Fluor Predicts 1985 Loss of $600 Million : $410 Million in Write-Downs Included as Part of Firm’s Restructuring Program
Fluor, outlining for the first time the cost of its dramatic restructuring, said Friday that it will report a $600-million loss for fiscal 1985, largely the result of a $410-million write-down of assets that it plans to take in the fourth quarter ending Oct. 31. The decision will slash Fluor’s net worth by more than one-third and give the giant Irvine-based company its first full-year loss since 1959.
The bulk of the fourth-quarter write-downs are being taken on operations that Fluor said it is currently negotiating to sell. Although the company did not identify the operations, many are believed to be part of its ailing St. Joe Minerals subsidiary, which Fluor purchased four years ago for $2.2 billion in stock and cash. The remaining write-downs, about one-third of the total, are associated with its lead-mining operations, Fluor said.
Also contributing to the big loss will be an undisclosed amount of prepayment penalties that Fluor was forced to make by retiring some debt early.
Mounting Financial Woes
Friday’s disclosure amounts to a cost statement on Fluor’s year-old drive to restructure itself and concentrate on “core” businesses. The company has been beset by mounting financial woes recently as engineering and construction work dried up and mineral prices fell.
David S. Tappan, Fluor’s chairman, said at a New York press conference Friday morning that the write-downs are being taken now in order to permit an “accurate assessment” of the value of certain Fluor holdings. A Fluor spokesman said the timing and amount of the write-downs were determined solely by company officials and did not come at the prompting of Fluor’s auditors.
Tappan said he anticipates no additional re-evaluations of assets, but he said Fluor may have to take write-downs on specific sales of assets as it continues to shed operations that it considers unrelated to its primary businesses of engineering, construction and mining. He said Fluor also will intensify efforts to increase its presence in several engineering fields that it believes it can dominate and may make “tactical acquisitions” in certain of those fields, which he declined to identify.
For the fourth quarter, Fluor is expected to post a loss on operations of about $127 million in addition to the write-downs. Company officials said that all but about $30 million to $40 million come as a result of certain one-time expenses such as employee relocation costs and severance pay expenses.
In fiscal 1984, Fluor posted net income of $1 million. In the first nine months of the current fiscal year, Fluor lost $63 million.
News of the expected loss met with little reaction on Wall Street. On the New York Stock Exchange, Fluor stock closed Friday at $15.875 a share, up 12.5 cents from Thursday, on volume of 394,000 shares.
“It certainly wasn’t a shocking piece of news,” said Richard Rossi, vice president of research for Merrill Lynch in New York. “The restructuring plan they are following is the one that they outlined a year ago. They were pretty candid that there would be write-offs of assets.”
‘Very Positive News’
Rossi, who attended a meeting early Friday morning in New York of securities analysts and Fluor officials, called the announcement “very positive news.”
“They’ve really cleaned up the whole thing now,” said Herbert Hart, an analyst with S. G. Warburg, Rowe & Pitman, Akroyd in San Francisco. “It really pays to get that out of the way now. Even though the number is big, the street isn’t going to react negatively.”
Although company officials did not say when they expect Fluor to become profitable again, Hart predicted that “by the middle of next year, Fluor ought to be back in the black numbers.” He said his “very rough” estimate of fiscal 1986 earnings for the company is $80 million.
Tappan would say only that Fluor has “set the stage for a return to profitability.” A spokesman added: “Now it depends on market conditions.”
Fluor has attempted to restore lost profits by selling off “non-core” assets.
Last summer, Fluor sold and leased back its 162-acre Irvine headquarters site in a $340-million transaction with Dallas-based Trammell Crow Co. The two firms hope to eventually co-develop a mixed retail and commercial complex on the Irvine site.
Last week, Fluor agreed to sell Denver-based Fluor Oil & Gas to Primary Fuels of Houston for about $190 million. Fluor officials said $170 million in proceeds will be used to pay off debt.
In near future, Tappan said, the company will make further sales of operations, including “certain properties” in the company’s coal operations.
