Fluor 2008 Annual Report Download - page 63

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Backlog for the Oil & Gas segment was $21.4 billion at December 31, 2008, up sequentially from
$18.5 billion at December 31, 2007 and $12.0 billion at December 31, 2006. The 2008 and 2007 growth in
backlog is primarily due to the continued strength of new award activity and positive scope-related cost
adjustments to existing projects.
The segment has been a participant in an expanding market that includes very large projects in diverse
geographical locations, which are well suited to the company’s global execution and project management
capabilities and strong financial position. However, the global credit crisis and falling oil prices have
resulted in some clients reassessing their capital spending plans for 2009. As such, there is some
uncertainty as to the sustainability of the high growth and operating profit margins recently experienced by
the segment.
Total assets in the segment increased to $1.2 billion at December 31, 2008 from $891 million at
December 31, 2007 and $629 million at December 31, 2006 primarily due to the continued increase in the
level of project execution activities over the periods.
Industrial & Infrastructure
Revenue and operating profit for the Industrial & Infrastructure segment are summarized as follows:
Year Ended December 31,
(in millions) 2008 2007 2006
Revenue $3,470.3 $3,385.0 $3,171.1
Operating profit 208.2 101.0 76.4
Revenue in 2008 improved slightly from 2007 on the strength of the mining and metals and
manufacturing and life sciences business lines. Revenue increased during 2007 compared to 2006 primarily
as a result of project execution activities on mining and infrastructure projects.
The 2008 revenue growth for the Industrial & Infrastructure segment has been accompanied by
substantial operating profit and operating profit margin increases, primarily as the result of improved
performance in mining and a pre-tax gain of $79 million from the sale of a joint venture interest in a wind
power project in the United Kingdom. The higher margins for the mining and metals business line in 2008
are largely attributable to an increase in the mix of engineering and consulting projects, which typically
generate higher margins than projects in the construction phase. The segment’s ability to command more
favorable pricing due to its capabilities and project execution performance, along with industry-wide
resource constraints, also contributed to the higher mining margins in 2008. Operating profit and operating
profit margin increased during 2007 compared to 2006, largely on the strength of performance on mining
and infrastructure projects. Operating results for the segment have been impacted in all three years by loss
provisions relating to specific projects.
Looking ahead, the segment could be impacted by the global credit crisis and falling commodity
prices, as some clients, particularly in the mining and metals business line, are reassessing their capital
spending programs for 2009. Projects originally planned for 2009 could be delayed or canceled.
The company is involved in dispute resolution proceedings in connection with its London Connect
Project, a $500 million lump-sum project to design and install a telecommunications network that allows
transmission and reception throughout the London Underground system. The project, which is now
complete, has been subject to significant delays by the owner, resulting in additional cost to the company
and claims against the client. The company has recognized an aggregate of $105 million in claims revenue
relating to incurred costs attributed to delay and disruption claims that are part of the dispute resolution
proceedings, reduced for settlement amounts. Total claims-related cost incurred to date and the value of
the claims submitted or identified exceed the amount recorded in claims revenue. In addition, the client
withheld $54 million representing the company’s share of liquidated damages, a substantial portion of
which has been reserved for possible non-collection. During 2008, provisions of $33 million were
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