Fluor Corporation — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; the filing also reports fourth-quarter results. Fluor provides global engineering, procurement, construction, fabrication, project-management, and maintenance services across Oil & Gas, Industrial & Infrastructure, Government, Global Services, and Power.
Key financial results
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $18.1 billion | $21.5 billion |
| Earnings from continuing operations before tax | $726.6 million | $1.205 billion |
| Earnings from continuing operations attributable to Fluor | $418.2 million | $715.5 million |
| Net earnings attributable to Fluor | $412.5 million | $510.9 million |
| Diluted EPS from continuing operations | $2.85 | $4.48 |
| Cash provided by operating activities | $849.1 million | $642.6 million |
| Backlog at year-end | $44.7 billion | $42.5 billion |
| New awards | $21.8 billion | $28.8 billion |
- FY2015 cost of revenue was $17.0 billion. The effective tax rate was 33.8%, versus 29.3% in 2014.
- Cash and cash equivalents were $1.95 billion; cash plus current and noncurrent marketable securities totaled $2.4 billion. Current assets were $5.28 billion and current liabilities were $2.94 billion.
- Debt was approximately $993 million, consisting primarily of $497 million of 3.375% Senior Notes and $495 million of 3.5% Senior Notes. Debt was 24.9% of total capitalization. Fluor reported compliance with debt covenants.
- Operating, investing, and financing cash flows were respectively $849 million provided, $67 million used, and $728 million used. Capital expenditures were $240 million.
- Segment profit and revenue: Oil & Gas $764.5 million on $10.04 billion revenue (7.6% margin); Industrial & Infrastructure $227.4 million on $4.07 billion (5.6%); Government $83.1 million on $2.56 billion (3.3%); Global Services $45.2 million on $499 million (9.1%); Power incurred an $88 million segment loss on $947 million revenue.
Changes versus prior period
- Revenue declined 16% from 2014, reflecting reduced mining and infrastructure execution and large upstream projects reaching completion. Pre-tax earnings fell 40%, including the pension settlement charge and weaker contributions from several segments.
- Operating cash flow improved from 2014, mainly because working-capital movements were favorable year over year; this included $316 million of cash outflows related to discontinued operations.
- Oil & Gas segment profit rose 14% despite lower revenue, with stronger downstream work, a higher engineering mix, and cost optimization. Industrial & Infrastructure profit fell 41%; Government profit fell 10%; Global Services profit fell 45%.
- Backlog increased about 5%, led by Power awards, including a $5.0 billion Westinghouse award. Mining-related and Government backlog declined. New awards fell about 24%.
- Year-end shares outstanding declined to about 139 million from 149 million. Fluor repurchased approximately 10.1 million shares for $510 million during 2015.
Outlook, risks, and unusual items
- Management expected to execute approximately 38% of year-end 2015 backlog in 2016, versus a five-year average expectation of 54%, citing client-driven project delays. Backlog can be canceled, deferred, or revised and does not guarantee revenue or profit.
- Management said Oil & Gas remained positioned for downstream and petrochemical work, but lower oil prices were affecting award timing and execution on some projects. Mining customers continued to defer major capital investment decisions; Government revenue remained pressured by lower LOGCAP IV activity.
- Fluor signed a December 2015 agreement to acquire Stork for approximately $755 million, including assumed debt and liabilities. The deal was expected to close in the first half of 2016, subject to approvals; the company planned initial funding from available liquidity and expected long-term international debt financing.
- Fluor committed $350 million initially and a further $140 million later in 2016 to its 49%-owned China fabrication-yard joint venture, subject to approvals.
- Major FY2015 items included a $240 million pre-tax pension settlement charge (the U.S. defined-benefit plan was settled), a $60 million pre-tax Power-segment loss from revised forecasts for the Brunswick County gas-fired plant, and a $68 million pre-tax gain on the partial sale of its Spanish subsidiary. A $58 million office-sale gain was mostly deferred; $7 million was recognized in 2015.
- Discontinued operations included a $6 million after-tax 2015 loss tied to lead-exposure settlements and legal fees. Fluor had paid $306 million in January 2015 and was pursuing indemnification from the buyer of the divested lead business.
- Material risks include project cost overruns and schedule guarantees, fixed-price contract exposure (22% of backlog), client payment delays, commodity-driven demand weakness, currency and geopolitical risks, government funding and contract risks, joint-venture partner performance, litigation, and environmental and safety liabilities. Outstanding performance guarantees had a stated maximum potential amount of $19.3 billion; the recorded liability was not material, but amounts payable above estimated completion costs were not estimable.
- Fluor reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether delayed projects convert into execution and revenue, and whether the 38% expected 2016 backlog performance assumption changes.
- Stork’s closing, financing terms, integration costs, and realized maintenance-business benefits; also the timing and funding of the China joint-venture commitments.
- Progress, cost forecasts, and potential further losses on the Brunswick County project and other fixed-price work.
- Collection and recoverability of project receivables, claims, and the $306 million lead-case payment, including the outcome of Fluor’s indemnification action.
- Whether the $19.3 billion maximum performance-guarantee exposure, government contract funding, and other disclosed contingencies develop into material cash costs.