Fluor Corporation (FLR)

FLR 
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Fluor (FLR)

Q4 2010 Earnings Call

February 23, 2011 11:00 am ET

Executives

David Seaton - Chief Executive Officer and Director

D. Steuert - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Kenneth Lockwood - Vice President of Corporate Finance and Investor Relations

Analysts

Alexander Rygiel - FBR Capital Markets & Co.

Rodney Clayton - JP Morgan Chase & Co

Tahira Afzal - KeyBanc Capital Markets Inc.

Chase Jacobson - Sterne Agee & Leach Inc.

Christopher Wiggins - Oppenheimer & Co. Inc.

John Rogers - D.A. Davidson & Co.

Michael Dudas - Jefferies & Company, Inc.

Andy Kaplowitz - Barclays Capital

Martin Malloy - Johnson Rice & Company, L.L.C.

Joseph Ritchie - Goldman Sachs Group Inc.

Will Gabrielski - Gleacher & Company, Inc.

Jamie Cook - Crédit Suisse AG

Avram Fisher - BMO Capital Markets U.S.

Robert Conners - Stifel Nicolaus

Steven Fisher - UBS Investment Bank

Presentation

David Seaton

Thanks, Ken. Good morning to everyone, and thank you for joining us here today. Today, we'll be reviewing, as Ken said, our fourth quarter and full year 2010 results and discuss our earnings guidance for 2011. I'd like to start by covering some of the highlights of our performance in 2010, so I'll ask you to please turn to Slide 3.

First, as a clear sign of our strength, our market position, we posted full year new awards of $27.4 billion, which was a new company record. This represents a 48% increase over 2009, and we had significant awards across our diversified portfolio, but clearly, our strong Mining & Metals orders and sizable upstream oil and gas awards were the most significant contributors. We also posted major wins in Infrastructure, Government and our Global Services sectors during this year.

New awards for the fourth quarter were strong $7.1 billion, including awards of $4.4 billion in Oil & Gas and $1.3 billion in Industrial & Infrastructure.

Turning to Slide 4. We were awarded the engineering, procurement and construction in the upstream facilities associated with the Santos Gladstone LNG project in Queensland, Australia, valued at $3.5 billion, which is a very important strategic win. When you combine that with our FEED win for the Woodside Browse LNG offshore facilities, these awards helped establish Fluor as a leader in the region in the burgeoning oil and gas market.

In the fourth quarter, we also booked one of the first incremental awards for the first phase of the ExxonMobil West Qurna upstream production development program in Iraq. Now this early awards project encompasses the engineering, procurement, construction and management contract for oil field and related infrastructure development to support the West Qurna development. Fluor expects to book further awards on a periodic basis as this project is released.

The Industrial & Infrastructure segment booked a large iron ore expansion in Chile, and Fluor's $350 million share of the Windsor-Essex Parkway PPP road project in Ontario, Canada. Also in the fourth quarter, our Government group booked over $530 million in new awards, including the LOGCAP task orders; and the Power segment booked $471 million in awards, including a four-year contract for system-wide fossil power plant maintenance for Luminant.

Turning to Slide 5. Year-end backlog rose to $34.9 billion, up 30% from a year ago and up $1.9 billion over last quarter. Despite the inherent variability of the quarterly bookings, as we signaled before, new award wins will be lumpy as we go through the year's quarter-over-quarter. However, this represents the third consecutive quarter of increased Fluor backlog.

Moving to the income statement. Net earnings attributable to Fluor for 2010 were $357 million or $1.98 per diluted share. Full year results reflected profit growth in Government, Global Services and Power, offset by the anticipated decline in Oil & Gas segment.

Turning to Slide 6, the Industrial & Infrastructure group. While the profit contribution for Mining & Metals business and certain infrastructure projects were very strong, the segment was impacted by pretax charges on the Greater Gabbard Offshore Wind Farm Project. In the fourth quarter, we recorded an additional $180 million charge, driven in part by the bankruptcy of a major subcontractor, which adds to the $163 million charge we took in the third quarter. The company also recognized $152 million tax benefit, a significant portion of which arose from the financial impact of the Greater Gabbard charge.

On our third quarter call, we discussed that the Greater Gabbard project did experience a number of issues that substantially increased the estimated cost to complete the project. Many of these issues date back to the beginning of the project when the customer caused significant delays when they directed us to address perceived well issues on the monopiles. Substantial cost associated with that issue and the knock-on effect impact to both the project cost and schedule are included in the claim that we have outstanding with the client. In addition to the issues associated with the ongoing claim, continued cost overruns on the project reflect execution challenges, including the bankruptcy of the major subcontractor, delayed material and equipment deliveries, along with low wind turbine and subsea cable installation rates, which also added substantial cost for the additional maritime assets and have extended our schedule to complete.

Late in the fourth quarter, the project was impacted by the bankruptcy of a major subcontractor with responsibility for transporting and installing a subsea cabling. Subocean formally entered bankruptcy administration on January 19, resulting in the recall of all Subocean's installation vessels back to port. Immediately preceding the bankruptcy, the project experienced very low productivity due to payment disputes between Subocean and its suppliers.

While we're in the process of contracting for other vessels and crews to resume the installation of cables, the day rates for those activities are expected to be significantly higher than the rates that were in our original contract with Subocean. The project has also continued to be significantly impacted by weather-related delays which dramatically worsened during the fourth quarter. Weather delays equate to lost days, which result in substantial additional cost for idle vessels and crews.

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