Fluor Corporation — 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing also reports fourth-quarter results. Fluor provides engineering, procurement, construction, maintenance and project-management services through Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power segments.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $21.53 billion | $27.35 billion |
| Earnings from continuing operations before taxes | $1.205 billion | $1.178 billion |
| Earnings from continuing operations attributable to Fluor | $715.5 million; diluted EPS $4.48 | $667.7 million; diluted EPS $4.06 |
| Net earnings attributable to Fluor | $510.9 million; diluted EPS $3.20 | $667.7 million; diluted EPS $4.06 |
| Cash from operating activities | $642.6 million | $788.9 million |
| Cash and cash equivalents | $1.99 billion | $2.28 billion |
| Current assets / current liabilities | $5.76 billion / $3.33 billion | $6.00 billion / $3.41 billion |
| Debt / debt-to-capital ratio | About $1.02 billion / 24.7% | About $526 million / 12.3% |
| Backlog at year-end | $42.48 billion | $34.91 billion |
Revenue fell approximately 21%, primarily because mining and metals activity contracted. Pretax earnings and earnings from continuing operations attributable to Fluor increased modestly, but the $204.6 million after-tax discontinued-operations loss reduced reported net earnings. Cash from operations declined as working capital absorbed $408.9 million, versus $261.6 million in 2013.
Segment results were mixed. Oil & Gas profit rose to $673 million from $441 million, with margin increasing to 5.9% from 3.8%. Industrial & Infrastructure revenue fell 45% and profit fell to $391 million, although margin rose to 6.5% from 4.3%. Government profit declined to $93 million from $161 million; Global Services profit declined to $74 million from $120 million. Power returned to profit of $31 million, compared with $12 million in 2013.
Fourth-quarter 2014 revenue was $5.46 billion; pretax continuing earnings were $304.7 million and diluted EPS from continuing operations was $1.41. Net earnings attributable to Fluor were $214.5 million, including a $5.6 million discontinued-operations loss.
Material changes and capital allocation
- Backlog increased about 22% year over year, led by Oil & Gas and Government awards; approximately 66% was for work outside the United States. Oil & Gas backlog rose to $28.4 billion, while Industrial & Infrastructure backlog declined to $7.3 billion.
- New awards were $28.8 billion, up from $25.1 billion in 2013. Approximately 71% of 2014 awards were outside the United States.
- Fluor issued $500 million of 3.5% senior notes due 2024. Debt-to-capital rose primarily because of this issuance. The company reported covenant compliance.
- Share repurchases totaled $906 million in 2014; Fluor repurchased 13.3 million shares for the full year. The annual dividend declared increased to $0.84 per share from $0.64.
Outlook, risks and unusual items
- Management expected to perform approximately 44% of year-end backlog during 2015, but cautioned that cancellations, scope changes and schedule shifts can alter backlog conversion. The filing provides no specific full-year 2015 revenue or earnings guidance.
- Management said cash, operating cash flow and $3.9 billion of unused credit capacity were sufficient for operating needs over at least the next 12 months. Total committed and uncommitted credit lines were $5.3 billion; $1.4 billion of letters of credit and borrowings were outstanding.
- Management identified declining oil prices as a potential headwind to Oil & Gas projects and future award timing. Mining customers continued to defer capital spending; power-generation demand remained relatively weak. Government revenue faced pressure from reduced LOGCAP IV activity in Afghanistan.
- Fluor recorded a $204.6 million after-tax discontinued-operations loss related to litigation over its previously divested St. Joe Minerals/Doe Run lead business. It paid approximately $300 million under a settlement in January 2015; the company said it could not estimate possible losses in remaining lawsuits.
- Outstanding performance guarantees had a stated maximum potential amount of $17.7 billion, representing remaining work costs on projects; the recorded guarantee liability was not material. This is a gross exposure measure, not an expected loss.
- Fluor terminated its U.S. defined-benefit pension plan effective December 31, 2014, with settlement expected in late 2015 subject to regulatory approval. The filing cites approximately $274 million of unrecognized actuarial losses that could generate significant settlement expense, while management did not expect settlement to materially affect cash.
- Other key risks include fixed-price project cost overruns (19% of backlog was fixed-price or guaranteed-maximum), payment delays, claims and disputes, joint-venture partner performance, government funding and compliance, foreign political and currency exposure, and competitive pressure.
- NuScale received a DOE cost-sharing award of up to $217 million through May 2019, covering up to 43% of qualified expenditures. Fluor reported 2014 NuScale costs net of $38 million of reimbursable expenses.
Most important facts for investors to verify
- Whether the $42.5 billion backlog converts to revenue and profit as expected, particularly given the oil-price downturn, project timing and unfunded government awards.
- The final cash and earnings impact of the Doe Run settlement and remaining litigation, including Fluor’s recovery under indemnification rights.
- Project-level margin, claims and cost-to-complete risks, especially on fixed-price contracts and large joint-venture projects.
- Whether working-capital demands and shareholder distributions remain supportable alongside higher debt and the planned pension settlement.
- Reliance on major customers: Exxon Mobil and affiliates represented 15% of 2014 revenue; U.S. government agencies represented 11%.