Nov 1, 2012
Executives
Kenneth H. Lockwood - Vice President of Corporate Finance and Investor Relations David T.
Seaton - Chairman, Chief Executive Officer and Chairman of Executive Committee Biggs C. Porter - Chief Financial Officer
Analysts
Andy Kaplowitz - Barclays Capital, Research Division Tahira Afzal - KeyBanc Capital Markets Inc., Research Division George O'Leary - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division Steven Fisher - UBS Investment Bank, Research Division John D.
Ellison - BB&T Capital Markets, Research Division Michael S. Dudas - Sterne Agee & Leach Inc., Research Division Brian Konigsberg - Vertical Research Partners, LLC Andrew Buscaglia Alexander J.
Rygiel - FBR Capital Markets & Co., Research Division Andrew J. Wittmann - Robert W.
Baird & Co. Incorporated, Research Division Will Gabrielski - Lazard Capital Markets LLC, Research Division John Rogers - D.A.
Davidson & Co., Research Division Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division
Operator
Good afternoon, and welcome to the Fluor Corporation's Third Quarter Conference Call. [Operator Instructions] A replay of today's conference call will be available at approximately 8:30 p.m.
Eastern Time today, accessible on Fluor's website at www.fluor.com. The web replay will be available for 30 days.
A telephone replay will also be available through 7:30 p.m. Eastern Time on November 7 at the following telephone number (888) 203-1112.
The passcode of 8348591 will be required. At this time, for opening remarks, I would like to turn the call over to Ken Lockwood, Vice President of Corporate Finance and Investor Relations.
Please go ahead, Mr. Lockwood.
Kenneth H. Lockwood
Thank you very much, operator, and welcome, everyone, to Fluor's Third Quarter 2012 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 announcement was released this afternoon after the market closed, and we have posted a slide presentation on our website, which we will reference while making our prepared remarks. Before getting started, I'd like to refer you to our Safe Harbor note regarding forward-looking statements, which is summarized on Slide 2 of the presentation.
During today's call and slide presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially.
You can find a discussion of those risk factors in the company's Form 10-K, which was filed on February 22, 2012, and in our 10-Q, which was filed earlier today. During this call, we may discuss certain non-GAAP financial measures, and reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and are posted in the Investor Relations section of our website at investor.fluor.com.
So with that, I'd like to turn the call over to David Seaton, Fluor's Chairman and CEO. David?
David T. Seaton
Thanks, Ken, and good afternoon. And thank you, everyone, for joining us.
Today, we'll review our third quarter results and discuss guidance for the balance of this year as well as our initial guidance for '13. But before we start, I know the storm has probably impacted many people on the phone quite a bit.
Please note that you're in our thoughts and prayers, and hope for a speedy recovery from what is a really, really terrible storm. To start, I'd like to start on Slide 3 and start with the third quarter.
Net earnings attributable to Fluor for the quarter were $145 million or $0.86 per diluted share. Consolidated segment profit for the quarter was $278 million, which compares to $236 million a year ago.
Our earnings results for the quarter were strong compared to last year, but they were impacted by a lower-than-expected award fee on the LOGCAP IV project, a higher-than-anticipated effective tax rate and foreign currency losses based on the U.S. dollar.
Consolidated revenue for the quarter was $7.1 billion, which is an increase of 18% over the $6 billion we reported a year ago. Third quarter new awards were sizable at $6.3 billion.
Awards were very broad-based, with $2 billion in Oil & Gas awards, $2 billion in Government, $1.7 billion in Industrial & Infrastructure and $581 million in Power. Consolidated backlog declined for the quarter to just under $41 billion due mainly to the removal of 2 mining projects, which totaled $2 billion.
Turning to Slide 4, Oil & Gas new awards for the quarter included a propylene production facility for Dow Chemical in Texas and a carbon capture and storage project for Shell in Canada. Following a successful FEED project, Fluor was also awarded a contract for Phase 3 of the Malampaya Deep Water Gas-to-Power project in the Philippines.
Ending Oil & Gas backlog is now at $19.2 billion and represents a 31% increase over last year. We see continued strength in that market, as evidenced by a very active front-end FEED project slate that continues to track a number of new prospects across the oil, gas and petrochemical market globally.
While we expect the natural gas prices in the U.S. remain attractive for petrochemical and other gas-related programs, the sluggish economy and an uncertain regulatory environment could delay our clients' investments and decision timeline.
The Industrial & Infrastructure segment posted third quarter new awards of $1.7 billion, including approximately $700 million for the I-95/395 managed toll lanes project in Virginia and a blood fractionation project in Georgia. Backlog at the end of the quarter was $16.2 billion, which is down about -- down from about $19 billion last quarter.
This decline was driven by the recent softness in the mining new awards, strong revenue burn on existing projects and the removal of 2 significant projects from backlog, which we spoke of. As you have all been hearing, a number of mining companies are reducing their capital expenditures as a result of slowing demand for commodities.
While the near-term prospect lift -- list is shorter than expected just a few months ago, we continue to view mining in metals as a significant long-term market in which Fluor will maintain its leadership position. Switching to infrastructure business line, demand for transportation projects remains solid, and a number of bids have been submitted that could have a meaningful impact over the next several quarters.
I have just a brief comment with respect to the Greater Gabbard project. Hearings on arbitration of our claims have been completed, and we're awaiting the decision of the arbitrators.
Please turn to Slide 5. Now the Government segment reported new awards, $2 billion, which compared to $1.7 billion last year.
Bookings in the quarter included LOGCAP IV task orders, as well as annual funding amounts for our Department of Energy contracts at Savannah River and Portsmouth. Ending backlog for the Government segment rose to $1.6 billion.
As mentioned, the Government group's operating results were significantly impacted by a lower-than-expected award fee score, which resulted in an adjustment of our fee assumption on the LOGCAP IV contract. While the ratings we received from the U.S.
Army were still very good, they were below our previous rating and, based on the contract, drove a disproportionate reduction in our award fee. The Government segment continues to focus on existing programs and expanding its portfolio of services, service-related work.
During the quarter, the DOE exercised its option to extend our contract at the Savannah River site for an additional 38 months, which takes our contract through September 2016. With regard to services work, a Fluor team has been selected by the U.S.
Army sustainment command to participate in the U.S. Army's EAGLE Logistics program, which allow -- will allow us to compete for future task orders.
Finally, during October, the Department of Defense selected another Fluor JV to perform base operation support at the Rock Island Arsenal in Illinois, as well as 6 other locations in Illinois. This is exactly the kind of growth opportunity that the group has been targeting.
Global Services segment booked $165 million of new awards. We took its ending backlog to $1.8 billion.
They're pursuing a number of new long-term contracts with major industrial customers. Power segment booked $581 million in new awards in the quarter, including an award for the Phase I of 175-megawatt solar photovoltaic energy facility in California.
They also received a limited notice to proceed on Dominion Energy's combined-cycle facility in Virginia, full notice to proceed as expected in the third quarter of 2013. Backlog improved to $2.1 billion from $1.1 billion a year ago.
Power segment operating results included the cost associated with ongoing research development investment activities in NuScale. While we had initially expect a decision on the FOA funding before the election, it now appears unlikely.
We remain hopeful that the decision will be reached soon. Before I turn the call over to Biggs, I wanted to cover a few strategic actions that we have recently undertaken.
Please turn to Slide 6. As we have discussed, we're keenly interested in expanding our vertically-integrated service offering, which we believe will be a key success factor in executing more construction projects on a direct-hire basis.
To this end, we recently formed a joint venture with AG&P in the Philippines, which augments our capabilities in fabrication and modularization. In terms of regional expansion, AMECO, our equipment company, has acquired a company in Mozambique, which expands our footprint in Africa and positions Fluor's overall support opportunities in Oil & Gas segment and other markets in that rapidly growing region.
With that, I'll turn it over for now to Biggs to review some of the details of our operating performance as well as the corporate financial metrics for the quarter. Biggs?
Biggs C. Porter
Thanks, David. Good afternoon, everyone.
Please turn to Slide 7 of the presentation. With regard to earnings results for the quarter, I want to expand on David's earlier comments regarding unusual items.
Late in the quarter, we received our work fee score on the LOGCAP IV contract, which was slightly below our expectations that were established by our previous score. Based on the structure of the contract, a modestly lower score can dramatically affect our share of the available fee pool.
So even though the reduction in the score was slight, the resulting impact from the third quarter was approximately $20 million or about $0.08 per share, the majority of which is a catch-up effect recorded in the quarter. The second item I want to comment on is the impact of foreign exchange, which total just under $8 million in the third quarter or approximately $0.03 per share.
Without getting overly granular, while the company has both natural hedges and financial hedging instruments, movement in major currencies during the quarter can have an impact on the income statement. Moving to Slide 8, Fluor's consolidated backlog was $40.8 billion, which is down from $43 billion last quarter.
The percentage of fixed-price contracts and overall backlog was 14% at quarter end, a slight increase from the prior quarter due to the booking of the I-95/395 road contract. As we expected, the geographic mix of the backlog is starting to shift with US-based backlog now at 25% of the portfolio, which is up from 18% last quarter.
Moving to corporate items on Slide 9. G&A expense for the quarter was $41 million, which is up from $37 million last year, mainly due to the effect of a higher share price on stock-based compensation expenses.
The effective tax rate for the quarter was 35%, which was somewhat above our expectations for the quarter. The effective tax rate was impacted by the payment of additional foreign taxes from the settlement on audit and a reassessment of certain tax exposures.
For the full year, we continue to expect the tax rate to be in the low 30s. Shifting to the balance sheet, the consolidated cash and marketable securities balance totaled $2.8 billion at quarter end, which is up about $300 million from the last quarter and even with a year ago.
Cash provided by operating activities was a strong $429 million during the quarter. This positive result was driven by earnings sources, as well as improvement in project working capital balances.
Capital expenditures for the quarter were $68 million, which compares with $79 million a year ago. Most of our CapEx is directed towards equipment business line in our Global Services segment.
Through 9 months, our CapEx is trending below last year. During the quarter, we repurchased over 600,000 shares for $31 million and paid out $27 million for our quarterly dividend.
Shares repurchased for the quarter were lower than planned due to the timing of cash flow receipts versus our window for buying shares. We anticipate this year, repurchases could increase in the fourth quarter as we look to buy shares on an opportunistic basis.
I will conclude my remarks by providing an update on our guidance for 2012 to 2013, which is on Slide 10. We are raising the lower end of our EPS guidance for 2012 to a range of $3.60 to $3.80 per share from the previous range of $3.50 to $3.80 per share.
This new range includes a pretax gain of approximately $40 million related to the recently completed sale of our interest in Citylink in the U.K., which will be included in our fourth quarter results. For 2013, we're establishing our initial EPS guidance at a range of $3.85 to $4.35 per share, reflecting the potential for growth in all business segments except industrial infrastructure, which has experienced a slowing -- experiencing a slowing in new mining and metals awards as commodity demand weakens.
It also reflects a level of caution due to the economic and market uncertainties that we are seeing. Our guidance for 2013 assumes that G&A expense will be in the range of $160 million to $180 million and an effective tax rate of 32% to 35%.
With that, operator, we're ready to take questions.
Operator
[Operator Instructions] We will go first to Andy Kaplowitz with Barclays.
Andy Kaplowitz - Barclays Capital, Research Division
David, if you -- you talked about in the release and then the call about the uptake in Oil & Gas and how it may not fully benefit financials until 2014. Are you talking about backlog moving to the right potentially or do we still expect a lot of these, or at least some of these oil & Gas projects to be awarded next year, specifically in the U.S.?
David T. Seaton
Well, I'm cautiously optimistic, Andy. I think -- when I look at where we are with our Oil & Gas business, I think we've made -- we've turned the corner.
And I really expect a pretty good ramp-up in project activity, both in terms of backlog and earnings. As I said in the prepared remarks, my question is, and we've been working on lots of projects in the Gulf Coast, that hopefully, as we move into next year, they'll go into the EPC phase of the project, but that assumes that you've got a supportive regulatory environment.
So I'm hedging my bet a little bit with regard to that. The economics of the projects look good, our relationships with the customers and moving them from FEED to EPC is very strong.
So I feel -- I'm pretty bullish about Oil & Gas from a standpoint of backlog and earnings. But I think the real ramp-up is probably latter half of next year and then, obviously, into '14 and beyond.
But I really think we're in a really good place right now, looking at the future.
Andy Kaplowitz - Barclays Capital, Research Division
Okay, that makes sense. Let me stick with Oil & Gas.
And if I asked you about the margins, I mean you know what I'm going to ask you, like they've ticked down a little bit sequentially. We knew they weren't going to really go up in the second half of the year, but I guess this -- you haven't done this kind of revenue for 3 years, and you've got pretty low margins.
So is this just a mix issue again? And why isn't utilization helping at least a little bit here, and how confident are you still in the improvement in '13?
David T. Seaton
Well, it is -- I think it is a mix issue. And the leverage comment that you make is really attributable to when we go into the EPC phases of the projects, even though I would say that some of the FEEDs that we're working are as large of FEEDs that we've ever worked on.
So there will be some leveraging as we get into late next year, but that leverage calculation is really kind of a '14 phenomenon. But I'll tell you, I'm pretty bullish right now on our Oil & Gas awards backlog and potential earnings.
Andy Kaplowitz - Barclays Capital, Research Division
Okay, that's helpful. Biggs, maybe just a clarification on the mining cancellations.
Was the majority in the Peru project, or was it kind of half-and-half between Peru and Australia?
Biggs C. Porter
Mostly Peru, probably 2/3 Peru and 1/3 Australia.
Operator
We'll take our next question from Tahira Afzal with KeyBanc.
Tahira Afzal - KeyBanc Capital Markets Inc., Research Division
I guess my first question is as you look at your 2013 outlook range, at the bottom end, are you building in some incremental cost share on mining projects that are in your backlog? Or is there assumption that those will likely go ahead and the incremental risk is more toward to prospects versus what's in your backlog?
David T. Seaton
I think backlog is solid. I think -- we've been pretty conservative in how we put things in and how we take things out.
So I don't think it's a backlog issue. I think it's a softness relative to new awards for the rest -- last 2 months of this year and into next year.
Tahira Afzal - KeyBanc Capital Markets Inc., Research Division
Okay. And the second question is in regards to the Tappan Zee Bridge project.
I think as you've talk to the DOT recently, it seems that you guys have been singled out as the only team to -- that has -- that is going to negotiate on the project. It's a pretty significant project in many ways.
Would you talk about what it means for Fluor in terms of reputation as more of these alternate financing large projects go through and really what it could mean in terms of capacity bottlenecks as we start to see more of these projects ramp up in the U.S.?
David T. Seaton
Well, it wouldn't be appropriate for me to comment on Tappan Zee. I mean, it's an active procurement, and I read the same things you read.
I think, from a market perspective overall, though, I think you see the reports on the aging infrastructure in the United States. I think that projects like the San Francisco Bay Bridge, the Denver light rail projects in Virginia, I think we've built up a really good résumé that puts us in a leadership position to capture a fair share of that infrastructure rebuild or newbuild.
So I think the guys have done a really good job to position for the future, and I think we'll be a major player in these projects going forward.
Tahira Afzal - KeyBanc Capital Markets Inc., Research Division
Great. And then just got one last question, and I'll hop back in the queue, and that's with NuScale.
Clearly, the DOE funding seems to be a little slow in coming out. Any updates over there would be appreciated.
David T. Seaton
To be politically correct, or lack thereof, I think it's held up in the normal bureaucracy that we see relative to the FOA. We're still continuing with our investments in the technology that we believe in for the future.
And we're going to invest in a prudent manner based on a schedule that makes sense. And when we had delays in FOAs and things like that, we just continue on and make sure that we're being prudent in the investment that we make.
Operator
And we'll go to George O'Leary of Tudor, Pickering.
George O'Leary - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
First question with the industrial & Infrastructure segment and kind of recent incremental weakness in the mining sector. Has your posture changed at all in terms of infrastructure projects being to offset that potential weakness in the mining segment?
Can you talk about that, even if just qualitatively, how you guys are thinking about that segment overall?
David T. Seaton
Well, I think there's still -- I mean, it's not a weak market. I mean, there's still a fair amount of backlog that are continuing to move.
I think if you've listened to the Barrick release, there's actually growth on a project where they were taking over some new scope, which is a good news scenario. We've announced a couple of FEEDs on some other projects in Russia and otherwise.
So the industry is just, I think, taking a deep breath in the face of the economy that we all see. And in the case of the 2 that we have taken out of backlog, I wouldn't categorize them as being canceled.
I'd categorize them as being delayed beyond what we think is prudent to keep it in backlog. So I think, overall, I would comment that even though we're seeing some softness, there's still some bright spots in that market, particularly with the projects we have in backlog.
Relative to what fills up what, I mean, I think -- we're very proud of the diverse portfolio that we've got, whereas all-in-all, with ups and downs, we're showing growth, double-digit growth in terms of EPS depending on where you choose to place your number. And that's a testament to the portfolio.
We've enjoyed the mining boom. We've taken advantage of that work, and now we're turning the crank on E&C and some other things, Oil & Gas and some other things that, from a portfolio standpoint, keep us in that northerly growth trajectory on the curve.
So I think this is just -- the way I look at it is, even with the puts and takes and having an economic headwind, we're showing continued growth year-over-year, and we're pretty pleased with that.
George O'Leary - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
Okay, that's very helpful. And then maybe switching gears a little bit.
Are you guys seeing any incremental refining opportunities in the U.S., just kind of given where crack spreads are, we're seeing increasing light oil production specifically from shales in tandem with all the gas that we've seen online. So where do you think...
David T. Seaton
We are seeing some FEED work in our refining segment, which is pretty positive in North America, and I think as well as we look outside the United States. So it's coming back.
I think it's -- the projects might be a little bit smaller that we saw in the last wave, but there's still a significant opportunity for us there based on the FEEDs that we're already doing.
Operator
And we'll go to Steven Fisher of UBS.
Steven Fisher - UBS Investment Bank, Research Division
Just a clarification on the guidance. Can you just give us a sense of what your assumptions are on buybacks and the level of NuScale investment in the guidance for next year?
Biggs C. Porter
Okay, sure. On share buyback, we didn't assume any, as I said in the comments, to expect that pace to pick up somewhere in the fourth quarter, but we don't layer it into any of the guidance from an EPS standpoint.
From a standpoint of NuScale, this year, expect supporting the FOA cost but not getting -- or the FOA activity but without getting an FOA award in, we'll run at a $0.25 to $0.30 effect of our NuScale investment for this year. Next year, we would expect it to be roughly in line after getting the FOA awards, so spending will go up, it'll be offset by additional funding.
Steven Fisher - UBS Investment Bank, Research Division
Okay. And then, David, which specific regulatory aspects are you most concerned about on the domestic Oil & Gas project?
Is it really just around the extent of gas exports we support versus how much we're going to be using for domestic manufacturing? Is that what needs to be worked out?
David T. Seaton
You really want me to stick my finger in the eye of one of the regulators? No, I mean, all of these projects, particularly in the Gulf Coast, I mean, there's obviously the EPA and those types of permits that typically either don't fit the timescale that we're looking at or delay it for some reason.
I don't think it has anything to do with the debate of whether the U.S. should export gas or not.
It's all based on the typical project approvals. Most of these projects are in states, obviously Texas, Louisiana and some other places, that are looking at economic development and job growth.
So I think there's going to be some sufficient support there and hopefully support as we go towards the federal permits that are required.
Steven Fisher - UBS Investment Bank, Research Division
Okay. So it's really just a permitting type issue?
David T. Seaton
Right.
Operator
And we'll take a question from John Ellison of BB&T Capital Markets.
John D. Ellison - BB&T Capital Markets, Research Division
Would you guys be able to discuss the deep water opportunities you're seeing in Fluor's role of an -- on an EPC basis? And if you're bidding on this work as part of the JV or consortium, does it result in lower effective margins?
David T. Seaton
No, I wouldn't say it would actually lower margin on a JV basis. We've chosen to work with others on deep water and offshore programs, and we're going to continue to do that.
I think we're going to be able to compete not only with the offshore pieces of it but the components that make that up when I mention modular construction and fabrication. And that's where we're going to play a big role in that marketplace.
John D. Ellison - BB&T Capital Markets, Research Division
Right. And also, has there been any change in the amount of, I guess, fixed price versus cost reimbursable work that you're currently bidding on?
David T. Seaton
It's kind of a mixed bag. I think we're seeing a little bit of an uptick in fixed price work.
Obviously, most of infrastructure programs are fixed price. Power is typically fixed price.
And we are seeing, modestly so, some interest from the Oil & Gas guys relative to lump sum. But again, it's not going to move the needle that much in the grand scheme of things.
John D. Ellison - BB&T Capital Markets, Research Division
Right. And just one follow-up real quick.
Are you seeing any end markets where capacity is tightening, or where you're -- you've been trying to push for higher prices?
David T. Seaton
Well, I think we're trying to make as much money as we can without damaging the relationships with our customers. We haven't necessarily seen any pressure to move up.
We think we get what we deserve based on our calculations. And -- but I do believe that margins are improving.
Operator
And we'll take our next question from Michael Dudas of Sterne Agee.
Michael S. Dudas - Sterne Agee & Leach Inc., Research Division
David, when do you think the crank is going to get picked up on the power market?
David T. Seaton
Well, we're working on several front ends on gas. I think we're still waiting on the regulatory side, the emission side relative to the coal fleet.
We've got several projects that are pending. On natural gas, we're seeing a significant activity, but I think that's predicated on need.
We are seeing the reserve margins drop to where they typically will pull the trigger. But I think the big question mark is what do the generators have to do relative to whatever the environmental regs say on the existing fleet, and then what impact does that have on new-generating capacity what fuel source would be.
I think that as we get into the back half of next year, we're certainly hopeful and are planning on a fair amount of uptick in our power market. But I think really a resurgence is probably into '14 before we see anything significant.
Michael S. Dudas - Sterne Agee & Leach Inc., Research Division
I appreciate that. My follow-up question, David, is as you -- as we look to maybe pushing things out '13 into '14, especially with Philippine and North America, do you anticipate a pretty strong, tight construction services market, or an EPC market in the, let's say, second half '13 through '15, '16 time period, given what you're seeing on the drawing board and what regulatory and other political issues come together to allow it to occur?
David T. Seaton
That's a great question. I think -- I'd look at it holistically and would suggest that there's been a lack of confidence over the last probably 2 years relative to a lot of capital spend.
That is now starting to create a backup or a huge slug of work coming at us. I think we're seeing some of the supplier network tightening, but it's tightening because of lack of performance on some of the projects that were taken in the last year.
So some of that supply network is challenged. It may not, frankly, be around for us when we start this boom again.
So I think in general, that slug of work has been pushed to the right, and on the scale, that just means there's going to be more of it. So I think, as we get into -- into late '13, early '14, you're going to see some tightening there.
With regard to labor, that's always been a challenge, and I think it's going to be an acute problem in the Gulf Coast. We've done a lot to invest in the people that we're going to need, both in terms of the engineering and project management types of folks.
But we're spending a lot of time and effort in building that craft capability again in the Gulf Coast because we're looking at direct hire on most of these projects.
Operator
And we'll go now to Brian Konigsberg with Vertical Research.
Brian Konigsberg - Vertical Research Partners, LLC
Just a quick question. So on the guidance, if you exclude the gain you're expecting in the fourth quarter, it looks like the fourth quarter earnings is a little bit lower than the Q3, it's probably actually the lowest of the year.
Is there anything to read into that as we kind of use that as a springboard into 2013? Is the -- are the pace of things kind of slowing down a little bit before they pick up again?
Can you just comment on that?
David T. Seaton
Well, I think that the 2 big moving parts going into the fourth quarter are, I'd just say that the gain on the CityLink sale, for the full year, we have the impact of the LOGCAP fee adjustment that we recorded this year. It adds a little bit more in the fourth quarter, about another $5 million of effect in the fourth quarter.
But the other drivers in the fourth quarter are the normal ramp-up in overheads that we see. There's really nothing else that I would say approaches something that creates a different kind of run rate going into next year.
We should get back to the normal cyclical nature of things and have strong quarters going into first quarter of next year.
Brian Konigsberg - Vertical Research Partners, LLC
Yes. And just on buyback, Biggs, maybe this is for you again.
So you were light in -- as far as buyback allocation in Q3, where you're saying things will pick up in Q4 likely. But you had a fairly, I guess, depressed stock price during the quarter.
I'm just curious what the mindset was, why you were not more aggressive and why you tend to be more aggressive from here on out?
Biggs C. Porter
Well, if I could do it all over again and go back, we probably would have purchased more in the third quarter. But as we -- we track it against cash flow.
We've been pretty consistent in saying that we spend cash as it becomes available and that there is no greater use for it internally. And as we were moving through the quarter, cash wasn't generated at the rate it was later on, and then we were pass the window period at which we could operate.
So we just weren't able to get that much done in the quarter based upon the timing of cash flow and the visibility that we had. But we ended the quarter strong.
We have plenty of cash on the balance sheet. We absolutely know that going into this open window period, so we expect this point in time to be more active.
Brian Konigsberg - Vertical Research Partners, LLC
Yes, and if I could just sneak one more in, maybe for David. Just on -- in the Middle East, we're seeing some projects, it looks like they're starting to get off the ground, particularly in Kuwait.
I'm just curious what the opportunities that you see in that region, specifically, primarily on the Oil & Gas side over the next, say, 6 to 12 months.
David T. Seaton
Well, I think that's a region that has pushed some projects out in several countries there that we were active, and we're tracking pretty closely with a lot of them. The -- Kuwait specifically, you probably read the same things I did relative to their parliament being dissolved and the toils and tribulations that go with that.
They seem to still be on track for the fourth refinery, as well as the clean fuels programs at the 2 refineries. And we are looking at a couple of the packages on an EPC basis.
Saudi continues to be a great place for us. The UAE, I'm very bullish about the UAE, Qatar in terms of Oil & Gas and Infrastructure.
So I -- the Middle East is pretty special to me, and I keep close tabs on it. And it'll always be a growth engine for us.
Operator
And over to Jamie Cook of Crédit Suisse.
Andrew Buscaglia
Actually, this is Andrew Buscaglia on behalf of Jamie Cook. So on -- quick question on competition.
I know you guys mentioned pricing environment a little bit. But can you tell me more on where you're seeing competitively, specifically I think you guys noted Asian competition potentially having some issues, but what are your thoughts there?
David T. Seaton
Well, I mean, competition is always fierce. It don't matter whether it's a buyer's or seller's market: It's always fierce.
And we like to believe that it's the value proposition that we give that separates us. And I think that, that generates better margins.
I think that from a competition standpoint, I mean, I didn't really mention the Asians, you did, But I'll take your lead there. A lot of them are very full with projects we're glad to have.
But on the other hand, there's Asian contractors that we're partnering with that I think give us an advantage in the marketplace, and we're very keen on those partnerships. But I think, like I said, this is a very competitive marketplace, and we tend to beat one another up quite a bit.
But I don't see any reason why in the near-term, more because of the way we're doing our business and the value proposition that we give, that we shouldn't improve our margins over time, particularly in Oil & Gas.
Andrew Buscaglia
Okay, that's helpful. And then just my next question, I know you guys -- there's a lot of discussion on mining.
But is there -- and specifically with cancellations, but going -- looking into '13, is there still potential for any other large projects that you think -- that you're nervous about getting canceled, or just your thoughts there in terms of sort of what's embedded in your mining outlook.
David T. Seaton
Not particularly worried about cancellations. I think future awards, obviously, could be a problem.
But this is kind of interesting, I mean, it's always been when the commodity prices drop is when some of these programs get delayed or canceled. We've seen iron ore drop, obviously, and it's very well-known that Outer Harbour Port Hedland project is postponed indefinitely, but I do not think canceled.
But when you think about gold and you think about copper, 2 commodities that we do a lot of work in, those commodities haven't appreciably dropped to the levels where you see cancelations. So as I said, I think we're kind of seeing the mining companies take a deep breath.
But clearly, as we come out of this economic mire, those commodities are going to be required for economic growth, and they're going to have to turn the crank back on once those signals are there and seen as solid signals.
Operator
And now to Alex Rygiel of FBR Capital Markets.
Alexander J. Rygiel - FBR Capital Markets & Co., Research Division
David, can you expand a little bit more upon exactly why the LOGCAP IV fee was a little bit lower than expected? And what is included in your guidance for the next 12 months?
David T. Seaton
Well, I think Biggs talked about it. And, Biggs, help me here if you feel required.
We -- basically, at the end of the quarter, the award fee board convened and gave us our award score, which gave us a lower-than-expected score, and that relates into a pretty dramatic declining scale in fee available to us. So the charge -- or not the charge, the adjustment that we made is for previous quarters plus this quarter.
So as Biggs said, you can't take that amount and multiply it times $0.25 and get to a run rate. And I don't think I'd want to get into what we've put into -- into individual projects relative to the overall portfolio.
But clearly, we're less optimistic than we were because we had to adjust as we pulled together the guidance for '13. Biggs, I don't know if you want to add anything else?
Biggs C. Porter
Well, maybe to put the -- to put it in perspective a little bit. It was about a 7% decline in our score resulting in about a 40% decline in the amount of fee pool that was available.
So the slope of funding at the pool is pretty severe for just small changes, in the score and in the territory which we're operating in. So it really wasn't a bad score, just a slight change to it, and but has a big effect on the funding of the pool.
The -- for the rest of this year, we're not projecting any change. We don't receive another score, don't expect one between now and the end of the year.
So don't expect any change, to be pretty clear on that, with respect to this year's outlook. Obviously, our objective is to do better next year.
But as David said, it doesn't make sense to put a lot of line item guidance project by project out there.
Alexander J. Rygiel - FBR Capital Markets & Co., Research Division
Is there anything that's structurally changed with regards to that contract as it relates to services or complexity of the environment that might have indefinitely kind of lowered the profitability of that opportunity?
David T. Seaton
No, none whatsoever.
Operator
And we'll take our next question from Andrew Wittmann, Robert W. Baird & Co.
Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division
David, just kind of more broadly on Federal, just a step back here. Obviously, LOGCAP has been a really big significant portion of your federal business.
But you mentioned a couple of wins in your script that we saw. Can you just talk about what else you're kind of looking at today, and what your overall outlook for Federal could be as we head into next year?
I know you said top line up, but is there margin opportunity there as well? I mean, just give us some color as we head into the election next week, actually.
David T. Seaton
I don't even want to go there. Oh, the election next week, I do want to go to so -- I've already voted, and I hope all of you have.
I think with regard to LOGCAP, we don't anticipate any change in the current LOGCAP contract for next year. With troop withdrawal in '14, we'll probably see a little bit of an uptick before we see a decline.
In the meantime, we're focused on the services area in boss -- what we call -- they call boss contracts or base operating support contracts. As I said, we won Rock Island, we won Jacksonville in the previous quarter.
We're pursuing several of those. In addition, there's a couple of procurements right now ongoing in the DOE, and we feel like we're in pretty good position to pick up some of those.
So I think all-in-all, the government market is a good, solid business for us. But clearly, I mean, after '14, without LOGCAP, it's a little bit hard to predict.
But it's a solid base business, and we get a good return on our investment there.
Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division
Great. And then just 2 quick ones for Biggs.
Tax rate, up next year. Is that just doing more work domestically, or is there something more fundamental that's leading into the increased tax rate expectation?
Biggs C. Porter
No, I don't think that there's any messaging in there. We gave a range.
I think the range is still -- it overlaps what we have for this year. I think that -- we'd like to drive it down.
We have some strategies to try to drive down, but we're not going to go and count on that at this point in the guidance.
Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division
Got it. And then just on the FX, the $0.03.
Is that $0.03 versus your prior expectations? Is that $0.03 year-over-year?
I'm just trying to understand how this callout of FX is maybe different from maybe in terms of impact.
David T. Seaton
Sure. Well, basically, there was no hit from FX to the first 2 quarters of the year.
It was pretty much a wash. So this quarter stands out over the course of this year in that there was this hit.
And really, it's occasionally driven by the devaluation of the dollar that occurred over the quarter, which was pretty sharp. June 30 was relatively a high point for it, and then it fell over the quarter and had a negative effect on the extent that we're holding dollars around the world.
So I think this was an unusual event. I certainly don't want it to recur.
I don't think there's any reason why it should.
Operator
And next to Will Gabrielski of Lazard Capital Markets.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
So just in terms of '14 -- or excuse me, '13 guidance, you guys are going to accrue next year at the current score you got under LOGCAP rate, and that's embedded in the guidance?
David T. Seaton
As we said, we really didn't want to get into individual projects and what makes up our guidance. So I really wouldn't want to comment on that.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
Okay, I understand that. Can you provide the score you received versus what you were accruing at?
David T. Seaton
I'd prefer not to do that, either.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
No problem.
David T. Seaton
I wish I could be more accommodating.
Biggs C. Porter
To be clear, it was -- really, it's a very small change in the raw score, so it doesn't help you a lot anyway. It's just a very small change, but it has a big effect.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
No, I understand that. I think just all of us from covering KBR for years and watching the way the LOGCAP score can impact the accruals and then the true-up you get when you get a new score.
I was just wondering if your guidance next year assumes an improvement, and you would be accruing at a higher rate or not.
David T. Seaton
I'd rather not say.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
Fair enough. On the Oil & Gas market, the 3 4 [ph], I'm just wondering, is -- the bookings you saw in Q3, is there a better mix in that downstream-oriented work where there's more engineering hours involved maybe than we've seen on the work you've booked over the last 2 or 3 years, including last quarter, which had a lot of big dollars associated with it but not necessarily a lot of dollars where you're earning a margin on it?
Is that kind of the issue?
David T. Seaton
Well, as we've said in the past, it's really about margin dollars, not margin percentage. But just from a color standpoint, we've got a couple of programs in there that has significant CFM, the project, one of the projects in Canada specifically, where we're burning at a higher rate today than we have been.
And I think the projects that were coming in the backlog are more EPC-type projects with not the same impact on CFM.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
Okay, fair enough. On NuScale, I think you said $0.25 to $0.30 was the impact now in 2012, is that correct?
Biggs C. Porter
Yes.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
So that's a little bit higher maybe than I saw a quarter ago. And I was just wondering, a, what's driving that?
And then, b, if you were to be successful in the FOA, what would be the strategy with NuScale after that? Would you look to monetize it?
Would you look to partner with somebody from manufacturing? Would there be something else involved beyond just getting the R&D grant from the government and then moving forward and progressing on a stand-alone basis?
Biggs C. Porter
On the first question, it is a little higher. It's been driven by the need to support an FOA schedule and FOA activity.
But unfortunately, without the benefit of having the award benefit this year. So even if the award occurs here in the next few weeks, it wouldn't be definitized, and therefore, it wouldn't create a flow of funds and then offset the expense line until next year.
So it's a combination of those things, which cause the number to be a little bit higher. We certainly kept that in mind in terms of managing the spend, but it has driven it up a little bit.
In terms of strategy, I don't know, David...
David T. Seaton
In terms of strategy, I mean, we're continuing to have dialogue with manufacturers and other potential investors. I think what's happened with the delay of the FOA is some of those folks were saying, Well, why don't we just wait and see what happens.
The FOA, at least in terms of what we were told, should have been awarded in August, and then September, and then October. And now here we are on November 1.
So I think it's stuck in a do loop somewhere in Washington, but it doesn't change our opinion of the technology or its application, nor does it, I think, lessen the interest in NuScale from outside parties that we would expect to bring in as partners.
Will Gabrielski - Lazard Capital Markets LLC, Research Division
Okay, fair enough. And then lastly, you mentioned U.S.
refining as a market where you're seeing some activity. And I'm just wondering, for background, what -- there was a big refinery upgrade cycle so we could go ahead and process Canadian crude as heavy crude, and now we're looking at light crude coming out of the shale formations, which was brought up earlier.
So what would be the types of project entail, maybe in terms of scope or dollars, or what would you be looking at to maybe retrofit those refineries to be more efficient at processing light crude out of the shale?
David T. Seaton
Well, I mean, I think they're ready for a crude mix including heavy crudes. The project specifically that upgraded to give them that balance are the ones that put in the cokers to be able to deal with that heavier crude.
But I don't think it necessarily changed their ability to refine the lights. I think you're seeing a rationalization of the market and where those product slates are.
So you're going to see process units that help them get to a specialty market. You're going to see some capacity increases when it comes to diesel, which really hasn't -- we really haven't done a lot of work on.
And I think you're going to see some fair amount of compliance projects that not only improve the environmental outputs but also incrementally improve capacities.
Operator
And we'll go to John Rogers, D.A. Davidson.
John Rogers - D.A. Davidson & Co., Research Division
David, I just want to go back to one of your comments about forward or backward integrating, I guess, in terms of the -- or vertically integrated, I guess, was your term. How far away are you from making a major acquisition or investment in there?
David T. Seaton
Well, I think the beauty is, is we've always had that capability, and it doesn't take a massive investment for us to have that capability. That's part of the strength and breadth of the company to begin with.
So incrementally, things like AG&P in the Philippines is a very nominal, immaterial amount from an investment standpoint that projects our capability greatly in that fabricated module market. There are others that we're looking at that I would not like to mention, but we're actively looking at improving that skill set.
From a construction standpoint, it's taking advantage of the skills and capabilities of our superintendent network that we enjoy now and, frankly, giving them more surety and long-term employment, which we are an employer of choice in that market and it allows us to provide that stability. So I think there's a fair amount of training that's going to have to take place for that next generation of construction worker.
And again, that's something that's within our skill set and something we've done quite successfully over the history of our company.
John Rogers - D.A. Davidson & Co., Research Division
Okay, okay. And separately, just on the I&I business, the margins that you saw in the current quarter, and this may be in the Q, but were there some closeouts or anything that elevated those margins?
Because I just assumed with the mining mix that those continue to drift lower and then reverse as that changes maybe next year.
David T. Seaton
Yes, we had -- the financial close on I-95 project gave us a little bit of an uplift there, and their general projects performed well, so it was a good quarter for them.
Operator
And we'll take a question from Robert Connors of Stifel, Nicolaus.
Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division
I was just looking at, that despite the EPS, it looks like the operating cash flow was pretty strong in the quarter. Just wondering what drove that.
Was it advance billings or collections of some receivables out there?
Biggs C. Porter
Well, I think you're right. Cash flow was good for the quarter from operations.
It was driven by earnings, but as noted, improvement in working capital. It had gone the other way for the first 2 quarters, so it was very satisfying to see it improve here in the third.
And it kind of goes back to my comment earlier about conservatism going in the quarter about use of cash. It obviously turned during the course of the quarter and we did have the good cash production that we, of course, wanted.
From the standpoint of individual drivers, I think it's more the absence of some of the ones which had held it back in the first 2 quarters. We commented previously on last quarter call that we had a big advance that we were burning off, and that had been a use of cash.
And we had some projects that we'd been winding down that were using cash. And so we'll clear a runway in the fourth quarter on those, and had a good performance overall.
Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And then just regarding the corporate G&A.
It seems for 2013, it looks like it's going to be relatively flat year-over-year. Is that a factor of some cost-reduction initiatives as maybe I&I scales down, or is it more so going to be tied to the top line?
David T. Seaton
No, I think we've been very active in controlling our costs, and I think we've done a really good job of making sure that people are spending overhead dollars like it's their own money. So I think we've seen good behavioral change in the organization that I think is sustainable, which helps us longer term.
Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division
And then, David, if I could sort of ask the Oil & Gas backlog question I guess in a little bit of a different way though, more qualitatively, is that if you were to look at not necessarily the dollars but really the man-hours and backlog as you go into 2013, can you just, I guess, qualitatively sort of describe, is it materially up versus where you were at this point about to enter 2012 as far as man-hours?
David T. Seaton
I think it will be materially up if you take January '13 versus January '12. We're really starting to build some power there, and then the EPC phases will follow.
Operator
At this time, I will turn things back over to Mr. Seaton for any closing or additional remarks.
David T. Seaton
Thank you, operator. And I really appreciate everyone participating on the call this afternoon.
To kind of follow on to some of the last questions, I want to reiterate a couple of points that we've made today. Number one, we're on track for 2012, and we expect to perform towards the higher end of our original guidance range for the year.
And we continue to track a robust list of opportunities in oil and gas and petrochemicals as well as infrastructure. However, we think it appropriate to use a little bit of caution in establishing our guidance for '13 because of the continued weak global economy and the deferral of some of the major mining programs.
From a midpoint of our guidance for this year to a midpoint of our guidance for '13, we're projecting a growth in double digits, 10%, which I think seems very reasonable in this environment. With that, we greatly appreciate your interest in Fluor, and we hope you have a great day.
Thank you.
Operator
Once again, ladies and gentlemen, that concludes our conference. Thank you all for your participation.