Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FLR > SEC Filings for FLR > Form 10-Q on 31-Oct-2013All Recent SEC Filings

Show all filings for FLUOR CORP

Form 10-Q for FLUOR CORP


31-Oct-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and notes and the company's December 31, 2012 Annual Report on Form 10-K. For purposes of reviewing this document, "segment profit" is calculated as revenue less cost of revenue and earnings attributable to noncontrolling interests excluding: corporate general and administrative expense; interest expense; interest income; domestic and foreign income taxes; and other non-operating income and expense items.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made herein, including statements regarding the company's projected revenue and earnings levels, cash flow and liquidity, new awards and backlog levels and the implementation of strategic initiatives and organizational changes are forward-looking in nature. We wish to caution readers that forward-looking statements, including disclosures which use words such as the company "believes," "anticipates," "expects," "estimates" and similar statements are subject to various risks and uncertainties which could cause actual results of operations to differ materially from expectations. Factors potentially contributing to such differences include, among others:

Difficulties or delays incurred in the execution of contracts, or failure to accurately estimate the resources and time necessary for our contracts, resulting in cost overruns or liabilities, including those caused by the performance of our clients, subcontractors, suppliers and joint venture or teaming partners;

Intense competition in the global engineering, procurement and construction industry, which can place downward pressure on our contract prices and profit margins;

The cyclical nature of many of the markets the company serves, including our commodity-based business lines, and our vulnerability to downturns;

Client cancellations of, or scope adjustments to, existing contracts, including our government contracts that may be terminated at any time and the related impacts on staffing levels and cost;

Current economic conditions affecting our clients, partners, subcontractors and suppliers, which may result in decreased capital investment or expenditures, or a failure to make anticipated increased capital investment or expenditures, by the company's clients or other financial difficulties by our partners, subcontractors or suppliers;

The company's failure to receive anticipated new contract awards and the related impact on revenue, earnings, staffing levels and cost;

          Client delays or defaults in making payments;

          A failure to obtain favorable results in existing or future
litigation or dispute resolution proceedings;

          Changes in global business, economic (including currency risk),
political and social conditions;

          Civil unrest, security issues, labor conditions and other

unforeseeable events in the countries in which we do business, resulting in unanticipated losses;

Failure to meet timely completion or performance standards that could result in higher cost and reduced profits or, in some cases, losses on projects;

Failure of our suppliers, subcontractors or joint venture partners to provide supplies or services at the agreed-upon levels or times;

Repercussions of events beyond our control, such as severe weather conditions, that may significantly affect operations, result in higher cost or subject the company to liability claims by our clients;

The potential impact of certain tax matters including, but not limited to, those from foreign operations and the ongoing audits by tax authorities;

Possible systems and information technology interruptions or the failure to adequately protect intellectual property rights;

Liabilities arising from faulty services that could result in significant professional or product liability, warranty or other claims;

The impact of anti-bribery and international trade laws and regulations;

The availability of credit and restrictions imposed by credit facilities, both for the company and our clients, suppliers, subcontractors or other partners;

          Failure to maintain safe work sites;

          The impact of past and future environmental, health and safety
regulations including climate change regulations;

          Possible limitations of bonding or letter of credit capacity;


Table of Contents



          The company's ability to secure appropriate insurance;

          The risks associated with acquisitions, dispositions or other
investments;

          Limitations on cash transfers from subsidiaries that may restrict the

company's ability to satisfy financial obligations or to pay interest or principal when due on outstanding debt; and

Restrictions on possible transactions imposed by our charter documents and Delaware law.

Any forward-looking statements that we may make are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those anticipated by us. Any forward-looking statements are subject to the risks, uncertainties and other factors that could cause actual results of operations, financial condition, cost reductions, acquisitions, dispositions, financing transactions, operations, expansion, consolidation and other events to differ materially from those expressed or implied in such forward-looking statements.

Due to known and unknown risks, the company's actual results may differ materially from its expectations or projections. While most risks affect only future cost or revenue anticipated by the company, some risks may relate to accruals that have already been reflected in earnings. The company's failure to receive payments of accrued amounts or incurrence of liabilities in excess of amounts previously recognized could result in a charge against future earnings. As a result, the reader is cautioned to recognize and consider the inherently uncertain nature of forward-looking statements and not to place undue reliance on them.

Additional information concerning these and other factors can be found in the company's press releases and periodic filings with the Securities and Exchange Commission, including the discussion under the heading "Item 1A. - Risk Factors" in the company's Form 10-K filed February 20, 2013. These filings are available publicly on the SEC's website at http://www.sec.gov, on the company's website at http://investor.fluor.com or upon request from the company's Investor Relations Department at (469) 398-7220. The company cannot control such risk factors and other uncertainties, and in many cases, cannot predict the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. These risks and uncertainties should be considered when evaluating the company and deciding whether to invest in its securities. Except as otherwise required by law, the company undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

RESULTS OF OPERATIONS

Summary

Effective January 1, 2013, the company implemented certain organizational changes that impacted the composition of its reportable segments. The company's operations and maintenance activities, previously included in the Global Services segment, have been integrated into the Industrial & Infrastructure segment as part of the new industrial services business line, which also includes project execution activities that were previously reported in the manufacturing and life sciences business line. Additionally, the Global Services segment now includes activities associated with the company's efforts to grow its fabrication and construction capabilities and the operations of a new procurement entity, Acqyre, which was formed to provide strategic sourcing solutions to third parties. Operating information by segment for 2012 has been recast to reflect these organizational changes.

Consolidated revenue for the three months ended September 30, 2013 decreased six percent to $6.7 billion from $7.1 billion for the three months ended September 30, 2012. The revenue decrease was primarily attributable to a significant decline in volume for the mining and metals business line of the Industrial & Infrastructure segment, which outpaced a sizeable ramp-up in project execution activities for the Oil & Gas segment. Consolidated revenue for the nine months ended September 30, 2013 increased modestly to $21.1 billion from $20.6 billion for the first nine months of the prior year. The revenue increase in the current year period was principally due to substantial growth in the Oil & Gas and Power segments, partially offset by revenue declines in the other segments.

Net earnings attributable to Fluor Corporation were $173 million, or $1.05 per diluted share, and $501 million, or $3.05 per diluted share, for the three and nine months ended September 30, 2013, compared to net earnings attributable to Fluor Corporation of $145 million, or $0.86 per diluted share, and $461 million, or $2.72 per diluted share, for the corresponding periods of 2012. In the three month comparison period, improved performance in 2013 in the Oil & Gas, Government and Power segments offset lower earnings in the Industrial & Infrastructure and Global Services segments. For the first nine months of 2013, there were higher contributions in the Oil & Gas and Power segments compared to 2012.


Table of Contents

A highly competitive business environment has continued to put pressure on margins, although the Oil & Gas segment has continued to show signs of improvement, particularly for the upstream and petrochemicals markets. In some cases, margins may be impacted by a change in the mix of work performed. For example, a decline in the mix of construction-related work and a reduced content of customer-furnished materials (which typically generate lower margins than engineering work or projects without customer-furnished materials) would have a positive impact on margins, as was the case in the current year performance of the Industrial & Infrastructure segment.

In addition to the strengthening of the upstream and petrochemicals markets of the Oil & Gas segment, certain other market trends have emerged. First, the mining and metals business line of the Industrial & Infrastructure segment has continued to slow as major capital investment decisions by some mining customers have been deferred, after four years of growth. Second, the federal government has accelerated the closure of bases in the execution of the Logistics Civil Augmentation Program ("LOGCAP IV") in Afghanistan which has reduced the volume of work for the Government segment.

The effective tax rate, based on the company's operating results for the three and nine months ended September 30, 2013 was 28.7 percent and 29.9 percent, respectively, compared to 34.8 percent and 31.7 percent for the corresponding periods of 2012. The effective tax rate for the three months ended September 30, 2013 was favorably impacted primarily by research tax credits, lower deferred U.S. taxes on foreign earnings and an increase in earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company. The effective tax rate for the three months ended September 30, 2012 was unfavorably impacted by the payment of additional foreign taxes from the settlement of an audit and a reassessment of certain tax exposures. The effective tax rate for the nine months ended September 30, 2013 was favorably impacted by research tax credits and an increase in earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company. The effective tax rate for the nine months ended September 30, 2012 was favorably impacted by the recognition of a deferred U.S. tax benefit of $16 million primarily attributable to foreign earnings in South Africa.

Consolidated new awards were $5.6 billion and $19.3 billion for the three and nine months ended September 30, 2013 compared to new awards of $6.3 billion and $22.0 billion for the three and nine months ended September 30, 2012. The Oil & Gas and Government segments were the major contributors to the new award activity in the third quarter of 2013. The Oil & Gas and Industrial & Infrastructure segments were the principal drivers of the new award activity for the first nine months of 2013. Approximately 60 percent of consolidated new awards for the nine months ended September 30, 2013 were for projects located outside of the United States, compared to 73 percent for the first nine months of 2012.

Consolidated backlog as of September 30, 2013 decreased 11 percent to $36.5 billion from $40.8 billion as of September 30, 2012. The decline in backlog was primarily due to lower new award volume in the mining and metals business line, resulting from the deferral of major capital investment decisions by some mining customers. As of September 30, 2013, approximately 66 percent of consolidated backlog related to projects located outside the United States compared to 75 percent as of September 30, 2012. Although backlog reflects business which is considered to be firm, cancellations or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost, and deferrals, as appropriate.

Oil & Gas

Revenue and segment profit for the Oil & Gas segment are summarized as follows:

                   Three Months Ended       Nine Months Ended
                     September 30,            September 30,
(in millions)       2013        2012        2013        2012

Revenue          $  2,892.7   $ 2,551.6   $ 8,518.5   $ 6,887.4
Segment profit        108.3        87.2       319.6       244.7

Revenue for the three and nine months ended September 30, 2013 increased 13 percent and 24 percent respectively, compared to the corresponding periods in 2012. The increase in revenue for the comparison periods was broad-based in that it was the result of higher project execution activities for various upstream and petrochemical projects in different regions. Major contributors to the increase included an oil sands facility in Canada, a petrochemicals project in the Middle East and a coal bed methane project in Australia. The revenue growth for the 2013 comparison periods was partially offset by reduced volume on certain projects at or near substantial completion, including two oil refineries in the United States and upstream services for two other Canadian oil sands projects.


Table of Contents

Segment profit for the three and nine months ended September 30, 2013 increased 24 percent and 31 percent, respectively, compared to the corresponding periods in 2012. The projects that contributed to the geographically broad-based revenue growth, discussed above, were generally the major contributors to the segment profit increases for the 2013 periods, although the coal bed methane project in Australia had lower segment profit in the most recent quarter compared to the third quarter of the prior year.

Segment profit margin for the three and nine months ended September 30, 2013 was 3.7 percent and 3.8 percent, respectively, compared to 3.4 percent and 3.6 percent, respectively, for the three and nine months ended September 30, 2012. Improved market conditions have favorably affected segment profit margin in the current year periods.

New awards for the three months ended September 30, 2013 were $2.4 billion compared to $2.0 billion for the corresponding period of 2012. Current quarter new awards included a petrochemicals complex in the United States and an upstream oil sands project in Canada. Backlog as of September 30, 2013 was $18.7 billion compared to $19.1 billion as of September 30, 2012. Although market conditions remain competitive, there is continued demand for new capacity in oil and gas production and petrochemicals. The segment remains well positioned for new project activity in these markets.

Total assets in the segment increased to $1.9 billion as of September 30, 2013 from $1.7 billion as of December 31, 2012 due to higher levels of working capital needed to support the segment's revenue growth.

Industrial & Infrastructure



Revenue and segment profit for the Industrial & Infrastructure segment are
summarized as follows:



                   Three Months Ended       Nine Months Ended
                     September 30,            September 30,
(in millions)       2013        2012        2013         2012

Revenue          $  2,665.0   $ 3,465.0   $ 8,879.5   $ 10,102.0
Segment profit        132.4       145.0       388.7        389.6

Revenue for the three and nine months ended September 30, 2013 decreased 23 percent and 12 percent, respectively, compared to the corresponding periods of 2012, primarily as a result of decreased volume in the mining and metals business line.

Segment profit for the three months ended September 30, 2013 decreased nine percent compared to the three months ended September 30, 2012, primarily due to lower contributions associated with the decline in volume for the mining and metals business line. The improved performance of the infrastructure and industrial services business lines offset some of the lower contributions in the mining and metals business line. Segment profit for the nine months ended September 30, 2013 decreased slightly compared to the corresponding period in the prior year. Improved contributions in the infrastructure and industrial services business lines offset the decline in segment profit for the mining and metals business line.

Segment profit margin for the three and nine months ended September 30, 2013 was 5.0 percent and 4.4 percent, respectively, compared to 4.2 percent and 3.9 percent, respectively, for the same periods in the prior year. The higher segment profit in the third quarter of 2013 when compared to the third quarter of 2012 was primarily because, in the prior year period, the mining and metals business line had a significantly higher content of customer-furnished materials, which are accounted for as pass-through costs. The year to date improvement in segment profit margin was primarily attributable to increased contributions in the infrastructure business line due to the achievement of certain progress milestones for two domestic transportation projects.

New awards for the three months ended September 30, 2013 were $472 million compared to $1.8 billion for the 2012 comparison period. New awards for the current quarter reflect the market downturn in the mining and metals business line. Backlog declined to $13.8 billion as of September 30, 2013 compared to $18.0 billion as of September 30, 2012 due to lower new award volume in the mining and metals business line, resulting from the deferral of major capital investment decisions by some mining customers. The timing of when capital investment by these mining customers could resume is uncertain, and it is possible that the weakened mining market conditions could be prolonged.

Total assets in the segment increased to $1.0 billion as of September 30, 2013 from $752 million as of December 31, 2012 primarily from the consolidation of a variable interest entity in the mining and metals business line during the first quarter of 2013, offset somewhat by a reduction in project working capital associated with the decrease in volume in the mining and metals business line.


Table of Contents

Government



Revenue and segment profit for the Government segment are summarized as follows:



                   Three Months Ended       Nine Months Ended
                     September 30,            September 30,
(in millions)       2013         2012       2013        2012

Revenue          $    675.2    $  790.1   $ 2,101.0   $ 2,511.5
Segment profit         37.8        22.9        92.7        98.1

Revenue for the three and nine months ended September 30, 2013 decreased 15 percent and 16 percent, respectively, compared to the same periods in the prior year, primarily due to a reduction in project execution activities for the Logistics Civil Augmentation Program ("LOGCAP IV") for the United States Army in Afghanistan. The majority of the rest of the revenue decline for both comparative periods was due to reduced project execution activities at the Savannah River Site Management and Operating Project (the "Savannah River Project") in South Carolina, which was primarily the result of the winding down of the American Recovery and Reinvestment Act ("ARRA") portion of the work at the site. The federal government's March 1, 2013 budget sequestration, which was lifted in June 2013, contributed to the revenue decline for the non-ARRA work at the Savannah River Project during the nine months ended September 30, 2013 when compared to the comparable period of the prior year.

Segment profit for the three months ended September 30, 2013 increased 65 percent compared to the corresponding period in the prior year, primarily due to an agreement with the client at the end of 2012 to change the LOGCAP IV award fee to a fixed fee, which more than offset reduced contributions by the project in the current quarter resulting from reduced volume. Segment profit for the nine months ended September 30, 2013 decreased six percent compared to the same period in the prior year, principally as the result of reduced contributions associated with the decline in project execution activities on LOGCAP IV task orders. The first nine months of 2013 benefitted from changing the LOGCAP IV award fee to a fixed fee at the end of 2012 and the positive impact on segment profit from negotiations in the first quarter of 2013 related to the close-out of prior year indirect rates. The first nine months of 2013 included a $17 million charge related to an adverse judgment associated with the company's final claim on an embassy project, while segment profit in the corresponding period of the prior year was reduced for a $13 million charge associated with a claim on another embassy project as the result of an adverse judgment in the first quarter of 2012.

Segment profit margin for the three and nine months ended September 30, 2013 was 5.6 percent and 4.4 percent, respectively, compared to 2.9 percent and 3.9 percent for the three and nine months ended September 30, 2012, primarily as the result of the factors affecting revenue and segment profit noted above.

New awards for the three months ended September 30, 2013 were $1.9 billion compared to $2.0 billion for the same period in the prior year. Current quarter new awards included the annual funding of the multi-year Department of Energy contracts for the Savannah River project and the gaseous diffusion plant project in Portsmouth, Ohio. Backlog was $1.8 billion as of September 30, 2013 compared to $1.6 billion as of September 30, 2012.

Total assets in the Government segment decreased to $546 million as of September 30, 2013 from $827 million as of December 31, 2012, primarily due to reduced project working capital needs for LOGCAP IV.

Global Services



Revenue and segment profit for the Global Services segment are summarized as
follows:



                   Three Months Ended       Nine Months Ended
                     September 30,            September 30,
(in millions)       2013         2012        2013        2012

Revenue          $    149.7    $  159.5   $    454.0    $ 503.0
Segment profit         24.5        29.2         79.8      100.4

Revenue decreased six percent for the three months ended September 30, 2013 compared to the same period in 2012, primarily due to reduced volume in the equipment business line in Mexico. This revenue decline was partially offset by an increase in


Table of Contents

revenue from the equipment business line in Africa, primarily as the result of the acquisition of an equipment company in the third quarter of 2012. Revenue decreased 10 percent for the nine months ended September 30, 2013 compared to the corresponding period in 2012, principally because the prior year period included a one-time sale of equipment in Peru during the first quarter. While the equipment business line experienced improved volume in Africa and Chile during the first nine months of 2013 when compared to the comparable period in the prior year, it was more than offset by revenue declines in Mexico, the Middle East and the United States.

Segment profit for the three months ended September 30, 2013 decreased 16 percent compared to the three months ended September 30, 2012, principally as the result of the reduced volume in the equipment business line's operations in Mexico. Segment profit decreased 20 percent for the first nine months of 2013 compared to the first nine months of 2012, primarily due to the equipment business line's reduced contributions from operations in Mexico and the United States.

Segment profit margin was 16.4 percent in the current quarter compared to 18.3 percent for the same quarter in 2012, primarily due to start up related costs for the new fabrication business line and certain costs associated with the supply chain business line's efforts to provide strategic sourcing solutions to third parties. Segment profit margin for the nine months ended September 30, 2013 was 17.6 percent compared to 19.9 percent for the same period in 2012, primarily as the result of the higher costs in the fabrication and supply chain business lines noted in the preceding sentence, along with lower segment profit margin from the segment's equipment operations in Mexico.

The equipment, temporary staffing, supply chain solutions and construction business lines do not report backlog or new awards.

Total assets in the Global Services segment were $730 million as of September 30, 2013 compared to $769 million as of December 31, 2012.

Power



Revenue and segment profit (loss) for the Power segment are summarized as
follows:



                   Three Months Ended       Nine Months Ended
                     September 30,            September 30,
(in millions)       2013         2012        2013        2012

Revenue          $    301.6    $  169.9   $   1,107.2   $ 550.5
Segment profit          7.6        (6.0 )        11.4     (14.5 )

Revenue for the three and nine months ended September 30, 2013 increased substantially compared to the three and nine months ended September 30, 2012, primarily due to construction progress on a solar power project in the western United States and a gas-fired power plant project in Texas.

Segment profit and segment profit margin for the three and nine months ended September 30, 2013 increased significantly compared to the three and nine months . . .

  Add FLR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FLR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.