Fluor Corporation

Good morning and welcome to Fluor Corporation's 2019 10K Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow management's presentation. A replay of today's conference will be available at approximately 10.30 a.m. Eastern Time today, accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available for seven days through a registration link, also accessible on Floor's website at investor.floor.com. At this time, for opening remarks, I'd like to turn the call over to Jason Landkamer, Director of Investor Relations. Please go ahead.

Thank you, and welcome to Floor's 2019 10K Conference Call. With us today are Alan Beckman, Floor's Executive Chairman, Carlos Hernandez, Floor's Chief Executive Officer, and Joe Brennan, Floor's Chief Financial Officer. Our earnings announcement was released earlier this morning. We have posted a slide presentation on our website, which we will reference while making prepared remarks. Before getting started, I'd like to refer you to our safe harbor note regarding forward-looking statements, which is summarized on slide one. During today's presentation, we will be making forward-looking statements, which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors which could potentially contribute to such differences in the company's form 10-K filed earlier today. During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the investor relations section of our website at investor.floor.com. I'll now turn the call over to Alan Beckman, Floor's Executive Chairman.

Alan? Thank you, Jason, and good morning. It's great to be able to speak with all of you again. We have a number of items to discuss today. And before we start, I'd like to take the opportunity to introduce all of you to Joe Brennan as our new Chief Financial Officer. And while Joe may be new to this role, he is not new to Fluor. With almost 30 years of experience, Joe brings to the role a deep understanding and expertise related to project finance and controls. I'd like to take this opportunity also to thank Mike Stewart for coming out of retirement to help the company chart a new path forward. His insight and knowledge of the company provided critical support to our strategic process, and he was instrumental in establishing the process to support the actions that we've been working on since earlier this year. And with that, I want to start with what has transpired since our last call in February as it relates to the board investigation. I'd ask you to turn to slide two. With management's recommendation, independent members of the board of directors established a special committee to complete a review on the accounting and financial reporting for the Radford project and a number of additional projects. The special committee, along with its independent external advisors and financial experts, have been working throughout the pandemic to complete these reviews and put us in position to file our audited financial statements. This committee determined the scope of its review and had full access to the company's personnel and documentation. This investigation included document collection and interviews across all FLUR EPC segments, both domestic and international. If I could put a finer point on the breadth of the task at hand, We reviewed projects from 2016 to 2019, and they represented a majority of the company's lump sum portfolio based on revenue. It's fair to say that the review was comprehensive and extremely thorough. Consistent with my own comments in February of 2020, the review concluded that the errors were related to the timing of charges and revenue and not the magnitude. To correct for this, the company has restated its financial results for the years 2016 through 2018 and for each of the interim quarterly periods previously issued for 2018 and 2019 to reflect the underlying performance of the Radford project. I would refer you to the 10-K for a full explanation as it relates to this project. And in addition to the restatement on Radford, we also identified several other errors that were quantitatively immaterial, but that were also corrected in the restatement. In addition to the restated amounts, we also recognized in total a reduction of cumulative pre-tax earnings that were reported through September 30th of 2019 by a total of $3.8 million. Please turn to slide three. As a result of this investigation, we determined that we had material weaknesses in our internal controls over financial reporting. In response, the company has begun to implement a remediation plan to address these weaknesses. This plan includes Personnel actions up to and including separations for personnel involved in projects associated with material weaknesses. Additional monitoring procedures to help ensure policies and procedures are consistently followed at the project level. Improve guidance on project forecasting principles, including the assessment of variable consideration at the project level. New tools and templates to standardized documentation and reporting. And lastly, improved and enhanced training on required policies and procedures, including our code of conduct and our process for elevating concerns. While it has taken longer than hoped to complete this review and to issue our audited financial statements, we are confident that the Special Committee's review was comprehensive and thorough and believe we are well down the path in restoring confidence in our financial reporting. Next, I want to shift gears and I want to talk to you about where we stand relative to the strategic review that we held and announced last September. And I'll ask you to turn to slide four. Very soon after taking our positions in May of 2019, Carlos and I initiated a strategic review. And during that review, we realized that we were facing significant project losses, and those were associated with our announcement in the second quarter. The company also experienced a credit downgrade during that time. We knew that these losses could put serious pressure on the company's liquidity. As a result, our strategic review was focused mainly on two points. cash generation, and de-risking our portfolio. And although we have had the misfortune of working through this process under the overhang of COVID-19 and the board investigation, I'm pleased to say that we have made significant progress as it relates to reducing overhead expenses, closing offices, and continuing the process of exiting our Amico business. In addition, We are focused on prospects in our end markets that comply with our revised pursuit criteria. And as we were concluding our internal and board reviews, it became apparent that we needed to accelerate the pace of change within the organization to address the reality of the world as it stands today. So several weeks ago, we challenged the management team to undertake a very significant strategic exercise that I believe will result in a revised and improved approach to our markets and our corporate structure while lowering our risk profile and driving reliable profitability. The entire team is engaged in this and is confident and cognizant of the need to change to meet today's challenges. To assist management in this, the board of directors has established an ad hoc committee to serve as a resource and a conduit for board expectations and ideas. This will serve to align both in the early part of the process. We intend to share this transformation strategy with the investment community in the fourth quarter. There are, however, two changes that we are making immediately. and will be part of our strategy going forward. Carlos will provide the specifics in a moment, but I can tell you that it affects how we address our markets in both the infrastructure and the energy and chemicals business groups. Let me close by saying that in a company as storied as ours, few circumstances are without precedent. But I think we can all agree that the events over the last 18 months truly are unprecedented. Our ability to overcome adversity and emerge stronger and smarter has defined our success as a company, and I have no doubt in our ability to do so once again. With that, Carlos will now talk about what we have encountered in our end markets and what we expect to accomplish in 2020 to deliver value for our shareholders and customers. Carlos?