Geoff Telfer - Vice President, Corporate Finance and Investor Relations David Thomas Seaton - Chairman & Chief Executive Officer Biggs C. Porter - Chief Financial Officer & Senior Vice President.

Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker) Tahira Afzal - KeyBanc Capital Markets, Inc. Steven M. Fisher - UBS Securities LLC Jerry David Revich - Goldman Sachs & Co. Michael David Shlisky - Seaport Global Securities LLC Michael S. Dudas - Sterne, Agee & Leach, Inc.

Brian Konigsberg - Vertical Research Partners LLC Chad Dillard - Deutsche Bank Securities, Inc. Alex J. Rygiel - FBR Capital Markets & Co. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker) Anna Kaminskaya - Bank of America Merrill Lynch John Bergstrom Rogers - D. A. Davidson & Co.

Robert Connors - Stifel, Nicolaus & Co., Inc. Justin J. Ward - Wells Fargo Securities LLC.

888-203-1112. The passcode of 8585895 will be required. At this time, for opening remarks, I would like to turn the call over to Mr. Geoff Telfer, Senior Vice President of Investor Relations. Please go ahead, Mr. Telfer..

Thank you, Operator, and welcome to Fluor's first quarter 2015 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer and Biggs Porter, Fluor's Chief Financial Officer. Our earnings announcements were released this afternoon after the market closed.

And we have 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 two.

During today's call and slide presentation, we'll be making forward-looking statements which reflect our current analysis of 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-Q, which was filed earlier today. During this 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 our Investor Relations section of our website at investor.fluor.com. Now I'll turn the call over to David Seaton, Fluor's Chairman and CEO.

David?.

$1.4 billion, primarily from mining and metals and industrial services customers. Ending backlog for Industrial & Infrastructure declined to $7.3 billion from $9.8 billion a year ago, as our execution on existing projects outpaced the new award activity. Though commodity prices remain depressed, we are starting to see a few opportunities.

This includes a fairly large mining award in the first quarter and a relationship agreement we signed with Goldcorp early this month to help them with future feasibility FEED and EPC needs. Turning to slide six, revenues for Government group was $646 million, a 9% increase over last year.

First quarter new awards were $74 million and an ending backlog of $4.2 billion, up from $2.6 billion a year ago. In the power segment, first quarter new awards were $144 million and included a limited notice to proceed award for the Dominion Greensville combined cycle project. We expect to book the balance of this award in early 2016.

I think it's important to note this is the third combined cycle award in as many quarters for our power business line. Ending backlog was $1.9 billion, which was comparable with a year ago. With that, now I'll turn the call over to Biggs to review some of the details of our operating performance and the corporate financial metrics for the quarter.

Biggs?.

Thanks, David, and good afternoon, everyone. I want to start by providing some additional comments on our performance for the first quarter, then move to the balance sheet. Please turn to slide seven. David mentioned EPS for the first quarter was $0.96 compared to $0.92 a year ago.

Foreign exchange rates did not have a significant impact on earnings and only a slight effect on revenue for the quarter. Corporate G&A expenses for the first quarter were $41 million compared to $38 million a year ago.

Shifting to the balance sheet, Fluor's financial condition remains strong, with cash plus current and non-current marketable securities totaling $2.2 billion. This compares to $2.6 billion a year ago. Our continuing operations had a very strong cash generation quarter of $345 million.

In discontinued operations, we used $306 million for the previously disclosed settlement agreement relating to claims against a business that the company sold in 1994. On a combined as reported basis, cash flow from operating activities was $39 million for the quarter.

The company also returned over $140 million of cash to shareholders through share repurchases and dividends. Moving to slide eight, Fluor's consolidated backlog at quarter-end was $41.2 billion. The percentage of fixed price contracts in our overall backlog was 18% at quarter-end, and the mix by geography was 37% U.S. and 63% non-U.S.

I also want to point out that ending backlog was reduced by approximately $1.6 billion as a result of the strong dollar, $1.5 billion of which was within the Oil & Gas segment. I will conclude my remarks by commenting on our guidance for 2015, which is on slide nine.

Results for the first quarter were consistent with our expectations, as were our new awards for the quarter. We are also on track with the share repurchase program previously announced. As a result, we are maintaining the 2015 guidance range of $4.40 to $5.00 per diluted share.

This guidance excludes the effects of previously announced termination and settlement of Fluor's U.S. defined benefit pension plan, which is expected in the latter part of 2015. Our guidance 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 $250 million.

With that, Operator, we're ready to take questions..

Thank you. Our first question comes from Jamie Cook with Credit Suisse..

Hi. Good evening, and congrats on a nice quarter. I guess just a couple questions. One, David, the revenues within Oil & Gas over the past two quarters have been a little lower than my expectations.

Are you seeing – while you're not seeing cancellations in projects, are you seeing customers lengthen the project over a longer period of time, which is driving that? And is this sort of the right run rate to think about Oil & Gas revenues? On the flip side, the margins that we've seen both in the Oil & Gas business as well as the Industrial & Infrastructure business over the past, I would say, four quarters have certainly exceeded my expectations.

You talk about the changes in your business model. If you look at the 10-Q and you look at the verbiage that you have around margins, it sounds like you got a bump in profit because you're executing on the projects better than you would originally have thought.

Is that a result of the change in business model? And I guess going forward, should we think about as a result of this, is it sustainable? Do we think about maybe lower revenues but higher profitability? Thanks..

Jamie, thank you for your question. I think on the revenue side, I think it's just where we are in the cycle more than anything else. As I said, we really haven't seen – we've seen no cancellations other than the $132 million we spoke of.

And I think that's an interesting project, because really we're – we took the fabrication piece out of our joint venture, but we're in fact still working on the project and helping the customer re-scope it as we speak. So I think the revenue piece is a timing element. I think we're early in the cycle, if you will.

So I don't think you're going to see significant revenue growth in the near term. Having said that, I think the prospects that are on the book that we're looking at are still moving down the road for FID. We haven't seen any cancellations, as I said, nor have we seen any of the major prospects that we were looking at canceled.

So I think we're in a pretty good place to have a pretty long cycle here. And as I said in the prepared remarks, I think this cycle is going to be longer than the last one, but not as high in the short-term. In terms of margin....

Sorry, David. To add on that just, and I know you want to answer the margins, but this question dovetails too into the change in your business model. While maybe less projects move forward, but you're positioned on the right projects, do you feel, do you think we should think of a higher win rate for Fluor? I guess that's tough in Oil & Gas.

But a higher win rate for some of your businesses, relative to what we've seen historically so that you could still see some pretty good order growth in a slow period of time. And then your change in business model obviously, dovetails into my margin question. Thanks..

Well, I think our change of business model makes us more competitive over the longer term. And when you're more competitive and you have the value proposition that I think we have, I would expect our win rate to continue to be pretty strong.

I feel really good about the relationships that we have and the fact that we're providing what the customer is asking for in terms of capital efficiency and certainty of cost and schedule. So I think the revenue piece, as I said, is a short-term issue, but I feel pretty good about our position in terms of growing that business over the longer term.

Now also embedded in that is the improved business model is, I think, providing us with a better margin profile and backlog, as we've signaled before. I think we said in terms of Oil & Gas that as we go through this cycle, that 6% should be, somewhere in the sixes, should be a good number. I'm not backing off of that.

I think that we've really changed a little bit of the DNA here in terms of being competitive and we're matching what the customer is asking for.

So I think the efforts that we took over the last three years in terms of where we strengthened our offering, the focus on cost and taking unnecessary activities out of our company, I'd like to think that my timing was perfect, but I think that what we've done allows us to be very competitive, regardless of the commodity market position that our customers are dealing with.

So I feel pretty good about being able to perform in line with what we said before on margin in Oil & Gas..

Okay. Thanks..

Since you asked about both Oil & Gas and I&I's margin, on Oil & Gas I'd agree. I guess I'd be a little more specific with respect to this year, because of the strong start in the first quarter, certainly being in a high 6% range is feasible.

And with respect to I&I, yes, we had good performance contributing to a strong quarter from a margin rate standpoint. And we've, in fact, of course, had a lot of those quarters. We don't necessarily always predict them going forward, being conservative. But generally speaking, we would expect that we're in the 4% to 5% range on I&I as we go forward.

Don't see a significant permanent shift there. But certainly good performance gives us opportunity to do better than that..

All right. Thank you. I'll let Andy ask the backlog question..

Our next question comes from Tahira Afzal with KeyBanc..

Hey, guys. Nice quarter..

Thank you..

I guess first question is, David, as you look out for the next 18 months and you look at your portfolio of Oil & Gas prospects, I see a pretty sizable market for you, but I would love to know how it shifted in terms of opportunity set for you versus this time last year.

From what I can see, you think – Oil & Gas and power, I should say – there seem to be a lot of midstream projects potentially coming back now that we know you can do construction management there. Clearly the power plant market seems to be finally picking up, as the utilities are saying. So you guys look at the near term.

Where do you feel a little more confident than you did a year back?.

Well, I think my confidence hasn't really changed. The opportunity set, as I said, really hasn't changed, just the decision point has maybe shifted a quarter or so. Some very large projects out there that we're positioned for, I think very well.

And again, I think our approach is something that allows us to be much more competitive than we've been in the past. I'm really proud of our power guys. They've done pretty good over the last two or three quarters, in terms of really putting some good projects back in the backlog.

And again, that industry is something that uses our entire suite of services, including direct hire construction, which is something we've focused on over the last little while. So I still have the same level of optimism in terms of the opportunity set.

I just think that the timing is a little bit suspect, but again, I think based on the projects we've lined up and are positioned for, it's not a year-over-year thing, it's quarter-over-quarter, and I think that term lumpiness is going to return, I think, pretty significantly as we go through the rest of this year..

Got it. And, David, second question is around NuScale, which obviously doesn't get much of the highlights sometimes. But NRC just indicated that they are going to come out with some important guidelines well ahead of what was expected.

I would love to get your thoughts on whether the guidelines coming out a little sooner helps you progress that?.

Well, I think it's very positive and I would suggest that our progress of preparing for submission for design certification in 2016 has prompted them to accelerate their activities and have the people available to review and approve that submittal on a timely basis. So I see the actions as positive but it reflects what we've asked them to do.

I feel – I'm still in the same place with NuScale with a couple of added comments, one being that basically the competition has fallen away and we've got a really good technology that the power companies are seeing the value of.

And in fact, the second piece of that is we continue to add people to our – power companies to our advisory group, and some of them have made commitments on when they're going to deploy these things. We're steady as she goes.

I feel good about where we are in terms of the submittal, and I feel good about the NRC's ability to give us a fair review in a timely manner..

Thanks a lot, David..

Thank you..

Our next question is from Steven Fisher with UBS Financial..

Thanks. Good afternoon..

Hi, Steve..

David, you commented in the release that bookings may be slower over the near term. Was that directed at both Oil & Gas and I&I from the Q1 levels? And a month ago, it sounded like you had been expecting Oil & Gas backlog to be flat or potentially even up.

So I guess I'm wondering what has changed, if anything, because your tone sounds a little more cautious.

I'm wondering if there were specific meetings you had with customers or things you're seeing, so kind of what's changed in that regard?.

You know, just – I'm not going to talk specifics about specific projects, but I think we've seen some things shift quarter over quarter, which says that some of the things we thought were going to come in at the first quarter and second quarter are probably third quarter to first quarter now.

But again, I've got great confidence that those programs are going to go forward, and we're going to win more than our fair share. It's just that it's just kind of pushed out. But specifically to your question, it is in the Oil & Gas and mining sector. I think we're – in the mining group, we're still seeing a fair amount of study work.

You've seen a couple of big projects come in. There's maybe one more this year of a significant size. But again, I think when you combine the position in that market with some of the change in delivery model, they're much more competitive as well. So I feel that that helps us add to our win rate, not detract from.

So I still feel good about our position. I just think that some of the FID decisions are going to move out a couple of quarters, and that's why the caution in the release..

Okay. And then, Biggs, you guys have had, say, $200 million of headwind in working capital in the last few years as the Oil & Gas backlog has grown rapidly.

So with the growth there moderating now, to what extent do we expect that that headwind can neutralize and maybe even become a tailwind?.

Well, I think among other things, we had a very strong first quarter from an operating cash flow standpoint. I made a comment on that in my prepared remarks. If you eliminate the payment and settlement of $300 million, it was $345 million in cash from operations, and that was in fact fueled by good working capital performance, including on Oil & Gas.

So we're off to a head start, if you will, this year in having good cash flow performance across the business, including in Oil & Gas.

I think that I'd say generally as we go through time, we expect nothing to cause a significant change in the profile of working capital to revenue, and that's true, except that in this case with that $200 million extra we guided in the first quarter through collections, that that could be sustained for the year and have us do better than average for the full year..

Okay. Thank you..

We'll hear next from Jerry Revich with Goldman Sachs..

Good afternoon..

Good afternoon..

Your team was the top bidder on the Kuwait new refinery project for about $6 billion, I think, for the phases that you folks were the low bidder. I'm wondering if you can just comment on how optimistic are you about converting that to an order with risk terms that you're comfortable with.

I guess from what we're hearing, there's discussion about who's undertaking the cost inflation risks on the broader set of projects.

Can you flesh that out, to the extent you're comfortable?.

Yeah. We feel very good about our bid. It's no different than the Clean Fuels project from a terms perspective than that project. And those projects are being executed with great excellence. The timing, I think, they've gone out and they've rebid on, I think it's package four and five.

We expect that to be done and hopefully they've made decisions and awards by Ramadan, which is, I think starts around June 15. So it could be either a second or third quarter award on the packages that have been reported..

Okay. And then on the U.S. power side, last quarter you mentioned that the competitive landscape was pretty focused on price.

Can you just give us an update on how that's trended? And just broadly how many power projects are you folks evaluating? Or how many do you expect to move forward for the industry within the next 12 or 24 months, or however you want us to think about it..

Yeah, I think it's still a competitive marketplace. But I'm comfortable with the ones that we've won. Getting back with Duke, which was really, really important for us from a customer's perspective has been very positive. And then our relationship with Dominion; I think Greensville shows that we execute for them on the projects that they need.

I mean, that's a very large project that will go into backlog next year when we get to final notice to proceed. So I think they're on a roll. I think that we've looked at the things we need to look at around competitiveness. I think our execution approach has sharpened relative to how we do those projects.

Those projects are typically lump sum, so it's how well are we performing. And I think we're performing very, very well in the power sector. So I'm pretty bullish on them being able to deliver on what we got in front of us, but I wouldn't suggest what number of projects that are out there in front for award in the next little while.

But Greensville is a very, very important win and a very large project..

Okay. And lastly, can you talk about how focused you are on the next set of U.S. LNG projects? You've obviously had some pretty good early success here with JGC.

How active are you folks on the projects that haven't made a contractor decision yet, in terms of investing your bidding resources?.

Feel pretty good. I mean, we've been short listed on one of them, and are in conversations on several others. Again, I think the change in model is what's attracting them, because we can offer a much more competitive approach than our competition. So I feel pretty good about where we stand.

I feel good about where we stand in LNG in general and the relationship we have with JGC..

Okay. Thank you..

Our next question comes from Mike Shlisky with Global Hunter Securities..

Hi, guys..

Hi.

How are you?.

Good. I want to ask first about the first quarter results.

Could you tell us if there was any kind of impact from the weather on your top line or on your operating profit? And has anything been pushed into huge digits (30:41) just on that kind of a phenomenon in the first quarter?.

No. There was really no weather impact in the first quarter..

There's a slight one in power. So you might look at power's margins and see them as being a little bit lower because of weather, but that was it..

Yeah. It was very little..

Nothing more broadly..

Okay. Great. And secondly, I just want to touch on the industrial piece of I&I. Just checking out some of the broad macro data out there, if you look, there is quite a bit of pickup on the industrial manufacturing construction side in the last few months.

Is there like any kind of update you can give us on the portfolio of opportunities you have to get any kind of award in the industrial and manufacturing sector?.

Yeah. It's primarily in manufacturing and in life sciences. We're having great success with some of our old line customers like Procter & Gamble and Alcoa and the like. And they're starting to spend again, and because of those relationships, we're in a good position to do that work.

We are seeing an uptick in some of the pharmaceutical and biotech type projects in terms of prospects, and we see that market returning. And again, we've got a pretty good approach to those projects and again, good relationships with those customers. So I think over time it will continue to grow and be a good solid part of our portfolio..

Excellent. Thanks, guys..

Our next question comes from Michael Dudas with Sterne, Agee..

Good evening, everybody. David, any sense of, given the caution on the capital spend and some FID decisions, is there any other sense of just general economic activity, U.S.

and abroad that's also contributing to some of the headwinds?.

That's a great question, and I've got a question for you. I'll ask in a minute. I think a lot – it's interesting what the rhetoric that you're hearing from a lot of our customers in the marketplace.

And I think there's a fear in making some decisions just because of potential criticism of making the decision, regardless of whether the project makes sense or not. And that's just a fear factor that's in the marketplace. But frankly speaking, that's just a delay. It's not a marked change in the projects that they're going to do.

We spend a lot of time in terms of selectivity of which customers we work with, which projects we pursue. And I think that's also part of why we have a pretty good win rate. So we do our homework. And most of the projects that are being talked about will still go forward.

I was at an event where one of the customers talked about their capital spend plan and said, we've said it will be a decline of about X. But we're going to need to wait until the end of the year to see if we actually get there. So I think there's some people hedging their bets because of market fears. But the fundamentals are still there.

The business models on many of these projects still make sense, and they make sense at low oil prices. So those are the ones that are, that make up the majority of the list that I've spoke of in the past.

My question to you is, who are the Giants going to take in the first round?.

We need an offensive lineman badly, David..

Good luck..

I appreciate it. Thanks, David..

See you..

We'll hear next from Brian Konigsberg with Vertical Research Partners..

Yes, hi. Good afternoon..

Good afternoon..

David, just maybe following on some of that commentary. So what exactly do you think it is that's going to give the customer base the confidence to actually move forward? Is it just stability in oil and gas prices? Is it other factors? I just, fear just seems like a very nebulous and kind of a – not necessarily strange reason -.

It is nebulous. I think that you see oil kind of stabilize around the higher 50s or low 60s. I think that they're waiting for one more month or one more quarter to see does it continue to stabilize at that range.

As I said, many of the projects that we're pursuing, the business model suggests that they're profitable projects and needed projects in terms of replacement of reserves and their production, even at those rates. I think the OPEC meeting in June is going to be a touch point.

I don't think it necessarily is the thing that loosens the decisions, but it's another factor in terms of how stable the oil prices are going to be. I mean, gas prices have been obviously in the low, mid $2s to mid $3s for some time now. And we haven't seen any of the delays on some of the petrochemical things that we're doing.

So fear is a nebulous term, but I think it's just a trepidation on their part of who's going to stick their neck out first with you guys, in terms of making an FID decision..

Fair enough.

And maybe just following on with the bidding environment, given that there are some delays in the projects being awarded; are you seeing competitors trying to get more competitive on pricing in an attempt to fill volumes?.

Oh, I'm sure they will. I'm sure they will. That's the normal herd mentality, I think, that damages our industry. I think what we've proven is that we focused on a better delivery model, and therefore, we don't have to have margins suffer because we're competitive in other ways.

But there's always somebody that's going to drop their price to ensure that they have the volumes that they want. And frankly, there's nothing I can do about that.

I'm going to focus, and our people are going to focus, on continuing to improve our offering and meet my expectation and your expectation in terms of creating shareholder value through enhanced margin performance. So we're just going to stick to our knitting and let others do what they think they need to do to meet their needs..

Thank you very much..

Our next question is from Vishal Shah with Deutsche Bank..

Hi. This is Chad Dillard on for Vishal.

How are you guys?.

Good.

How are you?.

Good. So just wanted to get back to a question on backlog.

So do you think backlog will remain flat or do you see some potential to grow? And how do you see that evolving on new awards? Do we see a little bit more competition coming from underpinning work or scope increases or large-scale projects?.

Well, if you can weaken the U.S. dollar for us, we'll put that $1.6 billion back in that we took out because currency. I think, as we signaled before, some of the decisions being pushed out a little bit, I think, does put pressure on growing backlog significantly during at least the first half of the year and maybe into the third quarter.

But I still think that we're going to stay flat. And when you think about that, that's a pretty good performance in this market that we're burning about what we're putting in and it's still staying at the $40 billion number. So I think we're flat over the short to mid-term and then growing as we go towards the end of the year and into next year.

And I think there's significant upside as we get into 2016..

And then just to jump over to a segment that's probably talked about a little bit less than the others.

On Government, what do you see in that pipeline? I mean, is that going to be another potential opportunity to drive a little bit more growth, now that some of the oil and gas projects may be a little bit slower?.

Well, I think it's a tale of two stories. I mean, a tale of two cities. The first one is LOGCAP is coming down and we are looking at an extension for the number of troops that the U.S. government is keeping there. So there – it's not, it doesn't go to zero, at least through the end of 2016.

But it's hard to fill that hole when it was as big a project and big a contract as it was. So I think it's, Government's going to be modestly down, but growing from that point with some of the bids that we've got outstanding and are planning for in the DOE space, as well as some of the other logistical contracts in the DoD space.

We also see growth in the decommissioning in Europe. You've seen what we've done in the U.K. and I think that that will grow from there.

So I'm not sure we're going to have it, Government back to where it was in, say, 2011 and 2012, but it's still a very stable, growing business for us and it provides some stability to our earnings over the longer term..

Thanks. I'll get back in queue..

Thanks..

Our next question comes from Alex Rygiel with FBR Capital Markets..

Thank you. Good evening, gentlemen..

Hey.

How are you?.

Pretty good. David, you mentioned earlier that engineering hours were up year-over-year.

Could you expand upon that a little bit and maybe characterize it as whether or not it's projects that are being reengineered for lower cost, or if it's engineering for new opportunities?.

No, it's engineering for new opportunities. And it's based on just the normal flow of a project. There's really not any reengineering going on, on a lot of these projects that are in backlog. We are reengineering some things.

As I mentioned, we're working with Shell on a couple of cases to look at a different approach that meets their cost need, which I think is very positive for the future. But what we're burning in backlog is all, for the most part, new projects and the normal cycle that we see in terms of the EPC cycle..

And as it relates to the organizational changes, is there any chance you could quantify the permanent cost reductions achieved?.

Well, I've said in the past that it's triple, low triple-digits. It's a little over $100 million that we've taken out of cost..

That started last year, so it's already significantly evident..

Yeah..

Thank you very much..

We'll hear next from George O'Leary with Tudor, Pickering, Holt & Company..

Afternoon, guys..

Afternoon..

On the petrochemical side, which we haven't talked about too much yet, just curious, any progress on some of the international ethane cracker projects that are out there? And you guys have won a good bit of the ethane crackers that have already been let in the U.S. Just what's your appetite for incremental exposure there? And....

Oh, I think – I think we've got great appetite. We're working on the early stages of some bids in several places around the globe, including additional crackers in the United States. So I think we've done pretty good and I look for continued growth in that segment..

Helpful color. And then any – so we've talked about, a couple of times, about potentially seeing some deferrals in Oil & Gas and mining projects.

Are there any bright spots within energy where we could see awards, material awards pop up in the next few quarters? Or is it going to tend to be smaller, more midstream type projects maybe that end fill over the next one to two quarters?.

I think it's going to be all over the place. I mean we talked about one earlier which is pretty sizeable, which is the new refinery in Kuwait. So I think we're seeing some growth in the refining sector. I think in the mid-stream, transportation sector, pipelines and such, I think there's some opportunity there in the near term.

But then the normal big programs that we're working on will work their way towards FID this year and it could see some large awards early in 2016. So I think it's steady as she goes, in terms of our appetite and bookings..

Thanks very much for the color, guys..

Thank you..

Our next question comes from Andy Wittmann with Robert W. Baird..

Hi, guys.

Given the good performance in the positive contract closeouts in Oil & Gas and in I&I, I was hoping you could quantify what those were in the quarter?.

Yeah, it's real judgement as to what you characterize as just good performance and normal mitigation and contingencies and then what to close out. So we know that we get contributions in those things. But you really just can't methodically and mechanically say here's what contributed solely from a closeout versus just good performance..

Okay..

And they happen every quarter..

Yeah, they've been happening a lot, which is great but just can you put a minimum bound on it, Biggs, and say it's at least this much? Just to give us an idea..

No, but I think that, you know, I'll put it in this context; we said that the quarter had a good margin rate on it in Oil & Gas; it's 7.4%. But we said for the full year we expected that we would easily or be in the high 6%s.

So that tells you that there's a fairly sustainable margin rate in there and we're not looking at a big differential from those contributions, relative to what we expect to experience for the rest of the year..

Fair enough..

So I wouldn't, as I think, I wouldn't go look to try to back something out when we think we're going to be able to continue to operate at a higher rate..

Yeah. And then, David, I was getting your thoughts on Kitimat at well, which is one of the larger projects that you guys put a little bit in your backlog; don't know how much. Just your thoughts on the likelihood of that to progress and your thoughts on timing around that potential fit..

I think it's moving at the normal pace, given the challenges that were there. Obviously the sale of the Apache piece was a very positive move, but it's going to take some time to get them up to speed. It's a little bit a slower pace than we anticipated earlier, but I think it's on track.

I mean, I've got great confidence that it will go forward and we'll participate. And as you said, we took some into backlog, but very little in the grand scheme of things. So I feel pretty good about it reaching a positive FID decision when Chevron and the partners are ready.

I don't expect that to happen in 2015, but I think 2016's a good – sometime in 2016 is a good mark..

Thanks for that. Maybe a final question, just on labor input costs. I was just wondering what you're seeing there.

And just as it relates to your margin profile in your business, is there enough maybe – if labor rates are coming down, do you have enough fixed price contracts in your business to potentially benefit on the margin line? Your thoughts around that would be helpful..

Well, I wouldn't speak to whether it benefits the margin line right now. I think in general, this slowdown has actually helped us in a lot of ways, in terms of the craft resource in the United States – and I'm speaking specifically about the United States.

So some of the things that we were looking at in terms of escalation have eased, but we're well on target with what estimates that we had done. I think we still have the same concern relative to the availability of some resources. Welders were a problem at the end of last year; they're not necessarily as much of a problem today.

On the other hand, fitters are a problem right now, but we're marching down that road, too. So I think we've taken the time to train that next wave of Fluor craft worker and I don't see the kind of pinch points in front of us that I did maybe six months ago.

And I think that's kind of part of why I said earlier about this cycle being a longer cycle and helping us, I think, longer term. So I feel pretty good about where we are from a labor standpoint and I would just suggest that maybe some of the escalation is easing, in terms of the wage rates..

Thanks very much..

This is Biggs. I'll go back on the prior question because I'm not sure we said it in the call right. I certainly addressed again the Oil & Gas margin expectation on Industrial & Infrastructure.

The add-on comment would be that we would expect moderation on I&I for the margin rates to go back down to the 4% to 5% level they're traditionally at, which would take into consideration not necessarily having the same level of benefit of closeouts or contingency mitigations occurring there, in future quarters, that we had in the first.

Go ahead, Operator, to the next question..

We'll hear next from Anna Kaminskaya with Bank of America Merrill Lynch..

Hi, guys. Thanks for taking my question. I just wanted to quickly go back to Oil & Gas margin, more looking to 2016.

Just putting together the competitive dynamic right now in the industry and maybe any changes in your mix, how do you see margin playing out more in 2016? Should we expect it to continue running at 6%? Will it get more normalized to your historical average? How should I be thinking about it?.

Well, I think we're still looking at 2015 and I don't think we're ready to really talk about 2016 in terms of margin, but the only color I would provide is we feel pretty good about our ability to perform in that market segment..

Okay. And then on free cash flow, just we heard from some of – that some of the energy customers having cash issues or shortfall on free cash flow.

Are they pushing you on any changes to your working capital terms in the contracts, maybe asking you for more working capital up front? How does that change your free cash flow profile in the next couple of years?.

I don't think there's been any real change in our architectural approach or what we're talking about with customers. As I said we expect the relationships between working capital and revenue to be pretty consistent over time, with the exception that what I already talked about.

We've had the improvement this year from collections in the first quarter and we expect to be able to sustain that improvement over the year..

Okay. Great. Thank you very much..

Our next question is from John Rogers with D. A. Davidson..

Hi. Good afternoon. David, sorry, to just go back to margins once more. In terms of the new delivery model and you mentioned the cost savings that you've taken out of the system, and I don't know if it was you or Biggs said $100 million.

At some point, does that just get passed through to the customer? And I just want to understand how sustainable this advantage you have, you think it is, or what's next to keep that advantage in place? And then secondly is, has it changed the risk profile for you on these projects?.

No, absolutely not. We haven't changed the risk profile at all, and the majority of the savings impact overhead. But I feel really good about our ability to sustain this benefit over the longer term. Biggs, I don't know if you have any color..

I agree. I would make the same point you did, that this is mostly about overhead reductions, and so not discretely a part of the pricing model..

Okay. Great. And thank you..

We'll hear next from Robert Connors with Stifel..

Hey, gentlemen.

I'll try and keep this brief because I have a 10:00 curfew to stay at here in Baltimore, but I was just wondering if you guys were seeing on the North American chemical side, you sort of mentioned on this that, you know recently I've heard of one project moved to the right, while one or two more have actually sort of come forward and may expand, and that includes maybe BASF and possibly Sasol expanding on its projects.

So I just wanted to get some more color around what you're seeing on North American chemicals..

Well, I think BASF obviously is in front of us. We're pursuing very hard. Sasol is on schedule with what they were saying, and I'm not sure what you mean about expansion there, but that project is on target. So I think that you're going to just see steady growth. I mean, Franklin's coming back. We're looking at that.

And then I think there's some of the derivative plants that people like BASF and others are doing on the back of this. I think it's just onesies and twosies as we continue to go down the line, but I think it's a robust market..

And then correct me if I'm wrong, but the TCO reload, was that already awarded? And then do you have any just color on Mozambique?.

Well, TCO, the next phase has yet to reach FID, so it's not in backlog. That's one I expect to go towards FID as we get to the end of this year. Mozambique? I feel pretty good about our position on Mozambique. The timing of award is anybody's guess, but I think that it could still be this year.

But I think it'll be, if it's awarded this year, I still think it's a pretty slow roll in terms of getting started in any significant positive impact to earnings in 2015 or early 2016..

Great. Thank you..

Our final question comes from Justin Ward with Wells Fargo..

Hey. Good evening, guys..

Evening..

I'm just wondering, kind of a strategic question, as you guys are seeing the benefits of the integrated solution making Fluor more competitive and driving the margins, I'm wondering if you're – if that's increasing your appetite to maybe accelerate that shift towards the self-perform and fabrication by acquiring some assets here, maybe at a depressed price, would that be a consideration at some point, or...?.

Well, I think with regard to the model, I think one of things that it's done is it's given us great comfort in our ability to execute under any circumstance contractually and certainly under any circumstance given to us by the commodity market falls or whatever and the challenges there. So, that's point number one.

Point number two is we're going to always continue to look at how we strengthen that.

And the problem with depressed pricing is sellers typically won't sell it at a depressed price, so what we're looking at is where we do need the assets in order to continue to grow? Are those assets something that fit within our strategy and are those assets something that from a monetary standpoint fits the, fits our business model? We've got a few things that we're looking at, but they're add-ons to existing strategies..

And I'll just add, I mean we're still talking about niche type things; that is what we've looked at over time and what we continue to look at, not transformative type things. And to reinforce, we won't buy something just because it's cheap.

It's got to fit a strategic need, so there's no real change in terms of how we look at things in this market from what we have looked at..

All right. Thanks a lot, guys..

That concludes today's question-and-answer session. Mr. Telfer, at this time, I will turn the call back – conference back to you for any additional or closing remarks..

Well, I'll take that, Operator. And thank you for helping us here today, and I appreciate everybody's participation on the call. As I said in my opening remarks, the actions we took over the last few years to transform to an integrated solutions company is paying off.

Our focus on capital efficiency and cost and schedule certainty is absolutely resonating with our customers. We believe we're well-positioned to win a number of opportunities that we're pursuing.

I believe we have taken and will continue to take actions to improve our competitiveness and profitability, and I think that's a true credit to our leaders and employees. With that, we really greatly appreciate your interest in our company, as well as the confidence you have in Fluor. I hope everyone has a good day. Thank you..

That does conclude today's conference. Thank you for your participation..