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Fluor Corp (NYSE:FLR)
Q3 2019 Earnings Call
Oct 31, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Fluor Corporation's Third Quarter 2019 Earnings Call. [Operator Instructions] A replay of today's conference call 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 through 7:30 p.m. Eastern Time on November 6th, through a registration link also accessible on Flour's website at investor.fluor.com.

At this time, for opening remarks, I would like to turn the call over to Jason Landkamer, Director of Investor Relations. Please go ahead, Mr. Landkamer.

Jason Landkamer -- Director, Investor Relations

Thank you and good morning. Welcome to Fluor's third quarter 2019 conference call. With us today are Carlos Hernandez, Fluor's Chief Executive Officer and Mike Steuert, Fluor's Chief Financial Officer. Our earnings announcement was released this morning and 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 2. During today's call and slide 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-Q filed earlier today and our 10-K filed on February 21st.

Our 8-K was filed this morning, however, due to EDGAR issues, it has not posted. 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.fluor.com. Now I'll turn the call over to Carlos Hernandez, Fluor's CEO. Carlos?

Carlos M. Hernandez -- Chief Executive Officer

Thanks, Jason, and good morning. Thank you to everyone joining us today. Before we discuss our quarterly results, I want to quickly reiterate the changes we announced on September 24 as part of our strategic review and operational review. If you would please turn to slide 3. Last month we committed to a plan to sell substantially all of our government and equipment rental businesses. Starting today, we will be reporting those business lines as discontinued operations. We also created a segment called Other, where we will keep our two fixed price government contracts and new scale. We're also splitting our mining Industrial Infrastructure and Power segment into 2 stand-alone segments; mining and Industrial & Infrastructure and Power. The actions we have taken over the last few months reflect the reality of our industry. We continue to act with urgency and have undertaken these changes to strengthen Fluor and put the company on a path to deliver consistent and profitable growth.

As a result of this process, I believe we have a better understanding of our backlog, and I have confidence that our backlog can positively drive future results. Now turning to our segment updates. If you would please turn to slide 5. For the 3rd quarter, new awards for the Energy & Chemicals segment were $256 million and ending backlog was $13.7 billion.

Ending backlog reflects the removal of the [Indecipherable] chemical plant complex in Louisiana that was booked earlier this year and canceled by the client in the 3rd quarter. New awards for the quarter primarily reflect the timing of client FID decisions and are not the result of our revised pursued criteria.

We are committed to following a clear criteria to pursue the right contracts with the right terms, and we believe our new pursued criteria will help us de-risk the business and deliver higher margins. One example of a project that fits our new criteria is the Rovuma LNG project in Mozambique. Flour and our joint venture partners, JGC and technique FMC were awarded a limited notice to proceed earlier this month.

4th quarter award allows the joint venture team to progress on the project until the final investment decision is reached in early 2020. This project is aligned with our updated bidding standards, announced on last quarter, last quarter's call. We worked closely with our consortium to develop a project model that appropriately leverages each party's strengths and capabilities. We also held a number of meetings with the client over the last several months, to reach an agreement on items that were critical to de-risking our execution profile.

Like LNG Canada, We have a good relationship with strong partners that have deep experience in the LNG space. We're going to continue to work in lockstep with our partners to deliver a project that meets our requirements for safety, productivity and profitability. As we look to the 4th quarter and early 2020, our Energy & Chemicals prospects include several significant reimbursable projects around the world. These include the Formosa Sunshine Petrochemicals mega complex in Louisiana, a project in China for Invista, and an ethylene oxide plant in Europe for BASF.

Let's turn to slide 6. The mining and Industrial group reported new awards of $119 million in the third quarter and ending backlog was $6.2 billion. Mining EPC awards for 2019 continue to track our expectations from last year, as we continue to work on feed and feasibility studies for large mining EPC projects, that we expect to be awarded in 2020 and 2021.

Now turning to slide 7. The Infrastructure and power group reported new awards of $2 billion in the third quarter and ending backlog was $7.7 billion. New awards included the addition of the Texas DOT I-635 East project in Dallas, as well as the I-26 North Carolina DOT outside of Nashville. Segment profit of $1 million reflects our execution on lower margin projects that experienced forecast revisions in the second quarter.

Now looking ahead, we are pursuing additional road projects in Texas and remain confident in the strong prospects from our Fluor Heavy Civil Group.

Let's turn to slide 8. Our Diversified Services segment reported new awards of $260 million and ending backlog was $2.4 billion. This segment excludes AMECO in North America, which has been moved to discontinued operations. Restructuring of stores [Phonetic] continues to progress on schedule, and we anticipate this business will deliver improved results in 2020.

Turning to slide 9. The other segment includes our two fixed-price government projects; Radford [Phonetic] and Warren, and our investment in new scale. As highlighted in our strategic review, we have recorded $79 million in charges this quarter related to the Radford and Warren projects. These charges reflect additional cost growth relative to our initial estimates, engineering changes and unapproved change orders. The charges taken today reflect our current cost to complete estimate.

New Scale expenses for the quarter were $14 million. But I do want to point out that the Flour did not provide funding for new scale in the third quarter. We expect to receive another tranche of funding in the fourth quarter and are actively engaged with additional investors. In discontinued operations, Which includes our government and AMECO in North American businesses, we reported earnings of $40 million or $0.28 per diluted share in the quarter. The government business was successful in winning contract extensions for Savannah River in Idaho National Laboratory. Our plan to divest these businesses are progressing well and we expect those sales to be complete within one year. And now I'll turn the call over to Mike, to talk through the financial results from the quarter and outlook. Mike

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

Thank you Carlos and good morning everyone.

As you can read about our results for the quarter in our earnings release and 10-Q that we hoped to file this morning, I will focus on several key matters. Please turn to slide 10. For continuing operations, earnings attributable to Fluor for the third quarter were a net loss of 782 million. Results for the quarter include the following items; a non-cash charge of $546 million related to establishing a valuation allowance against net deferred tax assets, $290 million in non-cash impairment charges related to our fab yard in China, our investment in Stork [Phonetic] and our joint venture with [Indecipherable], 44 million in restructuring activities, and 79 million in project adjustments in the two government projects that Carlos just talked about. All of these items are consistent with what we communicated on our strategic and operational review call last month. As it relates to the adjustment of our deferred tax assets, I want to again point out, that while we removed these assets from our balance sheet for technical accounting reasons, they are still available to Flour for tax purposes.

This higher than anticipated tax rate this quarter is due to the company being impacted by this valuation allowance and certain foreign charges that could impact tax- could not be tax benefited. Corporate G&A for the third quarter was $10 million compared to 61 million a year ago. G&A expense is lower due to reduced compensation accruals and favorable foreign exchange adjustments. Last month, we announced our plan to reduce overhead by $100 million. That plan is under way and we will provide update later this year.

Shifting to the balance sheet, please turn to slide 11.

Fluor's cash plus marketable securities for the quarter were 1.85 billion, slightly below last quarter. Our available domestic cash improved from last quarter and now represents 28% of total cash and marketable securities. The asset impairments that we took this quarter are all non-cash. In addition, a portion of the restructuring charges from this quarter and going forward, also non-cash. Cash utilized by operating activities for the quarter totaled 25 million. We used approximately 70 million in cash based on the last projects [Phonetic] in the third quarter, we expect to fund roughly $250 million in the fourth quarter. Announcement, as announced on September 24, yesterday, we declared our new quarterly dividend of $0.10 per share. This dividend reduces our cash usage by 15 million per quarter, and aligns our payout with -- other similar dividend paying companies. We remain focused on rebuilding our balance sheet and are confident that our financial flexibility will be further enhanced, as we complete the sale of our government and equipment rental businesses. These sales along with the monetization of surplus real estate and other non-core investments are expected to generate in excess of $1 billion in aggregate proceeds.

Now if you'll turn to Slide 12, I'll conclude my comments by talking about our outlook for the fourth quarter. Although the company suspended guidance for 2019, we anticipate margins for the fourth quarter to be 4-5% for Energy & Chemicals, approximately 2% for mining and industrial, again approximately 2% for Industrial and Power, and 4-5% for Diversified Services. I also want to point out that Energy and Chemical margins in the third quarter positively affected by close-outs, which resulted in margins higher than we expect in the fourth quarter. We are currently reviewing operational plan for 2020, and we expect to issue 2020 guidance for the full year at the end of our call in February.

With that operator, we are ready to take questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] We'll pause for just a brief moment to allow everyone an opportunity to signal for questions. We'll now take our first question from Jamie Cook from Credit Suisse. Please go ahead, your line is open.

Jamie Cook -- Credit Suisse -- Analyst

Hi, good morning. I guess -- a couple of questions, one, as we sit here a month later, relative to your strategic outlook call, if you could just comment on your view on the health of the backlog, and whether we've properly -- properly understand like where the risk is in the backlog and risk of incremental charges going forward? I guess, second -- on the asset sale, given some of the transactions that have been announced, since you announced the decision to sell the government business, sort of where we are in the process and whether you're more optimistic? And then last, Mike, understanding you don't want to give long-term guidance, or guidance for 2020 yet, Is there any help you can give us sort of you know on cash flow? How long the problem projects burn on the cash flow, when we expect cash flow to be positive outside of asset sales, and cash from operations, I guess? Thanks.

Jason Landkamer -- Director, Investor Relations

Good morning, Jamie. I'll take the first 2 and I'll ask Mike to take the 3rd one. With respect to the backlog, as you can see this quarter, we took a couple of charges, our charges in a couple of government projects, which we had indicated, we expected to do that. With respect to the rest of the portfolio, our estimates have been holding very well and we are, I'm very optimistic that while we can't guarantee that we won't have charges in the future, we are, we've gotten their arms around the backlog in a, feeling very confident about about where we are there.

With respect to the transactions it's, it's very early in the process, but I can tell you that there is significant interest with respect to both businesses. We've got, we've engaged our investment bankers to both businesses. We've got a list of interested buyers and will be progressing that very promptly. We're probably a little bit further ahead on the bid on the rental business, but we expect to close both transactions probably no later than mid 2020 and we're very, very positive about how those are going to progress. Mike?

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

Sure, Jamie. Let me talk about the cash flow issue. First as we look at the charges that we took in the second quarter and some of our lost projects, we did experience modest outflows in the 3rd quarter. We will, we will have some outflows in the 4th quarter and through 2020. Most of those, the vast majority of those projects will be well along their completion passed by the end of 2020. So we expected address see all that, but at the same time, we are working on improving underlying operations and expect to have positive cash flow from the rest of our businesses. In addition, as you mentioned we are working on asset sales, we're also working on selling a lot of other non-core investments or other assets that will positively impact cash flow and we have, we have some claims and some other assets on the balance sheet that we hope to monetize over the next year as well. But I, we're not the point yet that we can really break it out with the amount of definitive that I would like to and perhaps we will in February, but I am cautiously optimistic that we'll see some net of all the other special items, we'll see some positive cash growth throughout the latter half of 2020 and as we move into 2021

Jamie Cook -- Credit Suisse -- Analyst

Okay, thank you.,that's helpful. I'll let someone else get in.

Operator

[Operator Instructions] We'll now take our next question from Andrew Kaplowitz from Citi. Please go ahead, your line is open.

Andrew Kaplowitz -- Citi -- Analyst

Good morning guys.

Jason Landkamer -- Director, Investor Relations

Good morning.

Andrew Kaplowitz -- Citi -- Analyst

Carlos, can you step back and talk about the bookings environment as you see it? You didn't book much in E&C in the quarter. And I think you mentioned a cancellation in your prepared remarks. During your strategic review, you suggested that, the overall backlog could be flattish in ' 19. With the understanding that you've removed government and Amico from continued operations, have your expectations for backlog changed a bit, given the cancellation or are you seeing any incremental delays on project awards?

Jason Landkamer -- Director, Investor Relations

We have seen a little bit of a delay. We had indicated earlier that the [Indecipherable] project was delayed to probably the second, first or second quarter for-in the final notice to proceed. But I think the new awards for 2020 is, we're looking at now will be fairly consistent with what we said. It's going to be fairly flat to 2019, with the exclusion of, obviously with the exclusion of the government and AMICO businesses.

But we are pursuing several big reimbursable projects in E&C, pretty optimistic about those. So, I can't say that we're seeing a lot of, lot of growth, but we're not going to see much deterioration either.

Andrew Kaplowitz -- Citi -- Analyst

Thanks for that. Carlos. And then when you look back, it seems like you have shared most of the investments that the previous management made over the last several years with the notable exception of new scale. So at this point, do you see any risk of further impairments?

And then when you step back, it seems clear that Flour needs to improve the way it invests it's cash. So how do you take that lesson and move forward? do you do fewer JVs? do you do something different than the integrated delivery model? What do you do going forward?

Carlos M. Hernandez -- Chief Executive Officer

Well, I'll let Mike answer the question as to whether we anticipate future impairments. But no you're absolutely right, in terms of our investment experience. We were going to be much more cautious in the future with respect to our investments. We pursued a strategy of getting into fabrication and, and that strategy is a valid strategy, but we haven't had the success of the yard[Phonetic] that we expected, as early as we did. We are expecting now, that the LNG modules -- will be released to that yard in early to mid 2020. So that yard, we expect will be performing better than it has in the past. With respect to to the historic investments, we probably paid more than we should have for that, but we're restructuring now and it's going to be performing at a higher level in 2020. So yeah, we've made some investments that may have been better -- made, but we're dealing with them right now. And we're not going to be making investments in the future that don't have a rigorous review in terms of its potential, or it's expected return. Mike, you want to talk about the impairments?

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

Sure. We did take a very close look at impairments, and the majority of the impairments were in regard to the fab yard in China, and we had a modest -- impairment on Stork and -- as Carlos mentioned, our outlook for both of those -- for well, for both, the fab yard and Stork is improving as we move through the remainder of this year in 2020. And we definitely think our impairments are sufficient for those, and I wouldn't expect any further impairments.

As we move forward and generate cash, I don't think you're going to see us making similar investments. Our priorities for cash are to rebuild our cash balance, strengthen our balance sheet, and then of course return cash to the shareholders as we get to a healthy balance sheet, and a healthy cash position. That's how we look at it currently Andy, and we certainly at this stage do not anticipate any further impairments.

Andrew Kaplowitz -- Citi -- Analyst

Alright, thanks guys.

Operator

We'll now take our next question from Steven Fisher from UBS. Please go ahead, your line is open.

Steven Fisher -- UBS -- Analyst

Thanks, good morning guys.

Carlos M. Hernandez -- Chief Executive Officer

Good morning.

Steven Fisher -- UBS -- Analyst

Good morning. The E&C margin in the quarter and the forecast were better than we expected, and I know you did cite some close outs, but is the Q4 rate kind of the starting point for 2020, and how should we now think about the trajectory of the margin in that segment?

Carlos M. Hernandez -- Chief Executive Officer

I think you could, at a high level, say it is a starting point for 2020. But again, we're going to be going through a very detailed review of 2020, as we close out this year, and we will feel much better about providing detailed guidance in February. But we are pleased with how the businesses are performing as we exit this year, and are going to be setting fairly high expectations for performance in next year.

Steven Fisher -- UBS -- Analyst

Okay, that's helpful. And it seems like Infrastructure and Power profit dollars will still be pretty immaterial in the fourth quarter, but you are putting some new big projects in there, like the I635. So until LNG Canada and some of the other big energy projects ramp-up, is this going to be the swing factors segment for overall profitability, do you think? And how long will it take for that segment to start showing a more normalized margin, which I assume, should be more like the mid to upper single digits?

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

it's going to take up a while for the the last projects that we took in the second quarter to burn through backlog, but as we exit 2020 moving to 2021, I think you will start seeing a much, a much more of a return to normalized margins. We're very pleased with I635 award. We have a great track record with Texas DOT and we think that's going to be a real big contributor as that moves forward. In addition, the, the other activities will again be moving out of backward backlog as we go forward throughout 2020.

Carlos M. Hernandez -- Chief Executive Officer

Yeah, let me just add something to that. We've got now almost 20 projects in the Infrastructure business, which is a very healthy number of projects, and some of those have been around for a while, and those are the ones that are not delivering the margin right now. But as we work our way through those, I think we should expect improved margins, as Mike indicated.

Steven Fisher -- UBS -- Analyst

Great. And then just lastly, Mike, I mean, I wanted to follow up on the cash flow question that Jamie asked, if you can't quantify it, are you thinking that the net burn through the first half of 2020 will be a bit less than you were thinking a few months ago?

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

On a net basis, yes. So, I've been pleasantly surprised over the last couple of months of the cash-generating capability of our ongoing businesses, if you take, take away these lost projects. And we certainly have been as an organization, throughout, focused on cash flow generation. I just, I just see us generating a fair amount of cash from that, as well as from collecting cash from other, other non-core assets and investments that were really scrubbing our balance sheet.

Steven Fisher -- UBS -- Analyst

Terrific, thanks a lot.

Operator

We'll now take our next question from Jerry Revich from Goldman Sachs. Please go ahead, your line is open.

Jerry Revich -- Goldman Sachs -- Analyst

Yes, hi, good morning everyone.

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

Hi, Jerry.

Jerry Revich -- Goldman Sachs -- Analyst

I'm wondering if you could just expand on [Indecipherable] LNG. So, congratulations on the contractor selection. Where we've had issues with projects in the past, it's been either a function of timing overruns, issues getting change orders approved, or engineering design issues. And so as it relates to those 3

Pockets of risk if you will. Can you just talk about how you folks have been able to mitigate those issues within the bid for Rovuma LNG?

Carlos M. Hernandez -- Chief Executive Officer

well, first of all, we've mentioned in the past, changes we've made in our cell activity or pursue criteria. And clearly the Rovuma project met all of that criteria. We have 2 very strong partners in that project; JGC and Technique, both of them have a significant experience in the LNG arena. We have engaged in discussions with our customer for a number of months now, in de-risking the project. We've had high level conversations with that customer with respect to what's happening in the industry in general, as far as the allocation of risk having been disproportionately shifted to the contractor.

And so it's been a very, very cooperative process. There are certain risks in the projects that we have not taken. I can't go into detail in those, but there is some risk that's being, that's remaining with the, with the owner. In terms of schedule, in terms of productivity, this is a stick-built project and we're going to, we feel very confident that that we have addressed all the risk issues here. So, I mean it's going to be a matter of showing you but I, I am extremely positive about this project, and we are, and so our partners. So, I'm looking forward to it.

Jerry Revich -- Goldman Sachs -- Analyst

And obviously, we know you're back on Carlos, in terms of focusing on terms and conditions, we're just trying to build our comfort level around timing in particular. So when we've seen the cost overruns in terms of productivity and labor hours, It's been in part due to a function of tight project timing. So, can you just talk about that particular aspect of the contract structure, if you don't mind?

Carlos M. Hernandez -- Chief Executive Officer

Sure. Not at all. No, the, the, obviously, one of the key, one of the key issues in these projects that, or any project that we have struggled with in the past has been where we've had inadequate schedule. And that is part of our criteria now, that we're not going to agree to a schedule that's, that's overly aggressive. In fact that has actually caused a project for us to be canceled by the owner, because we wouldn't agree on what the owner wanted for the

Jason Landkamer -- Director, Investor Relations

[Indecipherable]F. In Rovuma, the way we have structured that contract is that the risk lies with the party that's best, best able to manage the risk. For example, the client is responsible for all in-country risks. We are not going to, we're not responsible for security, but of course we are responsible for our people's security, and we're not going to be mobilizing onto the site until security's in place, and it is at an acceptable level. There is a robust force majeure definition, and including all places where the work is being performed, not just in country. And we have procured subcontractors, Tier 1 subcontractors with a proven track record, and have appropriately allocated risk to them. And, as I mentioned earlier, the project is, really meets our pursuit criteria.

Jerry Revich -- Goldman Sachs -- Analyst

Okay. I appreciate the color. And then in terms of on the infrastructure project opportunities, we've seen a couple of companies stepping away from the larger projects because of inadequate risk terms on multi-year infrastructure projects. Can you just talk about your assessment of the market environment, and what your opportunity set looks like. Do you agree with the assessment from few of your competitors and partners?

Jason Landkamer -- Director, Investor Relations

Yeah, one of the, one of the differences between some of the competitors that have exited the mega infrastructure P3 of their large infrastructure projects is, we do have the capacity in the balance sheet to take on those projects, but we're not going to take on projects, for example, where we don't have the right team to execute. We have, we just recently walked away from an opportunity because we didn't have the right team. I think that there will be plenty of opportunities in infrastructure, especially as we complete the existing projects. And the geographies where we have said we're going to execute infrastructure projects, we're going to be able to get work. For example, in our Heavy Civil business, which is a business that's construction only for smaller projects in the $100 to $200 million range, typically we have, we have a couple of opportunities where we're going to be doing those on a unit rate basis, taking out our point of view risk. So, I think we are well positioned in infrastructure, but we're not going to get ahead of our skis and take more work than we can execute effectively.

Jerry Revich -- Goldman Sachs -- Analyst

Okay, thank you.

Operator

We'll now take our next question from Michael Dudas from Vertical Research. Please go ahead, your line is open.

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

Good morning, gentlemen. Carlos, when you're looking at the projects that you're waiting FID on And from the risk standpoint that you renegotiate or rethinking about it for, how do those, those contracts that are waiting for award, how does that fit in relative to what was done, because those were looked on quite a bit in the past. And then what are you telling your sales folks or your operating folks, relative to the new level of projects that you're bidding in the next, now for the next 6 to 9 months? How much differently are those changing? Is that like, making you look at different parts of the energy market, different parts of the mining market relative, given the risk mitigation you're trying to portray through the organization? Thank you.,

Carlos M. Hernandez -- Chief Executive Officer

Yeah. With respect to the projects that we're waiting for FID on, such as Rovuma, that project, as well as actually, the LNG project did meet the existing or the new criteria in terms of contract negotiations. Obviously those projects being as significant as they are, they received a tremendous amount of scrutiny, and we addressed all the issues. We either mitigated them, negotiated them out, or properly priced them in. What we're telling our salespeople is, what I'm telling our salespeople is, look, we're going to pursue excellence in execution, and that starts at the bid, no-bid stage.

We're not going to bid a project that we don't think we can execute effectively. And we're not going to take terms, and conditions that unduly put risk on us, and we're not going to agree to schedules that we can't--we can't meet. And this, this change in approach, to a more risk balanced approach has taken very well within the organization.

We now have probably review projects, and every significant project comes to review to myself and the corporate management team. We have a list of the criteria, and every project proposal or every package checks off whether the criteria is met or not, and that's now standard operating procedure in the view of projects. So the message has been delivered and well received and I think it's going to serve as well.

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

I appreciate that Carlos. Just a quick follow-up. In infrastructure and power, that segment you have now, what's the power part of that business?

Carlos M. Hernandez -- Chief Executive Officer

Good question Jerry. That's basically what I'd be

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

That'd be Mike, by the way.

Carlos M. Hernandez -- Chief Executive Officer

I'm sorry Mike.

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

Thank you.

Carlos M. Hernandez -- Chief Executive Officer

That's basically running off the the power projects. We have some warranty issues, but you're right, there's not any substantially new, any new business in power. We do have a power services business. but that resides in the Diversified Services segment.

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

Understood.

and [Indecipherable], back to your comment on the new process, is that reducing the Project funnel that you anticipate to be looking at over the next several months as well?

Carlos M. Hernandez -- Chief Executive Officer

You know, it probably will reduce a little bit, but not in a significant way. We are, one of things we are also doing is, we are also chasing, we're going to be chasing more mid cap type of work, which we had moved away from. We had gone almost, not exclusively, but largely after mega projects, and some of that mid cap work will be reimbursable. So, I think overall it's not going to have a huge impact on our backlog.

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

Thank you, Carlos. Thanks, Mike.

Operator

We'll now take our next question from Sean Eastman from KeyBanc Capital Markets. Please go ahead, your line is open.

Sangita Jain -- KeyBanc Capital Markets -- Analyst

Hi, this is Sangeetha for Sean. Thanks for taking our questions. I just wanted to ask on the favorable resolution that you talked about in the mining segment, if you could quantify that for us, maybe?

Jason Landkamer -- Director, Investor Relations

Yeah, that was a long-standing dispute that we had with a client, and it had been in arbitration for several years. That was actually the result of what we had, a pretty favorable or balanced terms and conditions and that is in, I think the $25 million to $30 million range.

Sangita Jain -- KeyBanc Capital Markets -- Analyst

Okay, that's very helpful, thanks. And as we think about your long-term free cash potential, 2020 and beyond, how should we think about your capex for your continuing operations?

Jason Landkamer -- Director, Investor Relations

We're going to have a very modest capex going forward for continuing operations at, absent the Amico Equipment Rental business. Most of our capex is really going to be to support our IT infrastructure and our office buildings, and we just see modest requirements there going forward in terms of investment. So it is not going to be a material part of our cash flow equation.

Sangita Jain -- KeyBanc Capital Markets -- Analyst

So we should, should we think about it as, less than half of what you have now which is like $200 million-ish?

Jason Landkamer -- Director, Investor Relations

It's, much less than half.

Sangita Jain -- KeyBanc Capital Markets -- Analyst

Okay, great thank you. And my last question on the government business that you have up for sale, I understand that process is ongoing, and you can't share much but can you let us, share with us, how you think, whether it's going to be one large transaction or are you seeing multiple buyers and it could be broken up into pieces?

Jason Landkamer -- Director, Investor Relations

That, to some extent, it depends on the nature and value of the offers, but I suspect it's more likely they are not going to be one transaction.

Sangita Jain -- KeyBanc Capital Markets -- Analyst

Okay, great, thanks so much. That's all from me.

Jason Landkamer -- Director, Investor Relations

Let me correct something I said. I think I told you 25 to 30 for that resolution. Actually I think it is more than $20 million range. I was thinking of something else.

Sangita Jain -- KeyBanc Capital Markets -- Analyst

Okay. That's great. Thank you.

Operator

We'll now take our next question from Michael Feniger from Bank of America. Please go ahead, your line is open.

Michael Feniger -- Bank of America -- Analyst

Hey, guys. Yeah, thanks for fitting me in. Just on the mining side, you guys highlighted how you're encouraged about 2020-2021. I'm just curious if you could talk about the strikes going on in Latin America, it's been a lot in the press. Are you hearing anything of how that could impact the pipeline, how customer conversations are progressing, given that backdrop?

Carlos M. Hernandez -- Chief Executive Officer

Yeah, Mike, at this point that's not really impacting, we're basically doing FEEDs and feasibility studies are -- we have some projects ongoing as well, but, but at this point, it's not impacting our visibility into the future in an adverse way.

Michael Feniger -- Bank of America -- Analyst

Fair enough. And following the strategic review, I'm just curious if you guys had any time to reflect on how this business without government services, how we should be thinking about free cash flow conversion going forward,the balance sheet structure going forward, and with the proceeds you're going to be getting, I mean, why wouldn't we see any notable buyback? So, like maybe offset the dilution there. I'm just curious how you guys are thinking about that, following the strategic review?

Carlos M. Hernandez -- Chief Executive Officer

That's a great question. We do see the cash flow generation capability of the business going forward remaining fairly solid even with the sale of government and American equipment. American equipment was not a significant cash flow generation capability, the way it was managed and the way we invested in new equipment. Government was a solid cash flow generator, but our remaining businesses are as well. So we don't see a significant change in profile. As we look at the proceeds that we are going to receive from these sales and our $1 billion was a conservative estimate for all optimistic, we can do better than that. And in addition, we're optimistic with what we can do for creating some of other assets. Clearly, as we improve our cash position, as we reduce our debt to what we think is an appropriate level to remain solid investment grade, our next priority is returning cash to shareholders and If we get to the point that we're comfortable with our balance sheet comfortable with our cash position and we see some excess proceeds, we will definitely consider share repurchase

Operator

[Operator Instructions] we'll now move on to our next question from Chad Dillard from Deutsche Bank. Please go ahead, your line is open.

Kevin -- Deustche Bnak -- Analyst

Hi, this is Kevin. On behalf of chad. I just had a quick question on the bidding environment for oil and gas. Has the lower risk model that the company has adopted change the conversation with customers? And if so, how is the project funnel changed?

David T. Seaton -- Chief Executive Officer

you know we've been having, Kevin, since since May 1, we've been having conversations with our major oil and gas customers, precisely about this issue of the bidding environment. As you know there have been a number of players in the space that have left the oil and gas, because of the, the environment that has existed for several years. Our customers understand it, they get it. They are now telling us, look we need we need Flour to be a successful company, we got to understand, we got to work together to the US projects and you, what we've already seen some of that, in some of the projects that we've talked about.

So I, we're not, lump sum is not going to go away, but a balanced lump sum is going to be the model for the future, it has to be. We are, one of the things we're doing now on a lot of projects is, we're starting out as a reimbursable cost during the design phase. And once we have the design substantially complete, and the vendor data substantially procured, then we're in a very good position to, to lump sum the balance of the project. And that's something that we've found some, a lot of this activity from the clients on. So, there will be projects we will walk away from, for sure, but as I said earlier, I think that overall, we are in a very positive position in our, in our industry because of our ability to execute the large projects, our relationship with our clients, and the fact that others are not capable of managing risk, I think as we will be able to do so.

Kevin -- Deustche Bnak -- Analyst

Got it, thanks. That was helpful. I'll pass it along.

Operator

[Operator Instructions]

And our next question comes from Justin Hawk from Robert W Baird. Please go ahead, your line is open.

Justin Hawk -- Robert W Baird -- Analyst

Hi, good morning everyone. I've got another 2020 question, but hopefully this one's a little bit more quantifiable. Just on the corporate G&A expense. What's That was pretty stable for several years running 45-50 million a quarter, with the restructuring and you know, assuming that more normalized comp next year. What level of G&A, do you think is kind of the run rate for the business with the divestitures?

Carlos M. Hernandez -- Chief Executive Officer

It will start out in the 45 to 50 million range and our expectation is, as we implement these cost reduction programs that we announced, as well as some other adjustments that are in line with the divestitures, that it will gradually decrease throughout the year. All the cost reductions will take effect [Indecipherable], but our initial pass through that process has identified a lot of opportunities. They're not all going to reside at the corporate level, a lot of them are going to reside in the business units. But we do expect a gradual reduction of corporate G&A throughout 2020.

Justin Hawk -- Robert W Baird -- Analyst

Okay, great that's helpful and then just, what was the size of the [indecipherable]? Maybe we have that, but I didn't think you quantified it.

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

Yeah, that was about $500 million.

Justin Hawk -- Robert W Baird -- Analyst

Right. Okay, thank you very much.

Operator

Ladies and gentlemen, this concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Mr Hernandez for any additional or closing remarks.

Carlos M. Hernandez -- Chief Executive Officer

Thank you, operator. With our strategic and operational review now complete, and our restructuring under way. Flour is now focused on returning to excellence in our operations, and consistent profitability. Our employees remain our greatest asset and I thank them for their ongoing hard work and dedication for Fluor. We're committed to working together as a team to execute our strategic priorities and position Flour for continued success, and I'm confident we have the right people, the right structure, and the right global footprint to leverage our talent and capabilities to generate shareholder value. Thanks to all of you for participating on our call today, and we greatly appreciate your support at Fluor. Thank you.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Jason Landkamer -- Director, Investor Relations

Carlos M. Hernandez -- Chief Executive Officer

D. Michael Steuert -- Executive Vice President, Chief Financial Officer

David T. Seaton -- Chief Executive Officer

Jamie Cook -- Credit Suisse -- Analyst

Andrew Kaplowitz -- Citi -- Analyst

Steven Fisher -- UBS -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Michael Stephan Dudas -- Vertical Research Partners, LLC-Partner -- Analyst

Sangita Jain -- KeyBanc Capital Markets -- Analyst

Michael Feniger -- Bank of America -- Analyst

Kevin -- Deustche Bnak -- Analyst

Justin Hawk -- Robert W Baird -- Analyst

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