Fluor Corp 10-Q for FY2021 Q3
Fluor Corp (FLR)
10-Q
2021-11-05
For: 2021-09-30
View Original
Added on
April 08, 2026
About this 10-Q
Fluor Corp filed this 10-Q on November 5, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.1B
- down 10.2% from $3.46B a year earlier
- Net income
- $40.47M
- up 109.2% from net income of $19.34M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2021
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 Symbols | 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 29, 2021, 141,411,916 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 | ||||
| 2020 10-K | Annual Report on Form 10-K for the year ended December 31, 2020 | ||||
| 2020 Period | Nine months ended September 30, 2020 | ||||
| 2020 Quarter | Three months ended September 30, 2020 | ||||
| 2021 Period | Nine months ended September 30, 2021 | ||||
| 2021 Quarter | Three months ended September 30, 2021 | ||||
| 3ME | Three months ended | ||||
| 9ME | Nine months ended | ||||
| AOCI | Accumulated other comprehensive income (loss) | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| Cont Ops | Continuing operations | ||||
| CPS | Convertible preferred stock | ||||
| COVID | Coronavirus pandemic | ||||
| 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 and subsidiaries | ||||
| 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 | ||||
| NCI | Noncontrolling interests | ||||
| NM | Not meaningful | ||||
| NuScale | NuScale Power, LLC | ||||
| OCI | Other comprehensive income (loss) | ||||
| PP&E | Property, plant and equipment | ||||
| Q3 2021 10-Q | Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 | ||||
| RSU | Restricted stock unit | ||||
| RUPO | Remaining unsatisfied performance obligations | ||||
| SEC | Securities and Exchange Commission | ||||
| Stork | Stork Holding B.V. and subsidiaries | ||||
| SMR | Small modular reactor | ||||
| 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 thousands, except per share amounts) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| G&A | ( | ( | ( | ( | |||||||||||||||||||
| Impairment, restructuring and other exit costs | ( | ( | |||||||||||||||||||||
| Foreign currency gain (loss) | ( | ( | |||||||||||||||||||||
| Operating profit | |||||||||||||||||||||||
| 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 thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| 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 thousands, except share and per share amounts) | September 30, 2021 | December 31, 2020 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
Cash and cash equivalents ($ | $ | $ | ||||||||||||
Marketable securities ($ | ||||||||||||||
Accounts receivable, net ($ | ||||||||||||||
Contract assets ($ | ||||||||||||||
Other current assets ($ | ||||||||||||||
| Current assets held for sale | ||||||||||||||
| Total current assets | ||||||||||||||
| Noncurrent assets | ||||||||||||||
PP&E, net ($ | ||||||||||||||
| Investments | ||||||||||||||
| Deferred taxes | ||||||||||||||
| Deferred compensation trusts | ||||||||||||||
| Goodwill | ||||||||||||||
Other assets ($ | ||||||||||||||
| Noncurrent assets held for sale | ||||||||||||||
| Total noncurrent assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
Accounts payable ($ | $ | $ | ||||||||||||
| Short-term borrowings | ||||||||||||||
Contract liabilities ($ | ||||||||||||||
Accrued salaries, wages and benefits ($ | ||||||||||||||
Other accrued liabilities ($ | ||||||||||||||
| Current liabilities related to assets held for sale | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Deferred taxes | ||||||||||||||
Other noncurrent liabilities ($ | ||||||||||||||
| Noncurrent liabilities related to assets for sale | ||||||||||||||
| Contingencies and commitments | ||||||||||||||
| Equity | ||||||||||||||
| Shareholders’ equity | ||||||||||||||
Preferred stock — authorized | ||||||||||||||
Common stock — authorized | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| 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 thousands) | 2021 | 2020 | ||||||||||||
| OPERATING CASH FLOW | ||||||||||||||
| Net earnings (loss) | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net earnings (loss) to operating cash flow: | ||||||||||||||
| Impairment expense - Cont Ops | ||||||||||||||
| Impairment expense - Disc Ops | ||||||||||||||
| Depreciation | ||||||||||||||
| Amortization of intangibles | ||||||||||||||
| (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 retirement plan accrual (contributions) | ( | ( | ||||||||||||
| Changes in assets and liabilities | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Operating cash flow | ( | |||||||||||||
| INVESTING CASH FLOW | ||||||||||||||
| Purchases of marketable securities | ( | ( | ||||||||||||
| Proceeds from sales and maturities of marketable securities | ||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||
| Proceeds from sales of assets incl. AMECO-North America | ||||||||||||||
| Investments in partnerships and joint ventures | ( | ( | ||||||||||||
| Other | ( | |||||||||||||
| Investing cash flow | ( | ( | ||||||||||||
| FINANCING CASH FLOW | ||||||||||||||
| Proceeds from issuance of CPS | ||||||||||||||
| Purchases and retirement of debt | ( | |||||||||||||
| Debt extinguishment costs | ( | |||||||||||||
| Dividends paid (on CPS in 2021 and common stock in 2020) | ( | ( | ||||||||||||
| Other borrowings (debt repayments) | ( | |||||||||||||
| Distributions paid to NCI | ( | ( | ||||||||||||
| Capital contributions by NCI | ||||||||||||||
| Taxes paid on vested restricted stock | ( | ( | ||||||||||||
| 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 | $ | $ | ||||||||||||
The accompanying notes are an integral part of these financial statements.
6
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
UNAUDITED
| (in thousands, except per share amounts) | Preferred Stock | Common Stock | Additional Paid-In Capital | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | ( | |||||||||||||||||||||||||
| OCI | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||
| Issuance of CPS | — | — | — | — | — | |||||||||||||||||||||||||||
Dividends on CPS ($ | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Distributions to NCI | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
| Capital contributions by NCI | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other NCI transactions | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||
| Stock-based plan activity | — | — | ( | — | — | |||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| (in thousands, except per share amounts) | Preferred Stock | Common Stock | Additional Paid-In Capital | 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 ($ | — | — | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||
| Distributions to NCI | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
| Capital contributions by NCI | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Other NCI transactions | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||
| Stock-based plan activity | — | — | — | — | ||||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2021 | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
7
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)
UNAUDITED
| (in thousands, except per share amounts) | Common Stock | Additional Paid-In Capital | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | |||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||
| Net earnings (loss) | — | — | — | — | ||||||||||||||||||||||
| OCI | — | — | — | — | ( | |||||||||||||||||||||
| Distributions to NCI | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
| Capital contributions by NCI | — | — | — | — | — | — | ||||||||||||||||||||
| Other NCI transactions | — | — | — | — | ||||||||||||||||||||||
| Stock-based plan activity | — | — | — | |||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||
| (in thousands, except per share amounts) | Common Stock | Additional Paid-In Capital | AOCI | Retained Earnings | Total Shareholders' Equity | NCI | Total Equity | |||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2019 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||
| Net earnings (loss) | — | — | — | — | ( | ( | ( | |||||||||||||||||||
| — | — | — | — | ( | ( | — | ( | |||||||||||||||||||
| OCI | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||
Dividends ($ | — | — | — | — | ( | ( | — | ( | ||||||||||||||||||
| Distributions to NCI | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
| Capital contributions by NCI | — | — | — | — | — | — | ||||||||||||||||||||
| Other NCI transactions | — | — | — | — | ||||||||||||||||||||||
| Stock-based plan activity | — | — | ||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||
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 normally presented annually under GAAP, and therefore, should be read in conjunction with our 2020 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. In management's opinion, 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 interim periods presented. All significant intercompany transactions of consolidated subsidiaries are eliminated. Certain amounts in 2020 have been reclassified to conform to the 2021 presentation, which includes the segregation of Disc Ops and assets and liabilities held for sale. Certain amounts in tables may not total or agree to the financial statements due to immaterial rounding differences. Management has evaluated all material events occurring subsequent to September 30, 2021 through the filing date of this Q3 2021 10-Q.
Quarters are typically 13 weeks in length but, due to our annual period ending on December 31, 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 a 13-week quarter. For simplicity of presentation, all periods are presented as if the periods ended on March 31, June 30 and September 30.
2. Recent Accounting Pronouncements
Accounting pronouncements that were implemented by us during the 2021 Period
In the first quarter of 2021, we adopted ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,” which simplifies accounting for convertible instruments and the application of the derivatives scope exception for contracts in our own equity. ASU 2020-06 eliminates two of the three models in the prior guidance that required separating embedded conversion features from convertible instruments and also eliminates some of the requirements for equity classification. ASU 2020-06 also addresses how convertible instruments are accounted for in the diluted EPS calculation. The adoption did not have any impact on our financial statements.
9
3. Earnings Per Share
Potentially dilutive securities include CPS, stock options, RSUs, restricted stock 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.
| (in thousands, except per share amounts) | 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| 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(1) | ||||||||||||||||||||||||||
Stock options, RSUs, restricted stock and performance-based award units(2) | ||||||||||||||||||||||||||
| 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: | ||||||||||||||||||||||||||
| (1) CPS | ||||||||||||||||||||||||||
| (2) All others | ||||||||||||||||||||||||||
4. Operating Information by Segment and Geographic Area
During the first quarter of 2021, we changed the composition of our segments to implement our new strategy and to pursue opportunities in our designated markets. We now report our operating results as follows: Energy Solutions, Urban Solutions, Mission Solutions and Other. Segment operating information and assets for 2020 have been recast to conform to these changes.
Energy Solutions focuses on energy transition, chemicals, LNG, and traditional oil and gas opportunities. The segment is pursuing new opportunities emerging in the energy transition market including carbon capture, green chemicals, hydrogen, biofuels and other low carbon energy sources. The segment also continues to provide EPC services for the oil, gas and petrochemical industries.
Urban Solutions focuses on mining, metals, advanced technologies, manufacturing, life sciences, infrastructure and professional staffing services.
10
Mission Solutions focuses on federal agencies across the U.S. government and select international opportunities. These include, among others, the DOE, the Department of Defense, the Federal Emergency Management Agency and intelligence agencies. Mission Solutions includes the Radford and Warren projects which were previously reported in the Other segment.
Other now includes only the operations of NuScale.
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| Energy Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Urban Solutions | ||||||||||||||||||||||||||
| Mission Solutions | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Segment profit (loss) | ||||||||||||||||||||||||||
| Energy Solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Urban Solutions | ( | |||||||||||||||||||||||||
| Mission Solutions | ||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | ||||||||||||||||||||||
| Total segment profit (loss) | $ | $ | $ | $ | ||||||||||||||||||||||
| G&A | ( | ( | ( | ( | ||||||||||||||||||||||
| Impairment, restructuring and other exit costs | ( | ( | ||||||||||||||||||||||||
| Foreign currency gain (loss) | ( | ( | ||||||||||||||||||||||||
| Interest income (expense), net | ( | ( | ( | ( | ||||||||||||||||||||||
| Earnings (loss) from Cont Ops attributable to NCI | ( | |||||||||||||||||||||||||
| Earnings (loss) from Cont Ops before taxes | $ | $ | $ | $ | ||||||||||||||||||||||
| Intercompany revenue for our professional staffing business, excluded from revenue above | $ | $ | $ | $ | ||||||||||||||||||||||
The following describes material changes to estimates impacting segment results:
Energy Solutions. Segment profit for the 2021 Period included forecast revisions resulting from the negotiation of change orders, scope increases and cost improvements across numerous projects.
Urban Solutions. Segment profit for the 2021 Quarter and 2021 Period included forecast revisions for schedule delays and productivity on a light rail project. Segment profit for the 2021 Period also included forecast revisions for procurement and subcontractor cost growth, delays and disruptions in schedule of a legacy infrastructure project, resulting in a charge of $138 million (or $0.72 per share). We believe that these cost growth factors may be at least partially recoverable under the contract. However, we expect that it will require several quarters to analyze recoverability and negotiate with our client before recognizing incremental revenue for these factors.
Mission Solutions. Segment profit for the 2021 Period included forecast revisions for higher than anticipated performance-based fees and the release of COVID cost reserves.
Other. During the 2021 Period, NuScale received $193 million in capital contributions from outside investors. As of September 30, 2021, Fluor had an approximate 80 % ownership in NuScale. Fluor and its advisors continue to engage with potential investors and capital providers to fund NuScale's path to commercialization.
11
NuScale expenses included in the determination of segment loss were as follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| NuScale expenses | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Less: DOE reimbursable expenses | ||||||||||||||||||||||||||
| NuScale expenses, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Less: Attributable to NCI | ||||||||||||||||||||||||||
| Fluor segment loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| (in millions) | September 30, 2021 | December 31, 2020 | ||||||||||||
| Energy Solutions | $ | $ | ||||||||||||
| Urban Solutions | ||||||||||||||
| Mission Solutions | ||||||||||||||
| Other | ||||||||||||||
Revenue by project location follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||||||||||||
| Asia Pacific (includes Australia) | ||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||
| Central and South America | ||||||||||||||||||||||||||
| Middle East and Africa | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
5. Impairment, Restructuring and Other Exit Costs
Impairment
We did not recognize any impairment expense in Cont Ops during the 2021 and 2020 Quarters. Impairment expense, included in Cont Ops, for the 2021 and 2020 Periods is summarized as follows:
| 9ME September 30, | |||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | |||||||||||||||||||||
| Impairment expense: | |||||||||||||||||||||||
| Energy Solutions' equity method investment | $ | $ | |||||||||||||||||||||
| Information technology assets | |||||||||||||||||||||||
| Total impairment expense | $ | $ | |||||||||||||||||||||
Our business has been adversely affected by the economic impacts of the outbreak of COVID and the steep decline in oil prices that occurred in the early part of 2020. These events have created significant uncertainty and economic volatility and disruption, which have impacted and may continue to impact our business. We have experienced, and may continue to experience, reductions in demand for certain of our services and the delay or abandonment of ongoing or anticipated projects due to our clients’, suppliers’ and other third parties’ diminished financial condition or financial distress, as well as
12
governmental budget constraints. These impacts may continue or worsen under prolonged stay-at-home, social distancing, travel restrictions and other similar orders or restrictions. Significant uncertainty still exists concerning the magnitude of the impact and duration of these events. Because of these events, we performed interim impairment testing of our goodwill, intangible assets and investments during the 2020 Period, pursuant to which we recognized the impairment expense on an equity method investment and IT assets. We also recognized impairment expense on goodwill and intangible assets associated with the Stork business, now included in Disc Ops.
The valuation of our equity method investments utilized unobservable Level 3 inputs based on the investee's forecast of anticipated volumes and overhead absorption in a cyclical business.
Restructuring and Other Exit Costs
During 2019, we initiated a restructuring plan designed to optimize costs and improve operational efficiency. These efforts primarily relate to the rationalization of resources, investments, real estate and overhead across various geographies. Our recognition of costs for the planned restructuring activities was substantially completed by the end of 2020. Restructuring costs of $4
A reconciliation of our restructuring liabilities follows:
| (in thousands) | Severance | Lease Exit Costs | Total | ||||||||
| Balance as of December 31, 2019 | $ | $ | $ | ||||||||
| Restructuring charges accrued during the period | |||||||||||
| Cash payments / settlements during the period | ( | ( | ( | ||||||||
| Currency translation | |||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ||||||||
| Cash payments / settlements during the period | $ | ( | $ | ( | $ | ( | |||||
| Currency translation | ( | ( | |||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ||||||||
6. Income Taxes
7. Cash Paid for Interest and Taxes
| 9ME September 30, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes (net of refunds) | ||||||||
13
8. Partnerships and Joint Ventures
In the normal course of business, we form partnerships or joint ventures primarily for the execution of single contracts or projects. The majority of these partnerships or joint ventures are characterized by a 50 percent or less noncontrolling ownership or participation interest with decision making and distribution of expected gains and losses typically being proportionate to the ownership or participation interest. Many of the partnership and joint venture agreements provide for capital calls to fund operations, as necessary. Accounts receivable related to work performed for unconsolidated partnerships and joint ventures included in “Accounts receivable, net” was $216 million and $207 million as of September 30, 2021 and December 31, 2020, respectively.
One of our more significant joint ventures is COOEC Fluor, in which we have a 49 % ownership interest. COOEC Fluor owns, operates and manages the Zhuhai Fabrication Yard in China’s Guangdong province. We made a capital contribution of $26 million to the joint venture during the first quarter of 2021, which satisfied our contractual funding requirements.
During the 2021 Period, we sold our 10 % ownership interest in an infrastructure joint venture and recognized a gain of $20 million, which was included in Urban Solutions' segment profit. During the 2020 Period, we sold our 50 % ownership interest in Sacyr Fluor and recognized a loss of $11 million, which was included in Energy 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 $82 million and $174 million as of September 30, 2021 and December 31, 2020, 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, 2021 for the unconsolidated VIEs were $57 million.
In some cases, we are required to consolidate certain VIEs. Assets and liabilities associated with the operations of our consolidated VIEs are presented on the 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
10. Contingencies and Commitments
14
The following disclosures for commitments and contingencies have been updated since the matter was presented in the 2020 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. As of May 26, 2020, these complaints have been consolidated into one matter. We filed a motion to dismiss the matter on July 1, 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. 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.
Since September 2018, ten 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, at least while our motion to dismiss was pending in the securities class action matter. We anticipate seeking a further stay 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.
There have been no substantive changes to the disclosures for the following commitments and contingencies since the matter was presented in the 2020 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 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.
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
15
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. 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.
Other Matters
We periodically evaluate our positions and the amounts recognized with respect to all our claims and back charges. As of September 30, 2021 and December 31, 2020, we had recorded $211 million and $216 million, respectively, of claim revenue for costs incurred to date. Additional costs, which will increase the claim revenue balance over time, are expected to be incurred in future periods. We had no material disputed back charges to suppliers or subcontractors as of September 30, 2021 and December 31, 2020.
From time to time, we enter into contracts with the U.S. government and its agencies. Government contracts are subject to audits and reviews by government representatives with respect to our compliance with various restrictions and regulations applicable to government contractors, including but not limited to the allowability of costs incurred under reimbursable contracts. In connection with performing government contracts, we maintain reserves for estimated exposures associated with these matters.
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.
In February 2020, we announced that the SEC is conducting an investigation and has requested documents and information related to projects for which we recorded charges in the second quarter of 2019. In April 2020, Fluor received a subpoena from the U.S. Department of Justice (“DOJ”) seeking documents and information related to the second quarter 2019 charges; certain of the projects associated with those charges; and certain project accounting, financial reporting and governance matters. Such inquiries are ongoing, and we have continued to respond to the SEC and DOJ and cooperate in these investigations.
16
11. Contract Assets and Liabilities
The following summarizes information about our contract assets and liabilities:
| (in millions) | September 30, 2021 | December 31, 2020 | ||||||
| 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) | 2021 | 2020 | ||||||
| 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, 2021 | ||||
| Within 1 year | $ | ||||
| 1 to 2 years | |||||
| Thereafter | |||||
| Total RUPO | $ | ||||
17
13. Debt and Letters of Credit
| (in thousands) | September 30, 2021 | December 31, 2020 | |||||||||
| Borrowings under credit facility | $ | $ | |||||||||
| Current: | |||||||||||
| Other borrowings | $ | $ | |||||||||
| Long-term: | |||||||||||
| Senior Notes | |||||||||||
| 2023 Notes | $ | $ | |||||||||
| Unamortized discount on 2023 Notes | ( | ( | |||||||||
| Unamortized deferred financing costs | ( | ( | |||||||||
| 2024 Notes | |||||||||||
| Unamortized discount on 2024 Notes | ( | ( | |||||||||
| Unamortized deferred financing costs | ( | ( | |||||||||
| 2028 Notes | |||||||||||
| Unamortized discount on 2028 Notes | ( | ( | |||||||||
| Unamortized deferred financing costs | ( | ( | |||||||||
| Total long-term | $ | $ | |||||||||
Credit Facility
As of September 30, 2021, letters of credit totaling $399 million were outstanding under our $1.65 billion credit facility, which matures in February 2023. The credit facility contains customary financial covenants, including a debt-to-capitalization ratio that cannot exceed 0.65 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 $1.25 billion, defined in the amended credit facility. 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, 2021, we could have borrowed an additional $795 million under our existing credit facility.
Uncommitted Lines of Credit
As of September 30, 2021, letters of credit totaling $900 million were outstanding under uncommitted lines of credit, although no amounts were drawn.
Senior Notes
14. Preferred Stock
In May 2021, we issued 600,000 shares of Series A 6.5 % cumulative perpetual CPS in a private placement transaction involving a limited number of qualified institutional buyers.
The preferred stock, with respect to dividend rights or rights upon liquidation, winding-up or dissolution of Fluor, ranks senior to all classes of common stock and to any other class of capital stock or series of preferred stock that may be established (except in certain circumstances). The CPS is, however, junior to our existing and future indebtedness.
18
The preferred stock does not have a maturity date. Cumulative cash dividends on the preferred stock are payable at an annual rate of 6.5 % quarterly in arrears on February 15, May 15, August 15 and November 15, beginning on August 15, 2021, upon declaration of the dividend by our Board of Directors. Dividends accumulate from the most recent date on which dividends have been paid. CPS dividends of $9 million were paid in August 2021. In October 2021, our Board of Directors approved the payment of a preferred stock dividend of $10 million.
Each share of preferred stock has a liquidation preference of $1,000 per share, plus accumulated but unpaid dividends, and is convertible, at the holder's option at any time into 44.9585 shares of our common stock per share of preferred stock. 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 preferred stock 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 preferred stock to be automatically converted into shares of our common stock at the conversion rate, subject to certain conditions (and, if such automatic conversion occurs prior to May 20, 2024, the payment of a cash make-whole premium). If a “make-whole fundamental change” occurs, we will in certain circumstances be required to increase the conversion rate for a holder who elects to convert shares of preferred stock in connection with such make-whole fundamental change.
The shares of preferred stock have no voting rights except if and when dividends on the preferred stock are in arrears and have been unpaid with respect to six or more quarterly dividend payment dates (whether or not consecutive). In such events, the holders of the preferred stock would be entitled to elect two additional directors to the board of directors. Such voting rights are exercisable until all dividends in arrears have been paid in full, at which time the voting rights and the term of the two additional directors terminate.
15. Fair Value Measurements
The following table delineates assets and liabilities that are measured at fair value on a recurring basis:
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Hierarchy | Fair Value Hierarchy | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 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: | ||||||||||||||||||||||||||||||||||||||||||||||||||
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.
We have measured assets and liabilities held for sale and certain other impaired assets at fair value on a nonrecurring basis.
19
The following summarizes information about financial instruments that are not required to be measured at fair value :
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||
| (in thousands) | 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(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
Our executive and director stock-based compensation plans are described more fully in the 2020 10-K. In the 2021 and 2020 Periods, RSUs totaling 596,391 and 1,098,926 were granted to executives and directors at a weighted-average grant date fair value of $18.67 per share and $8.81 per share, respectively.
Stock options for the purchase of 481,626 shares at a weighted-average exercise price of $17.96 per share and 672,309 shares at a weighted-average exercise price of $8.81 were awarded to executives during the 2021 and 2020 Periods, respectively.
Performance-based award units totaling 613,868 and 1,156,365 were awarded to executive officers during the 2021 and 2020 Periods. These awards generally vest after a period of 3 years and contain annual performance conditions for each of the 3 years of the vesting period. Under GAAP, performance-based 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. Accordingly, 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 2021, the following units were granted for GAAP purposes:
| Performance-based Award Units Granted in 2021 | Weighted Average Grant Date Fair Value Per Share | |||||||
| 2021 Performance Award Plan | $ | |||||||
| 2020 Performance Award Plan | $ | |||||||
| 2019 Performance Award Plan | $ | |||||||
20
17. Retirement Plans
Net periodic pension expense for our DB plans includes the following components:
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||||||||
| (in thousands) | Location of Component | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||
| Service cost | Cost of revenue | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest cost | Corp G&A | ||||||||||||||||||||||||||||
| Expected return on assets | Corp G&A | ( | ( | ( | ( | ||||||||||||||||||||||||
| Amortization of prior service credit | Corp G&A | ( | ( | ( | ( | ||||||||||||||||||||||||
| Recognized net actuarial loss | Corp G&A | ||||||||||||||||||||||||||||
| Net periodic pension expense | $ | $ | $ | $ | |||||||||||||||||||||||||
We currently expect to contribute up to $16 million into our DB plans during 2021, which we expect to be in excess of the minimum funding required. During the 2021 Period, we made contributions of approximately $13 million.
In addition to our DB plans, we participate in multiemployer pension plans for unionized construction and maintenance craft employees. Company contributions, based on the hours worked by employees covered under various collective bargaining agreements, are recognized as net periodic pension expense. Upon withdrawal from a multiemployer plan, we may have an obligation to make additional contributions for our share of any unfunded benefit obligation, but only if we do not meet the requirements of any applicable exemptions. For one of our discontinued operations, we participate in one multiemployer plan in which we are aware of a significant unfunded benefit obligation. However, we believe we qualify for an exemption and do not believe we have a probable payment to the plan. Therefore, we have not recognized a liability related to this unfunded benefit obligation.
18. Derivatives and Hedging
Derivatives Designated as Hedges
As of September 30, 2021, we had total gross notional amounts of $473 million of foreign currency contracts outstanding (primarily related to the Canadian Dollar, Chinese Yuan, British Pound, Euro, Indian Rupee and Philippine Peso) that were designated as hedges. These foreign currency contracts are of varying duration, none of which extend beyond December 2024. There were no commodity contracts outstanding that were designated as hedges as of September 30, 2021.
The fair values of derivatives designated as hedging instruments follows:
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||
| (in thousands) | Balance Sheet Location | September 30, 2021 | December 31, 2020 | Balance Sheet Location | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||
| Foreign currency contracts | Other current assets | $ | $ | Other accrued liabilities | $ | $ | ||||||||||||||||||||||||||||||||
| Foreign currency contracts | Other assets | Noncurrent liabilities | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
21
The after-tax amount of gain (loss) recognized in OCI associated with derivative instruments designated as cash flow hedges follows:
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||
| Cash Flow Hedges (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Foreign currency contracts | |||||||||||||||||||||||
| Commodity contracts | ( | ||||||||||||||||||||||
The after-tax amount of gain (loss) reclassified from AOCI into earnings associated with derivative instruments designated as cash flow hedges follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||||||||
| Cash Flow Hedges (in thousands) | Location of Gain (Loss) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||
| Foreign currency contracts | Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Commodity contracts | Cost of revenue | ( | ||||||||||||||||||||||||||||||
| Interest rate contracts | Interest expense | ( | ( | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Derivatives Not Designated as Hedges
As of September 30, 2021, we also had total gross notional amounts of $238 million of foreign currency contracts and $25 million of commodity contracts outstanding that were not designated as hedges. The foreign currency contracts primarily related to contract obligations denominated in nonfunctional currencies. The fair value of derivatives not designated as hedges, as well as the associated gains and losses were not material for any period presented.
19. Other Comprehensive Income (Loss)
The components of OCI follow:
| 3ME September 30, 2021 | 3ME September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 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 | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
22
| 9ME September 30, 2021 | 9ME September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | 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 thousands) | 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 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
23
| (in thousands) | 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 OCI | |||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| (in thousands) | 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, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| OCI before reclassifications | ( | ||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ||||||||||||||||||||||||||||
| Net OCI | ( | ||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Attributable to NCI: | |||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| OCI before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net OCI | ( | ( | |||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
24
| (in thousands) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ OCI | DB Plans | Unrealized Gain (Loss) on Hedges | AOCI, Net | ||||||||||||||||||||||||
| Attributable to Fluor Corporation: | |||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| OCI before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ||||||||||||||||||||||||||||
| Net OCI | ( | ( | ( | ||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Attributable to NCI: | |||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
| OCI before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | ( | $ | $ | $ | $ | ( | ||||||||||||||||||||||
Information about reclassifications out of AOCI follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||||||||
| (in thousands) | Location in Statement of Operations | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
25
20. Discontinued Operations
In the first quarter of 2021, we committed to a plan to sell our Stork business, which had previously represented the majority of operations from our former diversified services segment. We sold the North American operations of the AMECO equipment business in May 2021 for $71 million and recognized a loss on the sale of $25 million. Smaller AMECO operations in South America and Africa remain held for sale.
Impairment expense, included in Disc Ops, is summarized as follows:
| 3ME September 30, 2021 | 9ME September 30, 2021 | 9ME September 30, 2020 | |||||||||||||||||||||||||||||||||
| (in thousands) | Stork | AMECO | Stork | AMECO | Stork | AMECO | |||||||||||||||||||||||||||||
Impairment expense: (1) | |||||||||||||||||||||||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Intangible customer relationships | |||||||||||||||||||||||||||||||||||
| Fair value adjustment and expected costs associated with sale | |||||||||||||||||||||||||||||||||||
| Total impairment expense | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The fair value of the AMECO assets were determined using a combination of observable level 2 inputs, including indicative offers and ongoing negotiations for the related assets.
The fair value of the Stork assets were determined using an income based approach that utilized unobservable Level 3 inputs, including significant management assumptions such as expected awards, forecasted revenue and operating margins, weighted average cost of capital, working capital assumptions and general market trends and conditions.
The customer relationships' valuation approach utilized unobservable Level 3 inputs including ranges of assumptions of long-term revenue growth from 2 % to 5.5 % with a weighted average of 2.4 %, weighted average cost of capital of 12 % and a customer attrition factor of 10 %.
26
Disc Ops information follows:
| 3ME September 30, 2021 | 3ME September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Stork | AMECO | Other | Total | Stork | AMECO | Other | Total | |||||||||||||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| G&A | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Impairment expense | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency gain (loss) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest (expense) income, net | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) before taxes from Disc Ops | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Less: Net earnings (loss) from Disc Ops attributable to NCI | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Disc Ops attributable to Fluor | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||
| 9ME September 30, 2021 | 9ME September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Stork | AMECO | Other | Total | Stork | AMECO | Other | Total | ||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| G&A | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Impairment expense | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Loss on sale of AMECO North America | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency gain (loss) | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Interest (expense) income, net | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Earnings (loss) before taxes from Disc Ops | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Disc Ops | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Less: Net earnings (loss) from Disc Ops attributable to NCI | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Disc Ops attributable to Fluor | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||||||
27
The following summarizes information related to assets and liabilities classified as held for sale:
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Stork | AMECO | Other | Total from Disc Ops | Other Assets and Liabilities from Cont Ops | Total | Stork | AMECO | Other | Total from Disc Ops | Other Assets and Liabilities from Cont Ops | Total | |||||||||||||||||||||||||||||
| Accounts receivable, net | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Contract assets | |||||||||||||||||||||||||||||||||||||||||
| Other current assets | |||||||||||||||||||||||||||||||||||||||||
| Current assets held for sale | |||||||||||||||||||||||||||||||||||||||||
| PP&E, net | |||||||||||||||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||||||||||||||
| Investments | |||||||||||||||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||||||||||||||
Noncurrent assets held for sale(1) | |||||||||||||||||||||||||||||||||||||||||
| Total assets held for sale | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Accounts payable | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Short-term borrowings | |||||||||||||||||||||||||||||||||||||||||
| Contract liabilities | |||||||||||||||||||||||||||||||||||||||||
| Accrued salaries, wages and benefits | |||||||||||||||||||||||||||||||||||||||||
| Other accrued liabilities | |||||||||||||||||||||||||||||||||||||||||
| Current liabilities held for sale | |||||||||||||||||||||||||||||||||||||||||
Noncurrent liabilities held for sale(1) | |||||||||||||||||||||||||||||||||||||||||
| Total liabilities held for sale | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1) Noncurrent assets and liabilities held for sale as of September 30, 2021 are reported as current given the expected sale timing.
| 9ME September 30, | |||||||||||||||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Stork | AMECO | Total | Stork | AMECO | Total | |||||||||||||||||||||||||||||
| Capital expenditures | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
28
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 2020 10-K. Except as the context otherwise requires, the terms Fluor or the Registrant, as used herein, are references to Fluor and its predecessors 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 revenue and earnings levels, cash flow and liquidity, new awards 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 wish to caution readers that forward-looking statements, including disclosures which use words such as we “believe,” “anticipate,” “expect,” “estimate” and similar statements, are subject to various risks and uncertainties which could cause actual results of operations to differ materially from expectations. Factors potentially contributing to such differences include, among others:
•The severity and duration of the COVID pandemic and actions by governments, businesses and individuals in response to the pandemic;
•The cyclical nature of many of the markets we serve and our clients' vulnerability to downturns, which may result in decreased capital investment or expenditures and reduced demand for our services;
•Our failure to receive anticipated new contract awards and the related impact on revenue, earnings, staffing levels and cost;
•Failure to accurately estimate the cost and schedule for our contracts, resulting in cost overruns or liabilities, including those related to project delays and those caused by the performance of our clients, subcontractors, suppliers and joint venture or teaming 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, resulting in reduced profits or losses;
•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, resulting in unanticipated losses;
•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;
•Inability to maintain safe work sites;
•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 liability claims by our clients;
•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;
•Uncertainties, restrictions and regulations impacting our government contracts;
•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;
•Possible systems and information technology interruptions;
•The impact of anti-bribery and international trade laws and regulations;
•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 failure to adequately protect intellectual property rights;
•Impairments to goodwill, investments, deferred tax assets or other intangible assets;
•The availability of credit and restrictions imposed by credit facilities, both for us and our clients, suppliers,
subcontractors or other partners;
•Possible limitations of bonding or letter of credit capacity;
29
•Failure to obtain favorable 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;
•Failure to successfully implement our strategic and operational initiatives;
•The risks associated with acquisitions, dispositions or other investments, including the failure to successfully integrate acquired businesses; and
•Restrictions on possible transactions imposed by our charter documents and Delaware law.
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 can be no assurance that future developments affecting us will be those anticipated by us. Any forward-looking statements are subject to the risks, uncertainties and other factors that could cause actual results of operations, financial condition, cost reductions, acquisitions, dispositions, financing transactions, operations, expansion, consolidation and other events to differ materially from those expressed or implied in such forward-looking statements.
Our actual results may differ materially from our expectations or projections. While most risks affect only future cost or revenue, some risks may relate to accruals that have already been reflected in earnings. Our failure to receive payments of accrued amounts or incurrence of liabilities in excess of amounts previously recognized could result in future charges. As a result, readers should recognize and consider the inherently uncertain nature of forward-looking statements and not place undue reliance on them.
Additional information concerning these and other factors can be found in our press releases and periodic filings with the SEC, including the 2020 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) 398-7070. 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
During the first quarter of 2021, we changed the composition of our segments to implement our new strategy and to pursue opportunities in our designated markets. We now report our operating results in four reportable segments as follows: Energy Solutions, Urban Solutions, Mission Solutions and Other. Segment operating information and assets for 2020 have been recast to conform to these changes.
In the first quarter of 2021, we also committed to a plan to sell our Stork business, which had previously represented the majority of operations from our former diversified services segment. The sale of the majority of the AMECO equipment business was completed during May 2021. Therefore, both Stork and AMECO are reported as Disc Ops along with other immaterial operations. We expect to complete the sale of Stork and the remaining AMECO operations near the end of this year or early in 2022. The assets and liabilities of the Stork and AMECO businesses are classified as held for sale for all periods presented.
30
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||
| Energy Solutions | $ | 1,365.4 | $ | 1,337.9 | $ | 3,675.4 | $ | 4,195.2 | ||||||||||||||||||||||||||||||
| Urban Solutions | 1,014.7 | 1,329.4 | 3,419.2 | 4,434.2 | ||||||||||||||||||||||||||||||||||
| Mission Solutions | 723.0 | 789.6 | 2,183.4 | 2,260.2 | ||||||||||||||||||||||||||||||||||
| Total revenue | $ | 3,103.1 | $ | 3,456.9 | $ | 9,278.0 | $ | 10,889.6 | ||||||||||||||||||||||||||||||
| Segment profit (loss) $ and margin % | ||||||||||||||||||||||||||||||||||||||
| Energy Solutions | $ | 72.5 | 5.3 | % | $ | 96.2 | 7.2 | % | $ | 183.9 | 5.0 | % | $ | 133.0 | 3.2 | % | ||||||||||||||||||||||
| Urban Solutions | 17.8 | 1.8 | % | 29.3 | 2.2 | % | (20.8) | (0.6) | % | 119.2 | 2.7 | % | ||||||||||||||||||||||||||
| Mission Solutions | 27.9 | 3.9 | % | 24.5 | 3.1 | % | 116.5 | 5.3 | % | 66.3 | 2.9 | % | ||||||||||||||||||||||||||
| Other | (8.2) | NM | (21.6) | NM | (42.4) | NM | (62.9) | NM | ||||||||||||||||||||||||||||||
Total segment profit (loss) $ and margin %(1) | $ | 110.0 | 3.5 | % | $ | 128.4 | 3.7 | % | $ | 237.2 | 2.6 | % | $ | 255.6 | 2.3 | % | ||||||||||||||||||||||
| G&A | (42.4) | (36.7) | (139.4) | (112.9) | ||||||||||||||||||||||||||||||||||
| Impairment, restructuring and other exit costs | — | — | (26.4) | (106.2) | ||||||||||||||||||||||||||||||||||
| Foreign currency gain (loss) | 37.5 | (29.8) | (4.2) | 16.2 | ||||||||||||||||||||||||||||||||||
| Interest expense, net | (31.4) | (11.9) | (59.3) | (26.9) | ||||||||||||||||||||||||||||||||||
| Earnings (loss) from Cont Ops attributable to NCI | (3.5) | 4.2 | 21.5 | 19.7 | ||||||||||||||||||||||||||||||||||
| Earnings (loss) from Cont Ops before taxes | 70.2 | 54.2 | 29.4 | 45.5 | ||||||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (27.0) | (28.5) | (28.8) | 2.4 | ||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops | $ | 43.2 | $ | 25.7 | $ | 0.6 | $ | 47.9 | ||||||||||||||||||||||||||||||
| Less: Net earnings (loss) from Cont Ops attributable to NCI | (3.5) | 4.2 | 21.5 | 19.7 | ||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops attributable to Fluor | $ | 46.7 | $ | 21.5 | $ | (20.9) | $ | 28.2 | ||||||||||||||||||||||||||||||
| Less: Dividends on CPS | 9.8 | — | 14.6 | — | ||||||||||||||||||||||||||||||||||
| Net earnings (loss) from Cont Ops available to Fluor common stockholders | $ | 36.9 | $ | 21.5 | $ | (35.5) | $ | 28.2 | ||||||||||||||||||||||||||||||
| New awards | ||||||||||||||||||||||||||||||||||||||
| Energy Solutions | $ | 644.1 | $ | 141.2 | $ | 2,914.1 | $ | 1,880.8 | ||||||||||||||||||||||||||||||
| Urban Solutions | 781.4 | 950.8 | 2,459.9 | 3,349.2 | ||||||||||||||||||||||||||||||||||
| Mission Solutions | 1,610.3 | 187.8 | 2,694.5 | 1,813.1 | ||||||||||||||||||||||||||||||||||
| Total new awards | $ | 3,035.8 | $ | 1,279.8 | $ | 8,068.5 | $ | 7,043.1 | ||||||||||||||||||||||||||||||
| New awards related to projects located outside of the U.S. | 55% | 50% | ||||||||||||||||||||||||||||||||||||
31
| Backlog | September 30, 2021 | December 31, 2020 | ||||||||||||
| Energy Solutions | $ | 9,804.5 | $ | 11,020.5 | ||||||||||
| Urban Solutions | 7,827.5 | 9,224.1 | ||||||||||||
| Mission Solutions | 3,395.0 | 2,899.5 | ||||||||||||
| Total backlog | $ | 21,027.0 | $ | 23,144.1 | ||||||||||
| Backlog related to projects located outside of the U.S. | 64% | 64% | ||||||||||||
| Backlog related to lump-sum projects | 61% | 60% | ||||||||||||
(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.
Our business has been adversely affected by the impacts of COVID and the steep decline in oil prices that occurred in early 2020. These events created significant uncertainty and economic volatility and disruption, which have impacted and may continue to impact our business. We experienced reductions in demand for certain services and the delay or abandonment of ongoing or anticipated projects due to our clients’, suppliers’ and other third parties’ diminished financial condition. Although oil prices have rebounded in 2021, we have not yet seen our energy clients respond with elevated capital expenditures for our services. Our estimates reflect our best assessment of project results inclusive of COVID effects, which have been dynamic as our projects have seen changes in prevailing regulations as COVID cases crested and fell.
During the 2021 Quarter and 2021 Period, consolidated revenue declined primarily due to volume declines on projects which were completed or nearing completion across all segments.
During the 2021 Quarter, improvements in segment profit in the Mission Solutions and Other segments were offset by declines in segment profit for Energy Solutions and Urban Solutions due to cost increases for schedule delays and productivity on a light rail project. During the 2021 Period, improvements in segment profit in the Energy Solutions, Mission Solutions and Other segments were offset by a significant decline in segment profit for Urban Solutions where we recognized a $138 million charge in the second quarter of 2021 for procurement and subcontractor cost growth on a legacy infrastructure project.
We did not recognize any impairment expense in Cont Ops during the 2021 and 2020 Quarters. Impairment expense, included in Cont Ops, for the 2021 and 2020 Periods is summarized as follows:
| 9ME September 30, | |||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | |||||||||||||||||||||
| Impairment expense: | |||||||||||||||||||||||
| Energy Solutions' equity method investment | $ | 26,392 | $ | 86,096 | |||||||||||||||||||
| Information technology assets | — | 16,269 | |||||||||||||||||||||
| Total impairment expense | $ | 26,392 | $ | 102,365 | |||||||||||||||||||
We sold the North American operations of the AMECO equipment business in May 2021 for $71 million and recognized loss on the sale of $25 million. Impairment expense, included in Disc Ops, is summarized as follows:
| 3ME September 30, 2021 | 9ME September 30, 2021 | 9ME September 30, 2020 | |||||||||||||||||||||||||||||||||
| (in thousands) | Stork | AMECO | Stork | AMECO | Stork | AMECO | |||||||||||||||||||||||||||||
| Impairment expense: | |||||||||||||||||||||||||||||||||||
| Goodwill | $ | — | $ | — | $ | 12,700 | $ | — | $ | 168,568 | $ | 12,300 | |||||||||||||||||||||||
| Intangible customer relationships | — | — | — | — | 26,671 | — | |||||||||||||||||||||||||||||
| Fair value adjustment and expected costs associated with sale | — | 4,809 | 60,500 | 53,085 | — | 87,700 | |||||||||||||||||||||||||||||
| Total impairment expense | $ | — | $ | 4,809 | $ | 73,200 | $ | 53,085 | $ | 195,239 | $ | 100,000 | |||||||||||||||||||||||
32
The effective tax rate on earnings (loss) from Cont Ops was 38.4% for the 2021 Quarter and 97.8% for the 2021 Period compared to 52.6% and (5.3)% for the corresponding periods of 2020. For all periods, the effective tax rate was unfavorably impacted by increases in the valuation allowances against foreign tax credit carryforwards and certain foreign net operating loss carryforwards. The 2021 Period unfavorable impact was partially offset by favorable foreign tax rate differentials. The effective tax rate in the 2020 Period was favorably impacted by the release of valuation allowances and rate benefits resulting from the carryback of our 2019 federal net operating loss as allowed by the CARES Act. Earnings attributable to non-controlling interests from continuing operations, for which income taxes are not typically our responsibility, favorably impacted the effective tax rate for the 2021 Period.
Any lack of broad based new awards could pressure our future earning streams. The decline in backlog during the 2021 Period primarily resulted from the removal of approximately $2 billion from backlog due to the cancellation of both a chemicals project and a steel project. 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 2021 Quarter to the 2020 Quarter and the 2021 Period to the 2020 Period
Energy Solutions
Revenue for the 2021 Period decreased due to declines in the volume of execution activities for the portfolio continuing to be impacted by COVID and other market migration toward energy transition, projects nearing completion as well as the cancellation of a chemicals project in North America. The revenue decline in the 2021 Period was partially offset by the ramp up of execution activities on an LNG project, a chemicals project and a refinery project in Mexico.
Segment profit for the 2021 Quarter decreased due to cost increases and foreign currency losses on an international upstream project and reduced execution activities on a separate upstream project partially offset by gains on embedded foreign currency derivatives. Segment profit for the 2021 Period increased due to the negotiation of change orders, scope increases and cost improvements across numerous projects, the ramp up of execution activities on the projects discussed in the revenue paragraph above, and the collection of previously reserved accounts receivable but was partially offset by losses on embedded foreign currency derivatives and the decline in execution activity for projects nearing completion. Segment profit for the 2020 Period was adversely affected by the recognition of reserves for expected credit losses on aged receivables and COVID related cost growth. The change in segment profit margin reflects these same factors.
New awards for the 2021 Quarter and 2021 Period increased due to awards for a refinery project in Mexico. Backlog decreased during the 2021 Period primarily due to the cancellation of the chemicals project in North America.
Urban Solutions
Revenue for the 2021 Quarter and 2021 Period decreased due to the close out of data center projects in Europe and mining projects in South America and Australia as well as the cancellation of a rail project and a steel project that were in progress in the prior year periods. The revenue declines in 2021 were partially offset by the ramp up of execution activities on other projects across the segment.
Segment profit for the 2021 Quarter declined due to forecast revisions for schedule delays and productivity on a light rail project. The significant decline in segment profit during the 2021 Period was due to forecast revisions for procurement and subcontractor cost growth, delays and disruptions in schedule of a legacy infrastructure project, resulting in a charge of $138 million recognized in the second quarter of 2021. We believe that these cost growth factors may be at least partially recoverable under the contract. However, we expect that it will require several quarters to analyze recoverability and negotiate with our client before recognizing incremental revenue for these factors. The decline in segment profit in the 2021 Period was partially offset by the favorable resolution of a long-standing customer dispute on a rail project as well as a gain on the sale of our interest in an infrastructure joint venture. The change in segment profit margin reflects these same factors.
New awards for the 2021 Quarter and 2021 Period decreased partly due to delayed procurement efforts by many of our clients. New awards in the 2021 Period included a large life sciences project in Europe. Backlog declined during the 2021 Period due to the cancellation of a steel project coupled with lower new awards. Our staffing business does not report new awards or backlog.
33
Mission Solutions
Revenue for the 2021 Quarter and 2021 Period decreased slightly due to the closure of the army logistics and life support program in Afghanistan. The decline in revenue for LOGCAP was partially offset by the ramp up of execution activities on a newly awarded project to provide contingency and humanitarian support for Afghan evacuees in the United States.
The increase in segment profit for the 2021 Quarter and 2021 Period was substantially driven by increased execution activity on our DOE projects, higher than anticipated performance-based fees and the release of COVID cost reserves, partially offset by the decline in execution activity on the army logistics and life support program in Afghanistan. Segment profit also benefitted from the collection of previously reserved accounts receivable and the reversal of the related provision. The change in segment profit margin reflects these same factors.
New awards in the 2021 Quarter increased due to an extension of an environmental management contract (a similar extension was booked in the second quarter of the prior year) and a new award to provide contingency and humanitarian support for Afghan evacuees in the United States. New awards in the 2021 Period increased due to extensions on certain DOE projects as well as the new award for contingency and humanitarian support for Afghan evacuees. Backlog increased during the 2021 Period due to the increase in new award activity. Backlog included $986 million and $1.0 billion of unfunded government contracts as of September 30, 2021 and December 31, 2020, 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. NuScale expenses included in the determination of segment loss were as follows:
| 3ME September 30, | 9ME September 30, | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| NuScale expenses | $ | (42.9) | $ | (43.3) | $ | (122.6) | $ | (119.2) | ||||||||||||||||||
| Less: DOE reimbursable expenses | 18.1 | 20.4 | 49.9 | 53.8 | ||||||||||||||||||||||
| NuScale expenses, net | (24.8) | (22.9) | (72.7) | (65.4) | ||||||||||||||||||||||
| Less: Attributable to NCI | 16.6 | 1.3 | 30.3 | 2.5 | ||||||||||||||||||||||
| Fluor segment loss | $ | (8.2) | $ | (21.6) | $ | (42.4) | $ | (62.9) | ||||||||||||||||||
During the 2021 Period, NuScale received $193 million in capital contributions from outside investors. As of September 30, 2021, Fluor had an approximate 80% ownership in NuScale. Fluor and its advisors continue to engage with potential investors and capital providers to fund NuScale's path to commercialization.
G&A
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| G&A | |||||||||||||||||||||||
| Compensation | $ | 22.4 | $ | 12.9 | $ | 103.9 | $ | 58.3 | |||||||||||||||
| Severance | 4.4 | 0.5 | 6.7 | 2.6 | |||||||||||||||||||
| SEC investigation / Internal review costs | 6.3 | 18.3 | 10.1 | 31.6 | |||||||||||||||||||
| Other | 9.3 | 5.0 | 18.7 | 20.4 | |||||||||||||||||||
| G&A | $ | 42.4 | $ | 36.7 | $ | 139.4 | $ | 112.9 | |||||||||||||||
The increase in compensation expense during the 2021 Quarter and 2021 Period was due to both performance driven compensation including annual bonus projections and stock price driven compensation on liability awards.
The internal review began in the first quarter of 2020 and was substantially completed in the fourth quarter of 2020.
34
We announced in January 2021 that we had begun an undertaking to substantially reduce our overhead costs. Although we have not satisfied the requirements to recognize charges for any restructurings for the 2021 undertaking, we are likely to recognize expense in future quarters for these efforts.
Net Interest Expense
| 3ME September 30, | 9ME September 30, | ||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net interest expense | |||||||||||||||||||||||
| Recurring interest expense | $ | 16.0 | $ | 15.7 | $ | 50.0 | $ | 47.9 | |||||||||||||||
| Costs to refinance our credit facility | — | — | 2.0 | — | |||||||||||||||||||
| Loss on debt repurchases | 19.6 | — | 19.6 | — | |||||||||||||||||||
| Interest income | (4.2) | (3.8) | (12.3) | (21.0) | |||||||||||||||||||
| Net interest expense | $ | 31.4 | $ | 11.9 | $ | 59.3 | $ | 26.9 | |||||||||||||||
The loss on debt repurchases includes costs to redeem $509 million of 2023 and 2024 Notes through a tender offer completed in September 2021 as well as through open market transactions following the issuance of the CPS in the second quarter of 2021.
The decrease in interest income during the 2021 Period was primarily driven by lower interest rates in 2021 compared to 2020.
Critical Accounting Estimates
Fair Value Measurements. During the first quarter of 2021, we performed interim impairment testing of our goodwill associated with Stork and recognized impairment expense of $13 million, which was included in Disc Ops. All other factors being equal, a one hundred basis point change in the discount rate used in the valuation of goodwill would change the fair value by $25 million.
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 FINANCIAL CONDITION
Our liquidity is provided by 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, but we do have our credit facility and our 2023 Notes maturing in the next 24 months. We regularly review our sources and uses of liquidity and may pursue opportunities to increase our liquidity position to address upcoming maturities.
As of September 30, 2021, letters of credit totaling $399 million were outstanding under our $1.65 billion credit facility, which matures in February 2023. The credit facility contains customary financial covenants, including a debt-to-capitalization ratio that cannot exceed 0.65 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 $1.25 billion, defined in the amended credit facility. 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, 2021, we could have borrowed an additional $795 million under our existing credit facility.
Our liquidity has been significantly impacted by the CPS issuance during the second quarter of 2021 and the debt repurchases made in the 2021 Period. Both are more fully described in Financing Activities below. Following the debt
35
repurchases, we plan to review options for managing the maturity of the remaining outstanding indebtedness under the 2023 and 2024 Notes. We also expect to extend our credit facility (or enter into a new facility) with a longer term.
Cash and cash equivalents combined with marketable securities were $2.2 billion as of both September 30, 2021 and December 31, 2020. 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 $1.0 billion and $984 million as of September 30, 2021 and December 31, 2020, respectively. Non-U.S. cash and cash equivalents exclude deposits of U.S. legal entities that are either swept into overnight, offshore accounts or invested in offshore, 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 $701 million and $655 million as of September 30, 2021 and December 31, 2020, respectively) were not necessarily readily available for general purposes. We also consider the extent to which client advances (which totaled $63 million and $80 million as of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, other than unremitted earnings required to meet our working capital and long-term investment needs in non-U.S. jurisdictions where we operate.
Cash Flows
| 9ME September 30, | ||||||||||||||
| (in thousands) | 2021 | 2020 | ||||||||||||
| OPERATING CASH FLOW | $ | (219,549) | $ | 144,240 | ||||||||||
| INVESTING CASH FLOW | ||||||||||||||
| Proceeds from sales and maturities (purchases) of marketable securities | (43,747) | (10,250) | ||||||||||||
| Capital expenditures | (54,550) | (80,786) | ||||||||||||
| Proceeds from sales of assets incl. AMECO-North America | 125,374 | 54,849 | ||||||||||||
| Investments in partnerships and joint ventures | (79,847) | (25,252) | ||||||||||||
| Other | (12,169) | 4,690 | ||||||||||||
| Investing cash flow | (64,939) | (56,749) | ||||||||||||
| FINANCING CASH FLOW | ||||||||||||||
| Proceeds from issuance of CPS | 582,000 | — | ||||||||||||
| Purchases and retirement of debt | (525,212) | — | ||||||||||||
| Dividends paid (on CPS in 2021 and common stock in 2020) | (9,425) | (28,720) | ||||||||||||
| Other borrowings (debt repayments) | (6,673) | 13,527 | ||||||||||||
| Distributions paid to NCI | (20,158) | (19,288) | ||||||||||||
| Capital contributions by NCI | 201,511 | 82,109 | ||||||||||||
| Other | (3,953) | (1,669) | ||||||||||||
| Financing cash flow | 218,090 | 45,959 | ||||||||||||
| Effect of exchange rate changes on cash | (6,868) | (36,867) | ||||||||||||
| Increase (decrease) in cash and cash equivalents | (73,266) | 96,583 | ||||||||||||
| Cash and cash equivalents at beginning of period | 2,198,781 | 1,997,199 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 2,125,515 | $ | 2,093,782 | ||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest | $ | 80,796 | $ | 54,677 | ||||||||||
| Income taxes (net of refunds) | 59,246 | 29,367 | ||||||||||||
36
Operating Activities
Cash flows from operating activities result primarily from our EPC activities and are affected by 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 payments 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, 2021, our backlog included $1.1 billion for loss projects which are expected to have a negative impact on our operating cash flow in future periods.
Our operating cash flow for the 2021 Period was negatively impacted by increased funding of COVID costs on our projects, higher cash payments of G&A (including the timing and extent of employee bonuses) and increased tax payments, most of which occurred in the first quarter of 2021. An increase in working capital for several large projects also contributed to the decline in operating cash flow.
We contributed $13 million into our DB plans during both the 2021 and 2020 Periods. We expect to contribute up to $16 million to our DB plans during 2021, which is expected to be in excess of the minimum funding required. The remaining obligations under our Dutch DB plan may be settled in late 2021, subject to regulatory approval. If the plan is settled, we expect that any deferred pension costs in AOCI would be reclassified to earnings upon settlement. For one of our discontinued operations, we participate in one multiemployer plan in which we are aware of a significant unfunded benefit obligation. However, we believe we qualify for an exemption and do not believe we have a probable payment to the plan. Therefore, we have not recognized a liability related to this unfunded benefit obligation.
NuScale expenses were $123 million and $119 million for the 2021 Period and 2020 Period, respectively, and were reported net of qualified reimbursable expenses of $50 million and $54 million during the 2021 Period and 2020 Period, respectively.
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 during the 2021 Period 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 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 during the 2021 Period. During the 2020 Quarter, we sold substantially all of the assets of our AMECO equipment business in Jamaica as well as 100% of our interest in an equipment rental business in Europe.
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 recently formed Mission Solutions joint venture. Investments in unconsolidated partnerships and joint ventures in the 2020 Period primarily consist of capital contributions to an infrastructure joint venture in the United States.
Financing Activities
In May 2021, we issued 600,000 shares of Series A 6.5% cumulative perpetual CPS in a private placement transaction involving a limited number of qualified institutional buyers. Each share of preferred stock has a liquidation preference of $1,000 per share, plus accumulated but unpaid dividends, and is convertible, at the holder's option at any time into 44.9585
37
shares of our common stock per share of preferred stock. Cumulative cash dividends on the preferred stock are payable at an annual rate of 6.5% quarterly in arrears on February 15, May 15, August 15, and November 15, beginning on August 15, 2021, upon declaration of the dividend by our Board of Directors. We are not permitted to declare or pay dividends on our common stock unless all accumulated and unpaid dividends on the preferred stock have been declared and paid. Assuming that our Board of Directors approves dividends, the preferred stock will require approximately $39 million of annual dividend payments. Moreover, the issuance created added complexity to our quarterly EPS calculations. Accordingly, in determining our diluted earnings impact of the preferred stock, we will now assess the correlation between net earnings attributable to Fluor and dividends on the preferred stock as well as the effect of conversions of the preferred stock into our common stock, which could represent up to 27 million potentially dilutive shares.
Each share of CPS is convertible at the holder's option at any time into 44.9585 shares (the conversion rate) of our common stock (equivalent to an initial conversion price of $22.24 per share). After May 20, 2022 and before May 2024, we may elect to cause each share of CPS to convert into our common stock at the conversion rate, subject to certain conditions including a make-whole premium before May 2024, if our closing price per common share of our stock exceeds $28.92 for 20 consecutive trading days. After May 2024, we could make a similar election if our closing price per common share of our stock exceeds $22.24 for 20 consecutive trading days.
Dividends on the CPS were declared and paid in August 2021. Quarterly cash dividends of $0.10 per common share were declared in the fourth quarter of 2019 and paid in the first quarter of 2020. We suspended our common stock cash dividend during April 2020. The payment and level of future cash dividends is subject to the discretion of our Board of Directors.
In September 2021, we completed a tender offer in which we repurchased $375 million (face value) of 2023 Notes and $108 million (face value) 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 used the proceeds from the issuance of preferred stock to redeem the 2023 and 2024 Notes. We recognized $20 million in losses related to these redemptions which is included in interest expense.
Other borrowings (debt repayments)represent short-term bank loans and other financing arrangements associated with Stork.
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 2021 Period primarily related to a transportation joint venture project in the United States. Distributions in the 2020 Period primarily related to a mining joint venture in Chile.
Capital contributions by NCI during the 2021 Period primarily related to new investments totaling $193 million by NuScale's NCI holders. These contributions eliminated the need for any contributions to NuScale by us in the 2021 Period. Fluor and its advisors continue to engage with potential investors and capital providers to fund NuScale's path to commercialization. Capital contributions by NCI during the 2020 Period primarily related to 3 transportation joint venture projects.
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, 2021, 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
Letters of Credit
As of September 30, 2021, letters of credit totaling $399 million were outstanding under committed lines of credit, and letters of credit totaling $900 million were outstanding under uncommitted lines of credit. Letters of credit are provided in the ordinary course of business primarily 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 $13 billion as of September 30, 2021.
38
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 a socially, economically and environmentally responsible manner to the benefit of current and future generations, thereby creating value for all stakeholders. We help clients safeguard the environment, conserve energy, protect lives and strengthen economies and social structures of communities.
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.
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, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to market risk during the 2021 Period. Accordingly, the disclosures provided in the 2020 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.
39
FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
UNAUDITED
| 3ME September 30, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Backlog, June 30 | $ | 21,073.9 | $ | 26,802.7 | ||||||||||
| New awards | 3,035.8 | 1,279.8 | ||||||||||||
| Adjustments and cancellations, net | (5.1) | 813.5 | ||||||||||||
| Work performed | (3,077.6) | (3,432.9) | ||||||||||||
| Backlog, September 30 | $ | 21,027.0 | $ | 25,463.1 | ||||||||||
| 9ME September 30, | ||||||||||||||
| (in millions) | 2021 | 2020 | ||||||||||||
| Backlog, January 1 | $ | 23,144.1 | $ | 29,392.3 | ||||||||||
| New awards | 8,068.5 | 7,043.1 | ||||||||||||
Adjustments and cancellations, net (1) | (986.0) | (169.9) | ||||||||||||
| Work performed | (9,199.6) | (10,802.4) | ||||||||||||
| Backlog, September 30 | $ | 21,027.0 | $ | 25,463.1 | ||||||||||
(1) During the 2021 Period, we removed $2 billion from backlog due to the cancellation of a steel project and a chemicals project.
40
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 2020 10-K and Part I, Item 1 of this Q3 2021 10-Q.
Item 1A. Risk Factors
There have been no material changes from our risk factors as disclosed in the 2020 10-K other than for the addition below which is unchanged from its inclusion in the 10-Q for the quarter ended June 30, 2021:
Conversion of our CPS will dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.
In May 2021, we issued shares of Series A CPS. The conversion of some or all of the preferred stock into our common stock will dilute the ownership interests of existing common stockholders. Any public market sales of the common stock issuable upon conversion could adversely affect the market price of our common stock.
Our CPS has rights, preferences and privileges that are not held by, and are preferential to the rights of, our common stockholders, which could adversely affect the value of the common stock, our liquidity and our financial condition.
Holders of our preferred stock have the right to receive a payment of $1,000 per share, plus accumulated but unpaid dividends, upon our liquidation, winding up or dissolution before any payment may be made to holders of our common stock and other potentially issuable forms of equity. In addition, dividends on the preferred stock accrue and are cumulative at an annual rate of 6.50%. Subject to certain exceptions, we are not permitted to declare or pay dividends on common stock or other classes of equity that are junior to the preferred stock unless all accumulated and unpaid preferred stock dividends have been satisfied.
If dividends on the preferred stock are in arrears and unpaid for six or more quarterly dividend periods, the preferred stockholders will be entitled to elect two additional directors to our board of directors. Such voting rights and the terms of the directors so elected will continue until such time as the dividend arrearage has been rectified. In addition, holders of at least 66⅔% of the outstanding preferred stock is required to issue any equity senior to them.
These dividend obligations could impact our liquidity available for other purposes. Our obligations to and the rights of the preferred stockholders could also limit our ability to obtain additional financing, which could have an adverse effect on our financial condition. The preferred stockholders could also have divergent interests from the holders of our common stock.
Provisions attendant to our preferred stock may deter or prevent a business combination that may be favorable to our stockholders.
If a make-whole fundamental change, as defined in the certificate of designations for the preferred stock, occurs, we will in some cases be required to increase the conversion rate for a preferred stockholder that elects to convert to common stock in connection with the make-whole fundamental change. These and other provisions attendant to the preferred stock could deter or prevent a third party from acquiring us even when the acquisition may be favorable to our stockholders.
41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table provides information for the quarter ended September 30, 2021 about purchases by the company of our common stock that has 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, 2021 | — | $ | — | — | 10,513,093 | |||||||||||||||||||||
| August 1 — August 31, 2021 | — | — | — | 10,513,093 | ||||||||||||||||||||||
| September 1 — September 30, 2021 | — | — | — | 10,513,093 | ||||||||||||||||||||||
| Total | — | $ | — | — | ||||||||||||||||||||||
_________________________________________________________
(1) The share repurchase program, as amended, totals 34,000,000 shares of our common stock. 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.
42
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 2021 10-Q for the three and nine months ended September 30, 2021, formatted in Inline XBRL (included in the Exhibit 101 attachments).* | |||||||
_______________________________________________________________________
* New exhibit filed with this report.
43
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 5, 2021 | By: | /s/ Joseph L. Brennan | ||||||||
| Joseph L. Brennan | |||||||||||
| Chief Financial Officer | |||||||||||
| Date: | November 5, 2021 | By: | /s/ John C. Regan | ||||||||
| John C. Regan | |||||||||||
| Chief Accounting Officer | |||||||||||
44
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David E. Constable, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fluor Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | November 5, 2021 | By: | /s/ David E. Constable | ||||||||
| David E. Constable | |||||||||||
| Chief Executive Officer | |||||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph L. Brennan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fluor Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | November 5, 2021 | By: | /s/ Joseph L. Brennan | ||||||||
| Joseph L. Brennan | |||||||||||
| Chief Financial Officer | |||||||||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fluor Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
• the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | November 5, 2021 | By: | /s/ David E. Constable | ||||||||
| David E. Constable | |||||||||||
| Chief Executive Officer | |||||||||||
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Fluor Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
• the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | November 5, 2021 | By: | /s/ Joseph L. Brennan | ||||||||
| Joseph L. Brennan | |||||||||||
| Chief Financial Officer | |||||||||||
A signed original of this written statement required by 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.