FLUOR CORPORATION - 10-Q Summary (Period Ended Sep 30, 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 report covers the three and nine months ended September 30, 2008. All share and per-share data have been adjusted for a two-for-one stock split effective July 16, 2008. The company operates through five segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power.
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 2008) | Value (in millions) |
|---|---|
| Total Revenue | $16,254.4 |
| Net Earnings | $530.4 |
| Diluted Earnings Per Share | $2.89 |
| Operating Cash Flow | $855.2 |
| Cash and Cash Equivalents (Sep 30, 2008) | $1,514.9 |
| Convertible Senior Notes (Current Liability) | $140.1 |
| Long-term Debt | $17.7 |
| Debt-to-Capitalization Ratio | 5.4% |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 35% year-over-year for the nine months ended September 30, 2008 ($16.3B vs. $12.0B in 2007). All segments except Government reported revenue increases.
- Profitability Surge: Net earnings more than doubled to $530.4 million from $273.9 million in the prior year period. Diluted EPS rose to $2.89 from $1.51.
- Segment Performance:
- Oil & Gas: Revenue up 54% and operating profit up 71%, driven by project execution growth.
- Industrial & Infrastructure: Operating profit increased significantly due to a $79.2 million pre-tax gain from the sale of a joint venture interest in a UK wind power project, partially offset by provisions on a UK telecommunications project.
- Power: Revenue up 82% and operating profit up 306% due to higher project execution levels.
- Backlog: Consolidated backlog increased 31% to $36.5 billion, driven by new awards of $20.9 billion in the first nine months.
- Debt Reduction: The company repaid $167.1 million of Convertible Senior Notes during the period, reducing the debt-to-capital ratio from 12.5% to 5.4%.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Gain: $79.2 million pre-tax gain from the sale of a joint venture interest in the Industrial & Infrastructure segment.
- Provisions: $32.7 million in provisions recognized in the Industrial & Infrastructure segment related to a fixed-price telecommunications project in the UK (London Connect Project) due to delays and cost reassessments.
- Outlook & Risks:
- Financial Crisis: Management highlights the worldwide financial crisis as a primary risk, potentially causing customer cancellations, credit restrictions, and project delays.
- Liquidity: Despite the crisis, the company maintains strong liquidity with $1.5 billion in cash and $2.3 billion in credit lines. Commercial paper access is currently limited to overnight borrowing.
- Legal Proceedings: Significant ongoing disputes include the London Connect Project arbitration, claims on US Embassy projects, and a $98.8 million jury verdict in the Conex International case (which the company is appealing and has not reserved against).
Investor Verification Checklist
- London Connect Project: Verify the status of the arbitration and the probability of recovering the $51 million in withheld liquidated damages and additional claims.
- Conex International Verdict: Monitor the appeal process regarding the $98.8 million jury verdict, as the company has not recorded a charge but the outcome remains uncertain.
- Convertible Notes: Track the remaining balance of Convertible Senior Notes ($140.1 million) and potential future conversions given the stock price trigger conditions.
- Oil & Gas Backlog: Confirm the sustainability of the 39% backlog increase in the Oil & Gas segment amidst global economic volatility.
- Pension Contributions: Verify actual cash contributions to defined benefit pension plans, which are expected to range between $125 million and $150 million for 2008.