Fluor 2007 Annual Report Download - page 62

2006 increased across most of the segment’s business lines, with new mining projects representing
approximately 45 percent of the total. The lower level of new awards in 2005 included the impact of
reduced spending by life sciences customers and the timing of receipt of large mining awards.
Backlog for the Industrial & Infrastructure segment increased to $6.1 billion at the end of 2007 from
$5.4 billion at the end of 2006. For 2005, ending backlog was $3.9 billion.
Total assets in the Industrial & Infrastructure segment were $576 million, $686 million and
$490 million at December 31, 2007, 2006 and 2005, respectively. The decrease in total assets from 2007 to
2006 is primarily due to the deconsolidation of the National Roads Telecommunication Services project in
the United Kingdom. See Variable Interest Entities below for further discussion of this project.
Government
Revenue and operating profit for the Government segment are summarized as follows:
Year Ended December 31,
(in millions) 2007 2006 2005
Revenue $1,308.2 $2,859.9 $2,708.2
Operating profit 29.3 17.7 83.7
Revenue in the last three years includes reconstruction activity in Iraq and work for environmental
restoration, engineering, construction, site operations and maintenance services at two major DOE sites:
the Fernald Environmental Management Project (‘‘Fernald’’) in Ohio, which was completed in 2006, and
the ongoing Hanford Environmental Management Project in Washington. Revenue during 2006 and 2005
also includes significant amounts relating to hurricane relief activities in support of the Federal Emergency
Management Agency (‘‘FEMA’’).
As expected, a substantial decrease in revenue occurred in 2007 compared with 2006. The decrease
was primarily the result of the significant contributions from FEMA hurricane relief and the Fernald
environmental project during the 2006 period. The Fernald contract is substantially complete and the
volume of FEMA task orders was significantly lower in 2007 and the second half of 2006. Work in Iraq was
also lower in 2007.
The six percent increase in revenue in 2006 compared with 2005 resulted from the continuation of
hurricane relief activities in support of FEMA, which commenced in the second half of 2005, partially
offset by reduced Iraq reconstruction and DOE project activity. The level of FEMA activity increased
during early 2006, but began to decline in the third and fourth quarters of the year, as the company’s work
on hurricane relief efforts was completed. The decline in DOE activity resulted largely from the
completion of the Fernald project at the end of October 2006.
Operating profit during 2007 and 2006 include provisions totaling $21 million and $29 million,
respectively, on a fixed-priced contract at the Bagram Air Base in Afghanistan. These charges relate to
subcontractor execution issues and liquidated damages due to the resulting delay in project completion. In
addition, operating profit in 2006 was negatively impacted by loss provisions totaling $154 million on
certain embassy projects. The company recognized provisions for estimated cost overruns on certain of the
embassy projects totaling $56 million in 2005.
The company has been performing work on 11 embassy projects over the last four years for the United
States Department of State under fixed-price contracts. These projects have been adversely impacted by
higher cost due to schedule extensions, scope changes causing material deviations from the Standard
Embassy Design, increased cost to meet client requirements for additional security-cleared labor, site
conditions at certain locations, subcontractor and teaming partner difficulties and the availability and
productivity of construction labor. As of December 31, 2007, all embassy projects were complete with the
exception of the project in Haiti where periods of civil unrest have resulted in significant unanticipated
schedule delays and cost increases. In addition, at the site in Haiti, increased cost has resulted from
collapsible soil conditions, additional client imposed requirements, subsequent increases in material
quantities and the availability and productivity of construction labor. As of December 31, 2007, the
physical completion of the Haiti embassy has progressed to approximately 95 percent and is estimated to
be completed in early 2008.
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