Fluor Reports $1.7B Net Loss in Delayed Release of 2019 Results

IRVING, Texas—Fluor Corporation announced financial results for its year ended December 31, 2019. Results for 2019 were a net loss from continuing operations of $1.7 billion, or $11.97 per diluted share, compared to earnings from continuing operations of $9 million, or $0.07 per share for 2018.

The net loss attributable to Fluor includes impairment, restructuring and other exit costs of $533 million, expenses of $138 million related to the settlement of the United Kingdom pension plan and $731 million related to establishing valuation allowances to reduce net deferred tax assets. Consolidated segment loss for the year was $386 million compared to a profit of $323 million in 2018. Revenue of $14.3 billion in 2019 from continuing operations compares to $15.2 billion in the prior year.

Full year new awards from continuing operations and government were $12.6 billion, and ending consolidated backlog was $31.9 billion. Corporate G&A expenses for 2019 were $159 million, up from $118 million a year ago primarily due to the effects of foreign transactional gains and losses. Fluor’s cash and marketable securities at the end of 2019 was $2.0 billion. During 2019, Fluor paid $118 million in dividends.

Results of Board Investigation

As the company previously announced, a special committee of independent members of the board of directors led a review of its previously issued financial information and determined there were material project-related errors resulting from the absence of timely recognition of changes in forecasted project costs, and from other errors in estimating the amount of variable consideration to be included in revenue for the Radford project.

Accordingly, Fluor has restated annual financial results for 2016, 2017 and 2018, and for each of the interim previously issued quarterly periods for 2018 and 2019. In addition, the restated financial statements include other quantitatively immaterial adjustments to these annual periods. These adjustments reduced cumulative pretax earnings reported through September 30, 2019, by $3.8 million.

The special committee, along with its independent external advisors and financial experts, had full access to the company’s personnel and documentation and determined the scope of its review. The investigation included document collection and interviews across all Fluor EPC segments including both domestic and international. The quantity of projects reviewed represents a majority of the company’s lump-sum portfolio.

In addition, the company determined that its disclosure controls and procedures were not effective due to the existence of material weaknesses. To address these weaknesses, Fluor’s remediation plan includes personnel actions, additional project monitoring procedures, improved guidance on project forecasting principles, updated tools and templates to achieve more standardization of project-level documentation and reporting, and improved internal company training on required policies and procedures.

“Today’s filing marks the culmination of a thorough review of the financial reporting on a significant number of our lump-sum projects. We agree with the findings of the special committee and are moving forward with our remediation plan,” said Carlos Hernandez, Fluor chief executive officer. “Fluor continues to have substantial liquidity and dedicated employees who are ready to tackle current and future challenges.”

Strategic Update

In September 2019, Fluor announced actions intended to drive improved cash generation and de-risk the portfolio. The company has sold portions of its equipment rental business and continues to progress on transacting AMECO, public-private partnership assets and excess real estate. In addition, the company has suspended its dividend and remains on track to realize at least $100 million in annual savings by the end of the year.

Following on from last year’s review, Fluor has initiated a broader and more comprehensive analysis of our entire business model. The goal is to reshape the company to address today’s markets and to ensure future success. An ad-hoc two person committee of the board has been formed to be an added resource to management and to provide their ideas and expertise in the upfront part of this process.

In advance of this new strategy, for the energy and chemicals segment the company has determined that it will only pursue reimbursable or open-book lump-sum conversion engineering, procurement and construction prospects. 

Outlook

The company has experienced a significant shift in end markets in 2020 driven by volatility in commodity prices and the global disruption from the COVID-19 pandemic. As a result, the company is suspending all previously issued 2020 guidance. In addition, the company is providing updates on the following:

• As of the end of August 2020, Fluor’s cash balance was $2.1 billion and the company expects the cash balance to be approximately in that range through the end of the year.
• The company continues to have adequate liquidity to meet its operational and project needs and has no amounts drawn on the revolving loans under its committed credit facilities.
• Fluor expects to file Q1 2020 results within the next month, followed approximately 4 weeks later by Q2 2020 results with Q3 2020 results approximately four weeks after that. The company will hold its next call with the investment community in conjunction with the release of its Q3 results.

Business Segments

The energy and chemicals segment reported a segment loss of $95 million in 2019 compared to a profit of $335 million in 2018. Segment profit in 2019 decreased significantly as a result of charges associated with forecast revisions on certain projects. Revenue for 2019 was $5.8 billion, down from $7.7 billion in the previous year. Full year new awards in 2019 totaled $3.7 billion, compared to $10.6 billion in 2018. Ending backlog was $14.1 billion compared to $17.8 billion a year ago.

The mining and industrial segment reported a segment profit of $159 million, up from $94 million in 2018. Full year revenue for the segment of $5.1 billion was up from $3.5 billion a year ago. Results for the year reflect increased project execution activities for several large mining projects and the favorable resolution of a longstanding customer dispute. Full year new awards in 2019 were $1.9 billion, and ending backlog was $5.4 billion compared to $8.9 billion a year ago.

The infrastructure and power segment reported a segment loss of $244 million compared to a loss of $30 million in 2018. Full year revenue for the segment was $1.4 billion compared to $1.7 billion a year ago. Results for 2019 include costs related to the settlement of three gas-fired power projects and forecast revisions related to several infrastructure projects. Full year new awards in 2019 were $2.6 billion, and ending backlog for the segment was $6.1 billion compared to $6.3 billion a year ago.

The diversified services segment, including certain retained AMECO operations, reported a segment profit of $15 million in 2019, compared to $69 million a year ago. Results for 2019 reflect reduced volumes of higher-margin operations and maintenance activities. Full year revenue was $2.0 billion compared to $2.3 billion in 2018. New awards totaled $2.2 billion for 2019, and ending backlog was $2.5 billion, up from $2.3 billion a year ago.

The other segment, which is comprised of NuScale and the Radford and Warren government projects, reported a full year segment loss of $220 million, compared to a loss of $145 million a year ago. Results for the year include NuScale expenses of $66 million.