FLR 10-Q
Fluor Corp (FLR)
10-Q
2022-11-04
For: 2022-09-30
View Original
Added on
April 08, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2022
Or
For the transition period from to
Commission File Number: 1-16129
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | ||||||||||
| incorporation or organization) | Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of October 31, 2022, 142,088,313 shares of the registrant’s common stock, $0.01 par value, were outstanding.
FLUOR CORPORATION
FORM 10-Q
| TABLE OF CONTENTS | PAGE | ||||||||||
1
Glossary of Terms
The definitions and abbreviations set forth below apply to the indicated terms used throughout this filing.
| Abbreviation/Term | Definition | ||||
| 2021 10-K | Annual Report on Form 10-K for the year ended December 31, 2021 | ||||
| 2021 Period | Nine months ended September 30, 2021 | ||||
| 2021 Quarter | Three months ended September 30, 2021 | ||||
| 2022 Period | Nine months ended September 30, 2022 | ||||
| 2022 Quarter | Three months ended September 30, 2022 | ||||
| 3ME | Three months ended | ||||
| 9ME | Nine months ended | ||||
| AMECO | American Equipment Company, Inc. | ||||
| AOCI | Accumulated other comprehensive income (loss) | ||||
| APIC | Additional paid-in capital | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| CFIUS | Committee on Foreign Investment in the United States | ||||
| Cont Ops | Continuing operations | ||||
| COOEC | China's Offshore Oil Engineering Co., Ltd | ||||
| COVID | Coronavirus pandemic | ||||
| CPS | Convertible preferred stock | ||||
| CTA | Currency translation adjustment | ||||
| DB plan | Defined benefit pension plan | ||||
| Disc Ops | Discontinued operations | ||||
| DOE | U.S. Department of Energy | ||||
| EPC | Engineering, procurement and construction | ||||
| EPS | Earnings (loss) per share | ||||
| Exchange Act | Securities Exchange Act of 1934 | ||||
| Fluor | Fluor Corporation | ||||
| G&A | General and administrative expense | ||||
| GAAP | Accounting principles generally accepted in the United States | ||||
| ICFR | Internal control over financial reporting | ||||
| LNG | Liquefied natural gas | ||||
| LOGCAP | Logistics Civil Augmentation Program | ||||
| NCI | Noncontrolling interests | ||||
| NM | Not meaningful | ||||
| NuScale | NuScale Power Corporation | ||||
| OCI | Other comprehensive income (loss) | ||||
| PIPE | Private investment in public equity | ||||
| PP&E | Property, plant and equipment | ||||
| RSU | Restricted stock units | ||||
| RUPO | Remaining unsatisfied performance obligations | ||||
| SEC | Securities and Exchange Commission | ||||
| SGI | Stock growth incentive awards | ||||
| SMR | Small modular reactor | ||||
| SPAC | Special purpose acquisition company | ||||
| Spring Valley | Spring Valley Acquisition Corporation | ||||
| Stork | Stork Holding B.V. and subsidiaries | ||||
| VIE | Variable interest entity | ||||
2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | ( | ( | ( | ( | |||||||||||||||||||
| Gross profit | ( | ||||||||||||||||||||||
| G&A | ( | ( | ( | ( | |||||||||||||||||||
| Impairment | ( | ( | |||||||||||||||||||||
| Foreign currency gain (loss) | ( | ||||||||||||||||||||||
| Operating profit (loss) | ( | ( | |||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Earnings (loss) from Cont Ops before taxes | ( | ||||||||||||||||||||||
| Income tax (expense) benefit | ( | ( | ( | ( | |||||||||||||||||||
| Net earnings (loss) from Cont Ops | ( | ( | |||||||||||||||||||||
Less: Net earnings (loss) from Cont Ops attributable to NCI | ( | ( | ( | ||||||||||||||||||||
| Net earnings (loss) from Cont Ops attributable to Fluor | ( | ||||||||||||||||||||||
| Net earnings (loss) from Disc Ops attributable to Fluor | ( | ( | |||||||||||||||||||||
| Net earnings (loss) attributable to Fluor | $ | $ | $ | $ | ( | ||||||||||||||||||
| Less: Dividends on CPS | |||||||||||||||||||||||
| Net earnings (loss) available to Fluor common stockholders | $ | $ | $ | $ | ( | ||||||||||||||||||
| Basic EPS available to Fluor common stockholders | |||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | $ | $ | $ | $ | ( | ||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | |||||||||||||||||||||
| Diluted EPS available to Fluor common stockholders | |||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | $ | $ | $ | $ | ( | ||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | |||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
3
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | ||||||||||||||||||||||||
| Net earnings (loss) | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
| OCI, net of tax: | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ( | ||||||||||||||||||||||
| Ownership share of equity method investees’ OCI | ( | ( | ||||||||||||||||||||||||
| DB plan adjustments | ||||||||||||||||||||||||||
| Unrealized gain (loss) on hedges | ( | ( | ( | ( | ||||||||||||||||||||||
| Total OCI, net of tax | ( | ( | ( | ( | ||||||||||||||||||||||
| Comprehensive income (loss) | ( | ( | ||||||||||||||||||||||||
| Less: Comprehensive income (loss) attributable to NCI | ( | ( | ||||||||||||||||||||||||
| Comprehensive income (loss) attributable to Fluor | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
| (in millions, except share and per share amounts) | September 30, 2022 | December 31, 2021 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
Cash and cash equivalents ($ | $ | $ | ||||||||||||
Marketable securities ($ | ||||||||||||||
Accounts receivable, net ($ | ||||||||||||||
Contract assets ($ | ||||||||||||||
Other current assets ($ | ||||||||||||||
| Total current assets | ||||||||||||||
| Noncurrent assets | ||||||||||||||
Property, plant and equipment, net ($ | ||||||||||||||
| Investments | ||||||||||||||
| Deferred taxes | ||||||||||||||
| Deferred compensation trusts | ||||||||||||||
| Goodwill | ||||||||||||||
Other assets ($ | ||||||||||||||
| Total noncurrent assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
Accounts payable ($ | $ | $ | ||||||||||||
| Short-term debt and current portion of long-term debt | ||||||||||||||
Contract liabilities ($ | ||||||||||||||
Accrued salaries, wages and benefits ($ | ||||||||||||||
Other accrued liabilities ($ | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Deferred taxes | ||||||||||||||
Other noncurrent liabilities ($ | ||||||||||||||
| Contingencies and commitments | ||||||||||||||
| Temporary APIC | ||||||||||||||
| Equity | ||||||||||||||
| Shareholders’ equity | ||||||||||||||
Preferred stock — authorized | ||||||||||||||
Common stock — authorized | ||||||||||||||
| APIC | ||||||||||||||
| AOCI | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total shareholders’ equity | ||||||||||||||
| NCI | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these financial statements.
5
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
| 9ME September 30, | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| OPERATING CASH FLOW | ||||||||||||||
| Net earnings (loss) | $ | $ | ( | |||||||||||
| Adjustments to reconcile net earnings (loss) to operating cash flow: | ||||||||||||||
| Impairment | ( | |||||||||||||
| Depreciation and amortization | ||||||||||||||
| Change in fair value of warrant liabilities | ( | |||||||||||||
| (Earnings) loss from equity method investments, net of distributions | ( | ( | ||||||||||||
| (Gain) loss on sales of assets incl. AMECO-North America | ( | |||||||||||||
| Loss on debt repurchases | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Deferred taxes | ( | |||||||||||||
| Net contributions to employee pension plans | ( | |||||||||||||
| Changes in assets and liabilities | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Operating cash flow | ( | ( | ||||||||||||
| INVESTING CASH FLOW | ||||||||||||||
| Purchases of marketable securities | ( | ( | ||||||||||||
| Proceeds from the sales and maturities of marketable securities | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Proceeds from sales of assets | ||||||||||||||
| Investments in partnerships and joint ventures | ( | ( | ||||||||||||
| Other | ( | |||||||||||||
| Investing cash flow | ( | ( | ||||||||||||
| FINANCING CASH FLOW | ||||||||||||||
| Proceeds from NuScale de-SPAC transaction | ||||||||||||||
| Proceeds from sale of NuScale interest | ||||||||||||||
| Proceeds from issuance of CPS | ||||||||||||||
| Purchase and retirement of debt | ( | ( | ||||||||||||
| Dividends paid on CPS | ( | ( | ||||||||||||
| Other borrowings (debt repayments) | ( | |||||||||||||
| Distributions paid to NCI | ( | ( | ||||||||||||
| Capital contributions by NCI | ||||||||||||||
| Other | ( | ( | ||||||||||||
| Financing cash flow | ||||||||||||||
| Effect of exchange rate changes on cash | ( | ( | ||||||||||||
| Increase (decrease) in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| SUPPLEMENTAL INFORMATION: | ||||||||||||||
| Cash paid for interest | $ | $ | ||||||||||||
| Cash paid for income taxes (net of refunds) | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
6
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
UNAUDITED
| (in millions, except per share amounts) | Preferred Stock | Common Stock | APIC | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||
| OCI | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||
Dividends on CPS ($ | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Distributions to NCI, net of capital contributions | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
| NuScale reverse recapitalization | — | — | — | — | — | |||||||||||||||||||||||||||
| Other NCI transactions | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
| Stock-based plan activity | — | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||
| (in millions, except per share amounts) | Preferred Stock | Common Stock | APIC | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | ( | |||||||||||||||||||||||||
| OCI | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||
Dividends on CPS ($ | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Distributions to NCI, net of capital contributions | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
| NuScale reverse recapitalization | — | — | — | — | — | |||||||||||||||||||||||||||
| Other NCI transactions | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Stock-based plan activity | — | — | — | — | — | — | ||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
7
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)
UNAUDITED
| (in millions, except per share amounts) | Preferred Stock | Common Stock | APIC | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | ( | |||||||||||||||||||||||||
| OCI | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||
Dividends on CPS ($ | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Capital contributions by NCI, net of distributions | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other NCI transactions | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||
| Stock-based plan activity | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| (in millions, except per share amounts) | Preferred Stock | Common Stock | APIC | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2020 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||
| OCI | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||
| Issuance of CPS | — | — | — | — | — | — | ||||||||||||||||||||||||||
Dividends on CPS ($ | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Capital contributions by NCI, net of distributions | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other NCI transactions | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||
| Stock-based plan activity | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
8
1. Principles of Consolidation
These financial statements do not include footnotes and certain financial information presented annually under GAAP, and therefore, should be read in conjunction with our 2021 10-K. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. Although such estimates are based on management’s most recent assessment of the underlying facts and circumstances utilizing the most current information available, our reported results of operations may not necessarily be indicative of results that we expect for the full year.
The financial statements included herein are unaudited. We believe they contain all adjustments of a normal recurring nature which are necessary to present fairly our financial position and our operating results as of and for the periods presented. All significant intercompany transactions of consolidated subsidiaries are eliminated. Certain amounts in tables may not total or agree back to the financial statements due to immaterial rounding differences. Management has evaluated all material events occurring subsequent to September 30, 2022 through the filing date of this Q3 2022 10-Q.
Quarters are typically 13 weeks in length but, due to our December 31 year-end, the number of weeks in a reporting period may vary slightly during the year and for comparable prior year periods. We report our quarterly results of operations based on periods ending on the Sunday nearest March 31, June 30 and September 30, allowing for 13-week interim reporting periods. For clarity of presentation, all periods are labeled as if the periods ended on March 31, June 30 and September 30.
In the first quarter of 2022, we determined that our Stork business and the remaining unsold AMECO equipment business no longer met all of the requirements to be classified as Disc Ops, primarily as a result of uncertainties related to the timing of this sale. Therefore, both Stork and the remaining AMECO business are reported as Cont Ops for all periods presented and included in our Other segment. Further, we remeasured the carrying value of these businesses under the held and used criteria and reversed $63 million of previously recorded impairment expense during the first quarter of 2022.
2. NuScale Reverse Recapitalization
3. Recent Accounting Pronouncements
9
4. Earnings Per Share
Potentially dilutive securities include CPS, stock options, RSUs and performance-based award units. Diluted EPS reflects the assumed exercise or conversion of all dilutive securities using the if-converted and treasury stock methods. In computing diluted EPS, only securities that are actually dilutive are included.
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net earnings (loss) from Cont Ops attributable to Fluor | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Less: Dividends on CPS | ||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops available to Fluor common stockholders | ( | |||||||||||||||||||||||||
| Net earnings (loss) from Disc Ops attributable to Fluor | ( | ( | ||||||||||||||||||||||||
| Net earnings (loss) available to Fluor common stockholders | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||||||||
| Diluted effect: | ||||||||||||||||||||||||||
| CPS | ||||||||||||||||||||||||||
| Stock options, RSUs and performance-based award units | ||||||||||||||||||||||||||
| Weighted average diluted shares outstanding | ||||||||||||||||||||||||||
| Basic EPS available to Fluor common stockholders: | ||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | ||||||||||||||||||||||||
| Diluted EPS available to Fluor common stockholders: | ||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | ||||||||||||||||||||||||
| Anti-dilutive securities not included in shares outstanding: | ||||||||||||||||||||||||||
| CPS | ||||||||||||||||||||||||||
| Stock options, RSU and performance-based award units | ||||||||||||||||||||||||||
10
5. Operating Information by Segment and Geographic Area
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| Energy Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Urban Solutions | ||||||||||||||||||||||||||
| Mission Solutions | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Segment profit (loss) | ||||||||||||||||||||||||||
| Energy Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Urban Solutions | ( | ( | ( | |||||||||||||||||||||||
| Mission Solutions | ||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | ||||||||||||||||||||||
| Total segment profit (loss) | $ | $ | $ | $ | ||||||||||||||||||||||
| G&A | ( | ( | ( | ( | ||||||||||||||||||||||
| Impairment | ( | ( | ||||||||||||||||||||||||
| Foreign currency gain (loss) | ( | |||||||||||||||||||||||||
| Interest income (expense), net | ( | ( | ||||||||||||||||||||||||
| Earnings (loss) from Cont Ops attributable to NCI | ( | ( | ( | |||||||||||||||||||||||
| Earnings (loss) from Cont Ops before taxes | $ | $ | $ | $ | ( | |||||||||||||||||||||
Energy Solutions. Segment profit in the 2022 Quarter and 2022 Period included losses of $5 million and $1 million, respectively, related to an embedded foreign currency derivative. Segment profit in the 2021 Quarter and 2021 Period included a gain of $18 million and a loss of $30 million, respectively, related to the embedded derivative.
Urban Solutions. Segment profit for the 2022 Quarter included a $64 million (or $0.37 per share) charge for additional rework and schedule delays on a highway project, a $22 0.09 per share) charge for cost growth and delay mitigation costs on an international bridge project and a $21 million (or $0.12 per share) charge for subcontractor cost escalation and productivity estimates on an automated people mover project. Segment profit for the 2021 Quarter included forecast revisions for schedule delays and productivity on a light rail project. Segment profit for the 2022 Period included a $86 million (or $0.50 per share) charge for additional rework and schedule delays on a highway project, a $54 million (or $0.23 35 million (or $0.20 per share) charge for subcontractor cost escalation and productivity estimates on an automated people mover project. Segment profit for the 2021 Period included a project charge of $138 million (or $0.72 per share) related to procurement and subcontractor cost growth, delays and disruptions in the schedule of the international bridge project. We continue to analyze the recoverability of these costs as claims, which could be material.
Other. Segment profit (loss) for NuScale, Stork and AMECO follows:
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| NuScale | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Stork | |||||||||||||||||||||||
| AMECO | ( | ||||||||||||||||||||||
| Segment profit (loss) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
11
In April 2022, we sold approximately 5 % of the ownership of NuScale to Japan NuScale Innovation, LLC for $107 million, subject to CFIUS review. The sale did not trigger any recognition of gain or loss because we control and consolidate NuScale before and after the sale. We have recorded $107 million as temporary APIC on our balance sheet as of September 30, 2022, which would become permanent APIC upon CFIUS approval. If CFIUS does not approve the sale, then these amounts will be repaid to the buyer. We expect CFIUS review to be completed in the fourth quarter of 2022 or early 2023.
Total assets by segment are as follows:
| (in millions) | September 30, 2022 | December 31, 2021 | ||||||||||||
| Energy Solutions | $ | $ | ||||||||||||
| Urban Solutions | ||||||||||||||
| Mission Solutions | ||||||||||||||
| Other | ||||||||||||||
| Corporate | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
Revenue by project location follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||||||||||||
| Asia Pacific (includes Australia) | ||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||
| Central and South America | ||||||||||||||||||||||||||
| Middle East and Africa | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
6. Impairment
We did not recognize any material impairment expense in Cont Ops during the 2022 Quarter. Impairment, included in Cont Ops, is summarized as follows:
| 3ME September 30, | 9ME September 30, | ||||||||||||||||
| (in millions) | 2021 | 2022 | 2021 | ||||||||||||||
| Impairment: | |||||||||||||||||
| Energy Solutions' equity method investment | $ | $ | $ | ||||||||||||||
| Goodwill | |||||||||||||||||
| Fair value adjustment of Stork and AMECO assets | ( | ||||||||||||||||
| Total impairment | $ | $ | ( | $ | |||||||||||||
During the 2022 Period, we reversed $63 million in impairment recognized in 2021 when our Stork and AMECO businesses were classified as held for sale due primarily to remeasurement under held and used impairment criteria, for which CTA balances are excluded from carrying value.
7. Income Taxes
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| 3ME September 30 | 9ME September 30 | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| U.S statutory federal income tax expense (benefit) | $ | $ | $ | $ | ( | ||||||||||||||||||
| Increase (decrease) in taxes resulting from: | |||||||||||||||||||||||
| State and local income taxes | ( | ( | |||||||||||||||||||||
| Valuation allowance, net | |||||||||||||||||||||||
| Foreign tax impact | ( | ||||||||||||||||||||||
| Noncontrolling interest | ( | ||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Total income tax expense (benefit) | $ | $ | $ | $ | |||||||||||||||||||
8. Partnerships and Joint Ventures
Investments in a loss position of $288 million and $240 million were included in other accrued liabilities as of September 30, 2022 and December 31, 2021, respectively, and consisted primarily of provision for anticipated losses on a legacy infrastructure project. Accounts receivable related to work performed for unconsolidated partnerships and joint ventures included in “Accounts receivable, net” was $196 million and $205 million as of September 30, 2022 and December 31, 2021, respectively.
During the 2022 Period, we sold the majority of our interest in an infrastructure joint venture in Canada and recognized a gain of $11 million. During the 2021 Period, we sold our interest in an infrastructure joint venture in the U.S. and recognized a gain of $20 million. These gains were included in Urban Solutions' segment profit.
Variable Interest Entities
The aggregate carrying value of unconsolidated VIEs (classified under both "Investments” and “Other accrued liabilities”) was a net asset of $13 million and $33 million as of September 30, 2022 and December 31, 2021, respectively. Some of our VIEs have debt; however, such debt is typically non-recourse in nature. Our maximum exposure to loss as a result of our investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding necessary to satisfy the contractual obligations of the VIE. Future funding commitments as of September 30, 2022 for the unconsolidated VIEs were $57 million.
We are required to consolidate certain VIEs. Assets and liabilities associated with the operations of our consolidated VIEs are presented on our balance sheet. The assets of a VIE are restricted for use only for the particular VIE and are not available for our general operations. We have agreements with certain VIEs to provide financial or performance assurances to clients, as discussed elsewhere.
9. Guarantees
13
10. Contingencies and Commitments
We and certain of our subsidiaries are subject to litigation, claims and other commitments and contingencies arising in the ordinary course of business. The asserted value of these matters may be significant and we are unable to predict the ultimate outcome of any such matter. However, except as set forth below, we currently do not expect that the ultimate resolution of any open matters will have a material adverse effect on our financial position or results of operations.
The following disclosures for commitments and contingencies have been updated since the matter was presented in the 2021 10-K.
Since May 2018, purported shareholders have filed various complaints against Fluor and certain of its current and former executives in the U.S. District Court for the Northern District of Texas. The plaintiffs purport to represent a class of shareholders who purchased or otherwise acquired Fluor common stock from August 14, 2013 through February 14, 2020, and seek to recover damages arising from alleged violations of federal securities laws. These claims are based on statements concerning Fluor’s internal and disclosure controls, risk management, revenue recognition, and Fluor’s gas-fired power contracts, which plaintiffs assert were materially misleading. In May 2020, these complaints were consolidated into one matter. We filed a motion to dismiss the matter in July 2020. The motion was granted in part on May 5, 2021, and as a result the Court dismissed with prejudice all allegations except those related to a single statement made in 2015 about one gas-fired power contract. During 2021, we recorded a liability for the estimated resolution of the matter and we also recognized the effects of expected insurance coverage. In the first quarter 2022, we reached a proposed settlement with the plaintiffs. The proposed settlement has been preliminarily approved by the Court but is subject to and pending final approval, with a hearing currently scheduled for November 2022. No additional liability or insurance recovery has been recognized in 2022.
Since September 2018, eleven separate purported shareholders' derivative actions were filed against current and former members of the Board of Directors, as well as certain of Fluor’s current and former executives. Fluor is named as a nominal defendant in the actions. These derivative actions purport to assert claims on behalf of Fluor and make substantially the same factual allegations as the securities class action matter discussed above and seek various forms of monetary and injunctive relief. These actions are pending in Texas state court (District Court for Dallas County), the U.S. District Court for the District of Delaware, the U.S. District Court for the Northern District of Texas, and the Court of Chancery of the State of Delaware. Certain of these actions were consolidated and stayed. We anticipate that these matters will remain stayed until final resolution of the securities class action. While no assurance can be given as to the ultimate outcome of this matter, we do not believe it is probable that a loss will be incurred. Accordingly, we have not recorded any liability as a result of these actions.
Various wholly-owned subsidiaries of Fluor, in conjunction with a partner, TECHINT, (“Fluor/TECHINT”) performed engineering, procurement and construction management services on a cost reimbursable basis for Barrick Gold Corporation involving a gold mine and ore processing facility on a site straddling the border between Argentina and Chile. In 2013 Barrick terminated the Fluor/TECHINT agreements for convenience and not due to the performance of Fluor/TECHINT. On August 12, 2016, Barrick filed a notice of arbitration against Fluor/TECHINT, demanding damages and/or a refund of contract proceeds paid of not less than $250 million under various claims relating to Fluor/TECHINT’s alleged performance. Proceedings were suspended while the parties explored a possible settlement. In August 2019, Barrick drew down $36 million of letters of credit from Fluor/TECHINT ($24 million from Fluor and $12 million from TECHINT). Thereafter, Barrick proceeded to reactivate the arbitration. Barrick and Fluor/TECHINT have exchanged detailed statements of claim and counterclaim pursuant to which Barrick's claim against Fluor/TECHINT now totals approximately $364 million net of amounts acknowledged to be due to Fluor/TECHINT. We believe that the claims asserted by Barrick are without merit and are vigorously defending these claims. While no assurance can be given as to the ultimate outcome of this matter, we do not believe it is probable that a loss will be incurred. Accordingly, we have not recorded any liability as a result of these claims.
There have been no substantive changes to the disclosures for the following commitments and contingencies since the matter was presented in the 2021 10-K.
Fluor Australia Ltd., our wholly-owned subsidiary (“Fluor Australia”), completed a cost reimbursable engineering, procurement and construction management services project for Santos Ltd. (“Santos”) involving a large network of natural gas gathering and processing facilities in Queensland, Australia. On December 13, 2016, Santos filed an action in Queensland Supreme Court against Fluor Australia, asserting various causes of action and seeking damages and/or a refund of contract proceeds paid of approximately AUD $1.47 billion. Santos has joined Fluor to the matter on the basis of a parent company
14
guarantee issued for the project. We believe that the claims asserted by Santos are without merit and we are vigorously defending these claims. While no assurance can be given as to the ultimate outcome of this matter, we do not believe it is probable that a loss will be incurred. Accordingly, we have not recorded any liability as a result of this action.
Fluor Limited, our wholly-owned subsidiary (“Fluor Limited”), and Fluor Arabia Limited, a partially-owned subsidiary
(“Fluor Arabia”), completed cost reimbursable engineering, procurement and construction management services for Sadara Chemical Company (“Sadara”) involving a large petrochemical facility in Jubail, Kingdom of Saudi Arabia. On August 23, 2019, Fluor Limited and Fluor Arabia Limited commenced arbitration proceedings against Sadara after it refused to pay invoices totaling approximately $100 million due under the contracts. As part of the arbitration proceedings, Sadara has asserted various counterclaims for damages and/or a refund of contract proceeds paid totaling approximately $574 million against Fluor Limited and Fluor Arabia Limited. We believe that the counterclaims asserted by Sadara are without merit and are vigorously defending these claims. While no assurance can be given as to the ultimate outcome of the counterclaims, we do not believe it is probable that a loss will be incurred in excess of amounts reserved for this matter. Accordingly, we have not recorded any further liability as a result of the counterclaims.
Other Matters
We periodically evaluate our positions and the amounts recognized with respect to all our claims and back charges. As of both September 30, 2022 and December 31, 2021, we had recorded $215
Our operations are subject to and affected by federal, state and local laws and regulations regarding the protection of the environment. We maintain reserves for potential future environmental cost where such obligations are either known or considered probable, and can be reasonably estimated. We believe that our reserves with respect to future environmental cost are adequate and such future cost will not have a material effect on our financial position or results of operations.
15
11. Contract Assets and Liabilities
The following summarizes information about our contract assets and liabilities:
| (in millions) | September 30, 2022 | December 31, 2021 | ||||||
| Information about contract assets: | ||||||||
| Contract assets | ||||||||
| Unbilled receivables - reimbursable contracts | $ | $ | ||||||
| Contract work in progress - lump-sum contracts | ||||||||
| Contract assets | $ | $ | ||||||
| Advance billings deducted from contract assets | $ | $ | ||||||
| 9ME September 30, | ||||||||
| (in millions) | 2022 | 2021 | ||||||
| Information about contract liabilities: | ||||||||
| Revenue recognized that was included in contract liabilities as of January 1 | $ | $ | ||||||
12. Remaining Unsatisfied Performance Obligations
We estimate that our RUPO will be satisfied over the following periods:
| (in millions) | September 30, 2022 | ||||
| Within 1 year | $ | ||||
| 1 to 2 years | |||||
| Thereafter | |||||
| Total RUPO | $ | ||||
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13. Debt and Lines of Credit
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Borrowings under credit facility | $ | $ | |||||||||
| Current: | |||||||||||
| 2023 Notes | $ | $ | |||||||||
| Other borrowings | |||||||||||
| Total current | $ | $ | |||||||||
| Long-term: | |||||||||||
| Senior Notes | |||||||||||
| 2023 Notes | $ | $ | |||||||||
| 2024 Notes | |||||||||||
| Unamortized discount on 2024 Notes | ( | ( | |||||||||
| Unamortized deferred financing costs | ( | ( | |||||||||
| 2028 Notes | |||||||||||
| Unamortized discount on 2028 Notes | ( | ( | |||||||||
| Unamortized deferred financing costs | ( | ( | |||||||||
| Other long-term borrowings | |||||||||||
| Total long-term | $ | $ | |||||||||
Credit Facility
As of September 30, 2022, letters of credit totaling $332 million were outstanding under our $1.8 billion credit facility, which matures in February 2025. The credit facility contains customary financial covenants, including a debt-to-capitalization ratio that cannot exceed 0.60 to 1.0 , a limitation on the aggregate amount of debt of the greater of $750 million or €750 million for our subsidiaries, and a minimum liquidity threshold of $1.2 billion, defined in the amended credit facility, which may be reduced to $1.0 billion upon the repayment of debt. The credit facility also contains provisions that will require us to provide collateral to secure the facility should we be downgraded to BB by S&P and Ba2 by Moody's, such collateral consisting broadly of our U.S. assets. Borrowings under the facility, which may be denominated in USD, EUR, GBP or CAD, bear interest at a base rate, plus an applicable borrowing margin. As of September 30, 2022, we had availability to borrow $845 million under our credit facility.
Uncommitted Lines of Credit
As of September 30, 2022, letters of credit totaling $877 million were outstanding under uncommitted lines of credit.
Senior Notes
In June 2022, we redeemed $23 million of outstanding 2023 Notes. The gain on redemptions was not material.
In September 2021, we completed a tender offer in which we repurchased $375 million of 2023 Notes and $108 million of 2024 Notes, excluding accrued interest. Additionally, we redeemed $26 million of outstanding 2023 and 2024 Notes in open market transactions during the 2021 Period. We recognized $20 million in losses related to these redemptions which was included in interest expense.
14. Convertible Preferred Stock
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15. Fair Value Measurements
The following table delineates assets and liabilities that are measured at fair value on a recurring basis:
| September 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Hierarchy | Fair Value Hierarchy | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred compensation trusts(1) | $ | $ | $ | — | $ | — | $ | $ | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||
Derivative assets(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Commodity | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
SMR warrants(3) | $ | $ | $ | $ | — | $ | $ | $ | $ | — | ||||||||||||||||||||||||||||||||||||||||
Derivative liabilities(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Commodity | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
_________________________________________________________
(1) Consists of registered money market funds and an equity index fund. These investments, which are trading securities, represent the net asset value at the close of business of the period based on the last trade or official close of an active market or exchange.
(2) Foreign currency and commodity derivatives are estimated using pricing models with market-based inputs, which take into account the present value of estimated future cash flows.
(3) The SMR warrant liabilities are comprised of public and private placement warrants redeemable by SMR under certain conditions, both measured using the price of the public warrants. The private placement warrants are not publicly traded and have been classified as Level 2 measurements while the public warrants are classified as Level 1.
We have measured assets and liabilities held for sale and certain other impaired assets at fair value on a nonrecurring basis. The following summarizes information about financial instruments that are not required to be measured at fair value:
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| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
| (in millions) | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
Cash(1) | Level 1 | $ | $ | $ | $ | ||||||||||||||||||||||||
Cash equivalents(2) | Level 2 | ||||||||||||||||||||||||||||
Marketable securities(2) | Level 2 | ||||||||||||||||||||||||||||
Notes receivable, including noncurrent portion(3) | Level 3 | ||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
2023 Senior Notes(4) | Level 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
2024 Senior Notes(4) | Level 2 | ||||||||||||||||||||||||||||
2028 Senior Notes(4) | Level 2 | ||||||||||||||||||||||||||||
Other borrowings, including noncurrent portion(5) | Level 2 | ||||||||||||||||||||||||||||
_________________________________________________________
(1) Cash consists of bank deposits. Carrying amounts approximate fair value.
(2) The carrying amounts of these time deposits approximate fair value because of the short-term maturity of these instruments. Amortized cost is not materially different from the fair value.
(3) Notes receivable are carried at net realizable value which approximates fair value. Factors considered in determining the fair value include the credit worthiness of the borrower, current interest rates, the term of the note and any collateral pledged as security. Notes receivable are periodically assessed for impairment.
(4) The fair value of the Senior Notes was estimated based on the quoted market prices and Level 2 inputs.
(5) Other borrowings represent bank loans and other financing arrangements which mature within one year. The carrying amount of borrowings under these arrangements approximates fair value because of the short-term maturity.
16. Stock-Based Compensation
Equity Awards
Our executive and director stock-based compensation plans are described more fully in the 2021 10-K. In the 2022 and 2021 Periods, RSUs totaling 415,356 and 596,391 , respectively, were granted to executives and directors at a weighted-average grant date fair value of $22.36 and $18.67 per share, respectively, and generally vest over three years . RSUs granted to directors in 2022 and 2021 vested upon grant.
Stock options for the purchase of 250,656 and 481,626 shares at a weighted-average exercise price of $21.90 and $17.96 per share were awarded to executives during the 2022 and 2021 Periods, respectively. The options granted in 2022 and 2021 generally vest over three years and expire ten years after the grant date.
Performance-based award units totaling 426,957 and 613,868 were awarded to Section 16 officers during the 2022 and 2021 Periods, respectively. These awards generally cliff vest after 3 years and contain annual performance conditions for each of the 3 years of the vesting period. Under GAAP, performance-based elements of such awards are not deemed granted until the performance targets have been established. The performance targets for each year are generally established in the first quarter. These awards are earned based on achievement of EPS and return on invested capital goals over three one-year periods, and earned or modified based on our three-year cumulative total shareholder return relative to companies in the S&P 500 on the date of the award. For the majority of awards, generally only one-third of the units awarded in any given year are deemed to be granted each year of the 3-year vesting periods. During 2022, the following units were granted based upon the establishment of performance targets:
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| Performance-based Award Units Granted in 2022 | Weighted Average Grant Date Fair Value Per Share | |||||||
| 2022 Performance Award Plan | $ | |||||||
| 2021 Performance Award Plan | $ | |||||||
| 2020 Performance Award Plan | $ | |||||||
For awards granted under the 2022, 2021 and 2020 performance award plans, the number of units are adjusted at the end of each performance period based on achievement of certain performance targets and market conditions, as defined in the award agreements.
Liability Awards
SGI awards and performance-based awards for non-Section 16 executives vest and become payable at a rate of one-third of the total award each year.
| Location in Statement of Operations | 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||||
| Compensation Expense (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| SGI awards | G&A | $ | $ | $ | $ | |||||||||||||||||||||
| Performance-based awards for non-Section 16 executives | G&A | |||||||||||||||||||||||||
| Liabilities (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| SGI awards | $ | $ | |||||||||
| Performance-based awards for non-Section 16 executives | |||||||||||
17. Other Comprehensive Income (Loss)
The components of OCI follow:
| 3ME September 30, 2022 | 3ME September 30, 2021 | |||||||||||||||||||||||||||||||||||||
| (in millions) | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | ||||||||||||||||||||||||||||||||
| OCI: | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||
| Ownership share of equity method investees’ OCI | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| DB plan adjustments | ||||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on hedges | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Total OCI | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Less: OCI attributable to NCI | ||||||||||||||||||||||||||||||||||||||
| OCI attributable to Fluor | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
20
| 9ME September 30, 2022 | 9ME September 30, 2021 | |||||||||||||||||||||||||||||||||||||
| (in millions) | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | ||||||||||||||||||||||||||||||||
| OCI: | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||||
| Ownership share of equity method investees’ OCI | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| DB plan adjustments | ||||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on hedges | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||
| Total OCI | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Less: OCI attributable to NCI | ||||||||||||||||||||||||||||||||||||||
| OCI attributable to Fluor | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
The changes in AOCI balances follow:
| (in millions) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ OCI | DB Plans | Unrealized Gain (Loss) on Hedges | AOCI, Net | ||||||||||||||||||||||||
| Attributable to Fluor: | |||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| OCI before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net OCI | ( | ( | ( | ||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Attributable to NCI: | |||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| OCI before reclassifications | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net OCI | |||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
21
| (in millions) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ OCI | DB Plans | Unrealized Gain (Loss) on Hedges | AOCI, Net | ||||||||||||||||||||||||
| Attributable to Fluor: | |||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| OCI before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ||||||||||||||||||||||||||||
| Net OCI | ( | ( | ( | ||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| Attributable to NCI: | |||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| OCI before reclassifications | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net OCI | |||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| (in millions) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ OCI | DB Plans | Unrealized Gain (Loss) on Hedges | AOCI, Net | ||||||||||||||||||||||||
| Attributable to Fluor: | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| OCI before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | |||||||||||||||||||||||||||
| Net OCI | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Attributable to NCI: | |||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| OCI before reclassifications | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net OCI | |||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
22
| (in millions) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ OCI | DB Plans | Unrealized Gain (Loss) on Hedges | AOCI, Net | ||||||||||||||||||||||||
| Attributable to Fluor: | |||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| OCI before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | |||||||||||||||||||||||||||
| Net OCI | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Attributable to NCI: | |||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| OCI before reclassifications | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | |||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
Information about reclassifications out of AOCI follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||||||||
| (in millions) | Location in Statement of Operations | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||
| Component of AOCI: | ||||||||||||||||||||||||||||||||
| Ownership share of equity method investees’ OCI | Cost of revenue | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Income tax benefit | Income tax expense (benefit) | |||||||||||||||||||||||||||||||
| Net of tax | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| DB plan adjustments | G&A | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||
| Income tax benefit | Income tax expense (benefit) | |||||||||||||||||||||||||||||||
| Net of tax | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Unrealized gain (loss) on derivative contracts: | ||||||||||||||||||||||||||||||||
| Commodity and foreign currency contracts | Various accounts(1) | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Interest rate contracts | Interest expense | ( | ||||||||||||||||||||||||||||||
| Income tax benefit | Income tax expense (benefit) | ( | ||||||||||||||||||||||||||||||
| Net of tax | $ | $ | $ | $ | ||||||||||||||||||||||||||||
18. Discontinued Operations
23
24
FLUOR CORPORATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our financial statements and our 2021 10-K. Except as the context otherwise requires, the terms Fluor or the Registrant, as used herein, are references to Fluor and references to the company, we, us, or our, as used herein, shall include Fluor, its consolidated subsidiaries and joint ventures.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made herein, including statements regarding our projected operating results, liquidity and backlog levels and the implementation of strategic initiatives are forward-looking in nature. Under the Private Securities Litigation Reform Act of 1995, a “safe harbor” may be provided to us for certain of these forward-looking statements. We caution readers that forward-looking statements, including disclosures which use words such as we “believe,” “anticipate,” “expect,” “estimate,” "commit," "will," "may" and similar statements, are subject to risks and uncertainties which could cause actual results to differ materially from stated expectations. Significant factors potentially contributing to such differences include:
•Repercussions of events beyond our control, such as severe weather conditions, natural disasters, pandemics, political crises or other catastrophic events, that may significantly affect operations, result in higher cost or subject the company to contract claims by our clients;
•The severity and duration of the COVID pandemic and actions by governments, businesses and others in response to the pandemic;
•The cyclical nature of many of the markets we serve and our clients' vulnerability to economic downturns, such as recessions, which may result in decreased capital investment and reduced demand for our services;
•Our failure to receive anticipated new contract awards and the related impact on our operations;
•Failure to accurately estimate the cost and schedule on our projects, potentially resulting in cost overruns or obligations, including those related to project delays and those caused by the performance of our clients, subcontractors, suppliers and partners;
•Intense competition in the global EPC industry, which can place downward pressure on our contract prices and profit margins and may increase our contractual risks;
•Failure of our joint venture partners to perform their venture obligations, which could impact the success of those ventures and impose additional financial and performance obligations on us;
•Cybersecurity breaches of our systems and information technology;
•Civil unrest, security issues, labor conditions and other unforeseeable events in the countries in which we do business;
•Project cancellations, scope adjustments or deferrals, or foreign currency fluctuations, that could reduce the amount of our backlog and the revenue and profits that we earn;
•Differences between our actual results and the assumptions and estimates used to prepare our financial statements;
•Client delays or defaults in making payments;
•Failure of our suppliers or subcontractors to provide supplies or services at the agreed-upon levels or times;
•The inability to hire and retain qualified personnel;
•The potential impact of changes in tax laws and other tax matters including, but not limited to, those from foreign operations, the realizability of our deferred tax assets and the ongoing audits by tax authorities;
•Our ability to secure appropriate insurance;
•The failure to be adequately indemnified for our nuclear services;
•The loss of business from one or more significant clients;
•The availability of credit and financial assurances plus restrictions imposed by credit facilities, both for us and our clients, suppliers, subcontractors or other partners;
•Adverse results in existing or future litigation, regulatory proceedings or dispute resolution proceedings (including claims for indemnification), or claims against project owners, subcontractors or suppliers;
•Failure of our employees, agents or partners to comply with laws, which could result in harm to our reputation and reduced profits or losses;
•The impact of new or changing legal requirements, as well as past and future environmental, health and safety regulations including climate change regulations; and
•The risks associated with acquisitions, dispositions or other investments, including the failure to successfully integrate acquired businesses.
25
Any forward-looking statements that we may make are based on our current expectations and beliefs concerning future developments and their potential effects on us. There is no assurance that future developments affecting us will be those presently anticipated by us.
Additional information concerning these and other factors can be found in our press releases and periodic filings with the SEC, including the 2021 10-K. These filings are available publicly on the SEC’s website at http://www.sec.gov, on our website at http://investor.fluor.com or upon request from our Investor Relations Department at (469) 398-7222. We cannot control such risk factors and other uncertainties, and in many cases, cannot predict the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. These risks and uncertainties should be considered when evaluating Fluor and deciding whether to invest in our securities. Except as otherwise required by law, we undertake no obligation to publicly update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.
Results of Operations
In the first quarter of 2022, we determined that our Stork business and the remaining unsold AMECO equipment business no longer met all of the requirements to be classified as Disc Ops, primarily as a result of uncertainties related to the timing of this sale. Therefore, both Stork and the remaining AMECO business are reported as Cont Ops for all periods presented and included in our Other segment.
In the second quarter of 2022, NuScale became a public company (ticker:SMR) through a reverse recapitalization with a public shell company. We continue to control and consolidate NuScale. The impacts of the transaction are recognized in our third quarter results.
In the third quarter of 2022, we agreed to arrangements to facilitate the sail away of a legacy upstream project from the fabrication yard in China. These agreements reduced our exposure to liquidated damages and created partially client-funded incentives for the fabricator.
During the fourth quarter of 2022, we expect to review the combined effects of schedule and cost estimates and to conclude on the claims potential on an international bridge project. In addition, several other current and completed projects are expected to undergo claim negotiations or dispute resolution processes during the fourth quarter of 2022. These separate evaluations could individually or in the aggregate cause a material change in the forecast for the project, which in turn could have a material effect on our fourth quarter results.
26
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
| Energy Solutions | $ | 1,592 | $ | 1,365 | $ | 4,097 | $ | 3,675 | |||||||||||||||||||||||||||
| Urban Solutions | 982 | 1,015 | 2,946 | 3,419 | |||||||||||||||||||||||||||||||
| Mission Solutions | 639 | 723 | 1,779 | 2,184 | |||||||||||||||||||||||||||||||
| Other | 399 | 400 | 1,212 | 1,256 | |||||||||||||||||||||||||||||||
| Total revenue | $ | 3,612 | $ | 3,503 | $ | 10,034 | $ | 10,534 | |||||||||||||||||||||||||||
| Segment profit (loss) $ and margin % | |||||||||||||||||||||||||||||||||||
| Energy Solutions | $ | 59 | 3.7% | $ | 72 | 5.3% | $ | 177 | 4.3% | $ | 184 | 5.0% | |||||||||||||||||||||||
| Urban Solutions | (54) | (5.5)% | 18 | 1.8% | (31) | (1.1)% | (21) | (0.6)% | |||||||||||||||||||||||||||
| Mission Solutions | 29 | 4.5% | 28 | 3.9% | 115 | 6.5% | 117 | 5.4% | |||||||||||||||||||||||||||
| Other | (3) | NM | (2) | NM | (8) | NM | (8) | NM | |||||||||||||||||||||||||||
Total segment profit (loss) $ and margin %(1) | $ | 31 | 0.9% | $ | 116 | 3.3% | $ | 253 | 2.5% | $ | 272 | 2.6% | |||||||||||||||||||||||
| G&A | (30) | (44) | (146) | (144) | |||||||||||||||||||||||||||||||
| Impairment | — | (5) | 63 | (153) | |||||||||||||||||||||||||||||||
| Foreign currency gain (loss) | 34 | 37 | 51 | (4) | |||||||||||||||||||||||||||||||
| Interest income (expense), net | 14 | (33) | 4 | (63) | |||||||||||||||||||||||||||||||
| Earnings (loss) from Cont Ops attributable to NCI | (46) | (3) | (31) | 22 | |||||||||||||||||||||||||||||||
| Earnings (loss) from Cont Ops before taxes | 3 | 68 | 194 | (70) | |||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (27) | (29) | (89) | (35) | |||||||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | (24) | 39 | 105 | (105) | |||||||||||||||||||||||||||||||
| Less: Net earnings (loss) from Cont Ops attributable to NCI | (46) | (3) | (31) | 22 | |||||||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops attributable to Fluor | $ | 22 | $ | 42 | $ | 136 | $ | (127) | |||||||||||||||||||||||||||
| Less: Dividends on CPS | 10 | 10 | 29 | 15 | |||||||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops available to Fluor common stockholders | $ | 12 | $ | 32 | $ | 107 | $ | (142) | |||||||||||||||||||||||||||
| New awards | |||||||||||||||||||||||||||||||||||
| Energy Solutions | $ | 3,574 | $ | 644 | $ | 5,595 | $ | 2,914 | |||||||||||||||||||||||||||
| Urban Solutions | 929 | 781 | 3,470 | 2,460 | |||||||||||||||||||||||||||||||
| Mission Solutions | 4,874 | 1,610 | 5,312 | 2,694 | |||||||||||||||||||||||||||||||
| Other | 366 | 366 | 842 | 913 | |||||||||||||||||||||||||||||||
| Total new awards | $ | 9,743 | $ | 3,401 | $ | 15,219 | $ | 8,981 | |||||||||||||||||||||||||||
| New awards related to projects located outside of the U.S. | 48% | 59% | |||||||||||||||||||||||||||||||||
27
Backlog (in millions) | September 30, 2022 | December 31, 2021 | ||||||||||||
| Energy Solutions | $ | 10,183 | $ | 9,324 | ||||||||||
| Urban Solutions | 7,593 | 7,048 | ||||||||||||
| Mission Solutions | 6,189 | 2,562 | ||||||||||||
| Other | 1,458 | 1,866 | ||||||||||||
| Total backlog | $ | 25,423 | $ | 20,800 | ||||||||||
| Backlog related to projects located outside of the U.S. | 53% | 65% | ||||||||||||
| Backlog related to lump-sum projects | 42% | 59% | ||||||||||||
(1)Total segment profit (loss) is a non-GAAP financial measure. We believe that total segment profit (loss) provides a meaningful perspective on our results as it is the aggregation of individual segment profit (loss) measures that we use to evaluate and manage our performance.
During the first quarter of 2022, we suspended any new investment in our Russian operations. We have evaluated our financial exposure through September 30, 2022 and do not believe that, should existing conditions in Eastern Europe persist, we would have a material impairment of our assets. Our backlog on projects in the impacted region is not significant to future revenue or margin. We continue to monitor the circumstances in Eastern Europe and wind down our existing contractual obligations while complying with all regulatory limitations placed on new and existing business for projects and clients based in the region.
We experienced reductions in demand for certain services and the delay or abandonment of ongoing or anticipated projects during the COVID pandemic and steep decline in oil prices in early 2020. Although oil prices have rebounded, our energy clients have been hesitant to increase capital expenditures outside of energy transition projects. The pandemic impacted our productivity, our ability to mobilize our workforce on certain projects and our supply chain at our global suppliers' facilities and our fabrication yard in China. Although many of our projects are in a state we consider normal, we continue to deal with the effects of COVID on our operating results, particularly as we consider them against how we contracted work. Our estimates reflect our best assessment of project results inclusive of COVID effects (including client recoveries), which have been dynamic as our projects have seen changes in prevailing regulations.
During the 2022 Quarter, consolidated revenue increased slightly due to the ramp up of execution activities on a refinery project in Mexico, a recently awarded mid-scale LNG project and a chemicals project in China. During the 2022 Period, consolidated revenue declined due to volume declines on projects which were completed or nearing completion in the Urban Solutions and Mission Solutions segments.
Segment profit for the 2022 Quarter declined significantly due to project charges on three legacy infrastructure projects. Segment profit for the 2022 Period was relatively flat compared to the 2021 Period due to significant infrastructure charges recognized during both periods.
During the 2022 Period, we reversed $63 million in impairment recognized in 2021 when our Stork and AMECO businesses were classified as held for sale due primarily to remeasurement under held and used impairment criteria, for which CTA balances are excluded from carrying value. If our Stork and AMECO businesses are sold or if they meet the held for sale criteria again, we might re-recognize some or all of the impairment expense related to remeasurement. During the 2021 Period, we recognized impairment on goodwill and one equity method investment in the Energy Solutions segment and we also recorded fair value adjustments to our Stork and AMECO businesses which were classified as held for sale in 2021.
Our results were significantly impacted by evolving foreign currency rates in 2022. During the 2022 Quarter and 2022 Period, the U.S. dollar appreciated significantly against the Euro, the British Pound and the Canadian Dollar.
The effective tax rate on earnings (loss) from Cont Ops was 939.2% for the 2022 Quarter and 46.0% for the 2022 Period compared to 43.5% and (49.4)% for the corresponding periods of 2021. A reconciliation of U.S. statutory federal income tax expense (benefit) to income tax expense follows:
28
| 3ME September 30 | 9ME September 30 | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| U.S statutory federal income tax expense (benefit) | $ | 1 | $ | 14 | $ | 41 | $ | (15) | |||||||||||||||
| Increase (decrease) in taxes resulting from: | |||||||||||||||||||||||
| State and local income taxes | 1 | (1) | 3 | (1) | |||||||||||||||||||
| Valuation allowance, net | 15 | 11 | 50 | 32 | |||||||||||||||||||
| Foreign tax impact | — | 6 | (11) | 15 | |||||||||||||||||||
| Noncontrolling interest | 10 | — | 6 | (3) | |||||||||||||||||||
| Other | — | (1) | — | 7 | |||||||||||||||||||
| Total income tax expense (benefit) | $ | 27 | $ | 29 | $ | 89 | $ | 35 | |||||||||||||||
The increase in backlog resulted from significant new awards booked during the 2022 Quarter. Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate. Backlog differs from RUPO discussed elsewhere. RUPO includes only the amount of revenue we expect to recognize under contracts with definite terms and substantive termination provisions.
Segment Operations - Comparisons of the 2022 Quarter to the 2021 Quarter and the 2022 Period to the 2021 Period
Energy Solutions
Revenue for the 2022 Quarter and 2022 Period increased due to the ramp up of execution activities on a refinery project in Mexico, a recently awarded mid-scale LNG project and two chemicals projects in China partially offset by declines in the volume of execution activity for projects nearing completion.
Segment profit for the 2022 Quarter declined primarily due to losses related to embedded foreign currency derivatives associated with projects in Mexico and declines in execution activity for projects nearing completion partially offset by increased execution activity on the recently awarded projects discussed above. Segment profit for the 2022 Period remained flat compared to the 2021 Period. The change in segment profit margin reflects the same factors affecting segment profit.
New awards in the 2022 Quarter and 2022 Period increased due to a large award for a chemicals project in China. Backlog increased during the 2022 Period due to the new award activity.
Urban Solutions
Revenue for the 2022 Quarter decreased primarily due to declines in the volume of execution activity for a large mining project nearing completion and the de-recognition of revenue resulting from the project charges discussed below partially offset by the ramp up of execution activities on a mining project in South America, a life sciences project and an advanced technology project in the United States. Revenue for the 2022 Period decreased primarily due to the completion of three large mining projects partially offset by increased execution activities on a life sciences project and an advanced technology project in the U.S.
Segment profit for the 2022 Quarter reflects a $64 million charge for additional rework and schedule delays on a highway project, a $22 million charge for cost growth and delay mitigation costs on an international bridge project and a $21 million charge for subcontractor cost escalation and productivity estimates on an automated people mover project. Segment profit for the 2021 Quarter reflects charges for schedule delays and productivity on a light rail project. Segment profit for the 2022 Period reflects a $86 million charge for additional rework and schedule delays on a highway project, a $54 million charge for cost growth and delay mitigation costs on an international bridge project and a $35 million charge for subcontractor cost escalation and productivity estimates on an automated people mover project. Segment profit for the 2021 Period reflects a charge of $138 million for procurement and subcontractor cost growth, delays and disruptions in schedule of the international bridge project. We continue to analyze the recoverability of these costs as claims, which could be material.
During the 2022 Period, we sold the majority of our interest in an infrastructure joint venture in Canada and recognized a gain of $11 million. During the 2021 Period, we sold our interest in an infrastructure joint venture in the U.S. and recognized a gain of $20 million. The change in segment profit margin reflects the same factors affecting segment profit.
29
New awards in the 2022 Quarter increased due to a large life sciences project in Denmark awarded in the current quarter. New awards in the 2022 Period increased due to the large life sciences project as well as awards for a mining project in Australia and a highway project in Texas. Backlog increased during the 2022 Period due to the new award activity.
Mission Solutions
Revenue for the 2022 Quarter and 2022 Period decreased compared with comparable 2021 periods primarily due to the completion of a DOE contract in the prior year and the completion of a contingency and humanitarian support project in the first quarter of 2022 partially offset by increased execution activities on three DOE contracts. Revenue for the 2022 Period further declined due to the closure of LOGCAP in Afghanistan.
New awards in the 2022 Quarter and 2022 Period increased due to a 4-year contract extension on the DOE Savannah River Site. Backlog increased during the 2022 Period due to this significant award. Backlog included $4.4 billion and $445 million of unfunded government contracts as of September 30, 2022 and December 31, 2021, respectively. Unfunded backlog reflects our estimate of future revenue under awarded government contracts for which funding has not yet been appropriated.
Other
Other includes the operations of NuScale, Stork and the remaining AMECO business.
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
NuScale (1) | $ | (15) | $ | (8) | $ | (44) | $ | (43) | ||||||||||||||||||
| Stork | 8 | 8 | 26 | 26 | ||||||||||||||||||||||
| AMECO | 4 | (2) | 10 | 9 | ||||||||||||||||||||||
| Segment profit (loss) | $ | (3) | $ | (2) | $ | (8) | $ | (8) | ||||||||||||||||||
(1) NuScale expenses included in the determination of segment profit were as follows: | ||||||||||||||||||||||||||
| NuScale expenses | $ | (47) | $ | (43) | $ | (110) | $ | (123) | ||||||||||||||||||
| Less: DOE Reimbursable expenses | 25 | 18 | 56 | 50 | ||||||||||||||||||||||
| NuScale expenses, net | (22) | (25) | (54) | (73) | ||||||||||||||||||||||
| Less: Attributable to NCI | 7 | 17 | 10 | 30 | ||||||||||||||||||||||
| NuScale profit (loss) | $ | (15) | $ | (8) | $ | (44) | $ | (43) | ||||||||||||||||||
G&A
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| G&A | |||||||||||||||||||||||
| Compensation | $ | 20 | $ | 23 | $ | 91 | $ | 104 | |||||||||||||||
| Facilities | 4 | 4 | 12 | 11 | |||||||||||||||||||
| SEC investigation | 1 | 6 | 13 | 10 | |||||||||||||||||||
| Exit costs | 1 | — | 5 | — | |||||||||||||||||||
| Severance | — | 5 | 1 | 7 | |||||||||||||||||||
| Reserve for legacy legal claims | — | — | 5 | — | |||||||||||||||||||
| Other | 4 | 6 | 19 | 12 | |||||||||||||||||||
| G&A | $ | 30 | $ | 44 | $ | 146 | $ | 144 | |||||||||||||||
30
Net Interest Income (Expense)
The increase in net interest income during the 2022 Quarter and 2022 Period was primarily due to an increase in interest rates on cash deposits at our joint ventures in Canada and Mexico as well as the redemption of $509 million of 2023 and 2024 Notes in the latter half of 2021. The increase in net interest income during the 2022 Quarter and 2022 Period was further driven by a loss of $20 million on the debt redemptions which was included in interest expense during the 2021 Quarter and 2021 Period.
Recent Accounting Pronouncements
Item is described more fully in the Notes to Financial Statements.
Litigation and Matters in Dispute Resolution
Item is described more fully in the Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity arises from available cash and cash equivalents and marketable securities, cash generated from
operations, capacity under our credit facilities and, when necessary, access to capital markets. We have committed and uncommitted lines of credit available for revolving loans and letters of credit. We believe that for at least the next 12 months, cash generated from operations, along with our unused credit capacity and cash position, is sufficient to support operating requirements and debt maturities. We regularly review our sources and uses of liquidity and may pursue opportunities to address our liquidity needs, including losses we have accrued on certain projects.
As of September 30, 2022, letters of credit totaling $332 million were outstanding under our $1.8 billion credit facility, which matures in February 2025. The credit facility contains customary financial covenants, including a debt-to-capitalization ratio that cannot exceed 0.60 to 1.00, a limitation on the aggregate amount of debt of the greater of $750 million or €750 million for our subsidiaries, and a minimum liquidity threshold of $1.2 billion, all as defined in the amended credit facility. The credit facility also contains provisions that will require us to provide collateral if we are downgraded to BB by S&P and Ba2 by Moody's, such collateral consisting broadly of liens on our U.S. assets. Borrowings under the facility, which may be denominated in USD, EUR, GBP or CAD, bear interest at a base rate, plus an applicable borrowing margin. As of September 30, 2022, we had availability to borrow $845 million under our credit facility.
We expect to address the maturities currently scheduled for the first quarter of 2023 and fourth quarter of 2024 through available liquidity, cash generated by our operations or via a new securities issue.
Cash and cash equivalents combined with marketable securities were $2.6 billion as of September 30, 2022 and $2.3 billion as of December 31, 2021. Cash and cash equivalents are held in numerous accounts throughout the world to fund our global project execution activities. Non-U.S. cash and cash equivalents amounted to $987 million and $992 million as of September 30, 2022 and December 31, 2021, respectively. Non-U.S. cash and cash equivalents exclude deposits of U.S. legal entities that are invested in offshore, overnight accounts or short-term time deposits, to which there is unrestricted access.
In evaluating our liquidity needs, we consider cash and cash equivalents held by our consolidated variable interest entities (joint ventures and partnerships). These amounts (which totaled $852 million and $630 million as of September 30, 2022 and December 31, 2021, respectively) were not necessarily readily available for general purposes. We do not include our share of cash held by our proportionately consolidated joint ventures and partnerships in our consolidated cash balances even though these amounts may be significant. We also consider the extent to which client advances (which totaled $122 million and $127 million as of September 30, 2022 and December 31, 2021, respectively) are likely to be sustained or consumed over the near term for project execution activities and the cash flow requirements of our various foreign operations. In some cases, it may not be financially efficient to move cash and cash equivalents between countries due to statutory dividend limitations and/or adverse tax consequences. We did not consider any cash to be permanently reinvested outside the U.S. as of September 30, 2022 and December 31, 2021, other than unremitted earnings required to meet our working capital and long-term investment needs in non-U.S. foreign jurisdictions where we operate.
31
Cash Flows
| 9ME September 30, | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| OPERATING CASH FLOW | $ | (15) | $ | (220) | ||||||||||
| INVESTING CASH FLOW | ||||||||||||||
| Proceeds from sales and maturities (purchases) of marketable securities | (27) | (43) | ||||||||||||
| Capital expenditures | (38) | (55) | ||||||||||||
| Proceeds from sales of assets | 29 | 125 | ||||||||||||
| Investments in partnerships and joint ventures | (47) | (80) | ||||||||||||
| Other | 19 | (12) | ||||||||||||
| Investing cash flow | (64) | (65) | ||||||||||||
| FINANCING CASH FLOW | ||||||||||||||
| Proceeds from NuScale de-SPAC transaction | 341 | — | ||||||||||||
| Proceeds from sale of NuScale interest | 107 | — | ||||||||||||
| Proceeds from issuance of CPS | — | 582 | ||||||||||||
| Purchase and retirement of debt | (23) | (525) | ||||||||||||
| Dividends paid | (29) | (9) | ||||||||||||
| Other borrowings (debt repayments) | 6 | (7) | ||||||||||||
| Distributions paid to NCI | (15) | (20) | ||||||||||||
| Capital contributions by NCI | — | 201 | ||||||||||||
| Other | (9) | (4) | ||||||||||||
| Financing cash flow | 378 | 218 | ||||||||||||
| Effect of exchange rate changes on cash | (72) | (6) | ||||||||||||
| Increase (decrease) in cash and cash equivalents | 227 | (73) | ||||||||||||
| Cash and cash equivalents at beginning of period | 2,209 | 2,199 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 2,436 | $ | 2,126 | ||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest | $ | 43 | $ | 81 | ||||||||||
| Income taxes (net of refunds) | 71 | 59 | ||||||||||||
Operating Activities
Cash flows from operating activities result primarily from our EPC activities and are affected by our earnings levels and changes in working capital associated with such activities. Working capital levels vary from period to period and are primarily affected by our volume of work and billing schedules on our projects. These levels are also impacted by the stage of completion and commercial terms of engineering and construction projects, as well as our execution of our projects compared to their budget. Working capital requirements also vary by project and the payment terms agreed to with our clients, vendors and subcontractors. Most contracts require payments as the projects progress. Additionally, certain projects receive advance payments from clients. A typical trend for our projects is to have higher cash balances during the initial phases of execution due to deposits paid to us which then diminish toward the end of the construction phase. As a result, our cash position is reduced as customer advances are utilized, unless they are replaced by advances on other projects. We maintain cash reserves and borrowing facilities to provide additional working capital in the event that a project’s net operating cash outflows exceed its available cash balances. As of September 30, 2022, our backlog included $2.0 billion for loss projects which may have a negative impact on our operating cash flow in future periods.
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Our operating cash flow for the 2022 Period was negatively impacted by increases in working capital on several large projects, most of which occurred in the first quarter. Operating cash flow for the 2022 Quarter significantly improved compared to the first and second quarters of 2022 as working capital levels remained stable. Our operating cash flow for the 2021 Period was negatively impacted by increased funding of COVID-19 costs on our projects, higher cash payments of G&A and increased tax payments. During the fourth quarter of 2022, we expect to fund approximately $100 million of costs on loss projects, including incentives for a legacy upstream project.
During the 2022 Period, we did not make any significant contributions into our DB plans. During the 2021 Period, we contributed $13 million into our DB plans, primarily our Dutch DB plan which was settled in late 2021.
Investing Activities
We hold cash in bank deposits and marketable securities which are governed by our investment policy. This policy focuses on, in order of priority, the preservation of capital, maintenance of liquidity and maximization of yield. These investments may include money market funds, bank deposits placed with highly-rated financial institutions, repurchase agreements that are fully collateralized by U.S. Government-related securities, high-grade commercial paper and high quality short-term and medium-term fixed income securities.
Capital expenditures in the 2022 and 2021 Periods were primarily related to construction equipment on certain infrastructure projects as well as expenditures for facilities and investments in information technology.
Proceeds from sales of assets during the 2022 Period includes the sale of the majority of our interest in an infrastructure joint venture in Canada. Proceeds from sales of assets during the 2021 Period includes the sale of the North American operations of the AMECO equipment business for $71 million as well as our 10% ownership interest in an infrastructure joint venture in the U.S.
Investments in unconsolidated partnerships and joint ventures in the 2022 Period included capital contributions to a Mission Solutions joint venture and an infrastructure joint venture. Investments in unconsolidated partnerships and joint ventures in the 2021 Period included a $26 million capital contribution to COOEC Fluor, which satisfied our contractual funding requirements, as well as capital contributions to an Energy Solutions joint venture and a Mission Solutions joint venture.
Financing Activities
As a result of the reverse recapitalization, NuScale received cash of $341 million, consisting of $235 million in PIPE funding and $145 million in cash in trust, partially offset by transaction costs of $39 million.
In April 2022, we sold approximately 5% of the ownership of NuScale to Japan NuScale Innovation, LLC for $107 million, which will become final after CFIUS' review.
Cumulative cash dividends on the CPS are payable at an annual rate of 6.5% quarterly in arrears on February 15, May 15, August 15 and November 15, upon declaration of the dividend by our Board of Directors. Dividends accumulate from the most recent date on which dividends have been paid. First and second quarter CPS dividends of $10 million were paid in February and May 2022. In October 2022, our Board of Directors approved the payment of fourth quarter CPS dividends of $10 million, payable in November 2022.
Each share of CPS is convertible at the holder's option at any time into 44.9585 shares of our common stock per share of CPS. The conversion rate is subject to certain customary adjustments, but no payment or adjustment for accumulated but unpaid dividends will be made upon conversion, subject to certain limited exceptions. The CPS may not be redeemed by us; however, we may, at any time on or after May 20, 2022, elect to cause all outstanding shares of CPS to be converted into shares of our common stock at the conversion rate, subject to certain conditions (and, if such conversion occurs prior to May 20, 2024, the payment of a cash make-whole premium). The most significant condition to our ability to force a conversion prior to May 2024 is the requirement that our common stock trade above $28.92 for 20 consecutive trading days. We estimate that the cash make-whole payment would have been $84 million at September 30, 2022 (assuming we minimally exceed the minimum trading price to invoke the conversion). If a make-whole fundamental change, as defined in the certificate of designations for the CPS, occurs, we will in certain circumstances be required to increase the conversion rate for a holder who elects to convert shares of CPS in connection with such make-whole fundamental change.
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In June 2022, we redeemed $23 million of outstanding 2023 Notes. The gain on redemptions was not material.
In September 2021, we completed a tender offer in which we repurchased $375 million of 2023 Notes and $108 million of 2024 Notes, excluding accrued interest. Additionally, we redeemed $26 million of outstanding 2023 and 2024 Notes in open market transactions during the 2021 Period. We recognized $20 million in losses related to these redemptions which was included in interest expense.
Distributions paid to holders of NCI represent cash outflows to partners of consolidated partnerships or joint ventures created primarily for the execution of single contracts or projects. Distributions in the 2022 Period related to joint ventures in all our segments. Distributions in the 2021 Period primarily related to a transportation joint venture project in the U.S.
Capital contributions by NCI during the 2021 Period primarily related to new investments totaling $193 million by NuScale's NCI holders.
We have a common stock repurchase program, authorized by our Board of Directors, to purchase shares in the open market or privately negotiated transactions at our discretion. As of September 30, 2022, over 10 million shares could still be purchased under the existing stock repurchase program, although we don't have any immediate intent to begin such repurchases.
Off-Balance Sheet Arrangements
Lines of Credit
As of September 30, 2022, letters of credit totaling $332 million were outstanding under committed lines of credit, and letters of credit totaling $877 million were outstanding under uncommitted lines of credit. Letters of credit are ordinarily provided to indemnify our clients if we fail to perform our obligations under our contracts. Surety bonds may be used as an alternative to letters of credit.
Guarantees
The maximum potential amount of future payments that we could be required to make under outstanding performance guarantees, which represents the remaining cost of work to be performed, was estimated to be $16 billion as of September 30, 2022.
Financial guarantees, made in the ordinary course of business in certain limited circumstances, are entered into with financial institutions and other credit grantors and generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation.
Sustainability
Our sustainability mission envisions meeting the needs of our clients while conducting business in an environmentally and socially responsible manner. We consistently apply prudent governance principles to the benefit of current and future generations, thereby creating value for all stakeholders. Every day, we help clients safeguard the environment, conserve energy, protect lives, and strengthen the economies and social structures of communities in which our employees work and live.
As a key priority for our sustainability program, we have committed to reduce our greenhouse gas emissions. Early in 2021, we committed to achieving net zero emissions for Scopes 1 and 2 absolute greenhouse gas emissions by the end of 2023, and we believe we are on track to meet that objective.
We have a Sustainability Committee to oversee our sustainability policies, strategies and programs. The Sustainability Committee includes representatives from each of our business segments, as well as a cross-functional team of subject matter experts from communications, health, safety and environmental, human resources, supply chain, investor relations and legal, who serve as advisors to the Sustainability Committee. In furtherance of our Board of Directors' commitment to sustainability, our Board of Directors and Governance Committee reviews and receives reports from management on our sustainability efforts.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to market risk during the 2022 Period. Accordingly, the disclosures provided in the 2021 10-K remain relevant.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) are effective as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act.
Changes in Internal Control over Financial Reporting
There were no changes to our ICFR that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our ICFR.
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FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
UNAUDITED
| 3ME September 30, | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Backlog, June 30 | $ | 19,519 | $ | 23,153 | ||||||||||
| New awards | 9,743 | 3,401 | ||||||||||||
Adjustments and cancellations, net (1) | (276) | (67) | ||||||||||||
| Work performed | (3,563) | (3,454) | ||||||||||||
| Backlog, September 30 | $ | 25,423 | $ | 23,033 | ||||||||||
| 9ME September 30, | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Backlog, January 1 | $ | 20,800 | $ | 25,569 | ||||||||||
| New awards | 15,219 | 8,981 | ||||||||||||
Adjustments and cancellations, net (1) | (711) | (1,133) | ||||||||||||
| Work performed | (9,885) | (10,384) | ||||||||||||
| Backlog, September 30 | $ | 25,423 | $ | 23,033 | ||||||||||
(1) During the 2021 Period, we removed $2 billion from backlog due to the cancellation of a steel project and a chemicals project.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
As part of our normal business activities, we are party to a number of legal proceedings and other matters in various stages of development. Management periodically assesses our liabilities and contingencies in connection with these matters based upon the latest information available. We disclose material pending legal proceedings pursuant to SEC rules and other pending matters as we may determine to be appropriate.
Additional information on matters in dispute may be found in Item 8 of the 2021 10-K and Part I, Item 1 of this Q3 2022 10-Q.
Item 1A. Risk Factors
There have been no material changes from our risk factors as disclosed in the 2021 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table provides information for the quarter ended September 30, 2022 about purchases by the company of equity securities that have been registered pursuant to Section 12 of the Exchange Act.
Issuer Purchases of Equity Securities
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Program (1) | ||||||||||||||||||||||
| July 1 — July 31, 2022 | — | $ | — | — | 10,513,093 | |||||||||||||||||||||
| August 1 — August 31, 2022 | — | — | — | 10,513,093 | ||||||||||||||||||||||
| September 1 — September 30, 2022 | — | — | — | 10,513,093 | ||||||||||||||||||||||
| Total | — | $ | — | — | ||||||||||||||||||||||
_________________________________________________________
(1) The share repurchase program, as amended, totals 34,000,000 shares. We may repurchase shares from time to time in open market or privately negotiated transactions, including through pre-arranged trading programs, at our discretion, subject to market conditions and other factors and at such time and in amounts that we deem appropriate.
Item 4. Mine Safety Disclosures
None.
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Item 6. Exhibits
EXHIBIT INDEX
| Exhibit | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | Inline XBRL Instance Document.* | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |||||||
| 104 | The cover page from the Company's Q3 2022 10-Q for the three and nine months ended September 30, 2022, formatted in Inline XBRL (included in the Exhibit 101 attachments).* | |||||||
_______________________________________________________________________
* New exhibit filed with this report.
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FLUOR CORPORATION | |||||||||||
| Date: | November 4, 2022 | By: | /s/ Joseph L. Brennan | ||||||||
| Joseph L. Brennan | |||||||||||
| Chief Financial Officer | |||||||||||
| Date: | November 4, 2022 | By: | /s/ John C. Regan | ||||||||
| John C. Regan | |||||||||||
| Chief Accounting Officer | |||||||||||
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