Business context and reporting period
Fluor Corporation’s Form 10-K covers the fiscal year ended December 31, 2020. Fluor provides engineering, procurement, construction, project management, maintenance and related services globally. Its six reported segments were Energy & Chemicals, Mining & Industrial, Infrastructure & Power, Government, Diversified Services and Other. The filing was signed February 26, 2021.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $15.67 billion | $17.32 billion |
| Gross profit (revenue less cost of revenue) | $385 million | $(217) million |
| Total segment profit (non-GAAP) | $317 million | $(186) million |
| Net loss attributable to Fluor | $(435) million; $(3.10) per diluted share | $(1.52) billion; $(10.87) per diluted share |
| Operating cash flow | $186 million | $219 million |
| Cash and cash equivalents | $2.20 billion | $2.00 billion |
| Marketable securities | $23 million | $7 million |
| Long-term debt | $1.71 billion | $1.65 billion |
| Short-term borrowings | $25 million | $39 million |
| Backlog at year-end | $25.57 billion | $31.93 billion |
Cash, cash equivalents and marketable securities totaled approximately $2.22 billion. Fluor reported $418 million of letters of credit under committed facilities and $862 million under uncommitted facilities; no borrowings were outstanding under the predecessor committed facilities at year-end. Some cash is held by consolidated joint ventures and restricted to their activities: $655 million at December 31, 2020. Fluor said cash generation, cash on hand and unused credit capacity were sufficient for operating needs for at least the next 12 months.
Segment results
| Segment | 2020 revenue | 2020 segment profit (loss) |
|---|---|---|
| Energy & Chemicals | $5.26 billion | $164 million |
| Mining & Industrial | $4.15 billion | $122 million |
| Infrastructure & Power | $1.60 billion | $14 million |
| Government | $2.92 billion | $88 million |
| Diversified Services | $1.63 billion | $14 million |
| Other | $110 million | $(85) million |
Material changes versus the prior comparable period
- Revenue declined 9.5% year over year, reflecting lower execution volumes as projects completed or neared completion, COVID-19 disruptions and reduced oil prices. Fluor cited a six-month suspension of a South American mining project and delays or reduced scopes in maintenance work.
- The net loss narrowed substantially from 2019, when large project charges, restructuring and impairment costs, tax valuation allowances and a pension settlement weighed heavily on results. Fluor still reported a 2020 net loss, including $306 million of impairment, restructuring and other exit costs, and $146 million of impairments in discontinued operations.
- Backlog fell 20% to $25.57 billion, as work performed outpaced $9.00 billion of new awards. Approximately 55% of year-end backlog was lump-sum or guaranteed-maximum-price work; $1.8 billion related to projects in a loss position. Fluor expects to perform approximately 50% of year-end backlog in 2021, but cautioned that backlog is subject to cancellation, deferral and scope changes.
- Operating cash flow was $186 million, down from $219 million. Cash and cash equivalents increased to $2.20 billion, while total equity fell to $1.26 billion from $1.58 billion.
- Fluor suspended its dividend in April 2020. Cash dividends paid during the year were $29 million, compared with $118 million in 2019.
Outlook, management commentary, risks and unusual items
- Management attributed business pressure to COVID-19, lower oil prices, delayed project awards and customer financial stress. It noted that reduced broad-based awards could continue to pressure future earnings, particularly in Energy & Chemicals. The company provided no formal revenue or earnings guidance in the supplied filing text.
- Fluor announced a new strategy in January 2021 focused on growth in energy transition, advanced technology, life sciences, metals, infrastructure and government markets; pursuing fairer, more reimbursable contract terms; financial discipline; and culture and sustainability. It also announced a new three-segment structure effective in 2021.
- Fluor planned to sell AMECO, with completion expected in the first half of 2021, and announced a plan to sell Stork. AMECO’s 2020 discontinued-operations loss was $141 million in total, including $146 million of asset impairments. Stork was expected to be reported as discontinued operations beginning in the first quarter of 2021.
- A February 2021 amended $1.65 billion revolving credit facility matures in February 2023 and includes financial covenants, including a minimum liquidity threshold of $1.5 billion, potentially reduced to $1.25 billion after debt repayment. Fluor estimated that, under the amended facility’s covenants, further borrowing capacity would have been approximately $934 million at year-end 2020.
- In December 2020, Fluor received $116 million under a settlement concerning a canceled Maryland rail project and was contractually owed another $150 million by December 2021.
- Significant risks include fixed-price project cost overruns and delays, cancellations and weak awards, client payment defaults, joint-venture and subcontractor performance, international and foreign-exchange exposure, government funding and procurement, and COVID-19 effects. Infrastructure & Power backlog included $1.5 billion of loss-position projects; management expected about 35% of that segment’s 2021 revenue to come from zero-margin projects.
- Fluor disclosed ongoing SEC and Department of Justice investigations into 2019 project charges and project accounting, financial reporting and governance matters, along with shareholder litigation. Management said it was cooperating; the filing gives no clear estimate of any ultimate financial impact. Separate project disputes include a downstream-project liquidated-damages exposure of up to approximately $121 million and material claims asserted against Fluor by counterparties in other proceedings.
- Outstanding performance guarantees had a stated maximum potential amount of $14 billion, representing estimated remaining cost to complete covered work; Fluor said the performance-guarantee obligation was not material at year-end. This maximum is not presented as an expected cash payment.
- Fluor restated prior-period financial statements and did not timely file its 2019 annual report and three 2020 quarterly reports. It reported that material weaknesses in internal control identified in 2019 were remediated and that internal control was effective at December 31, 2020; the auditor issued unmodified opinions on the financial statements and internal control.
Most important facts for investors to verify
- Whether the $25.57 billion backlog converts to revenue and cash on expected schedules, and whether loss-position projects or cancellations increase.
- Collection and timing of the remaining $150 million Maryland rail settlement payment, and the recoverability of disputed change orders and claims.
- Progress and proceeds from the AMECO and Stork divestitures, including any retained liabilities or further impairment charges.
- Compliance with the amended credit facility’s liquidity and leverage covenants, considering restricted joint-venture cash and outstanding letters of credit.
- Developments in the SEC/DOJ investigations, shareholder litigation and major project disputes, including any resulting penalties, settlements or additional reserves.
- Whether the 2020 control remediation and improved project-estimation processes remain effective, given the company’s restatements and dependence on long-term contract estimates.