FLUOR CORPORATION - 10-Q Summary (Q2 2008)
Business Context and Reporting Period
This is an unaudited quarterly report (Form 10-Q) for Fluor Corporation, a global engineering, procurement, and construction company. The reporting period covers the three and six months ended June 30, 2008. The company is a large accelerated filer incorporated in Delaware. All share and per-share data have been adjusted to reflect a two-for-one stock split effective July 16, 2008.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2008) | 2008 Value | 2007 Value |
|---|---|---|
| Total Revenue | $10,580.6 million | $7,863.3 million |
| Net Earnings | $347.3 million | $180.2 million |
| Diluted Earnings Per Share | $1.88 | $1.00 |
| Operating Cash Flow | $681.6 million | $515.7 million |
| Cash and Cash Equivalents | $1,485.6 million | $1,175.1 million (Dec 31, 2007) |
| Consolidated Backlog | $33.0 billion | $25.7 billion (June 30, 2007) |
| Debt-to-Capital Ratio | 10.9% | 12.5% (Dec 31, 2007) |
Segment Performance (Six Months 2008):
- Oil & Gas: Revenue $5,945.5M; Operating Profit $306.5M.
- Industrial & Infrastructure: Revenue $1,708.7M; Operating Profit $150.8M (includes $79.2M gain on JV sale).
- Power: Revenue $944.0M; Operating Profit $45.8M.
- Global Services: Revenue $1,402.3M; Operating Profit $119.6M.
- Government: Revenue $580.1M; Operating Profit $18.8M.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 34.6% year-over-year for the six-month period, driven primarily by the Oil & Gas and Industrial & Infrastructure segments.
- Profitability: Net earnings increased 92.7% year-over-year. Operating profit margins improved across most segments.
- One-Time Gain: The Industrial & Infrastructure segment reported a pre-tax gain of $79.2 million from the sale of a joint venture interest in a UK wind power project.
- Tax Rate: The effective tax rate increased to approximately 39% in 2008 compared to 36% in 2007, as the prior year benefited from the recognition of previously unrecognized tax benefits.
- Backlog: Consolidated backlog rose 28% to $33.0 billion, with 55% of the backlog related to international projects.
Guidance, Outlook, and Risks
Management Commentary:
- New Awards: Consolidated new awards totaled $12.1 billion for the six months ended June 30, 2008, up from $10.3 billion in the prior year. Approximately 48% of new awards were for international projects.
- Liquidity: The company maintains strong liquidity with $1.49 billion in cash and cash equivalents. Management expects cash from operations and advance billings to be sufficient to fund requirements for the next 12 months.
- Dividends: The quarterly dividend was increased to $0.125 per share (split-adjusted) in Q1 2008.
Risks and Contingencies:
- Litigation: Significant ongoing disputes include the Infrastructure Joint Venture Project in California (client withheld $51M in liquidated damages), the London Connect Project (arbitration pending), and Embassy Projects (claims for equitable adjustment). The company does not expect these to have a material adverse effect on financial position.
- Conex International Verdict: A jury awarded $98.8 million in damages against Fluor in a 2006 case. The company has appealed and believes the judgment will be overturned; no charge has been recognized.
- Convertible Notes: $330 million of 1.5% Convertible Senior Notes are classified as short-term debt due to the satisfaction of the trigger price. Conversions totaling $5.1 million occurred in the period, with an additional $58 million converted in July 2008.
Investor Verification Checklist
- Stock Split Adjustment: Verify that all historical per-share data and share counts are adjusted for the July 16, 2008, two-for-one split.
- Non-Recurring Gains: Confirm the impact of the $79.2 million gain on the sale of the UK wind power JV on the Industrial & Infrastructure segment's operating profit.
- Convertible Debt Status: Monitor the remaining balance of the $330 million Convertible Senior Notes, which are classified as current liabilities and subject to conversion based on stock price triggers.
- Claim Recoveries: Review the status of recognized claims ($222 million at June 30, 2008) and the potential for realization differences, particularly regarding the California Infrastructure JV and Embassy projects.
- Backlog Composition: Assess the risk profile of the $33.0 billion backlog, noting that 55% is international and subject to potential cancellations or scope adjustments.