UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-16129
FLUOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 33-0927079 | ||
(State or other jurisdiction of | (I.R.S. Employer | ||
incorporation or organization) | Identification No.) | ||
6700 Las Colinas Boulevard | |||
Irving, | Texas | 75039 | |
(Address of principal executive offices) | (Zip Code) | ||
469-398-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | FLR | New York Stock Exchange |
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, if any, 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):
Large accelerated filer | ☒ | 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 25, 2019, 140,174,400 shares of the registrant’s common stock, $0.01 par value, were outstanding.
FLUOR CORPORATION
FORM 10-Q
TABLE OF CONTENTS | PAGE | ||
1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands, except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
TOTAL REVENUE | $ | 3,937,707 | $ | 3,842,235 | $ | 10,622,201 | $ | 11,268,305 | ||||||||
TOTAL COST OF REVENUE | 3,869,606 | 3,654,953 | 11,177,807 | 10,959,757 | ||||||||||||
OTHER (INCOME) AND EXPENSES | ||||||||||||||||
Corporate general and administrative expense | 10,362 | 61,058 | 115,426 | 134,726 | ||||||||||||
Impairment, restructuring and other exit costs | 333,988 | — | 388,027 | — | ||||||||||||
Interest expense | 18,984 | 24,238 | 56,490 | 58,131 | ||||||||||||
Interest income | (13,965 | ) | (9,504 | ) | (40,695 | ) | (24,777 | ) | ||||||||
Total cost and expenses | 4,218,975 | 3,730,745 | 11,697,055 | 11,127,837 | ||||||||||||
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES | (281,268 | ) | 111,490 | (1,074,854 | ) | 140,468 | ||||||||||
INCOME TAX EXPENSE | 490,077 | 28,710 | 368,289 | 39,260 | ||||||||||||
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS | (771,345 | ) | 82,780 | (1,443,143 | ) | 101,208 | ||||||||||
NET EARNINGS FROM DISCONTINUED OPERATIONS | 41,806 | 13,245 | 76,810 | 113,920 | ||||||||||||
NET EARNINGS (LOSS) | (729,539 | ) | 96,025 | (1,366,333 | ) | 215,128 | ||||||||||
LESS: NET EARNINGS (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS FROM CONTINUING OPERATIONS | 10,260 | 14,199 | (18,918 | ) | 31,528 | |||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO FLUOR CORPORATION FROM CONTINUING OPERATIONS | (781,605 | ) | 68,581 | (1,424,225 | ) | 69,680 | ||||||||||
LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS FROM DISCONTINUED OPERATIONS | 2,185 | 4,481 | 7,803 | 9,013 | ||||||||||||
NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION FROM DISCONTINUED OPERATIONS | 39,621 | 8,764 | 69,007 | 104,907 | ||||||||||||
NET EARNINGS (LOSS) ATTRIBUTABLE TO FLUOR CORPORATION | $ | (741,984 | ) | $ | 77,345 | $ | (1,355,218 | ) | $ | 174,587 | ||||||
AMOUNTS ATTRIBUTABLE TO FLUOR CORPORATION | ||||||||||||||||
Net earnings (loss) from continuing operations | $ | (781,605 | ) | $ | 68,581 | $ | (1,424,225 | ) | $ | 69,680 | ||||||
Net earnings from discontinued operations | 39,621 | 8,764 | 69,007 | 104,907 | ||||||||||||
Net earnings (loss) | $ | (741,984 | ) | $ | 77,345 | $ | (1,355,218 | ) | $ | 174,587 | ||||||
BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION | ||||||||||||||||
Net earnings (loss) from continuing operations | $ | (5.57 | ) | $ | 0.49 | $ | (10.17 | ) | $ | 0.49 | ||||||
Net earnings from discontinued operations | 0.28 | 0.06 | 0.49 | 0.75 | ||||||||||||
Net earnings (loss) | $ | (5.29 | ) | $ | 0.55 | $ | (9.68 | ) | $ | 1.24 | ||||||
DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION | ||||||||||||||||
Net earnings (loss) from continuing operations | $ | (5.57 | ) | $ | 0.49 | $ | (10.17 | ) | $ | 0.49 | ||||||
Net earnings from discontinued operations | 0.28 | 0.06 | 0.49 | 0.74 | ||||||||||||
Net earnings (loss) | $ | (5.29 | ) | $ | 0.55 | $ | (9.68 | ) | $ | 1.23 | ||||||
SHARES USED TO CALCULATE EARNINGS PER SHARE | ||||||||||||||||
BASIC | 140,163 | 140,713 | 140,027 | 140,489 | ||||||||||||
DILUTED | 140,163 | 141,549 | 140,027 | 141,366 | ||||||||||||
DIVIDENDS DECLARED PER SHARE | $ | 0.21 | $ | 0.21 | $ | 0.63 | $ | 0.63 | ||||||||
See Notes to Condensed Consolidated Financial Statements.
2
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
NET EARNINGS (LOSS) | $ | (729,539 | ) | $ | 96,025 | $ | (1,366,333 | ) | $ | 215,128 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | ||||||||||||||||
Foreign currency translation adjustment | (42,002 | ) | (11,733 | ) | (14,337 | ) | (44,356 | ) | ||||||||
Ownership share of equity method investees’ other comprehensive income (loss) | 2,662 | (6,495 | ) | (2,125 | ) | 6,055 | ||||||||||
Defined benefit pension and postretirement plan adjustments | 1,990 | (39,803 | ) | 6,093 | (35,933 | ) | ||||||||||
Unrealized loss on derivative contracts | (6,294 | ) | (1,952 | ) | (599 | ) | (7,694 | ) | ||||||||
Unrealized gain on available-for-sale securities | — | — | — | 709 | ||||||||||||
TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX | (43,644 | ) | (59,983 | ) | (10,968 | ) | (81,219 | ) | ||||||||
COMPREHENSIVE INCOME (LOSS) | (773,183 | ) | 36,042 | (1,377,301 | ) | 133,909 | ||||||||||
LESS: COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 10,696 | 18,280 | (12,658 | ) | 39,258 | |||||||||||
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLUOR CORPORATION | $ | (783,879 | ) | $ | 17,762 | $ | (1,364,643 | ) | $ | 94,651 | ||||||
See Notes to Condensed Consolidated Financial Statements.
3
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(in thousands, except share and per share amounts) | September 30, 2019 | December 31, 2018 | ||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents ($477,434 and $391,635 related to variable interest entities (“VIEs”)) | $ | 1,805,104 | $ | 1,764,746 | ||||
Marketable securities ($35,066 and $202,481 related to VIEs) | 47,873 | 214,828 | ||||||
Accounts and notes receivable, net ($232,054 and $199,108 related to VIEs) | 1,045,749 | 1,235,851 | ||||||
Contract assets ($291,493 and $295,812 related to VIEs) | 996,716 | 1,130,918 | ||||||
Other current assets ($17,821 and $6,624 related to VIEs) | 345,653 | 308,905 | ||||||
Current assets held for sale ($113,144 and $79,269 related to VIEs) | 1,081,793 | 785,645 | ||||||
Total current assets | 5,322,888 | 5,440,893 | ||||||
Property, plant and equipment (net of accumulated depreciation of $841,713 and $925,931) (net PP&E of $30,382 and $28,679 related to VIEs) | 571,214 | 745,942 | ||||||
Goodwill | 439,576 | 463,219 | ||||||
Investments | 626,043 | 903,136 | ||||||
Deferred taxes | 70,537 | 342,126 | ||||||
Deferred compensation trusts | 359,304 | 328,814 | ||||||
Other assets ($39,167 and $26,447 related to VIEs) | 494,145 | 312,908 | ||||||
Noncurrent assets held for sale ($12,931 related to VIEs in 2018) | — | 376,599 | ||||||
TOTAL ASSETS | $ | 7,883,707 | $ | 8,913,637 | ||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Trade accounts payable ($437,383 and $419,590 related to VIEs) | $ | 1,295,954 | $ | 1,398,666 | ||||
Short-term borrowings | 45,240 | 26,887 | ||||||
Contract liabilities ($267,997 and $249,831 related to VIEs) | 1,095,890 | 800,539 | ||||||
Accrued salaries, wages and benefits ($24,991 and $25,341 related to VIEs) | 579,592 | 577,917 | ||||||
Other accrued liabilities ($44,077 and $49,968 related to VIEs) | 419,352 | 367,689 | ||||||
Current liabilities held for sale ($80,452 and $79,872 related to VIEs) | 414,343 | 380,815 | ||||||
Total current liabilities | 3,850,371 | 3,552,513 | ||||||
LONG-TERM DEBT DUE AFTER ONE YEAR | 1,636,905 | 1,661,565 | ||||||
NONCURRENT LIABILITIES | 712,501 | 564,011 | ||||||
NONCURRENT LIABILITIES HELD FOR SALE | — | 17,498 | ||||||
CONTINGENCIES AND COMMITMENTS | ||||||||
EQUITY | ||||||||
Shareholders’ equity | ||||||||
Capital stock | ||||||||
Preferred — authorized 20,000,000 shares ($0.01 par value); none issued | — | — | ||||||
Common — authorized 375,000,000 shares ($0.01 par value); issued and outstanding — 140,174,400 and 139,653,824 shares in 2019 and 2018, respectively | 1,399 | 1,396 | ||||||
Additional paid-in capital | 111,857 | 82,106 | ||||||
Accumulated other comprehensive loss | (551,903 | ) | (542,478 | ) | ||||
Retained earnings | 1,998,142 | 3,422,157 | ||||||
Total shareholders’ equity | 1,559,495 | 2,963,181 | ||||||
Noncontrolling interests | 124,435 | 154,869 | ||||||
Total equity | 1,683,930 | 3,118,050 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 7,883,707 | $ | 8,913,637 | ||||
See Notes to Condensed Consolidated Financial Statements.
4
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Nine Months Ended September 30, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net earnings (loss) | $ | (1,366,333 | ) | $ | 215,128 | |||
Adjustments to reconcile net earnings (loss) to cash provided (utilized) by operating activities: | ||||||||
Depreciation of fixed assets | 129,014 | 150,592 | ||||||
Amortization of intangibles | 13,032 | 14,327 | ||||||
(Earnings) loss from equity method investments, net of distributions | 6,510 | 506 | ||||||
Gain on sale of joint venture interest | — | (124,942 | ) | |||||
Loss (gain) on sale of property, plant and equipment | 5,690 | (15,595 | ) | |||||
Impairment of long-lived assets | 347,411 | — | ||||||
Amortization of stock-based awards | 27,513 | 34,735 | ||||||
Deferred compensation trust | (36,989 | ) | (14,915 | ) | ||||
Deferred compensation obligation | 34,827 | 19,320 | ||||||
Deferred taxes | 270,996 | 30,969 | ||||||
Net retirement plan accrual (contributions) | (1,821 | ) | (16,552 | ) | ||||
Changes in operating assets and liabilities | 627,009 | (305,467 | ) | |||||
Other items | 10,039 | 609 | ||||||
Cash provided (utilized) by operating activities | 66,898 | (11,285 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of marketable securities | (31,165 | ) | (317,747 | ) | ||||
Proceeds from the sales and maturities of marketable securities | 197,923 | 347,131 | ||||||
Capital expenditures | (140,058 | ) | (148,671 | ) | ||||
Proceeds from disposal of property, plant and equipment | 56,431 | 60,863 | ||||||
Investments in partnerships and joint ventures | (34,502 | ) | (33,799 | ) | ||||
Return of capital from partnerships and joint ventures | 11,733 | 20,484 | ||||||
Proceeds from company owned life insurance | 12,245 | 1,040 | ||||||
Other items | 2,071 | (1,041 | ) | |||||
Cash provided (utilized) by investing activities | 74,678 | (71,740 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividends paid | (88,708 | ) | (89,193 | ) | ||||
Proceeds from issuance of 4.250% Senior Notes | — | 598,722 | ||||||
Repayment of 3.375% Senior Notes | — | (503,285 | ) | |||||
Proceeds from other borrowings | 21,206 | 4,555 | ||||||
Net proceeds from issuance of commercial paper | — | 24,449 | ||||||
Debt issuance costs | — | (4,974 | ) | |||||
Distributions paid to noncontrolling interests | (26,123 | ) | (34,688 | ) | ||||
Capital contributions by noncontrolling interests | 10,581 | 4,293 | ||||||
Taxes paid on vested restricted stock | (3,572 | ) | (5,686 | ) | ||||
Stock options exercised | 1,466 | 7,170 | ||||||
Other items | (1,990 | ) | (9,737 | ) | ||||
Cash utilized by financing activities | (87,140 | ) | (8,374 | ) | ||||
Effect of exchange rate changes on cash | (14,078 | ) | (32,880 | ) | ||||
Increase (decrease) in cash and cash equivalents | 40,358 | (124,279 | ) | |||||
Cash and cash equivalents at beginning of period | 1,764,746 | 1,804,075 | ||||||
Cash and cash equivalents at end of period | $ | 1,805,104 | $ | 1,679,796 | ||||
See Notes to Condensed Consolidated Financial Statements.
5
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(in thousands, except per share amounts) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Shareholders' Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2019 | 140,174 | $ | 1,399 | $ | 113,042 | $ | (510,008 | ) | $ | 2,769,804 | $ | 2,374,237 | $ | 123,252 | $ | 2,497,489 | |||||||
Net earnings (loss) | — | — | — | — | (741,984 | ) | (741,984 | ) | 12,445 | (729,539 | ) | ||||||||||||
Other comprehensive loss | — | — | — | (41,895 | ) | — | (41,895 | ) | (1,749 | ) | (43,644 | ) | |||||||||||
Dividends ($0.21 per share) | — | — | — | — | (29,678 | ) | (29,678 | ) | — | (29,678 | ) | ||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (10,551 | ) | (10,551 | ) | |||||||||||||
Capital contributions by noncontrolling interests | — | — | — | — | — | — | 2,760 | 2,760 | |||||||||||||||
Other noncontrolling interest transactions | — | — | 1,105 | — | — | 1,105 | (1,722 | ) | (617 | ) | |||||||||||||
Stock-based plan activity | — | — | (2,290 | ) | — | — | (2,290 | ) | — | (2,290 | ) | ||||||||||||
BALANCE AS OF SEPTEMBER 30, 2019 | 140,174 | $ | 1,399 | $ | 111,857 | $ | (551,903 | ) | $ | 1,998,142 | $ | 1,559,495 | $ | 124,435 | $ | 1,683,930 | |||||||
(in thousands, except per share amounts) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Shareholders' Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2018 | 139,654 | $ | 1,396 | $ | 82,106 | $ | (542,478 | ) | $ | 3,422,157 | $ | 2,963,181 | $ | 154,869 | $ | 3,118,050 | |||||||
Net earnings (loss) | — | — | — | — | (1,355,218 | ) | (1,355,218 | ) | (11,115 | ) | (1,366,333 | ) | |||||||||||
Cumulative adjustment for the adoption of ASC 842 | — | — | — | — | 20,544 | 20,544 | — | 20,544 | |||||||||||||||
Other comprehensive income | — | — | — | (9,425 | ) | — | (9,425 | ) | (1,543 | ) | (10,968 | ) | |||||||||||
Dividends ($0.63 per share) | — | — | 218 | — | (89,341 | ) | (89,123 | ) | — | (89,123 | ) | ||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (26,123 | ) | (26,123 | ) | |||||||||||||
Capital contributions by noncontrolling interests | — | — | — | — | — | — | 10,581 | 10,581 | |||||||||||||||
Other noncontrolling interest transactions | — | — | 4,188 | — | — | 4,188 | (2,234 | ) | 1,954 | ||||||||||||||
Stock-based plan activity | 520 | 3 | 25,345 | — | — | 25,348 | — | 25,348 | |||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2019 | 140,174 | $ | 1,399 | $ | 111,857 | $ | (551,903 | ) | $ | 1,998,142 | $ | 1,559,495 | $ | 124,435 | $ | 1,683,930 | |||||||
6
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)
(in thousands, except per share amounts) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Shareholders' Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2018 | 140,700 | $ | 1,406 | $ | 111,368 | $ | (422,595 | ) | $ | 3,353,176 | $ | 3,043,355 | $ | 141,485 | $ | 3,184,840 | |||||||
Net earnings | — | — | — | — | 77,345 | 77,345 | 18,680 | 96,025 | |||||||||||||||
Other comprehensive loss | — | — | — | (59,583 | ) | — | (59,583 | ) | (400 | ) | (59,983 | ) | |||||||||||
Dividends ($0.21 per share) | — | — | (128 | ) | — | (28,993 | ) | (29,121 | ) | — | (29,121 | ) | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (2,436 | ) | (2,436 | ) | |||||||||||||
Capital contributions by noncontrolling interests | — | — | — | — | — | — | 533 | 533 | |||||||||||||||
Other noncontrolling interest transactions | — | — | 1,374 | — | — | 1,374 | (957 | ) | 417 | ||||||||||||||
Stock-based plan activity | 49 | 1 | 9,653 | — | — | 9,654 | — | 9,654 | |||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2018 | 140,749 | $ | 1,407 | $ | 122,267 | $ | (482,178 | ) | $ | 3,401,528 | $ | 3,043,024 | $ | 156,905 | $ | 3,199,929 | |||||||
(in thousands, except per share amounts) | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total Shareholders' Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2017 | 139,918 | $ | 1,399 | $ | 88,222 | $ | (402,242 | ) | $ | 3,654,931 | $ | 3,342,310 | $ | 150,089 | $ | 3,492,399 | |||||||
Net earnings | — | — | — | — | 174,587 | 174,587 | 40,541 | 215,128 | |||||||||||||||
Cumulative adjustment for the adoption of ASC 606 | — | — | — | — | (338,738 | ) | (338,738 | ) | (963 | ) | (339,701 | ) | |||||||||||
Other comprehensive loss | — | — | — | (79,936 | ) | — | (79,936 | ) | (1,283 | ) | (81,219 | ) | |||||||||||
Dividends ($0.63 per share) | — | — | (250 | ) | — | (89,252 | ) | (89,502 | ) | — | (89,502 | ) | |||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (34,688 | ) | (34,688 | ) | |||||||||||||
Capital contributions by noncontrolling interests | — | — | — | — | — | — | 4,293 | 4,293 | |||||||||||||||
Other noncontrolling interest transactions | — | — | 3,936 | — | — | 3,936 | (1,084 | ) | 2,852 | ||||||||||||||
Stock-based plan activity | 831 | 8 | 30,359 | — | — | 30,367 | — | 30,367 | |||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2018 | 140,749 | $ | 1,407 | $ | 122,267 | $ | (482,178 | ) | $ | 3,401,528 | $ | 3,043,024 | $ | 156,905 | $ | 3,199,929 | |||||||
7
(1) Principles of Consolidation
The Condensed Consolidated Financial Statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the "2018 10-K"). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30, 2019 may not necessarily be indicative of results that can be expected for the full year.
The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly its consolidated financial position as of September 30, 2019 and December 31, 2018 and its consolidated results of operations and cash flows for the interim periods presented. All significant intercompany transactions of consolidated subsidiaries are eliminated. Certain amounts in 2018 have been reclassified to conform to the 2019 presentation, which includes discontinued operations and assets and liabilities held for sale, as discussed below. Management has evaluated all material events occurring subsequent to the date of the financial statements up to the filing date of this Form 10-Q.
In the third quarter of 2019, management committed to a plan to sell substantially all of its government and AMECO equipment businesses, while retaining two fixed-price projects previously included in the government segment and a few small international components of AMECO. Management has concluded that these disposal groups have met the criteria to be classified as held for sale beginning in the third quarter of 2019, and as a result, the assets and liabilities of the government and AMECO businesses have been classified as held for sale on the Condensed Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018. Management has also concluded that the operations of the disposal groups qualify for discontinued operations presentation because their disposal represents a strategic shift that will have a major effect on the company's financial results. Therefore, the results of the government and AMECO businesses have been presented as earnings from discontinued operations, net of tax, in the Condensed Consolidated Statement of Operations for all periods presented. See Note 21 for further discussion of the company's discontinued operations.
Segment operating information for 2018 has been recast to reflect changes in the composition of the company’s reportable segments as discussed in Note 17.
In the first quarter of 2019, the company adopted Accounting Standards Update (“ASU”) 2016-02 (ASC Topic 842), “Leases” using the modified retrospective method in which the new guidance was applied to leases that existed or were entered into on or after January 1, 2019. Results for the reporting period beginning on January 1, 2019 have been presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with previous guidance. See Note 3 for further discussion of the adoption and the impact on the company’s financial statements.
(2) Recent Accounting Pronouncements
New accounting pronouncements implemented by the company during the first nine months of 2019 are discussed below or in the related notes, where appropriate.
In the first quarter of 2019, the company adopted ASU 2016-02 (ASC Topic 842), “Leases” and related ASUs. See Note 3 for further discussion of the adoption and the impact on the company’s financial statements.
In the first quarter of 2019, the company adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” under which the company did not elect to reclassify the income tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the enactment of comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act. As a result, there was no impact on the company’s financial position, results of operations or cash flows.
New accounting pronouncements requiring implementation in future periods are discussed below.
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In November 2018, the FASB issued ASU 2018-18, “Clarifying the Interaction between Topic 808 and Topic 606.” This ASU clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. ASU 2018-18 is effective for interim and annual reporting periods beginning after December 15, 2019. Management does not expect the adoption of ASU 2018-18 to have a material impact on the company’s financial position, results of operations or cash flows.
In October 2018, the FASB issued ASU 2018-17, “Targeted Improvements to Related Party Guidance for Variable Interest Entities.” This ASU amends the guidance for determining whether a decision-making fee is a variable interest. ASU 2018-17 is effective for interim and annual reporting periods beginning after December 15, 2019. Management does not expect the adoption of ASU 2018-17 to have a material impact on the company’s financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” This ASU requires customers in a hosting arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. ASU 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management does not expect the adoption of ASU 2018-15 to have a material impact on the company’s financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU amends ASC 715 to add, remove and clarify certain disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. Management does not expect the adoption of ASU 2018-14 to have any impact on the company’s financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU amends ASC 820 to add, remove and modify certain disclosure requirements for fair value measurements. For example, public companies will now be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. Management does not expect the adoption of ASU 2018-13 to have any impact on the company’s financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," and issued subsequent amendments to the initial guidance within ASU 2019-04 and ASU 2019-05. The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current practice with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 and its amendments are effective for interim and annual reporting periods beginning after December 15, 2019. Management is continuing to assess the impact of adopting ASU 2016-13 on the company’s financial position, results of operations and cash flows.
The company adopted ASU 2014-09 (ASC Topic 606), “Revenue from Contracts with Customers” in the first quarter of 2018. See the 2018 10-K for a further discussion of the adoption and the impact on the company’s financial statements. In accordance with ASU 2017-13, certain of the company’s unconsolidated partnerships and joint ventures will not adopt ASC Topic 606 until the fourth quarter of 2019, at which time the company expects to record a cumulative effect adjustment which is not expected to be significant.
(3) Leases
On January 1, 2019, the company adopted ASC Topic 842, “Leases,” including the following ASUs: ASU 2016-02, ASU 2017-13, ASU 2018-01, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01. The new guidance requires the recognition of right-of-use assets and lease liabilities on the balance sheet for leases with terms greater than 12 months or leases that contain a purchase option that is reasonably certain to be exercised. Lessees are now required to classify leases as either finance or operating leases. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.
The company elected to utilize the package of practical expedients in ASC 842-10-65-1(f) that, upon adoption of ASC 842, allows
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entities to (1) not reassess whether any expired or existing contracts are or contain leases, (2) retain the classification of leases (e.g., operating or finance lease) existing as of the date of adoption and (3) not reassess initial direct costs for any existing leases. The company elected to utilize the practical expedient in ASC 842-10-65-1(gg) in which an entity need not assess whether existing land easements not previously accounted for as leases contain a lease under ASC 842. The company also elected to utilize the practical expedient in ASC 842-10-15-37 in which the company has chosen to account for each separate lease component of a contract and its associated nonlease components as a single lease component.
The company adopted ASC 842 using the modified retrospective method, and accordingly, the new guidance was applied retrospectively to leases that existed as of January 1, 2019 (the date of initial application). As a result, the company has recorded total right-of-use assets of $282 million, total current lease liabilities of $72 million, total noncurrent lease liabilities of $222 million and a cumulative effect adjustment to increase retained earnings by $21 million (net of deferred taxes of $6 million) as of January 1, 2019. The increase in retained earnings primarily resulted from the recognition of previously deferred gains associated with two sale and leaseback transactions, as allowed under ASC 842-10-65-1(ee). The adoption of ASC 842 did not have a material impact on the company’s results of operations or any impact on the company’s cash flows.
The company’s right-of use assets and lease liabilities primarily relate to office facilities, equipment used in connection with long-term construction contracts and other personal property. Certain of the company’s facility and equipment leases include one or more options to renew, with renewal terms that can extend the lease term up to 10 years. The exercise of lease renewal options is at the company’s discretion. Renewal periods are included in the expected lease term if they are reasonably certain of being exercised by the company. Certain leases also include options to purchase the leased property. None of the company’s lease agreements contain material residual value guarantees or material restrictions or covenants.
Long-term leases (leases with terms greater than 12 months) are recorded on the consolidated balance sheet at the present value of the minimum lease payments not yet paid. The company uses its incremental borrowing rate to determine the present value of the lease when the rate implicit in the lease is not readily determinable. Certain lease contracts contain nonlease components such as maintenance, utilities, fuel and operator services. The company has made an accounting policy election, as allowed under ASC 842-10-15-37 and discussed above, to capitalize both the lease component and nonlease components of its contracts as a single lease component for all of its right-of-use assets. From time to time, certain service or purchase contracts may contain an embedded lease.
Short-term leases (leases with an initial term of 12 months or less or leases that are cancelable by the lessee and lessor without significant penalties) are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term. The majority of the company’s short-term leases relate to equipment used on construction projects. These leases are entered into at agreed upon hourly, daily, weekly or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than 12 months.
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The components of lease expense for the three and nine months ended September 30, 2019 were as follows:
Lease Cost / (Sublease Income) | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||||||
(in thousands) | ||||||||||
Operating lease cost | $ | 20,280 | $ | 62,316 | ||||||
Finance lease cost | ||||||||||
Amortization of right-of-use assets | 350 | 1,127 | ||||||||
Interest on lease liabilities | 14 | 54 | ||||||||
Variable lease cost(1) | 4,532 | 14,013 | ||||||||
Short-term lease cost | 28,580 | 85,780 | ||||||||
Sublease income | (1,915 | ) | (5,258 | ) | ||||||
Total lease cost | $ | 51,841 | $ | 158,032 | ||||||
(1) | Primarily relates to rent escalation due to cost of living indexation and payments for property taxes, insurance or common area maintenance based on actual assessments. |
Information related to the company’s right-of use assets and lease liabilities as of September 30, 2019 was as follows:
Lease Assets / Liabilities | Balance Sheet Classification | September 30, 2019 | ||||
(in thousands) | ||||||
Right-of-use assets | ||||||
Operating lease assets | Other assets | $ | 253,336 | |||
Finance lease assets | Other assets | 1,062 | ||||
Total right-of-use assets | $ | 254,398 | ||||
Lease liabilities | ||||||
Operating lease liabilities, current | Other accrued liabilities | $ | 61,006 | |||
Operating lease liabilities, noncurrent | Noncurrent liabilities | 217,060 | ||||
Finance lease liabilities, current | Other accrued liabilities | 471 | ||||
Finance lease liabilities, noncurrent | Noncurrent liabilities | 700 | ||||
Total lease liabilities | $ | 279,237 | ||||
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Supplemental information related to the company’s leases for the nine months ended September 30, 2019 was as follows:
Nine Months Ended September 30, 2019 | |||||
(in thousands) | |||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||
Operating cash flows from operating leases | $ | 62,779 | |||
Operating cash flows from finance leases | 54 | ||||
Financing cash flows from finance leases | 1,237 | ||||
Right-of-use assets obtained in exchange for new operating lease liabilities | 55,946 | ||||
Right-of-use assets obtained in exchange for new finance lease liabilities | — | ||||
Weighted-average remaining lease term - operating leases | 6.95 years | ||||
Weighted-average remaining lease term - finance leases | 2.27 years | ||||
Weighted-average discount rate - operating leases | 3.39 | % | |||
Weighted-average discount rate - finance leases | 3.36 | % | |||
Total remaining lease payments under both the company’s operating and finance leases are as follows:
Year Ended December 31, | Operating Leases | Finance Leases | |||||
(in thousands) | |||||||
Remainder of 2019 | $ | 22,598 | $ | 62 | |||
2020 | 69,026 | 812 | |||||
2021 | 50,060 | 186 | |||||
2022 | 39,683 | 84 | |||||
2023 | 31,893 | 77 | |||||
Thereafter | 97,401 | — | |||||
Total lease payments | $ | 310,661 | $ | 1,221 | |||
Less: Interest | (32,595 | ) | (50 | ) | |||
Present value of lease liabilities | $ | 278,066 | $ | 1,171 | |||
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(4) Other Comprehensive Income (Loss)
The tax effects of the components of other comprehensive income (loss) (“OCI”) for the three months ended September 30, 2019 and 2018 are as follows:
Three Months Ended September 30, 2019 | Three Months Ended September 30, 2018 | |||||||||||||||||||||||
(in thousands) | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Foreign currency translation adjustment | $ | (47,247 | ) | $ | 5,245 | $ | (42,002 | ) | $ | (10,357 | ) | $ | (1,376 | ) | $ | (11,733 | ) | |||||||
Ownership share of equity method investees’ other comprehensive income (loss) | 3,593 | (931 | ) | 2,662 | (8,051 | ) | 1,556 | (6,495 | ) | |||||||||||||||
Defined benefit pension and postretirement plan adjustments | 2,126 | (136 | ) | 1,990 | (48,463 | ) | 8,660 | (39,803 | ) | |||||||||||||||
Unrealized loss on derivative contracts | (8,031 | ) | 1,737 | (6,294 | ) | (2,189 | ) | 237 | (1,952 | ) | ||||||||||||||
Total other comprehensive income (loss) | (49,559 | ) | 5,915 | (43,644 | ) | (69,060 | ) | 9,077 | (59,983 | ) | ||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests | (1,749 | ) | — | (1,749 | ) | (400 | ) | — | (400 | ) | ||||||||||||||
Other comprehensive income (loss) attributable to Fluor Corporation | $ | (47,810 | ) | $ | 5,915 | $ | (41,895 | ) | $ | (68,660 | ) | $ | 9,077 | $ | (59,583 | ) | ||||||||
The tax effects of the components of OCI for the nine months ended September 30, 2019 and 2018 are as follows:
Nine Months Ended September 30, 2019 | Nine Months Ended September 30, 2018 | |||||||||||||||||||||||
(in thousands) | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | Before-Tax Amount | Tax Benefit (Expense) | Net-of-Tax Amount | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Foreign currency translation adjustment | $ | (19,621 | ) | $ | 5,284 | $ | (14,337 | ) | $ | (59,024 | ) | $ | 14,668 | $ | (44,356 | ) | ||||||||
Ownership share of equity method investees’ other comprehensive income (loss) | (3,302 | ) | 1,177 | (2,125 | ) | 7,560 | (1,505 | ) | 6,055 | |||||||||||||||
Defined benefit pension and postretirement plan adjustments | 6,518 | (425 | ) | 6,093 | (43,580 | ) | 7,647 | (35,933 | ) | |||||||||||||||
Unrealized loss on derivative contracts | (1 | ) | (598 | ) | (599 | ) | (9,274 | ) | 1,580 | (7,694 | ) | |||||||||||||
Unrealized gain on available-for-sale securities | — | — | — | 1,134 | (425 | ) | 709 | |||||||||||||||||
Total other comprehensive income (loss) | (16,406 | ) | 5,438 | (10,968 | ) | (103,184 | ) | 21,965 | (81,219 | ) | ||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests | (1,543 | ) | — | (1,543 | ) | (1,283 | ) | — | (1,283 | ) | ||||||||||||||
Other comprehensive income (loss) attributable to Fluor Corporation | $ | (14,863 | ) | $ | 5,438 | $ | (9,425 | ) | $ | (101,901 | ) | $ | 21,965 | $ | (79,936 | ) | ||||||||
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The changes in accumulated other comprehensive income (“AOCI”) balances by component (after-tax) for the three months ended September 30, 2019 are as follows:
(in thousands) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ Other Comprehensive Income (Loss) | Defined Benefit Pension and Postretirement Plans | Unrealized Gain (Loss) on Derivative Contracts | Accumulated Other Comprehensive Income (Loss), Net | ||||||||||||||
Attributable to Fluor Corporation: | |||||||||||||||||||
Balance as of June 30, 2019 | $ | (281,288 | ) | $ | (28,459 | ) | $ | (200,546 | ) | $ | 285 | $ | (510,008 | ) | |||||
Other comprehensive income (loss) before reclassifications | (40,253 | ) | 2,518 | — | (6,844 | ) | (44,579 | ) | |||||||||||
Amounts reclassified from AOCI | — | 144 | 1,990 | 550 | 2,684 | ||||||||||||||
Net other comprehensive income (loss) | (40,253 | ) | 2,662 | 1,990 | (6,294 | ) | (41,895 | ) | |||||||||||
Balance as of September 30, 2019 | $ | (321,541 | ) | $ | (25,797 | ) | $ | (198,556 | ) | $ | (6,009 | ) | $ | (551,903 | ) | ||||
Attributable to Noncontrolling Interests: | |||||||||||||||||||
Balance as of June 30, 2019 | $ | (3,495 | ) | $ | — | $ | — | $ | — | $ | (3,495 | ) | |||||||
Other comprehensive income (loss) before reclassifications | (1,749 | ) | — | — | — | (1,749 | ) | ||||||||||||
Amounts reclassified from AOCI | — | — | — | — | — | ||||||||||||||
Net other comprehensive income (loss) | (1,749 | ) | — | — | — | (1,749 | ) | ||||||||||||
Balance as of September 30, 2019 | $ | (5,244 | ) | $ | — | $ | — | $ | — | $ | (5,244 | ) | |||||||
The changes in AOCI balances by component (after-tax) for the nine months ended September 30, 2019 are as follows:
(in thousands) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ Other Comprehensive Income (Loss) | Defined Benefit Pension and Postretirement Plans | Unrealized Gain (Loss) on Derivative Contracts | Accumulated Other Comprehensive Income (Loss), Net | ||||||||||||||
Attributable to Fluor Corporation: | |||||||||||||||||||
Balance as of December 31, 2018 | $ | (308,747 | ) | $ | (23,672 | ) | $ | (204,649 | ) | $ | (5,410 | ) | $ | (542,478 | ) | ||||
Other comprehensive income (loss) before reclassifications | (12,794 | ) | (2,552 | ) | — | (2,519 | ) | (17,865 | ) | ||||||||||
Amounts reclassified from AOCI | — | 427 | 6,093 | 1,920 | 8,440 | ||||||||||||||
Net other comprehensive income (loss) | (12,794 | ) | (2,125 | ) | 6,093 | (599 | ) | (9,425 | ) | ||||||||||
Balance as of September 30, 2019 | $ | (321,541 | ) | $ | (25,797 | ) | $ | (198,556 | ) | $ | (6,009 | ) | $ | (551,903 | ) | ||||
Attributable to Noncontrolling Interests: | |||||||||||||||||||
Balance as of December 31, 2018 | $ | (3,701 | ) | $ | — | $ | — | $ | — | $ | (3,701 | ) | |||||||
Other comprehensive income (loss) before reclassifications | (1,543 | ) | — | — | — | (1,543 | ) | ||||||||||||
Amounts reclassified from AOCI | — | — | — | — | — | ||||||||||||||
Net other comprehensive income (loss) | (1,543 | ) | — | — | — | (1,543 | ) | ||||||||||||
Balance as of September 30, 2019 | $ | (5,244 | ) | $ | — | $ | — | $ | — | $ | (5,244 | ) | |||||||
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The changes in AOCI balances by component (after-tax) for the three months ended September 30, 2018 are as follows:
(in thousands) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ Other Comprehensive Income (Loss) | Defined Benefit Pension and Postretirement Plans | Unrealized Gain (Loss) on Derivative Contracts | Unrealized Gain (Loss) on Available-for- Sale Securities | Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||
Attributable to Fluor Corporation: | |||||||||||||||||||||||
Balance as of June 30, 2018 | $ | (242,917 | ) | $ | (20,064 | ) | $ | (148,188 | ) | $ | (11,426 | ) | $ | — | $ | (422,595 | ) | ||||||
Other comprehensive income (loss) before reclassifications | (11,333 | ) | (6,646 | ) | (56,191 | ) | (3,736 | ) | — | (77,906 | ) | ||||||||||||
Amounts reclassified from AOCI | — | 151 | 16,388 | 1,784 | — | 18,323 | |||||||||||||||||
Net other comprehensive income (loss) | (11,333 | ) | (6,495 | ) | (39,803 | ) | (1,952 | ) | — | (59,583 | ) | ||||||||||||
Balance as of September 30, 2018 | $ | (254,250 | ) | $ | (26,559 | ) | $ | (187,991 | ) | $ | (13,378 | ) | $ | — | $ | (482,178 | ) | ||||||
Attributable to Noncontrolling Interests: | |||||||||||||||||||||||
Balance as of June 30, 2018 | $ | (2,345 | ) | $ | — | $ | — | $ | — | $ | — | $ | (2,345 | ) | |||||||||
Other comprehensive income (loss) before reclassifications | (400 | ) | — | — | — | — | (400 | ) | |||||||||||||||
Amounts reclassified from AOCI | — | — | — | — | — | — | |||||||||||||||||
Net other comprehensive income (loss) | (400 | ) | — | — | — | — | (400 | ) | |||||||||||||||
Balance as of September 30, 2018 | $ | (2,745 | ) | $ | — | $ | — | $ | — | $ | — | $ | (2,745 | ) | |||||||||
The changes in AOCI balances by component (after-tax) for the nine months ended September 30, 2018 are as follows:
(in thousands) | Foreign Currency Translation | Ownership Share of Equity Method Investees’ Other Comprehensive Income (Loss) | Defined Benefit Pension and Postretirement Plans | Unrealized Gain (Loss) on Derivative Contracts | Unrealized Gain (Loss) on Available-for- Sale Securities | Accumulated Other Comprehensive Income (Loss), Net | |||||||||||||||||
Attributable to Fluor Corporation: | |||||||||||||||||||||||
Balance as of December 31, 2017 | $ | (211,177 | ) | $ | (32,614 | ) | $ | (152,058 | ) | $ | (5,684 | ) | $ | (709 | ) | $ | (402,242 | ) | |||||
Other comprehensive income (loss) before reclassifications | (43,073 | ) | 5,247 | (56,191 | ) | (10,785 | ) | — | (104,802 | ) | |||||||||||||
Amounts reclassified from AOCI | — | 808 | 20,258 | 3,091 | 709 | 24,866 | |||||||||||||||||
Net other comprehensive income (loss) | (43,073 | ) | 6,055 | (35,933 | ) | (7,694 | ) | 709 | (79,936 | ) | |||||||||||||