Fluor Corporation — 2010 Form 10-K
Business context and reporting period. Fluor provides engineering, procurement, construction, maintenance and project-management services through five segments: Oil & Gas, Industrial & Infrastructure, Government, Global Services and Power. This annual report covers the fiscal year ended December 31, 2010; the filing also reports unaudited fourth-quarter results. Comparisons below are principally with 2009.
Financial performance and liquidity
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $20.85 billion | $21.99 billion |
| Earnings before taxes | $559.6 million | $1.14 billion |
| Net earnings attributable to Fluor | $357.5 million | $684.9 million |
| Diluted EPS | $1.98 | $3.75 |
| Cash from operating activities | $550.9 million | $905.0 million |
| Capital expenditures | $265.4 million | $233.1 million |
| Year-end cash and cash equivalents | $2.13 billion | $1.69 billion |
| Working capital | $2.04 billion | $1.82 billion |
| Debt / total capitalization | 3.2% | 3.7% |
- Net cash provided by investing activities was $218 million in 2010; financing activities used $390 million. Cash and current/noncurrent marketable securities totaled $2.6 billion at year-end.
- Total debt was approximately $114 million: $96.7 million of 1.5% convertible notes, classified as current, and $17.8 million of municipal bonds. The company reported $3.8 billion of combined committed and uncommitted credit lines, with $1.1 billion of letters of credit outstanding and $2.7 billion of unused credit capacity.
- The effective tax rate was 21.2%, versus 35.5% in 2009, largely reflecting a $152 million tax benefit from a worthless-stock deduction related to a foreign subsidiary restructuring.
- Annual dividends were $0.50 per share. Fluor repurchased approximately 3.08 million shares for $175.1 million during 2010.
Material changes versus 2009
- Revenue declined 5%, while pretax earnings fell by about 51% and diluted EPS by about 47%. Operating cash flow decreased about 39%.
- Industrial & Infrastructure revenue increased 42% to $6.87 billion, but the segment recorded a $169.7 million loss, versus $140.4 million profit in 2009, due chiefly to project charges.
- Oil & Gas revenue fell 35% to $7.74 billion and segment profit fell 53% to $344 million as major projects neared completion and new awards were slower earlier in the year.
- Government revenue rose 53% to $3.04 billion and segment profit rose to $142.2 million, mainly from increased LOGCAP IV work supporting U.S. military operations in Afghanistan.
- Global Services revenue declined 4%, while segment profit rose to $133.3 million, partly because 2009 included a $45 million receivable charge. Power revenue fell 5%, but segment profit rose to $170.9 million.
- New awards increased to $27.4 billion from $18.5 billion; year-end backlog rose to $34.9 billion from $26.8 billion. Approximately 74% of backlog was for work outside the United States; management expected to perform about 55% during 2011.
Outlook, management commentary, risks and unusual items
- Management cited signs of recovery in Oil & Gas, including strong awards in the second half of 2010 and higher year-end backlog. Mining and metals and infrastructure also supported awards. It cautioned that market recovery timing remained uncertain and competition was pressuring margins; a shift toward lower-margin project work could add pressure. No specific earnings or revenue guidance is provided in the filing.
- Greater Gabbard offshore wind project: Fluor recorded $343 million of 2010 pretax charges on the $1.8 billion lump-sum U.K. project, citing delivery, productivity, weather and subcontractor-bankruptcy issues. It had recorded $176 million of claim revenue by year-end and considered recovery probable, but disclosed uncertainty around further cost, schedule and recovery outcomes.
- California infrastructure joint venture: A bankruptcy-court ruling impaired recovery of amounts due on a completed fixed-price project; Fluor recorded a $95 million pretax charge and continued pursuing claims.
- Georgia power project: Fluor recorded $91 million of charges for estimated additional completion costs.
- Project estimates and percentage-of-completion accounting can produce material revisions to previously recorded revenue or profit. Fixed-price, lump-sum and guaranteed-maximum work represented 29% of backlog, exposing Fluor to cost-overrun and schedule risks.
- Other stated risks include project cancellations or deferrals, client payment delays, subcontractor and supplier failure, international political/currency risks, government funding and contract termination, litigation and claims, and pension, tax and environmental exposures. Outstanding performance guarantees were estimated at $4.9 billion; the recorded liability was not material.
- CEO transition: David T. Seaton became CEO on February 2, 2011, succeeding Alan Boeckmann, who retired as CEO and remained non-executive chairman.
- Management and Ernst & Young reported effective internal control over financial reporting as of year-end; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether Greater Gabbard’s remaining cost, schedule and customer-claim recoveries differ from Fluor’s estimates; verify subsequent project updates and cash impact.
- Whether the California joint venture recovers any disputed amounts after the adverse bankruptcy ruling, and the status of related claims and legal costs.
- Whether backlog converts to revenue and profit as expected: backlog may be cancelled, deferred or repriced, and the stated 55% 2011 execution estimate is not a revenue or earnings guarantee.
- Whether the 2010 tax benefit is nonrecurring and how a higher normalized tax rate would affect future earnings and cash flow.
- Whether operating cash flow improves after funding project losses, and whether credit capacity, letters of credit and performance guarantees remain adequate as project activity changes.
- Whether the Georgia power project’s estimated completion costs and other fixed-price project exposures require further charges.