Fluor Corporation — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2013. Unaudited results; 2012 segment comparisons were recast for organizational changes effective January 1, 2013. Amounts below are U.S. dollars.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $6.684B | $7.136B | $21.060B | $20.554B |
| Earnings before taxes | $304.7M | $264.5M | $909.8M | $793.5M |
| Net earnings attributable to Fluor | $173.0M | $144.6M | $500.9M | $460.7M |
| Diluted EPS | $1.05 | $0.86 | $3.05 | $2.72 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $712.7M | $510.3M |
- Q3 revenue declined 6%, while nine-month revenue increased 2%. Q3 net earnings attributable to Fluor rose about 20%; nine-month earnings rose about 9%.
- Gross profit was $354.5M for Q3 and $1.029B for nine months. Reported segment profit was $310.6M and $892.2M, respectively.
- Effective tax rates were 28.7% for Q3 and 29.9% year to date, versus 34.8% and 31.7% in 2012. Research credits and noncontrolling-interest earnings helped reduce the 2013 rates.
Balance sheet, liquidity and cash flow
- At September 30, cash and cash equivalents were $2.538B; current and noncurrent marketable securities totaled about $440M. Management reported combined cash and marketable securities of $3.0B.
- Total debt was approximately $522M, comprising $25.4M of current borrowings and $496.5M of long-term debt. Debt-to-capital was 12.1%, down from 13.9% at year-end 2012. Fluor reported compliance with debt covenants.
- Current assets were $6.441B and current liabilities $3.812B. Cash provided by operations was $712.7M; investing used $143.8M and financing used $135.7M over nine months. Cash increased $383.0M, including a $50.1M adverse currency effect.
- Credit lines totaled $4.6B, with $943M of letters of credit and borrowings outstanding; management stated $3.6B of unused credit capacity and considered liquidity sufficient for at least 12 months.
Operating changes and outlook
- Oil & Gas led growth: nine-month revenue rose 24% to $8.519B and segment profit rose 31% to $319.6M. Industrial & Infrastructure revenue fell 12% to $8.880B as mining and metals activity weakened; segment profit was nearly flat at $388.7M.
- Government revenue declined 16% to $2.101B, mainly from lower LOGCAP IV activity and the Savannah River project wind-down. Global Services revenue and profit also declined. Power revenue doubled to $1.107B and shifted to segment profit of $11.4M from a $14.5M loss.
- New awards were $5.6B for Q3 and $19.3B year to date, below the respective 2012 amounts of $6.3B and $22.0B. Backlog fell 11% year over year to $36.5B, principally due to deferred mining and metals investment. Management noted uncertainty about when mining investment may resume.
- Management cited competitive pressure on margins, while noting improving Oil & Gas conditions, particularly in upstream and petrochemicals. The filing provides no quantified earnings or revenue guidance.
Risks, contingencies and unusual items
- Fluor is appealing a St. Joe Minerals-related judgment of $38.5M compensatory and economic damages plus $320M punitive damages. It recorded no charge, stating a loss was not considered probable; an adverse outcome or unsuccessful indemnification could materially affect earnings. The company could not estimate losses for 21 additional related lawsuits.
- Performance guarantees had a stated maximum potential future payment amount of $8.6B; the recorded guarantee liability was not material. Actual exposure above estimated completion costs was not estimable, and recovery or recourse may depend on contract terms and third parties.
- Embassy-project dispute decisions resulted in charges of approximately $17M in 2013 and $13M in 2012. The company elected not to appeal the 2013 decision and a prior adverse decision affirmed in 2013.
- Other risks include project cost overruns or delays, client cancellations and payment delays, market cyclicality, reduced mining investment, government contract reductions, litigation, tax audits, foreign exchange, and subcontractor or joint-venture performance.
- Management expected 2013 pension contributions of $20M–$40M; approximately $11M had been contributed through September. A U.S. plan amendment freezes future service-related benefit accruals for craft participants after December 31, 2013.
Important facts for investors to verify
- Whether mining and metals awards and backlog stabilize, and the pace of conversion of the $36.5B backlog into revenue and cash.
- Project execution, working-capital needs and cash conversion, especially in growing Oil & Gas operations and consolidated joint ventures.
- Developments in the St. Joe litigation and the company’s indemnification rights, as well as any further changes in embassy-related claims.
- The scope and terms of the $8.6B performance guarantees, committed credit availability, and potential cash demands from project or partner difficulties.
- Whether earnings growth persists if favorable tax-rate factors, segment mix and project milestones change; interim results may not indicate full-year performance.