FLUOR CORPORATION 10-K Summary (Fiscal Year Ended Dec 31, 2008)
Business Context and Reporting Period
This filing covers the fiscal year ended December 31, 2008. Fluor Corporation is a global provider of engineering, procurement, construction, maintenance, and project management services. The company operates through five segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power. Fluor serves diverse industries including energy, mining, transportation, life sciences, and the U.S. federal government.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Revenue | $22,326 million | $16,691 million |
| Net Earnings | $720 million | $533 million |
| Earnings Per Share (Diluted) | $3.93 | $2.93 |
| Operating Cash Flow | $951 million | $905 million |
| Backlog (Year End) | $33,245 million | $30,171 million |
| Total Assets | $6,424 million | $5,796 million |
| Shareholders' Equity | $2,671 million | $2,274 million |
| Debt-to-Capitalization | 5.4% | 12.5% |
Liquidity: Cash and cash equivalents totaled $1.83 billion at year-end. The company maintains a $1.5 billion senior credit facility and $900 million in uncommitted lines of credit. Letters of credit outstanding were $1.0 billion.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 34% to $22.3 billion, driven primarily by a 55% increase in the Oil & Gas segment ($12.9 billion) and strong performance in Industrial & Infrastructure and Power segments.
- Profitability: Earnings before taxes rose 72% to $1.1 billion. Operating profit improved 61% across business segments.
- Unusual Items:
- 2008 included a $79 million pre-tax gain from the sale of a joint venture interest in a UK wind power project.
- 2008 included a $16 million loss on the sale of a building in the UK.
- 2008 included a $9 million provision for an uncollectible retention receivable in the Power segment.
- 2007 included a $123 million tax benefit from an IRS settlement, significantly lowering the effective tax rate for that year.
- Backlog: Total backlog increased 10% to $33.2 billion, with Oil & Gas backlog rising to $21.4 billion.
Guidance, Outlook, and Risks
Outlook: Management expects to perform approximately half of the current backlog in 2009. However, the global credit crisis and falling oil prices have caused some clients to reassess capital spending plans, creating uncertainty regarding the sustainability of recent growth rates.
Risks and Contingencies:
- Financial Crisis Impact: Reduced liquidity and credit availability could lead to project cancellations, delays, or payment defaults by clients and subcontractors.
- Fixed-Price Risk: Approximately 25% of the backlog is fixed-price or guaranteed maximum price, exposing the company to cost overruns.
- Legal Proceedings: Significant disputes include the London Connect Project (telecommunications in the UK) and a California infrastructure joint venture, involving claims for delays and cost overruns. A $99 million jury verdict against Fluor in the Conex International case was reversed in December 2008.
- Government Contracts: Subject to termination for convenience and Congressional funding uncertainties.
Investor Verification Checklist
- Verify the sustainability of Oil & Gas segment growth given the global credit crisis and falling commodity prices.
- Review the status of the London Connect Project and California infrastructure joint venture disputes for potential future provisions.
- Monitor the conversion of the $134 million remaining 1.5% Convertible Senior Notes, which are classified as short-term debt.
- Assess the impact of the $9 million uncollectible receivable provision in the Power segment on future project margins.
- Confirm the company's ability to maintain bonding capacity and access credit markets amidst the financial crisis.