great opportunity for that as we go through '12 and into '13. In that regard, we talked today about a few of our investments that we've made recently in technologies, and I believe that contributes to that long-term view and the long-term success story that we're building here. As we have mentioned during the call, our focus will continue to be on growing net income and earnings per share, with the midpoint of our guidance for 2012 equating to a year-over-year increase of 9%, with investments included in that. Our company is extremely strong. Our backlog is at record level of cash, it's at record level. And the market fundamentals, even though, there's a little bit of nervousness from time to time, I think bode really well of our continued earnings growth and continued shareholder value creation. With that, again, I appreciate your interest in our company, as well as your confidence in our future. Everyone, have a good day.

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