Fluor 2008 Annual Report Download - page 65

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was primarily attributable to significantly reduced contributions from FEMA hurricane relief task orders,
Iraq-related work and the Fernald project that was completed in October 2006.
Operating profit for the Government segment during 2008 increased significantly compared to 2007
and 2006, primarily due to the absence of significant provisions for loss projects that had been made in the
earlier two years. Operating profit in 2008 was also favorably impacted by work that began at the Savannah
River project and for LOGCAP IV task orders.
Provisions totaling $21 million and $29 million were made in 2007 and 2006, respectively, on a fixed-
priced contract at the Bagram Air Base in Afghanistan. These charges related to subcontractor execution
issues and liquidated damages due to the resulting delay in project completion. During 2008, the Bagram
project was completed and various disputed items and warranty issues were resolved. As a result,
$5 million was recognized in operating profit during the year. The remaining disputed items and warranty
obligations are expected to be addressed in 2009.
Operating profit in 2006 was negatively impacted by loss provisions for estimated cost overruns
totaling $154 million on certain embassy projects. Provisions totaling $56 million had been previously
recognized in 2005. The company has performed work on 11 embassy projects over the last five years for
the United States Department of State under fixed-price contracts. These projects were 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, 2008, all embassy projects were complete, with
some warranty items still pending.
As of December 31, 2008, aggregate cost totaling $45 million relating to claims on three of the
embassy projects has been recognized in revenue. Total claims-related cost incurred to date, along with
claims for equitable adjustment submitted or identified, exceed the amount recorded in claims revenue. As
the first formal step in dispute resolution, all of these claims have been certified in accordance with federal
contracting requirements. The company continues to periodically evaluate its position with respect to these
claims.
New awards in the Government segment were $1.4 billion during 2008, compared to $1.2 billion
during 2007 and $2.2 billion during 2006. The increase in new awards in 2008 was driven by the start-up of
the Savannah River project and the first task orders issued to the company under LOGCAP IV. The
Savannah River project’s transitional work and first full year of operations were included as a new award in
2008. The company reports new awards for LOGCAP IV as individual task orders are awarded and
funded. The decrease in new awards in 2007 was due to the significant decrease in emergency response
work for FEMA and reconstruction activities in Iraq. Many projects, like Savannah River, are performed
on behalf of U.S. government clients under multi-year contracts and provide for annual funding. As a
result, new awards for the Government segment only reflect the annual award of work to be performed
over the ensuing 12 months for annually-funded contracts.
Backlog for the Government segment was $804 million at December 31, 2008, $740 million at
December 31, 2007 and $840 million at December 31, 2006. The decline in backlog in 2007 from 2006 was
primarily due to progress toward completion on Iraq contracts.
Total assets in the Government segment were $326 million at December 31, 2008, $285 million at
December 31, 2007 and $597 million at December 31, 2006. The decrease in total assets from the end of
2006 was primarily due to the billing and collection of substantially all of the previously unbilled fees on
the Fernald project and progress towards completion on the FEMA and Iraq reconstruction contracts.
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