Good afternoon, and welcome to the Fluor Corporation's Fourth Quarter and Year End 2017 Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's presentation. A replay of today's conference will be available at approximately 8:30 P.M. Eastern Time today, accessible on Fluor's website. The web replay will be available for 30 days. A telephone replay will also be available through 7:30 P.M. Eastern Time on February 27th at the following telephone number, 888-203-1112 and the pass code of 5038292 will be required. At this time, for opening remarks, I'd like to turn the call over to Mr. Geoff Telfer, Senior Vice President of Investor Relations. Please go ahead, Mr. Telfer.

Thank you, Justin, and welcome to Fluor's fourth quarter and year end 2017 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; and Bruce Stanski, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after market close, and we've posted a slide presentation on our website which we'll reference while making prepared remarks. But 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'll be making forward-looking statements, which reflect our current analysis of the existing trends and information. However, there is an inherent risk that actual results 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 filed earlier today. During today's call, we may also discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investor.fluor.com. Now, let me turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Jeff. Good afternoon and thank you to everyone for joining us. I'd like to start off by discussing what we're seeing in the markets that we serve and what we expect to see in 2018. We expect the economic growth to improve in the U.S. and globally this year. Our U.S. clients are optimistic about the recently enacted tax reform and our clients, both domestically and internationally believe improved commodity prices should drop an improvement capital spending. Also as indicated, we're on the front end of a multi-industry upturn and we're closely tracking and well positioned for many major programs and we expect to get a final investment decision in the next 12 months, particularly in the energy chemicals, mining and metals and infrastructure. Our energy and chemicals representing several gas monetization projects including ethylene, derivative facilities and LNG, and it includes the LNG Canada project for Shell which we've recently shortlisted. We also see upstream projects moving forward including pipelines. We expect to build off last year's success in mining metals and we continue to track a number of projects slated for FID in 2018 including copper, gold and iron ore replacement projects. While we don't expect to see the super cycle we saw earlier this decade, we do see a path doubling our mining and backlog from it's current levels. In the infrastructure we're able to start to move forward on the previously awarded Purple Line in Maryland. And one, the Green Line project in Boston in the fourth quarter. Our success continued in 2018 as we were selected with LAX automated people-mover project which we expect to close next quarter. We continue to see transportation programs advance globally and are looking forward to hearing details on the recently announced federal infrastructure funding plans. The plan appears…

Thanks, David and good afternoon, everyone. We have a lot to review today, so let's get started with our quarterly results. Please turn to Slide 6 of your presentation. Let me begin by highlighting some income statement items and then move to the balance sheet. Revenue for the quarter was $5 billion, up slightly from $4.9 billion last quarter. Revenue improved in the government and diversified services segment to offset the declines in energy and chemicals. Corporate G&A expense for the fourth quarter was $54 million compared to $56 million last year. Earnings for the fourth quarter were $60 million or $0.43 per diluted share, this does however include $37 million or $0.27 per diluted share related to a onetime charge arising from the enactment of the Tax Cuts and Jobs Act in December. The principle amount of this charge was related to Fluor revaluating its deferred tax assets on the balance sheet from the previous federal statutory rate of 35% to the new rate of 21%. Excluding these tax effects earnings would have been $97 million for the quarter or $0.70 per diluted share. In addition to help frame the quarter a bit, it's important to point out that our results include a benefit of other international tax items unrelated to U.S. tax reform which contributed approximately $0.16, the non-recurring hurricane work in the United States and Puerto Rico which produced $0.09, and a $0.32 charge related to both, a gas-fired project and a downstream project. The paint is still very much drying on tax reform and we caution that our tax rate maybe varied by period as we received additional clarification; I'll talk more about outlook for tax on Slide 10. But shifting to the balance sheet on Slide 5; Fluor's cash plus current and non-current marketable securities…

[Operator Instructions] Our first question today will come from Steven Fisher with UBS.

I just wanted to ask about the guidance. The release says that the guidance assumes an increase in oil and gas and mining and infrastructure opportunities; can you just give us a little more clarification on what you assume has to happen from here and when it will happen as they hit that guidance?

Well, we're not going to talk specifically about each project but as we said in the past, we do believe the new awards are backend loaded for the year; so we think that new awards will build as we go through the year, as will our earnings.

I mean, if the new awards are backend loaded, I mean how much of an impact do you assume that's going to be for 2018 versus 2019? I guess, I'm getting at -- are that some of these big things that you're just bidding is at embedded in what still has to happen in 2018 or is that more forward-looking?

I think it's a little bit of both, Steve. And I mean, obviously the things that are in front of us, the book are very large projects that are multi-year in terms of their barn [ph]. Most of these projects are at least two years in duration, if not three, and multi-billion dollar kinds of kinds of projects. So the guidance certainly bakes in what we think when the win quarter would be and what that burn would end up being. I know I'm not answering this specifically but I'm not going to give you all the details on which projects.

The margin target is certainly helpful; the 6% to 7% for E&C stands out as a little higher than expected. Just wondering how much of that is some of the re-recognition verse that you talked about versus any kind of mix changes versus kind of fixed price? And is that 6% to 7%, would that be considered more normalized or again, is that sort of a onetime step-up because of some of the re-recognition?

The answer is that, I want to put a point on that. As we focus on integrated solutions throughout the last two years and perfected some of those things. We believe that the margin in backlog today and what it will going forward will be better than it's been in previous cycles, so fair amount of that is just an improved execution base in the margin associated with that, so Bruce you can follow-up with that.

Certainly the margins that we're talking about are the margins we're having on our range of earnings guidance, so that's total for the year all-in as we look at quarter-on-quarter what we're making as margins in each of the segments. But maybe I'll take a minute here and get in front of maybe you and others questions about this whole revenue recognition adjustment and we did provide the range of $0.75 to $0.95 and we broke it down how much we believe is rhetoric versus the tax reform. But just to put this in context, revenue recognition change for us impacts about 125 active projects whose quarterly results will vary depending on how the work progresses through each of those projects and the mix of those projects in the quarter, and tax reform has similar challenges as we have to recognize tax from the territorial source of the work including new work and existing work. And also -- and this is where the two are interrelated, that's kind of why we're given a single range is the revenue recognition provides new tax rates that we have to apply to re-recognize revenue on these 125 different projects. So I guess what I'm saying is they are very interrelated we won't know the exact impact of rhetoric [ph] in tax reform until we close each quarter of the year; that's why we're given ranges and estimates that we think are most accurate today. Does that help, Steven?

I guess maybe one follow-up; is it fair to ask then if we think about beyond 2018, if you have the same mix of what you have in 2018, would you still come up with the 6% to 7%?

Yes, we would, yes.

Our next question will come from Jamie Cook with Credit Suisse.

First question; not that I'm going to allow you to back out the charge in E&C in the quarter but if you do back that out your implied margins in that segment were about 7% which is higher than I would have thought. So can you talk to whether any onetime gains or mix or anything driving that margin if we back out to $29 million on the petrochemical project? And then, understanding you don't want to give guidance within guidance; can you talk about -- you seem much more constructive this quarter relative to the past two quarters and even last quarter on the opportunities on the E&C business, so can you rank order in terms of award opportunities as we're sitting here 12 months out, is it bigger in E&C or is it bigger in mining in terms of the potential award trajectory? Thank you.

What was the first question?

The first question was why were your margins good in the E&C extra charge – extra $29 million that was…

It's the answer I gave to Steven. I think the approaches that we're using on those projects that we've been able to fully implement the new strategy, the integrated solution or providing us with better returns than we've had in previous cycles and I believe that that will continue. So I think part of the question was anything special in there that led that to be that number, the answer is no. So I think that going forward we're doing a much better job of that. Now in the new awards -- and I think I said in prepared remarks the really sizable projects that are in front of us right now are primarily in oil and gas, with mining second; and then I would say infrastructure is following behind that. But as we've talked in the past there is such huge pent-up demand, I was in the Middle East last week over the weekend and just kind of looking through the Gulf, the stated spend over the next five or six years is $500 billion just in the Gulf in the oil and gas sector. I think that's -- you add to that the other industries out there but then you multiply that by the number regions of the world, you can see the opportunity slate has grown dramatically over the last two years. Now we still got to get these customers to get -- pull the trigger on some of the spending and we're very well positioned for our fair share which as you know, I like a bigger fair share to be a fair share. There is a lot of opportunity globally and I really think -- my concern right now is if all the stuff happens at the same time we can end up with another…

And our next question comes from Jerry Revich with Goldman Sachs.

David, can you talk about your expectations of the margin profile of the next set of projects, you know, the whole industry has struggled a bit on the last sort of major awards couple of years ago in terms of executing to those projects. And I'm wondering, if you could talk about the competitive landscape as you see it now and what changes should we be looking for in the bid process for hopefully better outcomes?

I think I've always said that it's a dog fight every day and I still believe that, there is no such thing as a good day with competition. I think that in the last cycle you saw some people take some pretty predatory pricing approaches and they're suffering from that. We tried to -- kind of select the projects we felt more comfortable with and the customers we felt more comfortable working with, and even saying that we had our own challenges; and we dealt with those and we learned from those but we've talked about the margin profile going forward in terms of all the industries as Bruce indicated. But I would say we kind of try to stick to our knitting and those projects that make the most sense for us, where we have a competitive advantage, as well as the technical edge. So, as I said, I feel like we're positioned very well on a lot of these projects that are in front of us from methanol projects to LNG projects to refinery projects and petrochemicals; so I feel really good about the team there and what they've been able to do and what's been probably the worst capital approval process I've seen in my career. If you really think about it, there has been close to no spending, I mean obviously there has been spending but not of any consequence in half a decade. And because of that you've got -- you had our competitors being predatory because we enjoy that diversity and we don't have to take some of those projects where many of our competitors are in one industry as an example; so the diversity plays well for us and allows us to maybe take a little bit different tact. But as I've said in my answer to Jamie, I think there's a herd mentality in the industry. And when spending starts, they feel like they've got to make sure they're in the head of the queue for everything from pipes and motor and pumps and alike as opposed to those that are going to be later in the cycle. So I think discipline is something that we're going to continue to play, I think discipline in terms of the elements of the integrated solution that we've invested in, the tools and systems we've invested in in this downturn, as well as the investment in the people we've made I think we're in a really good position. But again, staying true to that discipline and the projects that really fit our needs is going to be things that we're going to focus on.

Maybe just a question for Bruce; there was a $300 million to $350 million adjustment to retain earnings, Bruce. Can you talk about was that all related to revenue recognition and can you just give us a rough sense as we think about pro forma margin profile for Fluor over the past couple of years if we were to apply the lens of the new accounting standards -- what sort of adjustment should we be making to margin structure versus reported on '16 and '17 just so we can gauge cycle or recycle performance with the new accounting going forward?

I think you might be referring to the $300 million to $350 million range in our K that we've put out, the impact of revenue recognition. So that range is over three plus year period, so that kind of gives you an idea how it lays out over the time period. As far as very much like what I said in my prepared remarks, was -- this takes out the variability of our revenue and earnings recognition, so the margins that we're quoting on a go-forward basis will be more consistently achieved because we won't have the higher margins on the engineering work then the lower end construction and you and us having to model all that out; so I don't know if that helps you talk about cycle over cycle, that's kind of my answer.

So just to clarify the fact that we're making a negative adjustment through retained earnings means margins would be negatively adjusted in prior years of rule to apply the current accounting standards, correct?

Certainly, for the next period that we talked about, it's accretive to earnings, the revenue recognition standard; and it goes beyond this next period. Again, how it falls out, and the time period, and the framing of it; we will know as we close each and every quarter. One of the things from the tax perspective as I said they are interrelated is, unlike a lot of companies that do an estimate of taxes at the beginning of the year and then true up at the end of the year, we actually do a hard close on our taxes every quarter, makes it a little more difficult to model but we think it's more prudent way to get our tax rate right every quarter. So we're going to be seeing as we close these quarterly books exactly where we land on Rev Rec and tax, and so will you when we close the quarter.

Next will be Tahira Afzal with KeyBanc Capital Markets.

David you talked about a lot of your sectors, you didn't talk that much about power; any thoughts in terms of outlook over there? And then on the LNG side, you mentioned some in Canada but will love to get some color on what you're seeing in the U.S. as well.

On the LNG, I mean obviously there is one we're pursuing in the Gulf Coast. As I've said in previous, I think we're going to see one 1C and 2Cs [ph] over the next couple of years as some of these other ones come online that are nearing completion and the market absorbs that LNG product. But those, you know -- the one in the Gulf and one in Canada, I think we're very well very well positioned for. When you think about power in general, we'll continue to pursue projects -- gas-fire projects and other renewables. We're looking at pursuing nuclear in Saudi Arabia and some other places; so I mean it's one of these things where I go back to my comment just a minute ago about discipline. And in hearing to that integrated solutions approach; so I think that there are some opportunities out there that are on the gas side kind of near-term, say this year. And I think the other stuff is in the out years but we're going to continue to pursue in other things that make sense in the power sector. We do have some good projects in that market as opposed to the four that we've dealt with over the last two years, and we'll continue to push that market as well.

Just as a follow-up; you touched on nuclear bit, some pretty big milestone for new scale, fairly recently any thoughts in terms of update over there, David?

We've had some really good news in terms of the technical review and I believe the NRC is on-target to complete that piece of the review early which just gives us confidence that we're going to finish the whole process I think in record speed. And once we've got that good housekeeping seal of approval, our focus right now and after that is obviously to bring in new investors and to continue to find other customers. We're looking to the DOE and I actually met with some government officials in the UK yesterday and there is great interest in the SMR technology there. So I think that as steady as she goes but I think the fact that the NRC is progressing the way it's progressing shows that new scale really had its act together in terms of where the technology was, what the key issues were going to be and we're very prepared to feel those questions and provide the answers to satisfy the NRC. So all-in-all, I feel pretty positive about that schedule; and with that schedule I feel better about bringing in additional investors.

And our next question comes from Andy Caplots [ph] with Citi.

David, customers obviously have been talking more about CapEx, probably because of tax reform or partly because of higher commodity prices. Have you seen and hearing some [indiscernible]? Have you seen the precursors of these projects yet? Was the higher margin in EC&M add along with the quarter because engineering utilization is up?

No, I mean see -- I would say this up, this quarter necessarily we've got a lot of feed work going on in the early stages of projects but now I wouldn't say that's impacting the margin per say but when you look at some of the decisions that are being taken; it's in-line with what our expectations were going to be.

David, you've obviously seen several cycles now and you kind of alluded to that; how would you compare today's funnel when you add up, call it your high probability energy in mining projects versus the crackers a few years ago on versus the risks of finding cycle in 2000s, is it bigger when you added all together than those cycles or same or maybe smaller?

I think it's bigger, I think it's bigger. Projects are bigger, there is more of them because of the delay. I'm pretty bullish on what that future looks like, there is some really good projects in the funnel right now to use your term. I would say it's bigger than the '05, '06 timeframe.

That would be pretty good if it develops like that. [Indiscernible].

I tell you, you cannot hand it on tax and I'll address that. I would argue that on the oil and gas cost, tax reform is good but it's not going to drive their decision making. Most of their projects are global in nature and yes, good deal for earnings but I don't think the lion's share of them -- the decisions won't be driven by that. Where I think it's going to really have a benefit is in advanced manufacturing, pharmaceuticals, some of the fine chemical work that we do but because it helps those companies become very competitive, particularly with the U.S. manufacturing base, much more competitive on a global scale and much more comfortable to invest in that uprating or increased capacity or even a new facility, and we're tracking us a lot of those projects in the manufacturing sector. Now they are not multi-billion dollar projects but they are really good projects that are $200 million to $300 million and there is a lot of them; so again, I go back to the comment about diversity. We're going to have the big stuff that you guys like to see and it does drive our business but I think the base load of those small to medium sized projects is growing much more than I anticipated. And I think it's going to bode well for all of our sectors. I think the other piece in my prepared remarks; we think about store in that whole maintenance piece of our business, people stop spending and when they stop spending on certain things like that they start to have failures. And the shutdowns get longer with more work and the frequency of those issues pick up; so I think it bodes well for store and the rest of that…

And next will be Michael Dudas with Vertical Research.

David, when you look at today's year-end backlog, how much would you peg as backlog levels been or secured prior to your integrated solutions improved tools and solutions methods, and relative to what's in there today using those, and will those types of opportunities allow the continued improvement in -- axel [ph] margin in backlog and the execution to drive improved margin performance over this upcoming cycle. A firm, relatively meaningful basis if the cycle turns out the way we hope will.

Yes, hard question to answer Michael and the reason is that most of the projects that are in that reimbursable bucket, we care that our customers are embracing the Integrated Solutions approach but as we've talked about, some of them aren't. So you've got a sizeable amount of our backlog that -- it doesn't matter, right, we're going to do what they asked us to do and we're going to make money on it. The fixed price component, clearly the 4 Fluor projects weren't but we're almost done with those and the project in the oil and gas sector was also bid prior to that. So I would say it's a pretty small percentage of the fixed price portion that we're still working off.

And as the cycle emerges to the business that traditional customers are just going to hire you and pay for; when do you think they will start to see that there might be tightening in labor, engineering talent, fabrication, yard facility, and in this cycle will a company like Fluor be able to extract more value from that in 2019, 2020, 2021?

I think absolutely, that's why we put together that whole process and we invested in our tools and systems, we invested in our supply chain, fabrication, the construction capability of the company, so we've got that one-stop shopping approach that our customers are looking for; and in the same vein be able to kind of protect our way of executing an earning on those projects. So I think we're going to start to see -- break it down a little bit here, I think we already have pinch points in construction, we've seen in some of these projects that the industry -- not just Fluor but the industries had issues with -- it's almost exclusively because of either lack of talent or lack of people in that construction rank. What we've done globally is look at training and make sure that when those people aren't available to us in a location, we're setting up training programs to make sure we've got the welders, and the pipe fitters, and the electricians, and alike; so I think we're a little bit ahead of the game on that. I know we're marching backwards but I think construction is going to be the first place we see the pinch point because we've already seen it. Couple of years ago what we thought we were going to see before oil prices drop, I was really worried because we had to go to somewhere around 50,000 craft in the U.S. with the work we had but the projection said we needed to double that; I think that would have been an impossible undertaking given the situation at that time. Now again, since then we've spent a lot of time and effort on training people, so I think we feel good about being able to get those…

And our next question will come from Andy Whitman [ph] with Baird.

I guess I wanted to ask a little bit about book and burn type business; what a good number or maybe historically how much revenue have you seen from book and burn type business and how does that compare to your expectations for 2018 for that type of business?

We don't provide revenue guidance here and I guess our book and burn -- it certainly was a bit light in the quarter, about 0.66. Certainly we expect that book and burn ratio to pick up as we book larger projects that David just talked about into our portfolio going forward, and a higher burn rate as they move through their life cycles but certainly this was a low quarter for book and bill and book and burn as you call it, and we expect it to increase.

I guess I'm specifically asking about that types of smaller projects that don't actually hit backlog if they contribute to revenue. Is that material -- is there any changes that's happening to the historical rates of that type of work?

Certainly in our O&M businesses and the big star here in the quarter has been Puerto Rico, we've brought that out a couple of times where we get -- we do quick burns on revenue as it comes in and that -- certainly that does impact our book to burn ratio in a positive way but not in a sustaining way, and it comes and goes as the need arises and the urgency increases for that contingency work that we do; and that also extends into what we do for the army and contingency operations. Stork [ph] is another example of that where they take on a lot of work quickly, certainly at the end of a period or as David said, as assets get distressed and they are forced or our customers are forced to move out quickly and engage store can push a lot of money to have to get their assets back operational. Yes, positive impact but not sustainable.

As just looking at your K, do you still -- do you have some decent operating losses that potentially could sell-through your cash taxes this year? How do you expect your cash taxes to compare to your GAAP reported taxes? Are you going to realize some of the benefits this year, do you expect to? And how much?

Well, certainly we're sorting through the whole tax profile now and the new tax reform act has a lot of good things. You see the onetime chart we took in the fourth quarter for our deferred tax assets where a good thing of lowering the U.S. tax rates 21% equals the charge in fourth quarters because we had put those deferred tax assets on our balance sheet at 35% tax rate, we had to write it down to 21%. So there are a lot of moving parts like that relative to our tax portfolio and profile that we again -- I keep repeating myself, we'll be understanding better and better as we close each quarters for 2018.

And our next question will come from Chad Dillard with Deutsche Bank.

Just a question for you on Puerto Rico; how far long are you in executing those projects? By my numbers I think you're around 25% of the way down, just trying to think through -- just how the other earnings contribution cadence ramps from $0.09 this past quarter and to the beginning of the year set at stage four?

We're about 80% done, not 25% done. We've got about another month to go with the task order that we were given. I think we're at 82% or 83% complete as of the end of January. So again, as Bruce said, that's quick book to burn because it burns from October through the end of March.

And the task orders we had on that were approximately $1 billion to give you for Puerto Rico.

And then could you spend some time talking about your government project pipelines, and more particularly, LOGCAP V and how this opportunity could differ in terms of revenue new contribution size versus LOGCAP IV?

Well, the way they are biding in, obviously you're bidding multiple areas for task order V; so that includes obviously the Afghanistan command, the Africa Command, and alike and we're active in all of those. I think the profile that you see, the U.S. military follow is probably going to be pretty consistent. So I think that that will continue to be a big part of our earnings stream over the long-term. There are several things in the DOE world that we're pursuing, there is some rebids that are going on, as well as some of the base operation contracts that are coming up. So it's a pretty robust slate of projects, but clearly LOGCAP is the big dog on that block.

And that does conclude the question-and-answer session. I'll now turn the conference back over to the presenters.

Thank you, operator and thank you to all the participants on the call today. As I mentioned earlier and throughout the questions, I'm encouraged by the commentary from our clients regarding their capital spending plans and the overall economic outlook but again I caution the timing of which just because of those decisions. We have prepared for this turnaround and investment and I think our Integrated Solutions approach, our people and our redoubling our commitment to safety has put Fluor in a unique position. I greatly appreciate your support of Fluor, and I wish you a good day.

Thank you. And that does conclude today's conference call. We do thank you for your participation today.