Fluor(US:FLR)2023-11-02 16:00Part I: Financial Information This section presents the company's unaudited financial statements and management's discussion of financial condition and results of operations Item 1: Condensed Consolidated Financial Statements (Unaudited) This section presents Fluor Corporation's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 Statement of Operations For the third quarter of 2023, Fluor reported revenue of $3.96 billion and net earnings attributable to Fluor of $206 million, a significant improvement from a net earnings of $22 million in the same period of 2022. For the nine-month period, revenue was $11.65 billion with net earnings of $161 million. Diluted EPS for Q3 2023 was $1.15, compared to $0.08 in Q3 2022 Condensed Consolidated Statement of Operations (Unaudited) | (in millions, except per share amounts) | 3ME Sep 30, 2023 | 3ME Sep 30, 2022 | 9ME Sep 30, 2023 | 9ME Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,963 | $3,612 | $11,654 | $10,034 | | Gross profit (loss) | $251 | $(15) | $411 | $222 | | Operating profit (loss) | $218 | $(11) | $172 | $190 | | Earnings before taxes | $260 | $3 | $291 | $194 | | Net earnings (loss) | $181 | $(24) | $119 | $105 | | Net earnings attributable to Fluor | $206 | $22 | $161 | $136 | | Net earnings available to Fluor common stockholders | $169 | $12 | $105 | $107 | | Diluted EPS available to Fluor common stockholders | $1.15 | $0.08 | $0.72 | $0.74 | Statement of Comprehensive Income (Loss) Comprehensive income attributable to Fluor was $177 million for Q3 2023, a substantial turnaround from a loss of $1 million in Q3 2022, driven by higher net earnings and foreign currency translation adjustments Condensed Consolidated Statement of Comprehensive Income (Loss) (Unaudited) | (in millions) | 3ME Sep 30, 2023 | 3ME Sep 30, 2022 | 9ME Sep 30, 2023 | 9ME Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net earnings (loss) | $181 | $(24) | $119 | $105 | | Total OCI, net of tax | $(26) | $(23) | $37 | $(12) | | Comprehensive income (loss) | $155 | $(47) | $156 | $93 | | Comprehensive income (loss) attributable to Fluor | $177 | $(1) | $195 | $124 | Balance Sheet As of September 30, 2023, Fluor's total assets increased to $7.16 billion from $6.83 billion at year-end 2022, with total equity rising to $2.02 billion and cash and cash equivalents at $2.42 billion Condensed Consolidated Balance Sheet (Unaudited) | (in millions) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $2,421 | $2,439 | | Total current assets | $5,060 | $5,044 | | Total Assets | $7,163 | $6,827 | | Current Liabilities | | | | Total current liabilities | $3,140 | $3,216 | | Long-term debt | $1,425 | $978 | | Total Liabilities | $5,141 | $4,831 | | Total Equity | $2,022 | $1,996 | | Total Liabilities and Equity | $7,163 | $6,827 | Statement of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities was $96 million, while investing activities used $46 million and financing activities provided $131 million, resulting in a slight decrease in cash and cash equivalents Condensed Consolidated Statement of Cash Flows (Unaudited) | (in millions) | 9ME Sep 30, 2023 | 9ME Sep 30, 2022 | | :--- | :--- | :--- | | Operating cash flow | $(96) | $(15) | | Investing cash flow | $(46) | $(64) | | Financing cash flow | $131 | $378 | | Effect of exchange rate changes on cash | $(7) | $(72) | | Increase (decrease) in cash and cash equivalents | $(18) | $227 | | Cash and cash equivalents at beginning of period | $2,439 | $2,209 | | Cash and cash equivalents at end of period | $2,421 | $2,436 | Statement of Changes in Equity Total equity increased from $2.00 billion at year-end 2022 to $2.02 billion as of September 30, 2023, driven by net earnings and OCI adjustments, partially offset by dividends and other transactions Changes in Equity - 9 Months Ended Sep 30, 2023 (in millions) | Description | Amount | | :--- | :--- | | Balance as of December 31, 2022 | $1,996 | | Net earnings | $119 | | OCI | $37 | | Dividends on CPS | $(30) | | Conversion of CPS to common stock | $(26) | | Capped call transactions related to 2029 Notes | $(73) | | Distributions to NCI, net of contributions | $(36) | | Stock-based plan activity & Other | $35 | | Balance as of September 30, 2023 | $2,022 | Notes to Financial Statements This section provides detailed disclosures supporting the financial statements, covering accounting policies, segment information, legal contingencies, debt, equity, and other financial matters - The financial statements are unaudited and contain all normal recurring adjustments necessary for a fair presentation, requiring conjunction with the 2022 10-K as they do not include all annual disclosures109110 - The company is evaluating the impact of new SEC rules on clawback policies for incentive-based compensation, which must be amended by December 2023112 - The company did not implement any new accounting pronouncements in the 2023 period but is assessing future disclosure requirements from new SEC rules111 Operating Information by Segment - 9 Months Ended Sep 30, 2023 vs 2022 | (in millions) | 9ME 2023 Revenue | 9ME 2022 Revenue | 9ME 2023 Segment Profit | 9ME 2022 Segment Profit | | :--- | :--- | :--- | :--- | :--- | | Energy Solutions | $4,886 | $4,097 | $355 | $177 | | Urban Solutions | $3,842 | $3,279 | $121 | $(21) | | Mission Solutions | $2,009 | $1,779 | $84 | $115 | | Other | $917 | $879 | $(108) | $(18) | | Total | $11,654 | $10,034 | $452 | $253 | - The company is involved in significant litigation, including a case with Santos Ltd. where a non-binding report recommended a judgment against Fluor for AUD $790 million, though Fluor contests this and the applicability of a liability cap. A hearing is scheduled for February 20247 - In September 2023, the company settled an SEC investigation related to 2019 charges by agreeing to pay a civil penalty of $15 million, which was previously reserved and did not materially impact Q3 2023 results. The DOJ closed its related investigation without bringing charges148 - In August 2023, the company issued $575 million of 1.125% Convertible Senior Notes due 2029, receiving net proceeds of $560 million133 - In September 2023, the company exercised its mandatory conversion rights on all outstanding Convertible Preferred Stock (CPS), converting them into common stock and ceasing all future CPS dividends169 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, focusing on segment performance, liquidity, and capital resources, with backlog remaining stable at $26.0 billion Consolidated Backlog (in millions) | Date | Amount | | :--- | :--- | | January 1, 2023 | $26,049 | | September 30, 2023 | $26,004 | - The company completed the divestiture of its AMECO business with the sale of AMECO South America in March 2023, which resulted in a $60 million negative earnings impact in the 2023 period206 - In August 2023, the company issued $575 million in 2029 Convertible Senior Notes and used proceeds to tender for $115 million of its 2024 Notes. It also redeemed the remaining €129 million of its 2023 Notes in January 2023235 Results of Operations Consolidated revenue and segment profit significantly improved in Q3 and the first nine months of 2023 due to new project ramp-ups and favorable outcomes, despite charges on legacy projects and the AMECO sale Segment Profit (Loss) Overview (in millions) | Segment | 3ME 2023 | 3ME 2022 | 9ME 2023 | 9ME 2022 | | :--- | :--- | :--- | :--- | :--- | | Energy Solutions | $177 | $59 | $355 | $177 | | Urban Solutions | $66 | $(50) | $121 | $(21) | | Mission Solutions | $38 | $29 | $84 | $115 | | Other | $(5) | $(7) | $(108) | $(18) | | Total Segment Profit | $276 | $31 | $452 | $253 | - G&A expenses increased to $56 million in Q3 2023 from $30 million in Q3 2022, primarily driven by higher performance-based compensation and stock-price-driven compensation215296 Liquidity and Capital Resources The company maintains sufficient liquidity with $2.6 billion in cash and marketable securities and a $1.8 billion credit facility, despite negative operating cash flow of $96 million for the first nine months of 2023 - As of September 30, 2023, the company had $2.6 billion in cash and marketable securities and access to a $1.8 billion credit facility with $797 million of borrowing capacity305218 - Operating cash flow for the first nine months of 2023 was negative $96 million, impacted by working capital increases on large projects and funding of approximately $82 million for loss projects238240 - In connection with the 2029 Notes issuance, the company entered into capped call transactions for $73 million to mitigate potential stock dilution, with a strike price of $45.37 and a cap price of $68.48 per share257247 Item 3: Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the company's market risk during the first nine months of 2023, with disclosures from the 2022 Annual Report on Form 10-K remaining relevant - There have been no material changes to market risk during the 2023 Period250 Item 4: Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period263 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting264 Part II: Other Information This section covers legal proceedings, risk factors, equity security sales, mine safety, and other miscellaneous information Item 1: Legal Proceedings The company is party to various legal proceedings as part of its normal business activities, with material pending matters disclosed in Part I, Item 1 (Notes to Financial Statements) - The company is party to a number of legal proceedings in the normal course of business and discloses material pending matters pursuant to SEC rules254 Item 1A: Risk Factors This section updates risk factors from the 2022 10-K, introducing new risks associated with the recently issued 2029 Convertible Senior Notes and related capped call transactions - A new risk factor is the counterparty risk associated with the capped call transactions, exposing the company to the credit risk of the option counterparties (financial institutions), which is not secured by collateral270279 - Hedging activities by the capped call option counterparties could cause fluctuations in the market price of Fluor's common stock and/or the 2029 Notes, potentially affecting the value an investor receives upon conversion277278 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its equity securities during the third quarter of 2023, with approximately 10.5 million shares remaining available for repurchase under the existing program Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number of Shares that May Yet Be Purchased Under the Program | | :--- | :--- | :--- | :--- | | July 2023 | — | $— | 10,513,093 | | August 2023 | — | $— | 10,513,093 | | September 2023 | — | $— | 10,513,093 | | Total | — | $— | 10,513,093 | Item 4: Mine Safety Disclosures This section, included as required, contains no specific mine safety disclosures - This item is listed in the table of contents, but no substantive information was provided in the source document256 Item 5: Other Information No information is reported under this item for the period - No information was reported under this item283 Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, debt instruments, and credit agreement amendments - Key exhibits filed include the Indenture for the 1.125% Convertible Senior Notes due 2029, an amendment to the Revolving Credit Agreement, and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906285