Fluor Corporation — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; the filing also reports fourth-quarter results. Fluor provides engineering, procurement, construction, maintenance and project-management services through Energy & Chemicals, Mining/Industrial/Infrastructure/Power, Government and Diversified Services.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $19.17 billion | $19.52 billion |
| Earnings before taxes | $481.8 million | $386.4 million |
| Net earnings attributable to Fluor | $224.8 million | $191.4 million |
| Diluted EPS | $1.59 | $1.36 |
| Cash from operating activities | $162.2 million | $602.0 million |
| Year-end cash and cash equivalents | $1.765 billion | $1.804 billion |
| Working capital | $1.888 billion | $2.027 billion |
| Year-end backlog | $39.96 billion | $30.92 billion |
Revenue declined about 2%, while pretax earnings and attributable earnings increased. Cash from operations fell sharply, mainly due to working-capital outflows. Gross profit was approximately $670 million, or 3.5% of revenue. The effective tax rate was 39.2%, including a $79 million increase in valuation allowances.
At year-end, reported debt was approximately $1.69 billion, versus cash of $1.76 billion. Fluor had $3.5 billion of committed revolving credit facilities, maturing in February 2022; $1.6 billion of letters of credit and borrowings was outstanding under committed and uncommitted lines. The company reported covenant compliance and said cash, operating cash flow and unused credit capacity should meet requirements for at least 12 months.
Fourth-quarter 2018 revenue was $4.80 billion; earnings attributable to Fluor were $50.3 million and diluted EPS was $0.36.
Material changes and segment performance
- Backlog and awards: Backlog rose about 29% to $40.0 billion, driven by $27.7 billion in new awards versus $12.6 billion in 2017. Approximately 71% of year-end backlog was outside the United States; about 80% of 2018 awards were for non-U.S. work. Fluor expected to perform approximately 40% of year-end backlog during 2019.
- Energy & Chemicals: Revenue declined 10% to $7.70 billion; segment profit fell to $337 million from $425 million. Fixed-price downstream and offshore project charges and lower project activity weighed on results.
- Mining, Industrial, Infrastructure & Power: Revenue was essentially flat at $5.19 billion. Segment loss narrowed to $14 million from $141 million, but included $188 million of gas-fired power project charges, partly offset by a $125 million gain on a U.K. joint-venture sale. Fluor exited the U.S. fixed-price gas-fired power market during 2018.
- Government: Revenue increased 17% to $3.77 billion and segment profit rose 40% to $179 million, mainly reflecting Puerto Rico power restoration and hurricane-relief work.
- Diversified Services: Revenue was nearly flat at $2.51 billion; segment profit declined 25% to $100 million, partly due to cancellation of a large North American operations and maintenance project.
Fluor adopted ASC Topic 606 in 2018. Adoption increased reported revenue by $132 million and pretax earnings by $134 million for the year, while reducing opening retained earnings by $339 million. Prior-year results were not recast, limiting direct comparability.
Outlook, commentary and risks
- Management described available cash and credit capacity as sufficient for expected operating needs over at least the next 12 months; no specific earnings or revenue guidance is provided in the supplied filing text.
- NuScale, in which Fluor invests, submitted its small modular reactor design certification application to the NRC. Fluor expected a decision on or before January 2021; timing and approval remain uncertain.
- Execution exposure is significant: 47% of backlog was fixed-price, exposing Fluor to cost overruns and schedule risk. Performance guarantees could involve up to $19 billion of remaining work, although the recorded guarantee liability was not material.
- Notable project matters include a $110 million customer dispute tied to a gas-fired power project, with invoices withheld and a letter of credit drawn in January 2019; $108 million of aged and disputed receivables on a Middle East chemicals project; and Westinghouse-related nuclear project receivables. Management did not expect these matters to create losses beyond reserves or materially affect results, based on its assessments.
- Fluor is defending a Santos lawsuit seeking approximately AUD $1.47 billion and securities-related shareholder litigation. The company said it believed the claims were without merit and did not consider a loss probable for specified matters; outcomes remain uncertain.
- Other key risks include dependence on large contract awards, client and government funding, international political and currency conditions, subcontractor performance, safety, and project-estimate revisions. The filing identifies U.S. government agencies and Exxon Mobil as 18% and 17% of 2018 revenue, respectively.
Important facts for investors to verify
- Whether fixed-price project cost forecasts, especially the gas-fired power, downstream and offshore projects, stabilize or require further charges.
- Whether the $110 million customer dispute, Middle East receivables and Westinghouse-related balances are collected or otherwise resolved.
- How much of the $40.0 billion backlog converts to revenue and cash flow, given cancellation, deferral, funding and project-execution risks; note that $2.9 billion of Government backlog was unfunded.
- Whether operating cash flow recovers from the 2018 working-capital outflow and how cash availability is affected by cash held in joint ventures and foreign jurisdictions.
- Developments in the Santos and shareholder cases, and the timing and outcome of NuScale’s NRC review.