Company Quick10K Filing
Quick10K
Fluor
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$29.91 140 $4,190
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-24 Officers, Regulation FD, Exhibits
8-K 2019-05-16 Officers, Regulation FD, Exhibits
8-K 2019-05-02 Shareholder Vote
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-05-01 Officers, Regulation FD, Other Events, Exhibits
8-K 2019-03-07 Officers, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-10 Earnings, Exhibits
8-K 2018-08-29 Enter Agreement, Other Events, Exhibits
8-K 2018-08-20 Enter Agreement, Other Events, Exhibits
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-08-02 Other Events, Exhibits
8-K 2018-05-11 Regulation FD, Exhibits
8-K 2018-05-03 Shareholder Vote
8-K 2018-02-08 Officers
8-K 2018-01-31 Officers
AIG American International Group 44,210
DCP DCP Midstream 4,390
PFGC Performance Food Group 4,130
SANM Sanmina 2,220
HALL Hallmark Financial Services 197
SAMA Schultze Special Purpose Acquisition 160
SRVA Sirva 0
SWKH SWK Holdings 0
FRLI Frelii 0
PGCG Prime Global Capital Group 0
FLR 2019-03-31
Part I: Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 4. Mine Safety Disclosures
Item 6. Exhibits
EX-31.1 flr2019q1ex311.htm
EX-31.2 flr2019q1ex312.htm
EX-32.1 flr2019q1ex321.htm
EX-32.2 flr2019q1ex322.htm
EX-95 flr2019q1ex95.htm

Fluor Earnings 2019-03-31

FLR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 flr-20190331x10q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
Or
o        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)
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 x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o
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 o  No ý
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
As of April 26, 2019, 139,927,317 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 EARNINGS
UNAUDITED
 
 
Three Months Ended
March 31,
(in thousands, except per share amounts)
 
2019
 
2018
 
 
 
 
 
TOTAL REVENUE
 
$
4,192,747

 
$
4,823,770

 
 
 
 
 
TOTAL COST OF REVENUE
 
4,131,060

 
4,765,975

 
 
 
 
 
OTHER (INCOME) AND EXPENSES
 
 
 
 
Corporate general and administrative expense
 
61,051

 
57,271

Restructuring and other exit costs
 
27,368

 

Interest expense
 
18,637

 
17,112

Interest income
 
(12,976
)
 
(7,533
)
Total cost and expenses
 
4,225,140

 
4,832,825

 
 
 
 
 
EARNINGS (LOSS) BEFORE TAXES
 
(32,393
)
 
(9,055
)
INCOME TAX EXPENSE
 
10,915

 
3,006

 
 
 
 
 
NET EARNINGS (LOSS)
 
(43,308
)
 
(12,061
)
 
 
 
 
 
LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
15,118

 
5,529

 
 
 
 
 
NET EARNINGS (LOSS) ATTRIBUTABLE TO FLUOR CORPORATION
 
$
(58,426
)
 
$
(17,590
)
 
 
 
 
 
BASIC EARNINGS (LOSS) PER SHARE
 
$
(0.42
)
 
$
(0.13
)
 
 
 
 
 
DILUTED EARNINGS (LOSS) PER SHARE
 
$
(0.42
)
 
$
(0.13
)
 
 
 
 
 
SHARES USED TO CALCULATE EARNINGS PER SHARE
 
 
 
 
BASIC
 
139,776

 
140,099

DILUTED
 
139,776

 
140,099

 
 
 
 
 
DIVIDENDS DECLARED PER SHARE
 
$
0.21

 
$
0.21

See Notes to Condensed Consolidated Financial Statements.

2


FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
UNAUDITED
 
 
Three Months Ended
March 31,
(in thousands)
 
2019
 
2018
 
 
 
 
 
NET EARNINGS (LOSS)
 
$
(43,308
)
 
$
(12,061
)
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
 
 
 
 
Foreign currency translation adjustment
 
41,870

 
26,358

Ownership share of equity method investees’ other comprehensive income (loss)
 
(2,322
)
 
4,981

Defined benefit pension and postretirement plan adjustments
 
2,064

 
1,176

Unrealized gain (loss) on derivative contracts
 
3,457

 
(3,602
)
Unrealized gain on available-for-sale securities
 

 
709

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX
 
45,069

 
29,622

 
 
 
 
 
COMPREHENSIVE INCOME
 
1,761

 
17,561

 
 
 
 
 
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
15,603

 
5,869

 
 
 
 
 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLUOR CORPORATION
 
$
(13,842
)
 
$
11,692

See Notes to Condensed Consolidated Financial Statements.

3


FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
UNAUDITED
(in thousands, except share and per share amounts)
 
March 31,
2019
 
December 31,
2018
 
 
 
 
 
ASSETS 
 
 

 
 

CURRENT ASSETS
 
 

 
 

Cash and cash equivalents ($478,410 and $391,635 related to variable interest entities (“VIEs”))
 
$
1,805,777

 
$
1,764,746

Marketable securities, current ($80,249 and $202,481 related to VIEs)
 
98,733

 
214,828

Accounts and notes receivable, net ($203,951 and $214,339 related to VIEs)
 
1,380,475

 
1,534,339

Contract assets ($388,580 and $350,814 related to VIEs)
 
1,588,034

 
1,544,981

Other current assets ($6,680 and $15,660 related to VIEs)
 
369,589

 
381,999

Total current assets
 
5,242,608

 
5,440,893

 
 
 
 
 
Property, plant and equipment (“PP&E”) ((net of accumulated depreciation of $1,237,066 and $1,220,802) (net PP&E of $44,836 and $41,479 related to VIEs))
 
985,754

 
1,013,732

Goodwill
 
535,051

 
533,585

Investments
 
937,456

 
938,490

Deferred taxes
 
363,872

 
342,126

Deferred compensation trusts
 
354,961

 
328,814

Other assets ($42,217 and $26,578 related to VIEs)
 
622,012

 
315,997

TOTAL ASSETS
 
$
9,041,714

 
$
8,913,637

 
 
 
 
 
LIABILITIES AND EQUITY 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
Trade accounts payable ($522,229 and $475,018 related to VIEs)
 
$
1,543,478

 
$
1,638,891

Short-term borrowings
 
35,922

 
26,887

Contract liabilities ($204,744 and $271,692 related to VIEs)
 
868,950

 
855,948

Accrued salaries, wages and benefits ($34,278 and $28,478 related to VIEs)
 
659,578

 
649,486

Other accrued liabilities ($42,182 and $49,997 related to VIEs)
 
419,965

 
381,301

Total current liabilities
 
3,527,893

 
3,552,513

 
 
 
 
 
LONG-TERM DEBT DUE AFTER ONE YEAR
 
1,650,927

 
1,661,565

NONCURRENT LIABILITIES
 
746,969

 
581,509

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 — 140,108,765 and 139,653,824 shares in 2019 and 2018, respectively
 
1,399

 
1,396

Additional paid-in capital
 
94,456

 
82,106

Accumulated other comprehensive loss
 
(497,894
)
 
(542,478
)
Retained earnings
 
3,354,352

 
3,422,157

Total shareholders’ equity
 
2,952,313

 
2,963,181

Noncontrolling interests
 
163,612

 
154,869

Total equity
 
3,115,925

 
3,118,050

TOTAL LIABILITIES AND EQUITY
 
$
9,041,714

 
$
8,913,637

See Notes to Condensed Consolidated Financial Statements.

4


FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
 
 
Three Months Ended
March 31,
(in thousands)
 
2019
 
2018
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net earnings (loss)
 
$
(43,308
)
 
$
(12,061
)
Adjustments to reconcile net earnings (loss) to cash provided (utilized) by operating activities:
 
 
 
 
Depreciation of fixed assets
 
45,264

 
51,907

Amortization of intangibles
 
4,567

 
4,747

(Earnings) loss from equity method investments, net of distributions
 
2,115

 
1,854

Gain on sale of property, plant and equipment
 
(1,858
)
 
(2,153
)
Amortization of stock-based awards
 
13,242

 
13,917

Deferred compensation trust
 
(26,145
)
 
1,025

Deferred compensation obligation
 
28,584

 
930

Deferred taxes
 
(25,549
)
 
(37,920
)
Net retirement plan accrual (contributions)
 
(3,577
)
 
(5,235
)
Changes in operating assets and liabilities
 
(13,928
)
 
(151,051
)
Other items
 
3,117

 
(1,962
)
Cash utilized by operating activities
 
(17,476
)
 
(136,002
)
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchases of marketable securities
 
(8,180
)
 
(44,868
)
Proceeds from the sales and maturities of marketable securities
 
124,299

 
175,784

Capital expenditures
 
(48,172
)
 
(65,082
)
Proceeds from disposal of property, plant and equipment
 
10,720

 
16,494

Investments in partnerships and joint ventures
 
(12,001
)
 
(15,574
)
Other items
 
1,090

 
128

Cash provided by investing activities
 
67,756

 
66,882

 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Dividends paid
 
(30,005
)
 
(30,242
)
Distributions paid to noncontrolling interests
 
(10,152
)
 
(23,226
)
Capital contributions by noncontrolling interests
 
4,767

 
365

Taxes paid on vested restricted stock
 
(3,549
)
 
(5,455
)
Stock options exercised
 
1,466

 
4,019

Other items
 
7,653

 
(3,440
)
Cash utilized by financing activities
 
(29,820
)
 
(57,979
)
Effect of exchange rate changes on cash
 
20,571

 
8,978

Increase (decrease) in cash and cash equivalents
 
41,031

 
(118,121
)
Cash and cash equivalents at beginning of period
 
1,764,746

 
1,804,075

Cash and cash equivalents at end of period
 
$
1,805,777

 
$
1,685,954

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 Income (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 (loss)




(17,590
)
(17,590
)
5,529

(12,061
)
Cumulative adjustment for the adoption of ASC 606




(338,738
)
(338,738
)
(963
)
(339,701
)
Other comprehensive income



29,282


29,282

340

29,622

Dividends ($0.21 per share)


(88
)

(29,766
)
(29,854
)

(29,854
)
Distributions to noncontrolling interests






(23,226
)
(23,226
)
Capital contributions by noncontrolling interests






365

365

Other noncontrolling interest transactions


880



880

862

1,742

Stock-based plan activity
680

7

10,014



10,021


10,021

BALANCE AS OF
MARCH 31, 2018
140,598

$
1,406

$
99,028

$
(372,960
)
$
3,268,837

$
2,996,311

$
132,996

$
3,129,307

 
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (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)




(58,426
)
(58,426
)
15,118

(43,308
)
Cumulative adjustment for the adoption of ASC 842




20,544

20,544


20,544

Other comprehensive income



44,584


44,584

485

45,069

Dividends ($0.21 per share)


218


(29,923
)
(29,705
)

(29,705
)
Distributions to noncontrolling interests






(10,152
)
(10,152
)
Capital contributions by noncontrolling interests






4,767

4,767

Other noncontrolling interest transactions


1,035



1,035

(1,475
)
(440
)
Stock-based plan activity
455

3

11,097



11,100


11,100

BALANCE AS OF
MARCH 31, 2019
140,109

$
1,399

$
94,456

$
(497,894
)
$
3,354,352

$
2,952,313

$
163,612

$
3,115,925



6

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED


(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 months ended March 31, 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 March 31, 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. 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 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 quarter 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.

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.


7

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

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." The amendments in this ASU 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 is 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 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.

8

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED


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.

The components of lease expense for the three months ended March 31, 2019 were as follows:
Lease Cost / (Sublease Income)
Three Months Ended
March 31, 2019
(in thousands)
 
Operating lease cost
$
22,406

Finance lease cost
 
Amortization of right-of-use assets
393

Interest on lease liabilities
18

Variable lease cost(1)
4,546

Short-term lease cost
36,286

Sublease income
(11,108
)
Total lease cost
$
52,541


(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 March 31, 2019 was as follows:
Lease Assets / Liabilities
Balance Sheet Classification
March 31, 2019
(in thousands)
 
 
Right-of-use assets
 
 
Operating lease assets
Other assets
$
312,262

Finance lease assets
Other assets
1,504

Total right-of-use assets
 
$
313,766

Lease liabilities
 
 
Operating lease liabilities, current
Other accrued liabilities
$
67,428

Operating lease liabilities, noncurrent
Noncurrent liabilities
255,190

Finance lease liabilities, current
Other accrued liabilities
1,009

Finance lease liabilities, noncurrent
Noncurrent liabilities
947

Total lease liabilities
 
$
324,574



9

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

Supplemental information related to the company’s leases for the three months ended March 31, 2019 was as follows:
 
Three Months Ended
March 31, 2019
(in thousands)
 
Cash paid for amounts included in the measurement of lease liabilities:
 
     Operating cash flows from operating leases
$
22,570

     Operating cash flows from finance leases
18

     Financing cash flows from finance leases
428

Right-of-use assets obtained in exchange for new operating lease liabilities
51,240

Right-of-use assets obtained in exchange for new finance lease liabilities

Weighted-average remaining lease term - operating leases
6.97 years

Weighted-average remaining lease term - finance leases
1.94 years

Weighted-average discount rate - operating leases
3.45
%
Weighted-average discount rate - finance leases
3.27
%

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
$
59,119

 
$
1,140

2020
72,084

 
757

2021
52,926

 
111

2022
42,317

 

2023
34,940

 

Thereafter
100,766

 

Total lease payments
$
362,152

 
$
2,008

Less: Interest
(39,534
)
 
(52
)
Present value of lease liabilities
$
322,618

 
$
1,956


10

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

(4)    Other Comprehensive Income (Loss)
The tax effects of the components of other comprehensive income (loss) (“OCI”) for the three months ended March 31, 2019 and 2018 are as follows:
 
 
Three Months Ended
March 31, 2019
 
Three Months Ended
March 31, 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
 
$
43,884

 
$
(2,014
)
 
$
41,870

 
$
26,918

 
$
(560
)
 
$
26,358

Ownership share of equity method investees’ other comprehensive income (loss)
 
(3,495
)
 
1,173

 
(2,322
)
 
6,259

 
(1,278
)
 
4,981

Defined benefit pension and postretirement plan adjustments
 
2,210

 
(146
)
 
2,064

 
1,517

 
(341
)
 
1,176

Unrealized gain (loss) on derivative contracts
 
4,634

 
(1,177
)
 
3,457

 
(4,530
)
 
928

 
(3,602
)
Unrealized gain on available-for-sale securities
 

 

 

 
1,134

 
(425
)
 
709

Total other comprehensive income
 
47,233

 
(2,164
)
 
45,069

 
31,298

 
(1,676
)
 
29,622

Less: Other comprehensive income attributable to noncontrolling interests
 
485

 

 
485

 
340

 

 
340

Other comprehensive income attributable to Fluor Corporation
 
$
46,748

 
$
(2,164
)
 
$
44,584

 
$
30,958

 
$
(1,676
)
 
$
29,282

The changes in accumulated other comprehensive income (“AOCI”) balances by component (after-tax) for the three months ended March 31, 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
41,385

 
(2,464
)
 

 
2,696

 
41,617

Amounts reclassified from AOCI

 
142

 
2,064

 
761

 
2,967

Net other comprehensive income (loss)
41,385

 
(2,322
)
 
2,064

 
3,457

 
44,584

Balance as of March 31, 2019
$
(267,362
)
 
$
(25,994
)
 
$
(202,585
)
 
$
(1,953
)
 
$
(497,894
)
 
 
 
 
 
 
 
 
 
 
Attributable to Noncontrolling Interests:
 
 
 
 
 
 
 
 


Balance as of December 31, 2018
$
(3,701
)
 
$

 
$

 
$

 
$
(3,701
)
Other comprehensive income before reclassifications
485

 

 

 

 
485

Amounts reclassified from AOCI

 

 

 

 

Net other comprehensive income
485

 

 

 

 
485

Balance as of March 31, 2019
$
(3,216
)
 
$

 
$

 
$

 
$
(3,216
)

11

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

The changes in AOCI balances by component (after-tax) for the three months ended March 31, 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
26,018

 
4,476

 

 
(3,761
)
 

 
26,733

Amounts reclassified from AOCI

 
505

 
1,176

 
159

 
709

 
2,549

Net other comprehensive income (loss)
26,018

 
4,981

 
1,176

 
(3,602
)
 
709

 
29,282

Balance as of March 31, 2018
$
(185,159
)
 
$
(27,633
)
 
$
(150,882
)
 
$
(9,286
)
 
$

 
$
(372,960
)
 
 
 
 
 
 
 
 
 
 
 
 
Attributable to Noncontrolling Interests:
 
 
 
 
 
 
 
 
 
 


Balance as of December 31, 2017
$
(1,462
)
 
$

 
$

 
$

 
$

 
$
(1,462
)
Other comprehensive income before reclassifications
340

 

 

 

 

 
340

Amounts reclassified from AOCI

 

 

 

 

 

Net other comprehensive income
340

 

 

 

 

 
340

Balance as of March 31, 2018
$
(1,122
)
 
$

 
$

 
$

 
$

 
$
(1,122
)

12

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

The significant items reclassified out of AOCI and the corresponding location and impact on the Condensed Consolidated Statement of Earnings are as follows:
 
 
Location in Condensed
 
Three Months Ended
March 31,
(in thousands)
 
Consolidated Statement of Earnings
 
2019
 
2018
Component of AOCI:
 
 
 
 

 
 

 
 
 
 
 
 
 
Ownership share of equity method investees’ other comprehensive loss
 
Total cost of revenue
 
$
(189
)
 
$
(696
)
Income tax benefit
 
Income tax expense
 
47

 
191

Net of tax
 
 
 
$
(142
)
 
$
(505
)
 
 
 
 
 
 
 
Defined benefit pension plan adjustments
 
Corporate general and administrative expense
 
$
(2,210
)
 
$
(1,516
)
Income tax benefit
 
Income tax expense
 
146

 
340

Net of tax
 
 
 
$
(2,064
)
 
$
(1,176
)
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative contracts:
 
 
 
 
 
 
Foreign currency contracts
 
Various accounts(1)
 
$
(845
)
 
$
214

Interest rate contracts
 
Interest expense
 
(420
)
 
(420
)
Income tax benefit
 
Income tax expense
 
504

 
47

Net of tax
 
 
 
$
(761
)
 
$
(159
)
 
 
 
 
 
 
 
Unrealized loss on available-for-sale securities
 
Corporate general and administrative expense
 
$

 
$
(1,134
)
Income tax benefit
 
Income tax expense
 

 
425

Net of tax
 
 
 
$

 
$
(709
)
_______________________________________________________________________________
(1)
Gains and losses on foreign currency derivative contracts were reclassified to "Total cost of revenue" and "Corporate general and administrative expense."

As a result of the Tax Cuts and Jobs Act, certain income tax effects related to items in AOCI have been stranded in AOCI, and the company did not elect to reclassify these stranded tax effects to retained earnings. The tax effects remaining in AOCI are released only when all related units of account are liquidated, sold or extinguished (i.e., the portfolio approach).
(5)    Income Taxes
The effective tax rates for the three months ended March 31, 2019 and 2018 were (33.7) percent and (33.2) percent, respectively.  The effective rate for the three months ended March 31, 2019 was unfavorably impacted by the U.S. tax on global intangible low-tax income and foreign losses for which no tax benefit could be recognized. The effective rate for the three months ended March 31, 2018 was unfavorably impacted by higher tax rates on foreign earnings and the inability to offset the losses recognized in certain jurisdictions against the income recognized in other jurisdictions. Both periods benefitted from earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company. Due to the low level of operating results for both periods, the items impacting the effective tax rates had a disproportionately large percentage impact.
The company conducts business globally and, as a result, the company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Canada, the Netherlands, South Africa, the United Kingdom and the United States. Although the company believes its reserves for its tax positions are reasonable, the final outcome of tax audits could be materially different, both favorably and unfavorably. With a few exceptions, the company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2013.

13

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

(6)    Cash Paid for Interest and Taxes
Cash paid for interest was $28 million and $24 million for the three months ended March 31, 2019 and 2018, respectively. Income tax payments, net of refunds, were $33 million and $36 million during the three-month periods ended March 31, 2019 and 2018, respectively.
(7)    Earnings Per Share
Diluted earnings per share (“EPS”) reflects the assumed exercise or conversion of all dilutive securities using the treasury stock method. The calculations of the basic and diluted EPS for the three months ended March 31, 2019 and 2018 are presented below:
 
 
Three Months Ended
March 31,
(in thousands, except per share amounts)
 
2019
 
2018
 
 
 
 
 
Net earnings (loss) attributable to Fluor Corporation
 
$
(58,426
)
 
$
(17,590
)
 
 
 
 
 
Basic EPS attributable to Fluor Corporation:
 
 
 
 
Weighted average common shares outstanding
 
139,776

 
140,099

 
 
 
 
 
Basic earnings (loss) per share
 
$
(0.42
)
 
$
(0.13
)
 
 
 
 
 
Diluted EPS attributable to Fluor Corporation:
 
 
 
 
Weighted average common shares outstanding
 
139,776

 
140,099

 
 
 
 
 
Diluted effect:
 
 
 
 
Employee stock options, restricted stock units and shares and Value Driver Incentive units (1)
 

 

Weighted average diluted shares outstanding
 
139,776

 
140,099

 
 
 
 
 
Diluted earnings (loss) per share
 
$
(0.42
)
 
$
(0.13
)
 
 
 
 
 
Anti-dilutive securities not included above
 
4,776

 
4,159

_________________________________________________________
(1)
Employee stock options, restricted stock units and shares, and Value Driver Incentive units of 740,000 and 1,143,000 were excluded from weighted average diluted shares outstanding for the three months ended March 31, 2019 and 2018, respectively, as the shares would have an anti-dilutive effect on the net loss. 
(8)    Fair Value Measurements
The fair value hierarchy established by ASC 820, “Fair Value Measurement,” prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1 —    quoted prices in active markets for identical assets and liabilities
Level 2 —    inputs other than quoted prices in active markets for identical assets and liabilities that are observable, either directly or indirectly
Level 3 —    unobservable inputs
The company measures and reports assets and liabilities at fair value utilizing pricing information received from third parties. The company performs procedures to verify the reasonableness of pricing information received for significant assets and liabilities classified as Level 2.

14

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

The following table presents, for each of the fair value hierarchy levels required under ASC 820-10, the company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:
 
 
March 31, 2019
 
December 31, 2018
 
 
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)
 
$
28,728

 
$
28,728

 
$

 
$

 
$
26,690

 
$
26,690

 
$

 
$

Derivative assets(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
 
12,965

 

 
12,965

 

 
17,346

 

 
17,346

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency contracts
 
$
10,200

 
$

 
$
10,200

 
$

 
$
18,342

 
$

 
$
18,342

 
$

_________________________________________________________
(1)
Consists of registered money market funds and an equity index fund valued at fair value. These investments, which are trading securities, represent the net asset value of the shares of such funds as of the close of business at the end of the period based on the last trade or official close of an active market or exchange.
(2)
See Note 9 for the classification of foreign currency contracts on the Condensed Consolidated Balance Sheet. Foreign currency contracts are estimated using standard pricing models with market-based inputs, which take into account the present value of estimated future cash flows.
During the three months ended March 31, 2018, proceeds from sales and maturities of available-for-sale securities were $175 million. There were no sales or maturities of available-for-sale securities during the three months ended March 31, 2019.
The carrying values and estimated fair values of the company’s financial instruments that are not required to be measured at fair value in the Condensed Consolidated Balance Sheet are as follows:
 
 
 
March 31, 2019
 
December 31, 2018
(in thousands)
Fair Value
Hierarchy
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
 
 
 

 
 

 
 

 
 

Cash(1)
Level 1
 
$
1,036,957

 
$
1,036,957

 
$
1,091,868

 
$
1,091,868

Cash equivalents(2)
Level 2
 
768,820

 
768,820

 
672,878

 
672,878

Marketable securities, current(3)
Level 2
 
98,733

 
98,733

 
214,828

 
214,828

Notes receivable, including noncurrent portion(4)
Level 3
 
34,139

 
34,139

 
32,645

 
32,645

Liabilities:
 
 
 
 
 
 
 
 
 
1.750% Senior Notes(5)
Level 2
 
$
558,564

 
$
588,216

 
$
569,372

 
$
589,864

3.5% Senior Notes(5)
Level 2
 
494,520

 
501,890

 
494,280

 
484,790

4.250% Senior Notes(5)
Level 2
 
594,029

 
601,230

 
593,871

 
583,200

Other borrowings, including noncurrent portion(6)
Level 2
 
39,736

 
39,736

 
30,929

 
30,929

_________________________________________________________
(1)
Cash consists of bank deposits. Carrying amounts approximate fair value.
(2)
Cash equivalents consist of held-to-maturity time deposits with maturities of three months or less at the date of purchase. The carrying amounts of these time deposits approximate fair value because of the short-term maturity of these instruments.

15

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

(3)
Marketable securities, current consist of held-to-maturity time deposits with original maturities greater than three months that will mature within one year. 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.
(4)
Notes receivable are carried at net realizable value which approximates fair value. Factors considered by the company 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.
(5)
The fair value of the 1.750% Senior Notes, 3.5% Senior Notes and 4.250% Senior Notes was estimated based on quoted market prices for similar issues.
(6)
Other borrowings primarily 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.
(9)    Derivatives and Hedging
The company limits exposure to foreign currency fluctuations in most of its engineering and construction contracts through provisions that require client payments in currencies corresponding to the currencies in which cost is incurred. Certain financial exposure, which includes currency and commodity price risk associated with engineering and construction contracts, currency risk associated with monetary assets and liabilities denominated in nonfunctional currencies and risk associated with interest rate volatility, may subject the company to earnings volatility. In cases where financial exposure is identified, the company generally implements a hedging strategy utilizing derivatives instruments or hedging instruments to mitigate the risk. The company's hedging instruments are designated as either fair value or cash flow hedges in accordance with ASC 815, "Derivatives and Hedging." The company formally documents its hedge relationships at inception, including identification of the hedging instruments and the hedged items, its risk management objectives and strategies for undertaking the hedge transaction, and the initial quantitative assessment of the hedging instrument's effectiveness in offsetting changes in the fair value of the hedged items. The company subsequently assesses hedge effectiveness qualitatively, unless the facts and circumstances of the hedge relationship change to an extent that the company can no longer assert qualitatively that the hedge is highly effective. The fair values of all hedging instruments are recognized as assets or liabilities at the balance sheet date. For fair value hedges, the change in the fair value of the hedging instrument is offset against the change in the fair value of the underlying asset or liability through earnings. For cash flow hedges, the hedging instrument's gain or loss due to changes in fair value is recorded as a component of AOCI and is reclassified into earnings when the hedged item settles. For derivatives that are not designated or do not qualify as hedging instruments, the change in the fair value of the derivative is offset against the change in the fair value of the underlying asset or liability through earnings. The company does not enter into derivative instruments for speculative purposes. Under ASC 815, in certain limited circumstances, foreign currency payment provisions could be deemed embedded derivatives. If an embedded foreign currency derivative is identified, the derivative is bifurcated from the host contract and the change in fair value is recognized through earnings. The company maintains master netting arrangements with certain counterparties to facilitate the settlement of derivative instruments; however, the company reports the fair value of derivative instruments on a gross basis.
As of March 31, 2019, the company had total gross notional amounts of $416 million of foreign currency contracts outstanding (primarily related to the British Pound, Kuwaiti Dinar, Indian Rupee, Philippine Peso, South Korean Won and Chinese Yuan) that were designated as hedging instruments. The foreign currency contracts are of varying duration, none of which extend beyond May 2021.
The fair values of derivatives designated as hedging instruments under ASC 815 as of March 31, 2019 and December 31, 2018 were as follows:
 
 
Asset Derivatives
 
Liability Derivatives
(in thousands)
 
Balance Sheet
Location
 
March 31,
2019
 
December 31,
2018
 
Balance Sheet
Location
 
March 31,
2019
 
December 31,
2018
Foreign currency contracts
 
Other current assets
 
$
9,614

 
$
12,861

 
Other accrued liabilities
 
$
9,858

 
$
16,582

Foreign currency contracts
 
Other assets
 
1,975

 
2,669

 
Noncurrent liabilities
 
267

 
1,698

Total
 
 
 
$
11,589

 
$
15,530

 
 
 
$
10,125

 
$
18,280


16

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

The after-tax amount of gain (loss) recognized in OCI and reclassified from AOCI into earnings associated with the derivative instruments designated as cash flow hedges for the three months ended March 31, 2019 and 2018 was as follows:
 
 
After-Tax Amount of Gain
(Loss) Recognized in OCI
 
 
 
After-Tax Amount of Gain
(Loss) Reclassified from AOCI
into Earnings
 
 
Three Months Ended
March 31,
 
 
 
Three Months Ended
March 31,
Cash Flow Hedges (in thousands)
 
2019
 
2018
 
Location of Gain (Loss)
 
2019
 
2018
Foreign currency contracts
 
$
2,696

 
$
(3,761
)
 
Total cost of revenue
 
$
(499
)
 
$
103

Interest rate contracts
 

 

 
Interest expense
 
(262
)
 
(262
)
Total
 
$
2,696

 
$
(3,761
)
 
 
 
$
(761
)
 
$
(159
)
As of March 31, 2019, the company also had total gross notional amounts of $31 million of foreign currency contracts outstanding that were not designated as hedging instruments. These contracts primarily related to engineering and construction contract obligations denominated in nonfunctional currencies. As of March 31, 2019, the company had total gross notional amounts of $29 million associated with contractual foreign currency payment provisions that were deemed embedded derivatives. Net losses associated with the company’s derivatives and embedded derivatives included in “Total cost of revenue” and “Corporate general and administrative expense” were less than $0.1 million and $1 million for the three months ended March 31, 2019 and 2018, respectively.
(10)    Retirement Benefits
Net periodic pension expense for the company’s defined benefit pension plans includes the following components:
 
 
Location in Condensed
 
Three Months Ended
March 31,
(in thousands)
 
Consolidated Statement of Earnings
 
2019
 
2018
Service cost
 
Total cost of revenue
 
$
3,981

 
$
4,671

Interest cost
 
Corporate general and administrative expense
 
4,975

 
5,867

Expected return on assets
 
Corporate general and administrative expense
 
(8,279
)
 
(10,256
)
Amortization of prior service credit
 
Corporate general and administrative expense
 
(225
)
 
(243
)
Recognized net actuarial loss
 
Corporate general and administrative expense
 
2,619

 
1,911

Net periodic pension expense
 
 
 
$
3,071

 
$
1,950

The company currently expects to contribute up to $15 million into its defined benefit pension plans during 2019, which is expected to be in excess of the minimum funding required. During the three months ended March 31, 2019, contributions of approximately $9 million were made by the company.
(11)    Financing Arrangements
As of March 31, 2019, the company had both committed and uncommitted lines of credit available to be used for revolving loans and letters of credit. As of March 31, 2019, letters of credit and borrowings totaling $1.5 billion were outstanding under these committed and uncommitted lines of credit. The committed lines of credit include 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 in February 2022. The company may utilize up to $1.75 billion in the aggregate of the combined $3.5 billion committed lines of credit for revolving loans, which may be used for acquisitions and/or general purposes. Each of the credit facilities may be increased up to an additional $500 million subject to certain conditions, and contains customary financial and restrictive covenants, including a debt-to-capitalization ratio that cannot exceed 0.6 to 1.0 and a cap on the aggregate amount of debt of the greater of $750 million or €750 million for the company’s 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.
Letters of credit are provided in the ordinary course of business primarily to indemnify the company’s clients if the company fails to perform its obligations under its contracts. Surety bonds may be used as an alternative to letters of credit.

17

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

In August 2018, the company issued $600 million of 4.250% Senior Notes (the “2018 Notes”) due September 15, 2028 and received proceeds of $595 million, net of underwriting discounts. Interest on the 2018 Notes is payable semi-annually on March 15 and September 15 of each year, beginning on March 15, 2019. Prior to June 15, 2028, the company may redeem the 2018 Notes at a redemption price equal to 100 percent of the principal amount, plus a “make whole” premium described in the indenture. On or after June 15, 2028, the company may redeem the 2018 Notes at 100 percent of the principal amount plus accrued and unpaid interest, if any, to the date of redemption.
In March 2016, the company issued €500 million of 1.750% Senior Notes (the “2016 Notes”) due March 21, 2023 and received proceeds of €497 million (or approximately $551 million), net of underwriting discounts. Interest on the 2016 Notes is payable annually on March 21 of each year, beginning on March 21, 2017. Prior to December 21, 2022, the company may redeem the 2016 Notes at a redemption price equal to 100 percent of the principal amount, plus a “make whole” premium described in the indenture. On or after December 21, 2022, the company may redeem the 2016 Notes at 100 percent of the principal amount plus accrued and unpaid interest, if any, to the date of redemption. Additionally, the company may redeem the 2016 Notes at any time upon the occurrence of certain changes in U.S. tax laws, as described in the indenture, at 100 percent of the principal amount plus accrued and unpaid interest, if any, to the date of redemption.
In November 2014, the company issued $500 million of 3.5% Senior Notes (the “2014 Notes”) due December 15, 2024 and received proceeds of $491 million, net of underwriting discounts. Interest on the 2014 Notes is payable semi-annually on June 15 and December 15 of each year, and began on June 15, 2015. Prior to September 15, 2024, the company may redeem the 2014 Notes at a redemption price equal to 100 percent of the principal amount, plus a “make whole” premium described in the indenture. On or after September 15, 2024, the company may redeem the 2014 Notes at 100 percent of the principal amount plus accrued and unpaid interest, if any, to the date of redemption.
For the 2018 Notes, the 2016 Notes and the 2014 Notes, if a change of control triggering event occurs, as defined by the terms of the respective indentures, the company will be required to offer to purchase the applicable notes at a purchase price equal to 101 percent of their principal amount, plus accrued and unpaid interest, if any, to the date of redemption. The company is generally not limited under the indentures governing the 2018 Notes, the 2016 Notes and the 2014 Notes in its ability to incur additional indebtedness provided the company is in compliance with certain restrictive covenants, including restrictions on liens and restrictions on sale and leaseback transactions. The company may, from time to time, repurchase the 2018 Notes, the 2016 Notes and the 2014 Notes in the open market, in privately-negotiated transactions or otherwise in such volumes, at such prices and upon such other terms as we deem appropriate.
Other borrowings of $40 million as of March 31, 2019 and $31 million as of December 31, 2018 primarily represent bank loans and other financing arrangements associated with Stork.
As of March 31, 2019, the company was in compliance with all of the financial covenants related to its debt agreements.
(12)    Stock-Based Plans
The company’s executive and director stock-based compensation plans are described, and informational disclosures are provided, in the Notes to Consolidated Financial Statements included in the 2018 10-K. In the first quarter of 2019 and 2018, restricted stock units totaling 874,629 and 570,969, respectively, were granted to executives, at weighted-average grant date fair values of $38.30 per share and $58.15 per share, respectively. Restricted stock units granted to executives in 2019 and 2018 generally vest ratably over three years. The fair value of restricted stock units represents the closing price of the company’s common stock on the date of grant.
During the first quarter of 2018, stock options for the purchase of 33,615 shares at a weighted-average exercise price of $58.15 per share were awarded to executives. The exercise price of options represents the closing price of the company’s common stock on the date of grant. The options granted in 2018 vest ratably over three years and expire ten years after the grant date. There were no stock options awarded to executives during the first quarter of 2019.
In the first quarter of 2019 and 2018, performance-based Value Driver Incentive (“VDI”) units totaling 350,532 and 206,598, respectively, were awarded to executives. These awards vest after a period of approximately three years and contain annual performance conditions for each of the three years of the vesting period. The performance targets for each year are generally established in the first quarter of that year. Under ASC 718, performance-based awards are not deemed granted for accounting purposes until the performance targets have been established. Accordingly, only one-third of the units awarded in any given year are deemed to be granted each year of the three year vesting period. During the first quarter of 2019, units totaling 116,844, 68,866

18

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

and 72,601 under the 2019, 2018 and 2017 VDI plans, respectively, were granted at weighted-average grant date fair values of $39.72 per share, $42.24 per share and $35.18 per share, respectively. For awards granted under the 2019, 2018 and 2017 VDI plans, the number of units are adjusted at the end of each performance period based on achievement of certain performance targets and market conditions, as defined in the VDI award agreements. VDI units granted under the 2017 VDI plan are subject to a post-vest holding period of three years. The grant date fair value is determined by adjusting the closing price of the company’s common stock on the date of grant for the effect of the market condition and for the post-vest holding period discount, when applicable. Units granted under the 2019, 2018 and 2017 VDI plans can only be settled in company stock and are accounted for as equity awards in accordance with ASC 718.
(13)    Noncontrolling Interests
The company applies the provisions of ASC 810-10-45, which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net earnings attributable to the parent and to the noncontrolling interests, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.
As required by ASC 810-10-45, the company has separately disclosed on the face of the Condensed Consolidated Statement of Earnings for all periods presented the amount of net earnings attributable to the company and the amount of net earnings attributable to noncontrolling interests. For the three months ended March 31, 2019 and 2018, net earnings attributable to noncontrolling interests were $15 million and $6 million, respectively. Income taxes associated with earnings attributable to noncontrolling interests were immaterial in both periods presented. Distributions paid to noncontrolling interests were $10 million and $23 million for the three months ended March 31, 2019 and 2018, respectively. Capital contributions by noncontrolling interests were $5 million and $0.4 million for the three months ended March 31, 2019 and 2018, respectively.
(14)    Contingencies and Commitments
The company and certain of its subsidiaries are subject to litigation, claims and other commitments and contingencies arising in the ordinary course of business. Although the asserted value of these matters may be significant, the company currently does not expect that the ultimate resolution of any open matters will have a material adverse effect on its consolidated financial position or results of operations.
In May 2018, purported shareholders filed complaints against Fluor Corporation and certain of its current and former executives in the United States 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 May 3, 2018, and seek to recover damages arising from alleged violations of federal securities laws. In December 2018, the court appointed co-lead plaintiffs and co-lead counsel. The co-lead plaintiffs filed an amended, consolidated complaint in March 2019. It is anticipated that the company will respond, likely with a motion to dismiss the matter, by July 2019. While no assurance can be given as to the ultimate outcome of this matter, the company does not believe it is probable that a loss will be incurred.
In September 2018, two separate purported shareholders' derivative actions were filed against the members of the Board of Directors of Fluor Corporation, a past Board member and the estate of a past Board member, as well as certain of Fluor’s executives in the Texas District Court for Dallas County, Texas. Fluor Corporation is named as a nominal defendant in the actions. These derivative actions purport to assert claims on behalf of Fluor Corporation and largely make the same allegations as contained in the securities class action matter discussed above and seek similar relief. In October 2018, the court consolidated the two actions and later issued an initial scheduling order. The parties are conferring on the schedule and have agreed on a stay of the case until the company's motion to dismiss is ruled upon in the securities class action matter. While no assurance can be given as to the ultimate outcome of this matter, the company does not believe it is probable that a loss will be incurred.
Fluor Australia Ltd., a wholly-owned subsidiary of the company (“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 of approximately AUD $1.47 billion. Santos has joined Fluor Corporation to the matter on the basis of a parent company guarantee issued for the project. The company believes that the claims asserted by Santos are without merit and is vigorously defending these claims. While no assurance can be given as to the ultimate outcome of this matter, the company does not believe it is probable that a loss will be incurred. Accordingly, the company has not recorded a charge as a result of this action.

19

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

Other Matters
The company has made claims arising from the performance under its contracts. The company recognizes revenue for certain claims (including change orders in dispute and unapproved change orders in regard to both scope and price) when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The company estimates the amount of revenue to be recognized on claims using the expected value (i.e., the sum of a probability-weighted amount) or the most likely amount method, whichever is expected to better predict the amount. Factors considered in determining whether revenue associated with claims should be recognized include the following: (a) the contract or other evidence provides a legal basis for the claim, (b) additional costs were caused by circumstances that were unforeseen at the contract date and not the result of deficiencies in the company’s performance, (c) claim-related costs are identifiable and considered reasonable in view of the work performed, and (d) evidence supporting the claim is objective and verifiable.    Similarly, the company recognizes disputed back charges to suppliers or subcontractors as a reduction of cost when the same requirements have been satisfied. The company periodically evaluates its positions and the amounts recognized with respect to all its claims and back charges. As of March 31, 2019 and December 31, 2018, the company had recorded $175 million and $166 million, respectively, of claim revenue for costs incurred to date and such costs are included in contract assets. Additional costs, which will increase the claim revenue balance over time, are expected to be incurred in future periods. The company had also recorded disputed back charges totaling $18 million as of both March 31, 2019 and December 31, 2018. The company believes the ultimate recovery of amounts related to these claims and back charges is probable in accordance with ASC 606.
From time to time, the company enters into significant contracts with the U.S. government and its agencies. Government contracts are subject to audits and investigations by government representatives with respect to the company’s 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, the company maintains reserves for estimated exposures associated with these matters.
The company’s operations are subject to and affected by federal, state and local laws and regulations regarding the protection of the environment. The company maintains reserves for potential future environmental cost where such obligations are either known or considered probable, and can be reasonably estimated. The company believes, based upon present information available to it, that its reserves with respect to future environmental cost are adequate and such future cost will not have a material effect on the company’s consolidated financial position, results of operations or liquidity.
(15)    Guarantees
In the ordinary course of business, the company enters into various agreements providing performance assurances and guarantees to clients on behalf of certain unconsolidated and consolidated partnerships, joint ventures and other jointly executed contracts. These agreements are entered into primarily to support the project execution commitments of these entities. The performance guarantees have various expiration dates ranging from mechanical completion of the project being constructed to a period extending beyond contract completion in certain circumstances. The maximum potential amount of future payments that the company could be required to make under outstanding performance guarantees, which represents the remaining cost of work to be performed by or on behalf of third parties under engineering and construction contracts, was estimated to be $19 billion as of March 31, 2019. 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 under the contract. 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, the company may have recourse to third parties, such as owners, co-venturers, subcontractors or vendors for claims. The company assessed its performance guarantee obligation as of March 31, 2019 and December 31, 2018 in accordance with ASC 460, “Guarantees,” and the carrying value of the liability was not material. 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 the company 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.
(16)    Partnerships and Joint Ventures
In the normal course of business, the company forms 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

20

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

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 and notes receivable, net” on the Condensed Consolidated Balance Sheet were $113 million and $154 million as of March 31, 2019 and December 31, 2018, respectively. Notes receivable from unconsolidated partnerships and joint ventures included in “Accounts and notes receivable, net” and “Other assets” on the Condensed Consolidated Balance Sheet were $27 million as of both March 31, 2019 and December 31, 2018, respectively.
For unconsolidated construction partnerships and joint ventures, the company generally recognizes its proportionate share of revenue, cost and profit in its Condensed Consolidated Statement of Earnings and uses the one-line equity method of accounting on the Condensed Consolidated Balance Sheet, which is a common application of ASC 810-10-45-14 in the construction industry. The company also executes projects through collaborative arrangements for which the company recognizes its relative share of revenue and cost. The equity method of accounting is also used for other investments in entities where the company has significant influence. The company’s investments in unconsolidated partnerships and joint ventures accounted for under these methods amounted to $919 million and $921 million as of March 31, 2019 and December 31, 2018, respectively, and were classified under “Investments” and “Other accrued liabilities” on the Condensed Consolidated Balance Sheet.
COOEC Fluor Heavy Industries Co., Ltd. (“CFHI”) is a joint venture in which the company has a 49% ownership interest and Offshore Oil Engineering Co., Ltd., a subsidiary of China National Offshore Oil Corporation, has 51% ownership interest. Through CFHI, the two companies own, operate and manage the Zhuhai Fabrication Yard in China’s Guangdong province. The company has a future funding commitment of $26 million that is expected to be paid in the fourth quarter of 2019.
Variable Interest Entities
In accordance with ASC 810, “Consolidation,” the company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). The company considers a partnership or joint venture a VIE if it has any of the following characteristics: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the company reassesses its initial determination of whether the partnership or joint venture is a VIE. The majority of the company’s partnerships and joint ventures qualify as VIEs because the total equity investment is typically nominal and not sufficient to permit the entity to finance its activities without additional subordinated financial support.
The company also performs a qualitative assessment of each VIE to determine if the company is its primary beneficiary, as required by ASC 810. The company concludes that it is the primary beneficiary and consolidates the VIE if the company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the company is the primary beneficiary. The company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. As required by ASC 810, management’s assessment of whether the company is the primary beneficiary of a VIE is continuously performed.
The net carrying value of the unconsolidated VIEs classified under “Investments” and “Other accrued liabilities” on the Condensed Consolidated Balance Sheet was a net asset of $270 million and $273 million as of March 31, 2019 and December 31, 2018, respectively. Some of the company’s VIEs have debt; however, such debt is typically non-recourse in nature. The company’s maximum exposure to loss as a result of its 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 March 31, 2019 for the unconsolidated VIEs were $81 million.
In some cases, the company is required to consolidate certain VIEs. As of March 31, 2019, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were $1.3 billion and $816 million, respectively. As of December 31, 2018, the carrying values of the assets and liabilities associated with the operations of the consolidated VIEs were

21

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

$1.3 billion and $825 million, respectively. The assets of a VIE are restricted for use only for the particular VIE and are not available for general operations of the company.
The company has agreements with certain VIEs to provide financial or performance assurances to clients. See Note 15 for a further discussion of such agreements.
(17)    Operating Information by Segment and Geographic Area
During the first quarter of 2019, services provided to the commercial nuclear market, as well as NuScale, were moved from the Mining, Industrial, Infrastructure & Power segment to the Government segment to align with the manner in which the chief executive officer manages the business and allocates resources and to better reflect the interaction of the commercial and government nuclear markets. Segment operating information and assets for 2018 have been recast to reflect these changes.
Operating information by reportable segment is as follows:
 
 
Three Months Ended
March 31,
External Revenue (in millions)
 
2019
 
2018
Energy & Chemicals
 
$
1,476.6

 
$
1,943.0

Mining, Industrial, Infrastructure & Power
 
1,381.2

 
907.0

Government
 
784.7

 
1,330.5

Diversified Services
 
550.2

 
643.3

Total external revenue
 
$
4,192.7

 
$
4,823.8

Intercompany revenue for the Diversified Services segment, excluded from the amounts shown above, was $95 million and $129 million for the three months ended March 31, 2019 and 2018, respectively.
Segment profit is an earnings measure that the company utilizes to evaluate and manage its business performance. Segment profit is calculated as revenue less cost of revenue and earnings attributable to noncontrolling interests excluding: corporate general and administrative expense; interest expense; interest income; domestic and foreign income taxes; and other non-operating income and expense items.
 
 
Three Months Ended
March 31,
Segment Profit (Loss) (in millions)
 
2019
 
2018
Energy & Chemicals
 
$
19.4

 
$
105.7

Mining, Industrial, Infrastructure & Power
 
0.4

 
(120.4
)
Government
 
16.6

 
48.2

Diversified Services
 
10.2

 
18.8

Total segment profit
 
$
46.6

 
$
52.3

Energy & Chemicals. Segment profit during the three months ended March 31, 2019 was adversely affected by pre-tax charges of $53 million (or $0.29 per diluted share) resulting from forecast revisions for estimated cost growth on an offshore project and $31 million (or $0.22 diluted share) resulting from the resolution of certain close-out matters with a customer.
Mining, Industrial, Infrastructure & Power. Segment profit during the three months ended March 31, 2019 and 2018 was adversely affected by pre-tax charges totaling $26 million (or $0.14 per diluted share) and $125 million (or $0.69 per diluted share), respectively, resulting from forecast revisions for estimated cost growth at certain fixed-price, gas-fired power plant projects.
The company is currently in a dispute with a customer over costs totaling approximately $110 million that were allegedly incurred by the customer in connection with one of the gas-fired power plant projects discussed above. The customer withheld payment of certain invoices outstanding as of March 31, 2019 and drew down in January 2019 on a letter of credit issued on behalf of the company. The company believes that certain of the customer’s claims are without merit and is vigorously pursuing recovery of the amounts from the customer. Based upon its evaluation as of March 31, 2019, the company does not believe it is probable that a loss will be incurred in excess of amounts reserved for this matter.

22

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

Government. Segment profit for 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. A discussion of the cost-sharing agreement between NuScale and the U.S. Department of Energy (“DOE”) is provided in the Notes to Consolidated Financial Statements included in the 2018 10-K. NuScale expenses included in the determination of segment profit were $16 million and $23 million for the three months ended March 31, 2019 and 2018, respectively. NuScale expenses for the 2019 and 2018 periods were reported net of qualified reimbursable expenses of $13 million and $15 million, respectively.
The company currently serves as a subcontractor to a commercial client on a U.S. government project where the company’s forecast is based on its assessment of the probable resolution of certain change orders currently under discussion with the client, which if not achieved, could adversely affect revenue and segment profit.
A reconciliation of total segment profit to earnings before taxes is as follows:
Reconciliation of Total Segment Profit to Earnings (Loss) Before Taxes
 
Three Months Ended
March 31,
(in millions)
 
2019
 
2018
Total segment profit
 
$
46.6

 
$
52.3

Corporate general and administrative expense
 
(61.0
)
 
(57.3
)
Restructuring and other exit costs
 
(27.4
)
 

Interest income (expense), net
 
(5.7
)
 
(9.6
)
Earnings attributable to noncontrolling interests
 
15.1

 
5.5

Earnings (loss) before taxes
 
$
(32.4
)
 
$
(9.1
)
Total assets by segment are as follows:
Total Assets by Segment (in millions)
 
March 31,
2019
 
December 31,
2018
Energy & Chemicals
 
$
1,497.1

 
$
1,525.1

Mining, Industrial, Infrastructure & Power
 
1,229.6

 
1,193.2

Government
 
882.6

 
948.2

Diversified Services
 
1,865.8

 
1,841.0

Total assets in the Energy & Chemicals segment as of March 31, 2019 included aged and disputed accounts receivable of $108 million related to a cost reimbursable, chemicals project in the Middle East. Management continues to pursue collection of these amounts from the customer and does not believe that the customer has a contractual basis for withholding payment. The company does not believe it is probable that losses will be incurred in excess of amounts reserved for this matter.
Total assets in the Government segment as of March 31, 2019 included accounts receivable related to two subcontracts with Westinghouse Electric Company LLC ("Westinghouse") to manage the construction workforce at two nuclear power plant projects in South Carolina ("V.C. Summer") and Georgia ("Plant Vogtle"). On March 29, 2017, Westinghouse filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court, Southern District of New York. In the third quarter of 2017, the V.C. Summer project was canceled by the owner. In the fourth quarter of 2017, the remaining scope of work on the Plant Vogtle project was transferred to a new contractor. In addition to amounts due for post-petition services, total assets as of March 31, 2019 included amounts due of $66 million and $2 million for services provided to the V.C. Summer and Plant Vogtle projects, respectively, prior to the date of the bankruptcy petition. The company has filed mechanic's liens in South Carolina against the property of the owner of the V.C. Summer project for amounts due for pre-petition services rendered to Westinghouse. Based on the company's evaluation of available information, the company does not expect the close-out of these projects to have a material impact on the company's results of operations.

23

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

The following table presents revenue disaggregated by the geographic area where the work was performed for the three months ended March 31, 2019 and 2018:
 
 
Three Months Ended
March 31,
External Revenue (in millions)
 
2019
 
2018
United States
 
$
1,670.5

 
$
2,319.0

Canada
 
195.5

 
75.7

Asia Pacific (includes Australia)
 
430.2

 
231.7

Europe
 
928.3

 
1,185.8

Central and South America
 
543.1

 
541.0

Middle East and Africa
 
425.1

 
470.6

Total external revenue
 
$
4,192.7

 
$
4,823.8

(18)    Contract Assets and Liabilities

Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables (typically for cost reimbursable contracts) of $1.1 billion as of both March 31, 2019 and December 31, 2018 and contract work in progress (typically for fixed-price contracts) of $501 million and $493 million as of March 31, 2019 and December 31, 2018, respectively. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed under the terms of the contract. Advances that are payments on account of contract assets of $421 million and $445 million as of March 31, 2019 and December 31, 2018, respectively, have been deducted from contract assets. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client. As of both March 31, 2019 and December 31, 2018, the company had $26 million in pre-contract costs classified as a current asset under contract assets on the Condensed Consolidated Balance Sheet. The company anticipates that substantially all incurred cost associated with contract assets as of March 31, 2019 will be billed and collected within one year.

Contract liabilities represent amounts billed to clients in excess of revenue recognized to date. The company recognized revenue of $571 million and $510 million during the three months ended March 31, 2019 and 2018, respectively, that was included in contract liabilities as of January 1, 2019 and 2018, respectively.
(19)    Remaining Unsatisfied Performance Obligations

The company’s remaining unsatisfied performance obligations (“RUPO”) as of March 31, 2019 represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. The company had $37 billion in RUPO as of March 31, 2019.

The company estimates that its RUPO will be satisfied over the following periods:
(in millions)
March 31, 2019
Within 1 year
$
16,674

1 to 2 years
10,336

Thereafter
9,926

Total remaining unsatisfied performance obligations
$
36,936


Although RUPO reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. RUPO is adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate.

24

FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

(20)    Restructuring and Other Exit Costs

During the first quarter of 2019, the company approved and initiated certain restructuring activities designed to optimize costs and improve operational efficiency, primarily related to the Stork business. Restructuring charges initiated during the first quarter of 2019 totaling $27 million, primarily severance, were recorded as “Restructuring and other exit costs” in the Condensed Consolidated Statement of Earnings.
A reconciliation of the beginning and ending restructuring liability is as follows:
(in thousands)