Fluor Corporation — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Fluor provides engineering, procurement, construction, project management and related services through Energy Solutions, Urban Solutions, Mission Solutions and Other. FY 2023 revenue was 65% outside traditional oil and gas markets. The filing is an annual report; it does not provide a standalone Q4 income statement.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $15.474 billion | $13.744 billion |
| Gross profit / margin | $477 million / 3.1% | $355 million / 2.6% |
| Operating profit | $147 million | $209 million |
| Net earnings attributable to Fluor | $139 million | $145 million |
| Earnings available to common stockholders / diluted EPS | $83 million / $0.54 | $106 million / $0.73 |
| Operating cash flow | $212 million | $31 million |
| Cash and cash equivalents | $2.519 billion | $2.439 billion |
| Cash plus marketable securities | $2.588 billion | $2.624 billion |
| Total debt | $1.158 billion | $1.130 billion |
| Backlog | $29.441 billion | $26.049 billion |
Revenue increased about 13%; gross profit and segment profit improved, but operating profit and common-stockholder earnings declined. FY 2023 operating cash flow was helped by cash settlements of project claims and joint-venture distributions, and was partly offset by project working-capital needs and higher tax payments. Capital expenditures were $106 million, implying operating cash flow less capital expenditures of approximately $106 million.
Segment profit was $381 million for Energy Solutions (6.0% margin), $268 million for Urban Solutions (5.1%), $116 million for Mission Solutions (4.4%) and a $228 million loss for Other. The $168 million of net interest income, compared with $35 million in 2022, supported pretax earnings. The effective tax rate was 75%, including valuation-allowance charges; common earnings also reflected $29 million of preferred dividends and a $27 million conversion make-whole payment.
At year-end, the $1.8 billion revolving credit facility had no borrowings and $775 million of borrowing capacity; $477 million of letters of credit used the facility. Fluor reported $918 million of letters of credit under uncommitted lines. Management said cash, operating cash generation and unused credit capacity should fund operating requirements and debt maturities for at least 12 months. Cash at consolidated variable-interest entities may not be available for general purposes.
Material changes and developments
- New awards were $19.528 billion, slightly below 2022’s $19.815 billion. Urban Solutions awards rose to $10.141 billion, while Mission Solutions awards fell to $1.055 billion. Backlog rose about 13%; 76% was reimbursable, up from 63%, and 24% was lump-sum or guaranteed-maximum, down from 37%.
- Energy Solutions revenue increased with project execution; segment profit rose from $301 million to $381 million. Urban Solutions segment profit increased from $17 million to $268 million, aided by claims, arbitration outcomes and incentive fees, as well as the absence of significant prior-year project charges. Mission Solutions profit decreased from $136 million to $116 million despite higher revenue.
- Fluor issued $575 million of 1.125% convertible senior notes due 2029, receiving $560 million net, and spent $73 million on capped calls. It redeemed the remaining 2023 notes and legally discharged the remaining $266 million principal of its 2024 notes by transferring $262 million of Treasury securities to the trustee. The $600 million 2028 notes remained outstanding.
- All convertible preferred stock was converted into common stock in September 2023. Shares outstanding increased to approximately 170.4 million from 142.3 million at year-end 2022.
- Fluor completed the AMECO South America and Stork Latin America sales, recording a combined $153 million negative earnings impact. The sale of Stork’s European business was expected to close in the first half of 2024; it was not classified as held for sale at year-end.
Outlook, risks and unusual items
- Management expected to execute approximately half of year-end 2023 backlog during 2024 and anticipated a significant tax refund. No numeric revenue, earnings or cash-flow guidance was provided.
- FY 2023 results included $91 million of cost-growth and schedule-extension charges on a large Energy Solutions legacy project, a $30 million Mission Solutions weapons-facility charge, and the $153 million losses on the AMECO and Stork Latin America sales. Fluor also recognized inflation-adjusted variable consideration, incentive fees and settlements or favorable outcomes on several claims and arbitrations.
- Year-end backlog included $1.3 billion for legacy projects in a loss position, with $344 million of estimated unfunded losses. Fluor estimated $15 billion of maximum potential future payments under performance guarantees, although the recorded performance-guarantee obligation was not material.
- Material unresolved matters include the Santos Australia dispute, where a court-appointed panel recommended approximately AUD $790 million in damages excluding interest and costs on certain claims, and the NTTA retaining-wall litigation, for which the plaintiff’s expert estimated $227 million in repair costs. Fluor disputes these matters; the filing says possible losses or ranges generally cannot be estimated clearly.
- Other key risks include fixed-price project overruns, uncertain awards and cancellations, collection delays, subcontractor and joint-venture performance, government funding and contract risks, foreign-exchange and political exposure, and cybersecurity. The large concentration of judgment in long-term project cost and variable-consideration estimates was identified as a critical audit matter.
- NuScale generated a $106 million segment loss in 2023; Fluor owned approximately 55%. NuScale announced cost-reduction measures in January 2024. Fluor also stated plans to divest remaining Stork operations and reduce its NuScale ownership.
Most important facts for investors to verify
- Whether 2024 project execution converts the $29.4 billion backlog into revenue and cash as anticipated, and whether new awards replace completed work.
- Progress and cost forecasts for loss-position legacy projects, particularly the large upstream project and the weapons-facility project; confirm recoveries of claims and change orders.
- Developments, potential exposure and any insurance or indemnification recovery in the Santos and NTTA cases.
- Cash availability after considering VIE restrictions, project working capital, letters of credit, guarantee obligations and debt service; assess the 2029 convertible-note dilution terms.
- Whether the expected tax refund is received and how valuation allowances, audits and Pillar Two minimum-tax rules affect the effective tax rate.
- Completion and proceeds of the Stork Europe sale, further NuScale losses or ownership changes, and the impact of other divestitures.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at December 31, 2023.