FLUOR CORPORATION The following discussion and analysis should be read in conjunction with our
financial statements and our 2019 10-K. Except as the context otherwise
requires, the terms Fluor or the Registrant, as used herein, are references to
• The severity and duration of the COVID-19 pandemic and actions by
governments, businesses and individuals in response to the pandemic;
• The cyclical nature of many of the markets we serve, including our
commodity-based business lines, and our client's 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;
• Failure to remediate material weaknesses in our internal controls over
financial reporting or the failure to maintain an effective system of
internal controls;
• Failure to prepare and timely file our periodic reports, which limits our
access to public markets to raise debt and equity capital and restricts
our ability to issue equity securities;
• The restatement of certain of our previously issued consolidated financial
statements, which may result in unanticipated costs and may affect
investor confidence and our reputation;
• Intense competition in the global engineering, procurement and
construction industry, which can place downward pressure on our contract
prices and profit margins and may increase our contractual risks;
• 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 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;
• Changes in global business, economic (including currency risk), political
and social conditions;
• 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;
• Failure 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;
• The availability of credit and restrictions imposed by credit facilities,
both for the company and our clients, suppliers,
subcontractors or other partners;
• Possible limitations of bonding or letter of credit capacity;
• Failure to successfully implement our strategic and operational initiatives;
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• The risks associated with acquisitions, dispositions or other investments,
including the failure to successfully integrate acquired businesses;
• 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;
• Failure of our employees, agents or partners to comply with laws, which
could result in harm to our reputation and reduced profits or losses;
Our ability to secure appropriate insurance;
• The impact of new or changing legal requirements, as well as past and
future environmental, health and safety regulations including climate
change regulations;
• The failure to be adequately indemnified for our nuclear services;
• Foreign exchange risks;
• 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; and
• Restrictions on possible transactions imposed by our charter documents,
Delaware law and our stockholder rights agreement.
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.
Due to known and unknown risks, our actual results may differ materially from
its expectations or projections. While most risks affect only future cost or
revenue anticipated by the company, 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 a charge against future earnings. As a result, the reader is
cautioned to recognize and consider the inherently uncertain nature of
forward-looking statements and not to 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 discussion under
the heading "Item 1A. - Risk Factors" in the 2019 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
the company 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 - Comparison of First Quarter 2020 to First Quarter 2019
In the first quarter of 2020, we decided to retain our government business,
which had been included in discontinued operations since the third quarter of
2019. As a result, the government business is no longer reported as a
discontinued operation. Our plan to sell the AMECO equipment business remains
unchanged and it remains reported as a discontinued operation. We expect to
complete the sale of the AMECO equipment business within the year following the
balance sheet date. The assets and liabilities of the AMECO business are
classified as held for sale for all periods presented.
In light of our decision to retain our government business, we now report our
operating results in the following six reportable segments:
•Energy & Chemicals
•Mining & Industrial
•Infrastructure & Power
•Government
•Diversified Services
•Other
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Table of Contents (In millions) THREE MONTHS ENDED MARCH 31 2020 2019 Revenue Energy & Chemicals$ 1,355.5 $ 1,474.7 Mining & Industrial 1,173.9 1,051.3 Infrastructure & Power 385.9 344.0 Government 717.7 756.1 Diversified Services 457.1 488.4 Other 28.5 19.1 Total revenue$ 4,118.6 $ 4,133.6 Segment profit (loss) $ and margin % Energy & Chemicals$ (6.4 ) (0.5 )%$ 12.2 0.8 % Mining & Industrial 38.7 3.3 % 27.5 2.6 % Infrastructure & Power 5.2 1.4 % (21.8 ) (6.3 )% Government 30.9 4.3 % 38.4 5.1 % Diversified Services 5.1 1.1 % 8.7 1.8 % Other (21.6 ) NM (26.1 ) NM Total segment profit (loss) $ and margin$ 51.9 $ 38.9 %(1) 1.3 % 0.9 % Corporate G&A 14.1 (58.6 ) Impairment, restructuring and other exit costs (297.6 ) (27.4 ) Interest expense, net (6.3 ) (5.7 ) Earnings (loss) attributable to NCI from continuing operations 9.5 23.8 Earnings (loss) from continuing operations before taxes (228.4 ) (29.0 ) Income tax expense (benefit) (66.8 ) 15.2 Net earnings (loss) from continuing operations$ (161.6 ) $ (44.2 ) New awards Energy & Chemicals$ 1,542.3 $ 1,002.7 Mining & Industrial 1,600.5 723.2 Infrastructure & Power 7.3 533.1 Government 684.0 180.3 Diversified Services 357.0 809.8 Other - 151.1 Total new awards$ 4,191.1 $ 3,400.2 New awards related to projects located outside of the U.S. 59% 35% March 31, December 31, Backlog 2020 2019 Energy & Chemicals$ 14,093.8 $ 14,128.9 Mining & Industrial 5,502.6 5,383.9 Infrastructure & Power 5,655.0 6,079.4 Government 3,581.4 3,556.1 Diversified Services 2,343.9 2,541.6 Other 209.0 244.0 Total backlog$ 31,385.7 $ 31,933.9 Backlog related to projects located outside of the U.S. 65% 67% NM = Not meaningful (1) Total segment profit (loss) is a non-GAAP financial measure. We believe that total segment profit (loss) provides a meaningful perspective on our business results as it is the aggregation of individual segment profit (loss) measures that we use to evaluate and manage our business performance. 29
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Our business has been adversely affected by the economic impacts of the outbreak
of COVID-19 and the steep decline in commodity prices that occurred in the early
part of 2020. Both of 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
governmental budget constraints. These impacts are expected to continue or
worsen if stay-at-home, social distancing, travel restrictions and other similar
orders or restrictions remain in place for an extended period of time or are
re-imposed after being relaxed. 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. We also evaluated the impact of these events on our
reserves for credit risk and the fair value of our assets held for sale. During
the first quarter of 2020, we recognized the following significant charges:
•
and other assets;
• $55 million for current expected credit losses associated with Energy &
Chemical clients;
• $52 million for project positions for potential COVID-19 related schedule
delays and associated cost growth; and
• $100 million for impairments of assets held for sale (included in
discontinued operations), of which $12 million related to goodwill.
During 2019, we recognized charges (related to cumulative catch up adjustments
and loss projects) totaling $130 million in the Energy & Chemicals,
Infrastructure & Power and Other segments. We also recognized $27 million
related to impairments, restructuring and other exit costs.
The effective tax rate on earnings (loss) from continuing operations for the
three months ended March 31, 2020 was 29.3% compared to (52.7)% for the three
months ended March 31, 2019 . The effective tax rate 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,
enacted on March 27, 2020 . This benefit was offset by an increase in the
valuation allowance against foreign tax credit carryforwards and certain foreign
losses, as well as a small addition to uncertain tax benefits. The effective tax
rate for the quarter ended March 31, 2019 was unfavorably impacted by the U.S.
tax on global intangible low-tax income and foreign income tax rates that exceed
the U.S. statutory rate of 21%, as well as the establishment of valuation
allowance against certain foreign losses. 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
March 31, 2019 .
Our results reported by foreign subsidiaries with non-U.S. dollar functional
currencies are affected by foreign currency volatility. When the U.S. dollar
appreciates against the non-U.S. dollar functional currencies of these
subsidiaries, our reported revenue, cost and earnings, after translation into
U.S. dollars, are lower than what they would have been had the U.S. dollar
depreciated against the same foreign currencies or if there had been no change
in the exchange rates.
Our margins, in some cases, may be favorably or unfavorably impacted by a change
in the amount of materials and customer-furnished materials, which are accounted
for as pass-through costs.
The lack of broad based new awards could continue to put pressure on our future
earning streams, particularly in the Energy & Chemicals segment. The decrease in
backlog during 2020 primarily resulted from the suspension of an Energy &
Chemicals project and scope adjustments on two mining projects. As of March 31,
2020 , 53% of our backlog consisted of fixed-price or lump-sum contracts compared
to 52% as of December 31, 2019 . 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.
Backlog includes the amount of revenue we expect to recognize under ongoing
operations and maintenance contracts for the remainder of the current year
renewal period plus up to three additional years if renewal is considered to be
probable, while RUPO includes only the amount of revenue we expect to recognize
under ongoing operations and maintenance contracts with definite terms and
substantive termination provisions.
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Segment Operations - Comparison of First Quarter 2020 to First Quarter 2019
Energy & Chemicals Revenue in 2020 decreased compared to 2019 due to a decline in the volume of project execution activities for certain upstream, downstream and chemicals projects, some nearing completion. The revenue decline in 2020 was partially offset by the ramp up of project execution activity for a liquefied natural gas project. Segment profit in 2020 was adversely affected by the recognition of reserves totaling$55 million for expected credit losses on clients whose credit worthiness deteriorated in 2020, as well as margin diminution on a percentage-of-completion basis of$40 million resulting from project positions taken with respect to COVID-19 related schedule delays and associated cost growth. Segment profit in 2019 included charges of$61 million resulting from forecast revisions for estimated cost growth on an offshore project and$31 million from the resolution of certain close-out matters with a customer. Excluding the items above, segment profit declined in 2020 due to the reduced execution activity of the upstream, downstream and chemicals projects discussed above, partially offset by the increase in activity for the liquefied natural gas project. The change in segment profit margin was primarily attributable to the same factors affecting segment profit. New awards in 2020 increased compared to 2019 primarily due to a chemicals award of$1.2 billion to provide EPC services for a propane dehydrogenation unit. Backlog atMarch 31, 2020 remained relatively flat compared toDecember 31, 2019 despite the suspension of a downstream project. The lack of broad based new awards could continue to put pressure on the segment's earnings in the near and intermediate term. Mining & Industrial
Revenue in 2020 increased compared to 2019 primarily due to increased project execution activities for several mining and advanced technologies projects, partially offset by a decline in a large life sciences project nearing completion.
Segment profit in 2020 increased compared to 2019 due to the increase in project execution activities for the projects mentioned above, partially offset by the decline in activity for the large life sciences project nearing completion. The increase in segment profit margin was the result of an increase in higher margin front-end study work in our mining business, partially offset by a shift in project execution activities for advanced technologies projects to lower margin construction management activities compared to 2019.
New awards in 2020 increased compared to 2019 primarily due to a large metals project inNorth America . Backlog atMarch 31, 2020 increased compared toDecember 31, 2019 despite project scope adjustments, primarily reductions in customer furnished materials, in our South American mining projects. A large mining project inPeru temporarily suspended site construction activities during the second quarter of 2020. Engineering and off site fabrication efforts continued and full site re-remobilization is anticipated by the end of 2020. Infrastructure & Power Revenue in 2020 increased compared to 2019 primarily due to prior year forecast revisions totaling$22 million for two large, power plant projects, which are now substantially complete. The increase in revenue during 2020 was further driven by an increase in project execution activities for several infrastructure projects, including a$40 million year-over-year increase on the Purple Line project, which was canceled in the third quarter of 2020. Segment profit in 2020 improved compared to 2019 primarily due to recognized revisions of$26 million on the power plant projects in 2019. The increase in segment profit margin was primarily attributable to these same factors. Lower margin contributions from certain infrastructure projects for which charges were recognized during the latter part of 2019 may continue to adversely impact near term segment profit margin. No significant awards were booked in the first quarter of 2020 in part due to more selectivity in pursuing such projects. Backlog atMarch 31, 2020 decreased compared toDecember 31, 2019 due to the lack of new awards. Government Revenue in 2020 decreased compared to 2019 primarily due to the completion of theMagnox project in theUnited Kingdom during the third quarter of 2019. 31
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The decline in segment profit in 2020 reflects project positions taken during 2020 in recognition of the potential impacts of COVID-19, particularly as it relates to estimated fee recoveries on certain projects. The decrease in segment profit margin was primarily driven by these same factors. New awards in 2020 increased compared to 2019 primarily due to an extension of a logistics assistance contract. Backlog atMarch 31, 2020 remained relatively flat compared toDecember 31, 2019 . Total backlog included$1.5 billion and$1.9 billion of unfunded government contracts as ofMarch 31, 2020 andDecember 31, 2019 , respectively. Diversified Services As discussed elsewhere, most of the operating results of our AMECO equipment business are included in discontinued operations. The retained portion of the AMECO operations have been or are in the process of being liquidated and did not meet the qualifications of discontinued operations. These retained operations remain in the Diversified Services segment. Revenue in 2020 decreased compared to 2019 due to lower volumes in the Stork business and lower contributions from the staffing business as a large project inNorth America nears completion. Revenue declines in 2020 were further driven by reduced volume from the retained AMECO operations. Segment profit in 2020 decreased compared to 2019 primarily driven by the reduced volumes in the Stork business and the closure of the retained AMECO equipment business inMexico . The decline in segment profit margin in 2020 was due to these same factors. New awards in 2020 declined compared to 2019 as prior year new awards included a significant power services contract inNorth America . Backlog as ofMarch 31, 2020 declined compared toDecember 31, 2019 primarily due to the decrease in new award activity and exchange rate fluctuations. The equipment and staffing businesses do not report backlog or new awards. Other Other includes the operations of NuScale, as well as two lump-sum, loss projects including a plant for which we serve as a subcontractor to a commercial client (the "Radford" project) and a weapons storage and maintenance facility (the "Warren" project). Revenue during 2020 increased compared to 2019 primarily due to increased project execution activities for both the Radford and Warren projects. Segment loss during 2020 improved compared to 2019, primarily due to recognition of losses for the Radford project during the first quarter of 2019. Our forecast for both projects is based on our assessment of the probable cost to finish the projects as well as our assessment of the recovery of unapproved change orders. If our forecasts for these projects are not achieved, revenue and segment profit could be further adversely affected. We continue to pursue recovery of all unapproved change orders associated with these projects. NuScale expenses, net of qualified reimbursable expenses, included in the determination of segment loss, were$23 million and$16 million during the three months endedMarch 31, 2020 and 2019, respectively. Corporate and Other Matters (in millions) THREE MONTHS ENDED MARCH 31 2020 2019 Corporate G&A Compensation$ 18.8 $ 33.0
Foreign currency (gains) losses (44.0 ) 19.0 Other
11.1 6.6
Corporate G&A $ (14.1 ) $ 58.6 Lower levels of compensation expense were recognized during 2020 primarily due
to the deferral of long-term incentive award issuances until the latter half of
2020, as compared to the first quarter of 2019. During 2020, most major foreign
currencies weakened against the
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Critical Accounting Policies and Estimates
Fair Value Measurements. We are often required to use fair value measurement
techniques with inputs that require the use of estimates and involve significant
judgment. These circumstances include:
• Annual and interim goodwill impairment testing of reporting units when
quantitative analysis is deemed necessary
• Impairment testing of intangible assets when impairment indicators are
present
• Impairment testing of investments as part of other than temporary
impairment assessments when impairment indicators are present
• Fair value assessments of businesses held for sale that are reported at fair value less cost to sell • Purchase price allocations for acquired businesses
When performing quantitative fair value or impairment evaluations, we estimate the fair value of our assets by taking into consideration the results of both income-based and market-based valuation approaches. Under the income approach, we prepare a discounted cash flow valuation model using recent forecasts and compare the estimated fair value of each asset to its carrying value. Cash flow forecasts are discounted using the weighted-average cost of capital for the applicable reporting unit at the date of evaluation. The weighted-average cost of capital is comprised of the cost of equity and the cost of debt with a weighting for each that reflects our current capital structure. Preparation of long-term forecasts involve significant judgments involving consideration of our backlog, expected future awards, customer attribution, working capital assumptions, and general market trends and conditions. Significant changes in these forecasts or any valuation assumptions, such as the discount rate selected, could affect the estimated fair value of our assets and could result in impairment charges. Under the market approach, we consider market information such as multiples of comparable publicly traded companies and/or completed sales transactions to develop or validate our fair value conclusions, when appropriate and available. Due to the impact of COVID-19 and decline in commodity prices on our operations through the date of this filing, we performed interim impairment testing of our goodwill, intangibles and certain other investments and recognized impairment charges during the first quarter of 2020 of$169 million ,$27 million and$86 million , respectively. All other factors being equal, a one hundred basis point change in the discount rates used in these valuations would change the fair value of these assets by$47 million ,$2 million and$3 million , respectively. Recent Accounting Pronouncements See the Notes to Financial Statements. Litigation and Matters in Dispute Resolution See the Notes to Financial Statements. LIQUIDITY AND FINANCIAL CONDITION Liquidity is provided by available cash and cash equivalents and marketable securities, cash generated from operations, credit facilities and, when necessary, access to capital markets. We have both committed and uncommitted lines of credit available to be used for revolving loans and letters of credit. As ofMarch 31, 2020 , our financial covenant limits our borrowings to approximately$675 million under our committed credit facilities which expire inFebruary 2022 . 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. However, we regularly review our sources and uses of liquidity and may pursue opportunities to increase our liquidity position. Our committed credit facilities contain customary financial and restrictive covenants, including the timely filing of financial statements and a debt-to-capitalization ratio that cannot exceed 0.6 to 1.0. In order to accommodate the delays in filing our financial statements, we have entered into amendments with our lenders to extend the deadline for filing this Form 10-Q toOctober 31, 2020 and to extend the second and third quarter deadlines toNovember 30 andDecember 31, 2020 , respectively, and we believe that we will satisfy the extended deadlines. Future losses and impairment charges could further reduce the amount of available credit capacity under our committed facilities. Cash and cash equivalents combined with marketable securities were$1.9 billion as ofMarch 31, 2020 and$2.0 billion as ofDecember 31, 2019 . 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$949 million and$944 million as ofMarch 31, 2020 andDecember 31, 2019 , respectively. Non-U.S. cash and cash equivalents exclude deposits ofU.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. 33
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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
Three Months Ended
March 31,
(in thousands) 2020 2019
OPERATING CASH FLOW $ (63,743 ) $ (17,476 )
INVESTING CASH FLOW
Proceeds from sales and maturities (purchases) of
marketable securities 806 116,119
Capital expenditures (30,094 ) (48,172 )
Proceeds from sales of property, plant and equipment 13,465 10,720
Investments in partnerships and joint ventures (5,971 ) (12,001 )
Other 56 1,090
Investing cash flow (21,738 ) 67,756
FINANCING CASH FLOW
Dividends paid (14,700 ) (30,005 )
Other borrowings 22,203 7,692
Distributions paid to NCI (2,751 ) (10,152 )
Capital contributions by NCI 19,968 4,767
Other (2,092 ) (2,122 )
Financing cash flow 22,628 (29,820 )
Effect of exchange rate changes on cash (63,472 ) 20,571
Increase (decrease) in cash and cash equivalents (126,325 ) 41,031
Cash and cash equivalents at beginning of period 1,997,199 1,764,746
Cash and cash equivalents at end of period $ 1,870,874 $ 1,805,777 Operating Activities Cash flows from operating activities result primarily from earnings sources and are affected by changes in operating assets and liabilities which consist primarily of working capital balances for projects. Working capital levels vary from period to period and are primarily affected by our volume of work. These levels are also impacted by the stage of completion and commercial terms of engineering and construction projects, as well as our execution of its projects within 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. We evaluate the counterparty credit risk of third parties as part of its project risk review process. We maintain adequate reserves for potential credit losses and generally such losses have been minimal and within management's estimates. Additionally, certain projects receive advance payments from clients. A normal trend for these projects is to have higher cash balances during the initial phases of execution which then level out 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.
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During the quarter endedMarch 31, 2020 , working capital significantly increased. Specific factors related to the change in working capital include: • Decreases in accounts receivable in the Mining & Industrial, Government and Diversified Services segments, primarily related to normal billing and collection activities for various projects. • Increases in contract assets in the Mining & Industrial and Government segments, which resulted primarily from normal project execution activities. • Decreases in accounts payable in the Energy & Chemicals, Mining & Industrial, Infrastructure & Power and Diversified Services segments, which resulted primarily from normal invoicing and payment activities for several projects.
• An increase in prepaid income taxes.
During the quarter endedMarch 31, 2019 , working capital slightly increased. Specific factors related to the change in working capital include: • Decreases in accounts receivable in the Mining & Industrial, Government and Diversified Services segments, primarily related to normal billing and collection activities for various projects, including LOGCAP IV. • Increases in contract assets in the Mining & Industrial, Infrastructure & Power and Diversified Services segments, which resulted primarily from normal project execution activities. • A decrease in accounts payable in the Energy & Chemicals segment, which resulted primarily from normal invoicing and payment activities. The decline in operating cash flow resulted primarily from a higher level of working capital outflows in 2020 compared to 2019. We contributed$7 million and$9 million into our defined benefit pension plans during the three months endedMarch 31, 2020 and 2019, respectively. We currently expect to contribute up to$15 million during 2020, which is expected to be in excess of the minimum funding required. Both periods included the operations of NuScale, which are primarily for research and development activities associated with the licensing and commercialization of small modular nuclear reactor technology. NuScale expenses included in the determination of segment profit were$23 million and$16 million for the three months endedMarch 31, 2020 and 2019, respectively. NuScale expenses were reported net of qualified reimbursable expenses of$13 million for both the three months endedMarch 31, 2020 and 2019. 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 byU.S. Government -related securities, high-grade commercial paper and high quality short-term and medium-term fixed income securities. During the quarter endedMarch 31, 2019 , proceeds from the sales and maturities of marketable securities primarily related to maturities of large time deposits at an infrastructure project as cash was needed to support project execution activities. Capital expenditures primarily related to construction equipment associated with equipment operations now included in discontinued operations, as well as expenditures for facilities and investments in information technology. Proceeds from the disposal of property, plant and equipment primarily related to the disposal of construction equipment associated with the equipment business in discontinued operations. Investments in unconsolidated partnerships and joint ventures during both the three months endedMarch 31, 2020 and 2019 primarily consist of capital contributions to an infrastructure joint venture inthe United States . We have a future funding commitment to COOEC Fluor of$26 million due at the end of 2020. 35
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Financing Activities We have a common stock repurchase program, authorized by the Board of Directors, to purchase shares in the open market or privately negotiated transactions at our discretion. As ofMarch 31, 2020 , 10,513,093 shares could still be purchased under the existing stock repurchase program. Quarterly cash dividends are typically paid during the month following the quarter in which they are declared. Therefore, dividends declared in the fourth quarter of 2019 were paid in the first quarter of 2020. Quarterly cash dividends of$0.10 per share and$0.21 per share were declared in the first quarter of 2020 and 2019, respectively. We have suspended our dividend as ofApril 29, 2020 . The payment and level of future cash dividends is subject to the discretion of our Board of Directors. Other borrowings 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 2019 primarily related to a mining joint venture project inChile . Effect of Exchange Rate Changes on Cash During the three months endedMarch 31, 2020 , most major foreign currencies weakened against theU.S. dollar resulting in unrealized translation losses of$111 million , of which$63 million related to cash held by foreign subsidiaries. During the three months endedMarch 31, 2019 , most major foreign currencies strengthened against theU.S. dollar resulting in unrealized translation gains$44 million , of which$21 million related to cash held by foreign subsidiaries. The cash held in foreign currencies will primarily be used for project-related expenditures in those currencies, and therefore our exposure to exchange gains and losses is generally mitigated. Off-Balance Sheet Arrangements As ofMarch 31, 2020 , letters of credit totaling$336 million were outstanding under our committed lines of credit, which consist of a$1.7 billion Revolving Loan and Letter of Credit Facility and a$1.8 billion Revolving Loan and Letter of Credit Facility. Both facilities mature inFebruary 2022 . Each of the credit facilities contain customary financial and restrictive covenants, including the timely filing of financial statements and a debt-to-capitalization ratio that cannot exceed 0.6 to 1.0 and a limitation on the aggregate amount of debt of the greater of$750 million or €750 million for our subsidiaries. Borrowings under both facilities, which may be denominated in USD, EUR, GBP or CAD, bear interest at rates based on the Eurodollar Rate or an alternative base rate, plus an applicable borrowing margin. As ofMarch 31, 2020 , letters of credit totaling$968 million were also 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 In the ordinary course of business, we enter into various agreements providing performance assurances and guarantees to our clients. These agreements are entered into primarily to support project execution commitments. The performance guarantees have various expiration dates ranging from mechanical completion of the project to a period extending beyond contract completion. 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$17 billion as ofMarch 31, 2020 . Amounts that may be required to be paid in excess of estimated cost to complete contracts in progress are not estimable. For cost reimbursable contracts, amounts that may become payable pursuant to guarantee provisions are normally recoverable from the client for work performed. For lump-sum or fixed-price contracts, the performance guarantee amount is the cost to complete the contracted work, less amounts remaining to be billed to the client under the contract. Remaining billable amounts could be greater or less than the cost to complete. In those cases where costs exceed the remaining amounts payable under the contract, we may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors for claims. The performance guarantee obligation was not material as ofMarch 31, 2020 andDecember 31, 2019 . 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 36
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borrower. These arrangements generally require the borrower to pledge collateral
to support the fulfillment of the borrower's obligation.
Variable Interest Entities
We frequently form joint ventures or partnerships with others primarily for the
execution of single contracts or projects. We assess our joint ventures and
partnerships at inception to determine if any meet the qualifications of a VIE
as defined in GAAP. If a joint venture or partnership is a VIE and we are the
primary beneficiary, the joint venture or partnership is consolidated and our
partners' interests are recognized as NCI. For further discussion of our VIEs,
see Notes to the Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to market risk in the first quarter of 2020.
Accordingly, the disclosures provided in the 2019 10-K remain current.
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) were not effective as required by paragraph
(b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act.
In light of the material weaknesses in our ICFR, we performed extensive
additional analysis and other procedures to validate that our financial
information contained in this Form 10-Q was prepared in accordance with US GAAP.
Following such additional analysis and procedures, our management, including our
CEO and CFO, has concluded that our financial statements present fairly, in all
material respects, our financial position, results of our operations and our
cash flows for the periods presented in this Form 10-Q, in conformity with GAAP.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
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FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
UNAUDITED
Three Months Ended
March 31,
(in millions) 2020 2019
Backlog, January 1 $ 31,933.9 $ 40,050.7
New awards 4,191.1 3,400.2
Adjustments and cancellations, net (654.1 ) 57.5
Work performed (4,085.2 ) (4,084.4 )
Backlog, March 31 $ 31,385.7 $ 39,424.0
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