After two years of heavy losses and extensive restructuring, Fluor Corp. on Wednesday reported a $26.6-million profit for its 1987 fiscal year, including a fourth-quarter gain of $145.5 million.
It was the Irvine-based engineering and construction firm's first profitable year since 1984, although the 1987 profit included an assortment of one-time tax benefits and gains from asset sales.
Lowered Shareholders' Equity
The company also reported that it lowered its shareholders' equity by $438 million as of Oct. 31 to account for the reduced market value of its lead, coal and real estate holdings. The accounting adjustment did not affect Fluor's profitability.
Shareholders' equity, or net worth, is calculated by subtracting the value of a company's liabilities from its assets.
Fluor Chairman David S. Tappan Jr. and Chief Financial Officer Bob Guyett, speaking to securities analysts in New York on Wednesday, said the company has completed its restructuring program and expects to remain profitable in 1988 and beyond.
Over a period of more than two years, Fluor has pared away unprofitable mineral operations in an effort to concentrate on its core engineering and construction business.
The last step in the restructuring, they said, was to wipe the accounting slate clean. So the company undertook a "quasi-reorganization" of its financial records to reflect the reduced value of Fluor's assets and liabilities.
"It means that Fluor Corp. . . . is poised for a fresh start," Tappan said Wednesday in a telephone interview.
"As part of a fresh start, you have to promise profitability from this time forward," he said.
In a prepared statement issued by the company, Tappan said the accounting change "will make it easier to assess the impact of our far-reaching restructuring actions and to evaluate future performance."
While industry analysts generally agreed that Fluor is on the upswing, they discounted the significance of the 1987 profit. They said Fluor would have sustained a loss for the fiscal year ended Oct. 31 if it had not reaped a $111.2-million gain from sale of most of the company's natural resource operations.
"The fourth quarter is rendered meaningless by all the one-time gains and write-offs," said Mark Altman, an analyst with PaineWebber in New York.
The company's fourth-quarter profit of $145.5 million contrasts with a loss of $56.6 million during the same period in fiscal 1986. Fluor reported fourth-quarter revenues of $1.2 billion in fiscal 1987, up from $978.3 million the preceding year.
For the entire year, Fluor reported net earnings of $26.6 million on revenues of $3.9 billion in fiscal 1987. That contrasts with a loss of $60.4 million on revenues of $4.3 billion in fiscal 1986.
Putting Troubles Behind It
Altman and other analysts said they attached more importance to the accounting adjustments. By recognizing the reduced value of the company's assets, they said, Fluor is in a sense putting its troubles behind it.
"The balance sheet is squeaky clean. . . . Everything is stated at fair market value, and that improves the outlook for future earnings," Altman said. "I think in essence it marks a turning point for the company."
Fluor said its shareholders' equity was $532 million on Oct. 31.
The adjustment included a $267-million reduction in the recorded value of Fluor's lead operations and a $71-million reduction in the value of its coal operations.
In addition, Fluor set aside a $63-million reserve for expected losses from unoccupied space it leases in a large office complex near Houston. The company also made other downward adjustments totaling $37 million.
Tom Samuelson, an analyst with the Chicago securities firm of Duff & Phelps, said many analysts were only expecting a write-down of Fluor's Houston office leases.
Samuelson said he was surprised at the extent of the other accounting adjustments. But he said the perception of the reductions could be offset by the company's promise that it will use some of its asset sale proceeds to pay down its debt.