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

Jerry David Revich - Goldman Sachs & Co. Brian Konigsberg - Vertical Research Partners LLC Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker) Alex J. Rygiel - FBR Capital Markets & Co. Steven Michael Fisher - UBS Securities LLC Tahira Afzal - KeyBanc Capital Markets, Inc. Michael S. Dudas - Sterne Agee CRT John Bergstrom Rogers - D. A.

Davidson & Co. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker) George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc. Jeffrey Y. Volshteyn - JPMorgan Securities LLC.

Good afternoon, and welcome to Fluor Corporation's Third Quarter 2015 Conference Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the management's presentation. A replay of today's conference will be available at approximately 8:30 p.m.

Eastern Time today, accessible on the Fluor's website at, www.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available through 7:30 p.m. Eastern Time on November 5 at the following telephone number, 888-203-1112 with the passcode of 356250 being required.

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

Thank you, Whitney, and welcome to Fluor's third 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 was released this afternoon after market closed, and we have posted a slide presentation on our website which we will 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 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, I'll turn the call over to David Seaton, Fluor's Chairman and CEO.

David?.

Thanks, Geoff. Good afternoon, everyone, and thank you for joining us today. Before we get to talking about the results for the quarter and our expectations for next year, I want to take a moment and share our perspectives on the markets we serve and what we're doing to strengthen our performance and our competitiveness.

Since our last call, the global economy continues to be sluggish and commodity prices remain depressed. While commodity prices are showing signs of stability, there does not appear to be any near-term catalyst to drive prices up to where they were just a year-and-a-half ago.

Lower commodity prices have impacted our customers' cash flow and therefore their ability to fund projects at the same pace. Nonetheless, we do expect customers to move forward with high-quality or otherwise necessary projects, especially those replacing depleting or deteriorating assets.

For example, oil and gas customers need to add production to replace their declining production base as well as to meet the new regulatory demands. Utility customers need to build new power plants to replace retiring generation capacity. Infrastructure customers need to build new roads, replacing aging infrastructure.

And the one area which we think is the most challenged to move forward at a rapid pace is LNG where the spread between gas and other energy sources has narrowed significantly and there's a lot of new supply coming online. Things are never as bad as the meaning would suggest, nor as good as we would hope. Our focus is on the things we can control.

Strategically, our company remains committed to the direction we set in 2011. We are focused on our transformation from an EPCM services company to integrated solutions company. This transition allows us to provide lower cost solutions to our customers, improve our margins, and expand our markets.

Our latest investment in fabrication, in the COOEC Fluor Heavy Industries joint venture with its state-of-the-art fabrication yard in Zhuhai, China, gives us large critical modular capability and opens up new markets in which Fluor could not previously participate.

The Sacyr Fluor JV on the surface may appear to be just a divestment, but what it really does is allow both companies to pursue work neither of us were able to pursue on our own. Again, this opens up new markets we did not previously have access to. So now let's move and look at the third quarter results beginning on slide three.

Net earnings attributable to Fluor from continuing operations were $176 million, or $1.21 per diluted share. Consolidated segment profit for the quarter was $240 million. Segment profit reflects a modest increase in Oil & Gas results compared to a year ago, offset by lower results from Industrial & Infrastructure, Power and Global Services segments.

Segment profit margin was 5.5%. Total segment profit margins declined as a result of a cost increase on a gas-fired power facility in Virginia that is nearing completion. Oil & Gas margins were 7.9%, up from 5.5% in the third quarter of 2014, and up from 7.4% last quarter.

Margin in Oil & Gas reflects an increase in higher margin engineering and design activities, lower overhead costs as a result of our efforts over the last year-and-a-half, and implementations of our integrated solutions execution model.

Revenue for the quarter was $4.4 billion, down from $5.4 billion a year ago, mainly due to lower contributions from the early cycle Oil & Gas work, and the lack of Infrastructure opportunities in our addressable market.

New awards for the quarter were $5.3 billion, including $3.6 billion in Oil & Gas, $926 million in Industrial & Infrastructure, $534 million in Power, and $277 in Government. Consolidated backlog at quarter end was $41.7 billion, which is basically flat with last quarter.

We have had no cancellations of projects this quarter, but backlog was reduced by approximately $1.1 billion as a result of foreign exchange fluctuations. Our financial results are summarized on the table on slide four, and I'll continue my remarks on slide five.

In the third quarter, the Oil & Gas segment booked $3.6 billion in new awards, including our portion of the KNPC Al-Zour refinery project and a refinery reconfiguration program in the United States. Ending backlog for Oil & Gas segment was $29.1 billion, up 9% from $26.6 billion a year ago.

New awards for the quarter in Industrial & Infrastructure were $926 million, including the Bergstrom Expressway project in Austin, Texas. Ending backlog for the Industrial & Infrastructure segment was $6.6 billion compared with $8.6 billion a year ago as we continue to work off the existing mining projects. Turning to slide six.

Revenue in Government was $661 million, up from $615 million a year ago. Third quarter new awards were $227 million, and ending backlog was $3.8 billion compared with $5.2 billion a year ago. In the Power segment, third quarter new awards were $534 million and included the full notice to proceed on a gas-fired power plant in Florida.

Ending backlog was $2.2 billion, which compares to $1.8 billion a year ago. Now, before I move on, I want to take a moment and comment on the announcement that took place Tuesday evening regarding our discussions to support Westinghouse in completing the two nuclear projects.

Right now, we're working on a professional services agreement to assist Westinghouse in assessing the construction status of Plant Vogtle's Unit 3 and Unit 4 in Georgia, and two additional units at V.C. Summer Nuclear Station in South Carolina.

During this assessment period, the final terms and conditions will be worked out for a construction-only subcontract under Westinghouse's leadership for both projects.

While we don't typically give out specific details, I want to point out that any future contract will be on a cost-reimbursable basis and there will be no liability for pre-existing conditions associated with the prior construction.

We are pleased to be working for Westinghouse on these projects and we'll work closely with the talent that is already on both sites. With that, I'll now turn it over to Biggs for some of the details on operating performance and the corporate financial metrics for the quarter.

Biggs?.

Thanks, David. Good afternoon, everyone. I want to start by providing some additional comments on our performance for the third quarter, then move to the balance sheet. Please turn to slide seven. As David mentioned, EPS from continuing operations for the third quarter was $1.21 compared to $1.15 a year ago.

Earnings include $0.04 per diluted share for pension expenses not included in our guidance. Excluding this expense, earnings would be $1.25 per share. In the third quarter, the company created a new joint venture with Sacyr Industrial by selling 50% of its ownership interest in the Spanish subsidiary.

This resulted in a pre-tax gain of $68 million or $0.30 per diluted share after-tax. This was approximately $28 million more than what we saw as a minimum pre-tax gain we would book.

In terms of how this translates into our outlook, this additional gain was offset by the unusually large cost increase on a gas-fired power facility in Brunswick County, Virginia. Corporate G&A expense for the third quarter was $35 million, comparable with a year ago. Both periods reflect lower comp expense due to a decline in share price.

NuScale expenses were up in the quarter and are expected to be $80 million to $90 million for this year and next year as we move toward Design Certification submittal to the NRC. The design certification is critical to being first to market and in attracting new investors. We expect net NuScale expenses to decline after submitting the DCA in 2016.

Shifting to the balance sheet, Fluor's financial condition remains strong with cash plus current and non-current marketable securities totaling $2.3 billion. This compares to $2.4 billion a year ago. Cash flow from operations was $366 million for the quarter and $570 million year-to-date.

Year-to-date number is particularly strong considering we pay $312 million in the first quarter for non-recurring legal settlements related to Doe Run. Improvements in cash generation were mainly driven by favorable changes to working capital in Oil & Gas.

During the quarter, the company returned over $176 million in cash to shareholders through share repurchases and dividends. Over the last four quarters, we have repurchased $855 million worth of shares. We remain on track to complete our $1 billion share repurchase program by the end of this year. Moving to slide eight.

Fluor's consolidated backlog at quarter end was $41.7 billion. The percentage of fixed price contracts in our overall backlog was 24% at quarter end, and the mix by geography was 34% U.S. and 66% non-U.S. Before we take questions, I will conclude my remarks by commenting on our guidance for 2015 and 2016, which is on slide nine.

We are narrowing our 2015 guidance from continuing operations to a range of $4.05 to $4.20 per diluted share from $4.05 to $4.35 per diluted share, excluding all pension settlement related charges. For 2016, we are establishing our initial EPS guidance at a range of $3.50 to $4 per diluted share.

Our range for 2016 reflects continued weakness in commodity prices. Guidance for 2016 assumes that G&A expense will be in a range of $190 million to $200 million, NuScale expenses of $80 million to $90 million, and an effective tax rate of 33% to 35%. Guidance also assumes capital expenditures will be approximately $300 million.

And comparing 2016 to 2015, I would point to two things which have affected 2015 results. The Fluor Spain gain and the effect of stock price decline on G&A expense. If you adjust for these, the midpoint of our 2015 and 2016 guidance is fairly in line. With that, operator, we're ready to take questions..

Thank you. And we'll take our first question from Jerry Revich..

Good afternoon..

Hey, Jerry. Afternoon..

I'm wondering, David, now that we're closer to hopefully the joint venture CNOOC closing, can you just talk about over what time period do you think that business could be a meaningful earnings contributor to you? And just step us through the plan as soon as you folks close in terms of looking for opportunities to fill up the fabrication yard?.

You're talking about the fabrication yard?.

Yeah, the China fabrication yard..

Okay. Yeah Zhuhai. Yeah, we're on track to finish the JV hopefully by year end if not into early next year. I saw some of the slides that are available to us now in terms of opportunity set that is now available that was not available to us before we made this investment.

And even though you've got lower cash flow from our customers in the Oil & Gas segment, they're still continuing to spend money. We believe that right now the yard is full with COOEC work, and we expect that to continue. And then, as we expand, folding some of the other programs and projects that were there.

So we feel pretty good that it's going to be profitable and a good earner for us as part of 2016 and then grow from there. As I've said in the past, I've seen these cycles before and these oil companies still have to put reserves on their books.

So I think that that's well set to accomplish that, but I would caution you that that yard is not just for offshore. The majority of the work that we're looking at right now is in fact modules for onshore projects primarily in Oil & Gas, but in other markets as well. So 2016, we should see a ramp-up, and then 2017, 2018 on a steady state of growth..

Yeah, I would just add, it will be gradual. Let's say, we get the JV form here, end of the year, early next year. And the yard is certainly being utilized today, but the capacity is going to grow over time. So the dollar investments that we're making, and that COOEC is making in that yard will flow into an increased capacity over time.

And so it's going to start out at the lower level and then grow..

Okay. Thank you. And then, in I&I, I think you folks are looking at expanding the scope of that business to international markets outside of the U.S. to a greater extend.

I'm wondering if you just can flesh out for us when do you think that part of the portfolio, it can become a significant contributor to your business? And just lay out for us how we should be thinking about the action plan there?.

Singapore, Ireland, Puerto Rico, and then some other places around the globe. But it's kind of conglomerated in those places. We've got a great history of being able to perform there.

In addition, in Industrial Services, we're starting to re-engage with some old line customers like Procter & Gamble and DuPont and some others, and we're seeing some partnership style opportunities growing with those traditional customers that fall within that business line..

Okay. Thank you. And lastly, congratulations on the Westinghouse win. I'm wondering, David, if you're willing to give us a framework for how should we think about the Fluor scope of revenue on that project compared to the backlog that CB&I reported. Just some high level of context there would be great..

It's premature for us to say right now. We're in the process of supporting Westinghouse in an assessment of those programs. That'll take 30 days to 45 days. So really all we're doing is really supporting Westinghouse right now.

I will say that there's great talent on both of those job sites, and hopefully, if Westinghouse sees fit, then we'll be able to work on most of the construction there. But I'd remind you, we won't be doing all of the construction. Westinghouse will still have responsibility for a fair amount of that as well as the fabricated equipment.

So we're pleased that Westinghouse has the faith in us, and we'll have to wait and see. But hopefully, towards the end of December we'll know, and we'll announce whenever that – when that information is available..

Okay. Thank you..

And we'll take our next question from Brian Konigsberg with Vertical Research Partners..

Hi, good afternoon..

Good afternoon..

Good afternoon..

Just for clarification, the guidance for 2016 does not include anything from Vogtle and SCANA at this point, is that correct?.

When we build the plan, we considered all of our prospects in terms of the 2016 plan..

Okay.

So there is a piece assumed in the 2016 numbers?.

Well, we're just not being discrete on different pieces and how they add up or contribute. There can be upside from a lot of projects, but everything gets considered in terms of its probability, and its size, and its potential range as we go into this.

And then, as we get a little further into the year, or into the next year, we'll get more defined with it..

Okay..

But it's premature to really give any more clarity than that with respect to how this was considered..

Okay.

But it's fair to say it was part of the planning process?.

Well, it's certainly a part of the process as we went into the last few weeks, yes..

Okay. Fair enough.

And then separately, can you talk a little bit more about the cost overrun you briefly mentioned in the presentation about the plant in Virginia that, I think you said, offset the gain in the quarter? A little bit more detail on that, and how far along are you on the project? How buttoned-down is it with the charge you've taken?.

We are nearing completion of that project. We feel pretty good about our estimates to go. It's been a challenging project. I mean, it's in a geographic area that's had two significantly bad winters, which contributed to that as well as some technical challenges in terms of the machines that are being installed.

And we feel good about where we are in our current estimates..

Yeah, in terms of – we don't quantify specific projects, but I think you have a pretty indicative kind of statement in my comments in that we, on Sacyr, on the Spain JV, we recorded $68 million versus the minimum of $40 million. So that's $28 million more recorded than what we anticipated.

And that was substantially offset by this cost increase on New Brunswick. So that gives you a pretty good feel for what the size of it was when you're trying to figure out what the relative impact is of both..

Got it. Just real quickly, the NuScale costs – you provided that in the outlook $80 million to $90 million. Okay. I'm good to go. Thank you..

Thank you..

Thank you..

And we'll take our next question from Jamie Cook with Credit Suisse..

Good evening. I guess, my first question, the revenue in Oil & Gas, the decline was much greater than what I expected, and the declines have accelerated, you didn't mean (23:48) throughout the year.

So I guess, David, I mean, is that a big concern? Is it just customers slowing the pace of the projects that you have? And as I look to 2016, what's the risk that projects continue to get lengthened or pushed out, or how to think about revenue for Oil & Gas in 2016? And I guess the other side of it is, while the revenues have been disappointing, the margins obviously have well surpassed I think most people's expectations, but I'm also assuming you're not going to tell me assume a 7% margin in 2016.

So when I look to 2016, do you feel more comfortable with the revenue pace or the margin pace, because just the revenue declines, I guess, have just been somewhat concerning. And then I have a follow-up after that..

Let me start, and then I'll ask Biggs to maybe give a little color to this. And I'll start kind of at a high level. When you look at the oil price drop, clearly all the oil companies kind of took a deep breath and evaluated all of their capital plans. They looked at and prioritized those.

And then, in the ones that met that priority, gladly they were most of the ones that we're doing, they're going back and looking is the design proper, is the cost estimate as sharp given current market conditions, because some of these things were estimated a year ago. And boards are asking for more information.

So that's what's kind of causing the delay. The good part is, and it kind of gets to the second part of your question, is as I've stated previously, we have changed the way we're doing work. And in doing so, we're able to provide these customers that are looking for more capital efficiency, exactly that. And I'd kind of contrast some proof there.

If you go back a year ago, or a year and a half ago, we were awarded the Clean Fuels program in Kuwait, which was a competitive lump sum turnkey project against open competition. And we won. And in fact, we are buying the majority of the equipment and materials, not our Korean partners.

That same approach led us to the award that's in this quarter on the two packages for the fourth refinery, the Al-Zour refinery. So that's proof that the new approach that we're using, that integrated model that we're using, is giving us confidence that it opens the aperture to the lens that we can go chase.

And at the same time, it's satisfying the customers' need for capital efficiency. So I think over the longer term, we'll be hard to beat, and in doing so, when we win these things, we're not doing it on a price basis, we're doing it on a value basis, and we're going to make more money.

So I think margins in Oil & Gas will be higher than the last cycle, but I wouldn't tell you it's going to be 7% or 6% or anything else, but over the longer term, it's going to be much better.

Now, when I think about what's in front of us in 2016 within Oil & Gas, as we said, we've had no cancellations and for the projects that have been kind of delayed for that deep breath, or whatever you want to call it, are starting to get to the point where FID is imminent.

So I'm not looking for 2016 to be a big growth year, but I do believe the combination of some of these projects moving forward, and our ability to win them and make more money, puts us in a unique position as you get to late 2016, early 2017 and beyond. So based on....

So it's fair to say – sorry, David, just because I think you were sort of getting into how you're thinking about the award pace too for Oil & Gas. So as you think about Oil & Gas, I don't even know that it would be in the second half.

It's probably more late 2016 at this point before you'd start to see any acceleration in order pace and awards, is probably the proper way to think about it?.

I think it's going to be lumpy, Jamie. I think if some decisions that have been pushed come to fruition in the first quarter, first quarter could be big. If they don't, it pushes to second quarter. So I just think it's going to be kind of a lumpy year, and there's some pretty big programs in there..

Okay. And then, Biggs, I don't know if you had any other question, then I had one more question..

I think David gave you a very thorough description of what's happening from a broad standpoint and looking at it over time. Just to drill into the quarter a little bit, the revenues being down relative to what we thought. To be real specific on that, there were no project delays or deferrals in the quarter which affected that number.

Obviously, the order book was good. The bottom line was good. Performance was good. I would say more we just missed a little bit in our estimating in terms of how it was going to play out in the quarter, and that there's really no underlying message or concern anybody should have from that circumstance.

So we would expect the fourth quarter to be relatively similar in terms of Oil & Gas revenues to the third quarter, and then over the course of next year to grow. So we do expect growth in Oil & Gas revenues next year on the strength of the orders that we've already recorded and we do expect to come in..

And then, sorry, one last follow-up just relative to Westinghouse, and congratulations. And I know you said in the prepared remarks, or actually in the prepared remarks and in response to a question. It's a cost plus. There's no risk to you in terms of pre-existing cost issues, whatever.

But David, I just look at this, I don't understand, I mean, it seems like a big win for CBI, a big win for you. I don't understand Westinghouse, but they seem like the loser there.

But I mean as you think about this project, is there any risk to Fluor in terms of future – I mean, where would the risk be to Fluor, if any?.

I don't think there's any more risk to Fluor than any other project that we do. There's obviously reputational risk, because we've got to perform, but we did not and will not accept the same commercial terms that was in the previous contract. So....

But it's completely cost – is there any portions of the project that are fixed price, or is it completely – I'm sorry, is there anything fixed price in there? Is it largely....

Once we get to that stage, we expect a fully reimbursable contract..

Okay. All right. Thank you. I'll get back in queue..

Thank you..

And we'll take our next question from Alex Rygiel with FBR..

On the Westinghouse topic, any other opportunities outside of Georgia and South Carolina that you're also in discussions with? And understanding the NuScale – or excuse me, Westinghouse has its own SMR Technology, any opportunity to kind of marry up NuScale with Westinghouse?.

It's premature to say. We think we've got the best SMR Technology that's close to be submitted for Design Certification. So we feel very confident about this. But I wouldn't get too far out over my skis on the Westinghouse relationship. They're a great partner, a great company, and we work well with them.

They've got a situation on two projects that they need our support and assistance. And because of that long-term relationship, we're willing to provide that. But we need to make sure we get through this assessment period. They're running the show, and we'll support them any way we can..

Fair enough. And David, you commented that LNG is most challenged.

How should we view that statement as it relates to LNG project work and backlog right now?.

I think it's a slow roll like it's been. I think you've got several new projects coming online with some pieces of difficulty in Asia. You've got the ones in the States, one or two that are under construction that will go forward.

But getting the rest of them to actually a sanctioned FID and actually turning dirt are going to be problematic, I think, as I said, because of that energy spread that exists, and in particular, with the low oil price, most of these are sponsored by significant oil and gas companies where their cash flow is impinged by the price, and maybe their priorities are a little bit different.

I think when we look at what's in backlog and what's coming, clearly the refining sector is alive and well. You look at their financials, and they are doing quite well.

You look at petrochemicals, and the wave of ethylene crackers that we have underway, again, we have three of them underway right now, and we expect another wave of five to six to move closer to an FID as we go through 2016. So it's not good for the upstream guys right now, but the other parts of those companies are doing quite well..

Thank you..

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

Thanks. Good afternoon..

Hi, Steven..

Hi Steven..

Related to Brunswick County, David, you've been very careful on setting up the organization to manage these fixed-price projects to minimize risk. And I do remember that this plan had been competitively bid. Just trying to get comfortable with this fixed price mix that's in the rest of the backlog now.

Is there something different about the way the organization was structured for Brunswick County versus the other gas-fired power plants you have in backlog and you're going to put in there? And then, more broadly, the other Oil & Gas projects now you have in backlog on fixed price basis? Just trying to be comfortable with the fixed price mix now..

Yeah, that's a great question. I would put the Brunswick situation in three categories, and none of which do I believe are embedded in how we've done any of the others. And in fact we've learned from this and have implemented some of those learnings as we bid some of these other programs. It falls into three categories.

One is, the weather that we experienced was a huge factor. As you remember, last winter was the coldest winter in a long, long time, maybe in history, and certainly Appalachia, I kind of come from not too far from there, it can be really, really cold, and we had issues associated with weather.

Secondly, we had issues with labor productivity, something that is both in and outside of our control. But in terms of the learnings I think that's where we've learned the most.

The third piece is, the Mitsubishi machine, that's the first time it's been installed in the United States and the learnings from that put us in I think a better position going forward. So it's not symptomatic within the organization.

You're correct, we've taken a very measured look at many of the programs and projects we're doing including the ones that are fixed price, and I don't see a fly in the ointment, so to speak. And I guess that's kind of what you're getting at relative to what we've got in backlog or the competitive nature of our offerings..

The Power projects have been competitively bid for the last many years, and we've done well on them over the last several that were competitive bids. So I wouldn't put something in a distinct category just because it happened to be competitively bid.

This is more attributable to the things David just described as opposed to being in a competitive situation..

Okay. That's helpful. And then related to the Westinghouse contract, just trying to think about what the impact would be there on working capital and cash flow, because, I appreciate that there's no perhaps cost overrun risk, but just I imagine you're taking on thousands of employees.

And I'm wondering if you're able to structure – I know it's in process, but will you be able to structure the contract so that there is no cash flow lagging and dragging down of your working capital on cash flow?.

Not any more than any other project that we do. When we start off, there's obviously a little more expense than cash coming in, but in this case it won't be significant.

And again, as I've said, it's premature to even talk about that, because we've got to get through the assessment in support of Westinghouse before we get to what scope we will actually do..

Okay. Fair enough. Thanks..

Thank you..

And we'll take our next question from Tahira Afzal with KeyBanc Capital Markets..

Hi, folks..

Hey, Tahira..

Tahira..

David, first question is really in regards to the uptick from backlog. Clearly, given especially the fab yard you've bought, you're in a really good competitive position. So I can see you gaining market share potentially. But how should I think about when I listen to customer calls and they're calling for 30% sort of cost reductions.

How does that show up in terms of the optics of what you're booking going forward?.

Well, I think the relationship with the Zhuhai yard puts us in a very competitive position. It's a low cost producer.

You marry that with what I think is probably the best supply chain capabilities in our marketplace, and I feel very comfortable that we can not only satisfy the capital efficiency needs of our customers, but also the profitability that we expect.

I actually think that we've been – I'd like to say we're brilliant, but I think our timing's just right in terms of these investments we've made, the overhead reduction that we went through last year and into this year, the organizational shifts that we've made, focus on directing our (39:35) construction and fabrication.

It puts us in I think our sweet spot, and the fact that our customers are prioritizing and looking for lower cost projects falls right smack dab in the middle of the strategy that we've deployed. So I feel pretty bullish on our ability to satisfy our customers, and win, and satisfy our shareholders..

And David, does the other projects in scope just looking smaller, though, as you gain share, is it enough to offset the fact that each small project might be getting smaller in size just because costs are lower on the materials, et cetera?.

I don't know. I think the portfolio will still be pretty robust, but clearly, if the customers allow us to do what we've learned, these projects are going to be significantly lower in cost. So therefore, you're going to see a drop in revenue from what the project should look like a year ago and what it should look like going forward.

But I don't think that's significantly less, and there are customers that embrace this. All of them are saying that they want more capital efficient programs, and some of them are willing to do things differently, and others aren't. And we'll supply service to them, and do those projects too, but in those cases the projects won't come down 30%..

Got it. Okay. And last question, David, we've seen some positive movement, at least in headline news on some of the UK nuclear projects.

Is that an area that you're looking at, at all, or is it only from the SMR side? So pretty long-term right now?.

We're looking at both the SMR side and the next-generation reactor there, and in fact we're discussions with some folks. But we're also part of the decommissioning infrastructure in the UK as well, so we're well footed I think in the UK nuclear space..

Got it. Thank you very much..

Thank you, Tahira..

We'll take our next question from Michael Dudas with Sterne Agee..

Good evening, everyone..

Michael..

David, just again back to Westinghouse and the contract. When I read in documents about liquidated damages and more risk involved, that's just a Westinghouse issue, and as again as you guys negotiate your contract, that's not going to be anything that Fluor needs to be concerned about.

Correct?.

That's correct..

Okay. Fair enough. And secondly, when you think about Energy and Oil & Gas and what the customers are going through right now, it's been a year-and-a-quarter since prices have peaked.

What do you think it's going to take for customers to get more confident? Is it the dollar price of the barrel of crude oil, or is it just a better sense of global economic activity, or even the U.S.

which seems to be seeing a little bit of a soft spot here? What do you think it's going take? And is that something that you could foresee happening in 2016?.

Man, if I knew the answer to that, I could retire. You and I could get in all the....

Yeah. You could....

...all the Giants games we wanted to go to..

You could buy the Cowboys. I know you could..

Yeah. Yeah. You know, Mike, that's a great question. I'd just make two comments. The first comment is, I'm hearing from many of the oil and gas customers that 70 is the new 100. And I think that what you've got is some stability in terms of oil price. It's volatile. I mean yesterday it was up 6%.

Not sure exactly what it ended up today, but I think the oil and gas companies have gotten comfortable with the fact that $120 a barrel isn't something they should plan anything on. So if they're thinking that 70 is the new 100, then they're planning on something that's significantly less than 70.

Now, it's taking time, and the second point I would make is, in this process, these customers, I might risk getting in trouble with some of them, but I think some of them would tell you that $120 a barrel made them lazy in terms of their capital decisions.

So they're kind of stepping back again, as I said earlier, and what are those priorities, and what is the actual need from a capital perspective, making sure that they've got that capital efficiency card kind of played within their program. And then slowly, but surely moving towards FID. So I think that kind of the deep breath has taken place.

But they also see that if they don't keep doing, particularly in the upstream, some of these programs that you got to think about it, some of these programs take 10 years from the first test well to actual production. They can't wait much longer.

So that new statistic of – you pick the number, I don't know if it's $50, or $40, or $35, or whatever the number is that they're using in their models, they're clearly using a lower number, and many, many of these projects that we are pursuing make sense at that new number. But it needs to be reconfigured.

And we need to – they need to let us apply some of these things that we've learned in order to get those project values down. So I think we're kind of in that shakeout period right now where some things are slowly but surely moving towards FID that are in the upstream sector. But that's just one piece, as I mentioned. Refining's doing quite well.

Petrochemicals are doing quite well. Power, there's power projects in front of us. There's Infrastructure programs in front of us. So it's not just a one-trick pony for Fluor when it comes to upstream oil and gas..

That's been very helpful, David. Thank you..

Thank you..

And we'll take our next question from John Rogers with D.A. Davidson..

Hi. Good afternoon..

Hi, John..

Hey, John..

David, I guess in terms of your backlog and what you're talking about now for 2016, how much work left in that backlog was won, or is projects that are being completed based on commodity prices of two years ago? In other words, you're finishing off large projects that need to be finished at this point..

Cerro Verde in Peru is one big one that's kind of finishing up on the last kind of the big mining things that are there. But that's really....

And that finishes in 2016?.

Pardon?.

That finishes in 2016?.

Late 2016, maybe early 2017..

Okay..

But that's really the only thing of any consequence that finishes next year..

Okay. Okay. I'm just trying to understand how much is contributing to those earnings. And then the second question is in terms of your CapEx guidance, the $300 million, it seems like a significant uptick given the market conditions.

Can you talk about that a little bit, maybe what's driving that?.

Well, we....

I mean of course, it is an estimate. It can be higher or lower..

Yeah..

The biggest variability of it is associated with equipment demand. So in terms of projects moving to construction and having demands in that regard, we certainly expect growth. We don't expect a lot of growth out of mining at this point as we talked about, which is where certainly a lot of the business in the past has been associated.

The other part of spending is on the more corporate-related CapEx. So to the extent that we have buildings for our own use that we invest in around the world is a demand for capital. We make those decisions as we go through time, in some cases we have options to purchase, and that sort of thing that's embedded in that number.

But that's one of the reasons why it'll end up being something different at the end of the day. It might be more or less depending on the circumstances and what we decide to do from a standpoint of lease versus buy..

Thanks, Biggs. Thank you all very much..

And we'll take our next question from Andy Wittmann with Robert W. Baird & Company..

Hi, guys. Thanks for taking my question. I guess a couple of them here around the guidance.

And I'm just curious as to how much of next year's range do you feel like – do you believe is already in backlog, has already booked as under contract? And how much more do you need to make that range? How does that compare to history, as well?.

Well, I think, obviously from a historical standpoint our burn relative to backlog has been higher. But that's almost sort of the new norm now. So we'll look at it at the end of the year and we'll actually publish statistic as a part of our 10-K what we expect the burn rate to be of the backlog at that point in time.

I think it's a little early to say right now, but it's probably going to end up being a lot like the way this year's was in terms of how it played out, in terms of the relationship of the revenues actually burned out of backlog. I don't expect anything real different. I don't expect it, I don't think there's any more risk to it or any less..

Okay. You said....

(50:07), the stretch percentages are consistent with prior years..

Right..

Okay.

David you said burn is high relative to backlog, do you mean it was low – you got lower revenue on same backlog?.

Yeah, the burn is a bit low..

It was higher in the past, it's lower now, yeah..

Got it. Okay. Are there any, are there any, like....

And part of that – I know, there's a lot of conversation about what might be in there that's causing that. But just by the nature of the projects we have being very large, and very long-term in their execution, you're going to have some slower burn..

Yeah. And one of those projects has been LOGCAP. As you went into fiscal 2015, you guys gave a view of what that would look like.

Can you update us on what you think LOGCAP's going to contribute to next year, as it relates to this year?.

Well, based on what – the same things you read, troop count should be about the same in Afghanistan. So it would be consistent with what we see this year, if there's no other LOGCAP available to us. We did win the one of the call-off contracts in the African continent.

But in my conversations with the Army, they still feel like they're going to have a pretty significant presence in Afghanistan, and you read the news, they're probably going to have a few more people in Iraq, and potentially, Syria. So that creates some opportunity for us as well..

Yeah, got it. And the African contract is another contingency contract, so you'd need something to happen there for that to deliver results.

Is that correct?.

That's right, that's right. We're following the military and the deployments that they do. I mean a great example of that was the Ebola scare earlier this year, and we were tasked to build facilities and the like for the U.S. Army Medical Corps, and how they dealt with controlling that epidemic.

So that's an example of where it's not just – it's not just war fighters, I guess, is what I'm getting at, there's also some things around humanitarian care that the military gets the mission for, and we're there to support them..

That's good perspective. Then there's a lot of talk here about tapping the petroleum reserve, the Strategic Petroleum Reserve here.

Is that an added profit kicker for you guys as you look into next year, or is that not an earnings driver for you?.

No, we don't get paid on oil. I wish we did sometimes. No, our contract is to manage a facility. The U.S. Government is going to determine whether they sell off part of it to create some cash flow for them for other purposes and then refill it over time. So that really don't have any impact on our profitability..

Final question, David, just on ethylene.

Just curious, you talked about seeing more going through – can you talk about the impact of low naphtha prices and how that is addressing and affecting the profitability of your customers and the impact that that might have on that next wave of crackers?.

Well, it's certainly in the discussion. I really don't know what impact it would have on the plans that are underway or certainly the ones that are being suggested right now because most of them, there's no – to my knowledge, I don't think any of the ones that are in that next wave are naphtha crackers, but I might be wrong in that..

But from a competitive standpoint the naphtha somewhere else versus ethane here?.

No. I think the more interesting thing is who's going to be investing in the U.S.

in ethylene, and it's the traditional players, but in a lot of cases they're partnering with folks like the Saudis and the Chinese and I think that kind of helps us because of our presence in those other places in terms of building those facilities, the client relationships that we have in those types of places around the world..

Thank you..

And we'll take our next question from George O'Leary with Tudor, Pickering, Holt & Company..

Good afternoon, guys. Just one for me as the rest of my questions have been asked. A lot of talk in the upstream sector particularly around offshore products, but also to some extent on your products onshore projects around standardization.

We've heard from some of the manufacturing folks that you can actually reduce the headline project price or project cost, and actually increase the operating income that they can earn.

And I was just wondering if that same effect potentially exist for you guys as this standardization phenomenon plays out over time?.

Absolutely. We're well down that road in terms of standard designs and offshore it's all about weight, and reducing weight, as well as the benefits that we're providing in the supply chain of all the commodities. So we're well down the road on that initiative, and in fact, that's what really started for us about four years ago.

So I think we're well-positioned and aligned with our customers..

Great. Thanks for the response, guys..

Thank you..

And we'll take our next question from Jeff Volshteyn with JPMorgan..

Good evening. Thank you for taking my question. I wanted to ask about the Government segment. I saw some mixed trends there. Revenues were up. New awards down quite a bit.

And so following up on the earlier commentary, now that it seems to be Government budgets, particularly the defense budget remains at similar levels, what are you seeing in the pipeline for 2016 and 2017 for Federal work in the United States, and perhaps some of the key international markets as well?.

Well, you know, we kind of work for the U.S. Government and the British Government in that space. And we're continuing to see opportunities in the Department of Energy space, if you will. Some of those big programs are in the process of being bid and we're in the process of getting extensions in some others.

So you're going to see, in terms of DoE business, some lumpiness just because of when those things come forward. There is some – one of them in this quarter, but it's just kind of a bridging period before we can take in the full extension. So there's an example, where it was a little bit this quarter, but a bigger number coming later.

And that's just in one facility in the DoE space. So there's growth opportunity there, but it's going to be tough competition. Everybody's kind of teamed up with one another. And it's pretty fierce competition.

In terms of the DoD, they're doing the same things that a lot of the private sector's doing in terms of cost rationalization, some shutdowns, being more competitive in terms of how they provide the service to the military. So some of these base contracts will be coming up.

And it'll be more based on best value and how much money you can take out of the end game, not just the rate per hour for an individual. But then there's also a fair amount of deployment bases that are coming up for bid during the next two years that we feel like we've got a good position to deal with. So it's going to be a lumpy thing.

It's not going to be as big as it was at the height of LOGCAP in Afghanistan. We've said that in the past. But it's a good steady state, almost annuity-type business that provides some of the underpinning of the company. And it's for a pretty good customer..

Okay. Thanks.

And then on Kitimat, could you update what's going on there?.

We continue to support our customer. And again, that's one of those that's been rationalized and poked and prodded and re-estimated. And we're waiting on our customer in what they want to do next. But we're still supporting our customer there. As you may know, they brought a new partner in. The new partner had new ideas.

And they're looking at – we've gone back to some of the FEED documents and incorporated some of the new partner's wishes. So it's going to be a slow roll..

Yeah, our level of effort there has been low over the last year and we would expect it to be that way..

Okay. Just a few more clarification questions.

On the nuclear projects, did I hear you right that Westinghouse will be keeping some of the work beyond their prior scope?.

Well, they kind of had the whole scope before and they've got the whole scope now..

Okay..

And we're trying to figure out exactly what they will maintain and what they'll ask us to do for them. So it's kind of – it's still a little too early to say..

Understood.

And then for guidance, just mechanically, were you expecting the $0.30 gain in this quarter earlier in the year or is this a new update for guidance for 2015?.

No. We were anticipating some gain from this transaction as it was developing. When we had the second quarter call, we were pretty clear that we thought it was going to be at least $40 million, which assuming the tax rate played out as expected would translate to – at normal tax rate it would have been $0.18.

In the call I said, yeah, there are some things to be estimated including the fair value of what we're retaining, which under GAAP we were going to be recording a gain with respect to.

And that was something that we didn't know exactly how it was going to play out and that's what produced though ultimately the gain at $68 million relative to the minimum of $40 million.

So clearly, the $40 million we said was in our guidance coming in, and then after that it was a range of possibilities that obviously ended up playing out at $68 million.

By same token, as I already said, we weren't planning on having any problem projects, so there just ended up being an offset in terms of the circumstances of the quarter and the year between the extra gain that we recorded on the Spanish venture and then the one Power project..

That's very helpful. And just the last one for me on foreign exchange that's embedded in your guidance..

From a foreign exchange standpoint, there was a slight negative effect in the quarter. It was about $1 billion negative effect on backlog. On EPS, in the quarter, it was about $0.03. I think last quarter it was about $0.02. Other than that – well, you know, so it's been fairly small and we're not projecting anything significant on a go-forward basis.

We do have a lot of natural hedges and specific hedges we've put in place and we would assume that those continue to play out to be relatively effective..

Thank you very much..

This does conclude the question-and-answer session. I would now like to turn the conference over to Mr. Seaton for any additional or closing remarks..

Thank you, operator, and thanks to everyone who participated on our call today. As you can see by the results this quarter, the Oil & Gas group continues to perform well. And customers with high-quality projects continue to move forward even in a tough environment and even as long as some of them are taking to get to FID.

Myself along with the rest of our management team have seen a number of cycles like these over the years. We know that it's important to remain flexible, and the decisions we've made over the past few years to cut overhead costs and develop a better solution for our customers gives us just that.

As we look ahead to 2016, we see not only some headwinds but also pockets of opportunity. Our ability to deliver in any environment has been proven and enhanced over the last few years. With that, we really appreciate your interest in our company, as well as your confidence, and we wish everyone a good day..

This does conclude the presentation. Thank you for your participation..