# Fluor Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Fluor Corp](/companies/flr.md) (CIK 1124198)
- Form: 10-Q
- Filed: 2023-11-03
- Accepted by EDGAR: Nov 2, 2023, 18:12 ET
- Period: 2023-09-30
- Accession: 0001628280-23-036490
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1124198/000162828023036490/flr-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1124198/000162828023036490/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.96bn | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $11.65bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.71bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $11.24bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $251.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $411.0m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $218.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $172.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $14.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $47.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $79.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $172.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $206.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $161.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.72 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.18 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.73 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 147,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 146,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$96.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $71.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $2.42bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $5.06bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $7.16bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $3.14bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-09-30 | $1.43bn | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2023-09-30 | $18.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $1.88bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,716 characters.

The following discussion and analysis should be read in conjunction with our financial statements and our 2022 10-K. Except as the context otherwise requires, the terms Fluor or the Registrant, as used herein, are references to Fluor and references to the company, we, us, or our, as used herein, shall include Fluor, its consolidated subsidiaries and joint ventures.

### CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made herein, including statements regarding our projected operating results, liquidity and backlog levels and the implementation of strategic initiatives are forward-looking in nature. Under the Private Securities Litigation Reform Act of 1995, a “safe harbor” may be provided to us for certain of these forward-looking statements. We caution readers that forward-looking statements, including disclosures which use words such as we “believe,” “anticipate,” “expect,” “estimate,” "aspire," "commit," "will," "may" and similar statements, are subject to risks and uncertainties which could cause actual results to differ materially from stated expectations. Significant factors potentially contributing to such differences include:

- The cyclical nature of many of the markets we serve and our clients' vulnerability to poor economic conditions, such as inflation, slow growth or recessions, which may result in decreased capital investment and reduced demand for our services;
- Our failure to receive anticipated new contract awards and the related impact on our operations;
- Failure to accurately estimate the cost and schedule on our projects, potentially resulting in cost overruns or obligations, including those related to project delays and those caused by the performance of our clients, subcontractors, suppliers and partners;
- Intense competition in the global EPC industry, which can place downward pressure on our contract prices and profit margins and may increase our contractual risks;
- The inability to hire and retain qualified personnel;
- Failure of our joint venture partners to perform their venture obligations, which could impact the success of those ventures and impose additional financial and performance obligations on us;
- Failure of our suppliers or subcontractors to provide supplies or services at the agreed-upon levels or times;
- Cybersecurity breaches of our systems and information technology;
- Civil unrest, security issues, labor conditions and other unforeseeable events in the countries in which we do business;
- Project cancellations, scope adjustments or deferrals, or foreign currency fluctuations, that could reduce the amount of our backlog and the revenue and profits that we earn;
- Repercussions of events beyond our control, such as severe weather conditions, natural disasters, pandemics, political crises or other catastrophic events, that may significantly affect operations, result in higher cost or subject the company to contract claims by our clients;
- Differences between our actual results and the assumptions and estimates used to prepare our financial statements;
- Client delays or defaults in making payments;
- The potential impact of changes in tax laws and other tax matters including, but not limited to, those from foreign operations, the realizability of our deferred tax assets and the ongoing audits by tax authorities;
- Our ability to secure appropriate insurance;
- The loss of business from one or more significant clients;
- The inability to adequately protect our intellectual property rights;
- The availability of credit and financial assurances plus restrictions imposed by credit facilities, both for us and our clients, suppliers, subcontractors or other partners;
- Adverse results in existing or future litigation, regulatory proceedings or dispute resolution proceedings (including claims for indemnification), or claims against project owners, subcontractors or suppliers;
- Failure of our employees, agents or partners to comply with laws, which could result in harm to our reputation and reduced profits or losses;
- The impact of new or changing legal requirements, as well as past and future environmental, health and safety regulations including climate change regulations; and
- The risks associated with acquisitions, dispositions or other investments, including the failure to successfully integrate acquired businesses.

Any forward-looking statements that we may make are based on our current expectations and beliefs concerning future developments and their potential effects on us. There is no assurance that future developments affecting us will be those presently anticipated by us.

Additional information concerning these and other factors can be found in our press releases and periodic filings with the SEC, including the 2022 10-K. These filings are available publicly on the SEC’s website at http://www.sec.gov, on our website at http://investor.fluor.com or upon request from our Investor Relations Department at (469) 398-7222. We cannot control such risk factors and other uncertainties, and in many cases, cannot predict the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. These risks and uncertainties should be considered when evaluating Fluor and deciding whether to invest in our securities. Except as otherwise required by law, we undertake no obligation to publicly update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.

### Results of Operations

We have decided to retain Stork's North American operations, which largely consists of our operations and maintenance business owned by Fluor prior to our acquisition of Stork. Beginning in 2023, this business, renamed Plant & Facility Services, is included in our Urban Solutions segment for all periods presented.

In March 2023, we sold our AMECO South America business, which included operations in Chile and Peru. This transaction marked the completion of the AMECO divestiture for total proceeds of $144 million, including $17 million during the 2023 Period. Previous AMECO divestitures included assets in Africa, the Caribbean, Mexico and North America. Upon the sale of AMECO South America in the 2023 Period, we recognized a $60 million negative earnings impact, including $35 million associated with foreign currency translation.

In August 2023, we completed the issuance of the 2029 Notes, which is more fully described in the Liquidity and Capital Resources discussion.

In September 2023, we completed the conversion of all our CPS, which is more fully described in the Liquidity and Capital Resources discussion.

In 2021, we committed to achieving net zero emissions for Scopes 1 and 2 absolute greenhouse gas emissions by the end of 2023, and we believe we are on track to meet that objective.

*(in millions)*

| 3ME September 30, 2023 2022 Revenue |  | 9ME September 30, 2023 |  | 2022 |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Energy Solutions $1,553 $1,592 |  | $4,886 |  | $4,097 |  |
| Urban Solutions 1,431 1,084 |  | 3,842 |  | 3,279 |  |
| Mission Solutions 655 639 |  | 2,009 |  | 1,779 |  |
| Other 324 297 |  | 917 |  | 879 |  |
| **Total revenue** $3,963 $3,612 |  | $11,654 |  | $10,034 |  |
| **Segment profit (loss) $ and margin %** |  |  |  |  |  |
| Energy Solutions $177 11.4% $59 | 3.7% | $355 | 7.3% | $177 | 4.3% |
| Urban Solutions 66 4.6% (50) | (4.6)% | 121 | 3.1% | (21) | (0.6)% |
| Mission Solutions 38 5.8% 29 | 4.5% | 84 | 4.2% | 115 | 6.5% |
| Other (5) NM (7) | NM | (108) | NM | (18) | NM |
| **Total segment profit $ and margin %(1)** $276 7.0% $31 | 0.9% | $452 | 3.9% | $253 | 2.5% |
| G&A (56) (30) |  | (177) |  | (146) |  |
| Impairment — — |  | — |  | 63 |  |
| Foreign currency gain (loss) 23 34 |  | (62) |  | 51 |  |
| Interest income (expense), net 42 14 |  | 120 |  | 4 |  |
| Earnings (loss) attributable to NCI (25) (46) |  | (42) |  | (31) |  |
| Earnings before taxes 260 3 |  | 291 |  | 194 |  |
| Income tax expense (79) (27) |  | (172) |  | (89) |  |
| Net earnings (loss) $181 $(24) |  | $119 |  | $105 |  |
| Less: Net earnings (loss) attributable to NCI (25) (46) |  | (42) |  | (31) |  |
| **Net earnings attributable to Fluor** $206 $22 |  | $161 |  | $136 |  |
| **New awards** |  |  |  |  |  |
| Energy Solutions $3,252 $3,574 |  | $4,718 |  | $5,595 |  |
| Urban Solutions 1,033 933 |  | 5,090 |  | 3,549 |  |
| Mission Solutions 345 4,874 |  | 1,015 |  | 5,312 |  |
| Other 346 362 |  | 1,097 |  | 763 |  |
| **Total new awards** $4,976 $9,743 |  | $11,920 |  | $15,219 |  |
| New awards related to projects located outside of the U.S. |  | 65% |  | 48% |  |

| Backlog (in millions) | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Energy Solutions | $9,159 | $9,134 |
| Urban Solutions | 11,051 | 10,270 |
| Mission Solutions | 4,563 | 5,666 |
| Other | 1,231 | 979 |
| **Total backlog** | $26,004 | $26,049 |
| Backlog related to projects located outside of the U.S. | 52% | 49% |
| Backlog related to reimbursable projects | 70% | 63% |

(1) Total segment profit is a non-GAAP financial measure. We believe that total segment profit provides a meaningful perspective on our results as it is the aggregation of individual segment profit measures that we use to evaluate and manage our performance.

While we experienced reductions in demand for certain services and the delay or abandonment of ongoing or anticipated projects during the COVID pandemic, our ability to win work was not materially impacted by COVID during the 2023 Period. Although many of our projects are in a state we consider normal, we continue to deal with the effects of COVID on our operating results as our estimates are inclusive of COVID effects and client recoveries.

During the 2023 Quarter and 2023 Period, consolidated revenue increased due to the ramp up of execution activities on several recently awarded projects in Energy Solutions, Urban Solutions and Mission Solutions partially offset by declines in the volume of execution activity for projects which were completed or nearing completion.

During the 2023 Quarter, segment profit significantly improved due to higher execution activity on new projects as well as the initial recognition of cost recovery entitlements on several fixed price projects and incentive fees on a mining project. Segment profit for the 2023 Period also improved despite a $59 million charge on the LAX Automated People Mover project, $58 million in charges on a legacy upstream project and a $60 million negative earnings impact upon the sale of our AMECO South America business.

We did not recognize any material impairment expense during the 2023 Period. During the 2022 Period, we reversed $63 million in impairment originally recognized in 2021 when our Stork and AMECO businesses were classified as held for sale, due primarily to remeasurement under held and used impairment criteria, for which CTA balances are excluded from carrying value.

The effective tax rate on earnings was 30.4% for the 2023 Quarter and 59.1% for the 2023 Period compared to 939.2% for the 2022 Quarter and 46.0% for the 2022 Period. A reconciliation of U.S. statutory federal income tax expense to income tax expense follows:

*(In millions)*

|  | 3ME September 30 2023 | 2022 | 9ME September 30 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| U.S statutory federal income tax expense | $55 | $1 | $61 | $41 |
| Increase (decrease) in taxes resulting from: |  |  |  |  |
| State and local income taxes, net of federal income tax effects | 3 | 1 | 1 | 3 |
| Valuation allowance, net | 18 | 15 | 94 | 50 |
| Foreign tax impacts | (2) | — | 14 | (11) |
| Noncontrolling interest | 5 | 10 | 9 | 6 |
| Sale of AMECO South America | — | — | (10) | — |
| Other adjustments | — | — | 3 | — |
| Total income tax expense | $79 | $27 | $172 | $89 |

Backlog as of September 30, 2023 was stable with December 31, 2022. We recognize new awards into backlog when we and our client have approved the contract (written or verbal) and are committed to perform our respective obligations. Although backlog reflects business that is considered to be firm, cancellations, deferrals or scope adjustments may occur. Backlog is adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as appropriate. Backlog differs from RUPO discussed elsewhere. RUPO includes only the amount of revenue we expect to recognize under contracts with definite terms and substantive termination provisions.

### Segment Operations

### Energy Solutions

Revenue in both the 2023 Quarter and 2023 Period benefitted from the initial recognition of revenue on cost recovery entitlements on several fixed price projects. Revenue in the 2023 Period further increased due to the ramp up of execution activities on our refinery projects in Mexico, chemicals projects in China and mid-scale LNG projects. These increases to revenue were partially offset by a decline in execution activity for projects nearing completion and lower revenue on an LNG project.

Segment profit for the 2023 Quarter and 2023 Period significantly improved primarily due to the initial recognition of cost recovery entitlements on several fixed price projects partially offset by cost growth on a large upstream legacy project and a charge for the expected net settlement of a longstanding claim. Segment profit for the 2023 Quarter also included a gain of $24 million on embedded foreign currency derivatives compared to a loss of $5 million in the 2022 Quarter. Segment profit for the 2023 Period included the ramp up of execution activities on the refinery projects in Mexico as well as the effects of favorable foreign currency remeasurement. The increases in segment profit margin in 2023 reflect these same factors.

New awards were slightly lower in 2023 compared to 2022 but included a confidential reimbursable EPCM contract for a large chemicals project in North America. Backlog remained flat during the 2023 Period.

### Urban Solutions

Revenue in the 2023 Quarter and 2023 Period increased due to the ramp up of execution activities on several recently awarded projects including a large metals project in the U.S., two life sciences projects and a semiconductor project. The revenue increases in 2023 were partially offset by declines in the volume of execution activity for projects nearing completion including a large mining project.

Segment profit for the 2023 Quarter and 2023 Period significantly improved. Segment profit in the 2023 Quarter includes an incentive fee award on a large mining project that is nearing completion as well as a favorable arbitration outcome on a separate mining project whereas segment profit in the 2022 Quarter included charges related to cost growth and schedule delays on three legacy infrastructure projects. Segment profit in the 2023 Period includes a $59 million charge for rework associated with subcontractor design errors, related schedule impacts and system integration testing timelines on the LAX Automated People Mover project. The increases in segment profit margin in 2023 reflect these same factors.

New awards increased during the 2023 Quarter and 2023 Period. New awards booked during the 2023 Quarter included incremental awards on a life sciences project. Backlog increased during the 2023 Period due to the new award activity during 2023. Our staffing business does not report new awards or backlog.

### Mission Solutions

Revenue increased in the 2023 Quarter and 2023 Period due to increased execution activities for FEMA hurricane support, the LOGCAP program in Africa and three DOE contracts. The increase in revenue was partially offset by the completion of a contingency and humanitarian support project in 2022 and close out activities for an airfield construction project and one DOE contract.

The improvement in segment profit in the 2023 Quarter was driven primarily by increased execution for FEMA hurricane support. Additionally, the 2022 Quarter included an incremental charge for cost growth on a weapons facility project. The decline in segment profit in the 2023 Period was substantially driven by a $30 million charge for cost growth associated with additional schedule delays on a weapons facility project. We are conducting our due diligence to recover cost growth that has resulted from directed and constructive changes from the client on the project. The decline in segment profit in the 2023 Period also reflects the completion of the contingency and humanitarian support project and the favorable resolution of an Army Corps of Engineers project in the 2022 Period. The changes to segment profit margin in 2023 reflect these same factors.

New awards decreased during the 2023 Quarter and 2023 Period due to a large award booked in the prior year for a 4-year contract extension on the DOE Savannah River Site. The decline in backlog during the 2023 Period resulted from work performed outpacing new award activity. Backlog included $3.0 billion and $3.9 billion of unfunded government contracts as of September 30, 2023 and December 31, 2022, respectively. Unfunded backlog reflects our estimate of future revenue under awarded government contracts for which funding has not yet been appropriated.

### Other

Other includes the operations of NuScale, Stork and the remaining AMECO business prior to their sale.

*(in millions)*

|  | 3ME September 30, 2023 | 2022 | 9ME September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| NuScale (1) | $(19) | $(15) | $(71) | $(44) |
| Stork | 14 | 4 | 25 | 16 |
| AMECO | — | 4 | (62) | 10 |
| Segment profit (loss) | $(5) | $(7) | $(108) | $(18) |
| (1) NuScale expenses included in the determination of segment profit were as follows: |  |  |  |  |
| NuScale expenses | $(49) | $(47) | $(164) | $(110) |
| Less: DOE Reimbursable expenses | 17 | 25 | 43 | 56 |
| NuScale expenses, net | (32) | (22) | (121) | (54) |
| Less: Attributable to NCI | 13 | 7 | 50 | 10 |
| NuScale profit (loss) | $(19) | $(15) | $(71) | $(44) |

Segment profit in the 2023 Period includes the $60 million negative earnings impact upon the sale of our AMECO South America business, including $35 million for foreign currency translation.

### G&A

*(in millions)*

| G&A | 3ME September 30, 2023 | 2022 | 9ME September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Compensation | $45 | $20 | $123 | $91 |
| SEC investigation | 2 | 1 | 12 | 13 |
| Reserve for legacy legal claims | — | — | 3 | 5 |
| Facilities | 4 | 4 | 11 | 12 |
| Exit costs | 2 | 1 | 9 | 5 |
| Other | 3 | 4 | 19 | 20 |
| G&A | $56 | $30 | $177 | $146 |

The increase in compensation expense in the 2023 Quarter was driven by higher performance-based compensation, including annual bonus projections in 2023, and higher stock-price-driven compensation due to the increase in our stock price from June 2023 to September 2023.

### Net Interest Income (Expense)

The increase in net interest income during the 2023 Quarter and 2023 Period was due to an increase in interest rates earned on cash deposits including at our joint ventures in Canada and Mexico as well as the interest savings following the redemption of the 2023 Notes.

### Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates from those disclosed in our 2022 10-K.

### Recent Accounting Pronouncements

Item is described more fully in the Notes to Financial Statements.

### LIQUIDITY AND CAPITAL RESOURCES

Our liquidity arises from available cash and cash equivalents and marketable securities, cash generated from

operations, capacity under our credit facilities and, when necessary, access to capital markets. We have committed and uncommitted lines of credit available for revolving loans and letters of credit. We believe that for at least the next 12 months, anticipated cash generated from operations, along with our unused credit capacity and cash position, is sufficient to support operating requirements and debt maturities. We regularly review our sources and uses of liquidity and may pursue opportunities to address our liquidity needs, including to address our 2024 Notes' maturity.

Our credit facility contains provisions that will require us to provide collateral to secure the facility should we be downgraded to BB by S&P and Ba2 by Moody's, which is a one notch downgrade from both agencies' current ratings. If we are required to provide collateral, it would consist broadly of liens on our U.S. assets.

In August 2023, we issued $575 million of 1.125% Convertible Senior Notes due August 15, 2029 and received net proceeds of $560 million. Concurrently, we entered into capped call transactions with certain banks for $73 million. We believe the entry into the capped call transactions provides us with significant protection against the potential dilution associated with the 2029 Notes. In August 2023, we completed a tender offer in which we repurchased $115 million of outstanding 2024 Notes using the proceeds from the issuance of the 2029 Notes. Beginning in December 2023, we expect to begin a defeasance process to redeem all remaining outstanding 2024 Notes, but may also engage in market transactions ahead of that time to opportunistically redeem a portion of the 2024 Notes. In January 2023, we redeemed the remaining €129 million of outstanding 2023 Notes for $140 million using cash on hand.

As of September 30, 2023, letters of credit totaling $422 million were outstanding under our $1.8 billion credit facility, which matures in February 2026 and was amended in August 2023 to permit the issuance of the 2029 Notes. This credit facility contains customary financial covenants, including a debt-to-capitalization ratio that cannot exceed 0.60 to 1.00, a limitation on the aggregate amount of debt of the greater of $750 million or €750 million for our subsidiaries, and a minimum liquidity threshold of $1.5 billion, all as defined in the amended credit facility, which may be reduced to $1.0 billion upon the repayment of debt. Borrowings under the facility, which may be denominated in USD, EUR, GBP or CAD, bear interest at a base rate, plus an applicable borrowing margin. As of September 30, 2023 and through the issuance of this 10-Q, we had not made any borrowings under our credit facility and maintained a borrowing capacity of $797 million.

Cash and cash equivalents combined with marketable securities were $2.6 billion as of both September 30, 2023 and December 31, 2022. Cash balances as of September 30, 2023 and December 31, 2022 include cash and cash equivalents and marketable securities held by NuScale of $155 million and $338 million, respectively. Cash and cash equivalents are held in numerous accounts throughout the world to fund our global project execution activities. Non-U.S. cash and cash equivalents amounted to $1.1 billion as of both September 30, 2023 and December 31, 2022. Non-U.S. cash and cash equivalents exclude deposits of U.S. legal entities that are invested in offshore, overnight accounts or short-term time deposits, to which there is unrestricted access.

In evaluating our liquidity needs, we consider cash and cash equivalents held by our consolidated variable interest entities (joint ventures and partnerships). These amounts (which totaled $563 million and $706 million as of September 30, 2023 and December 31, 2022, respectively) were not necessarily readily available for general purposes. We do not include our share of cash held by our proportionately consolidated joint ventures and partnerships in our consolidated cash balances even though these amounts may be significant. We also consider the extent to which client advances (which totaled $95 million and $102 million as of September 30, 2023 and December 31, 2022, respectively) are likely to be sustained or consumed over the near term for project execution activities and the cash flow requirements of our various foreign operations. In some cases, it may not be financially efficient to move cash and cash equivalents between countries due to statutory dividend limitations and/or adverse tax consequences. We did not consider any cash to be permanently reinvested outside the U.S. as of September 30, 2023 and December 31, 2022, other than unremitted earnings required to meet our working capital and long-term investment needs in non-U.S. foreign jurisdictions where we operate.

### Cash Flows

*(in millions)*

|  | 9ME September 30, 2023 | 2022 |
| --- | ---: | ---: |
| **OPERATING CASH FLOW** | $(96) | $(15) |
| **INVESTING CASH FLOW** |  |  |
| Proceeds from sales and maturities (purchases) of marketable securities | 10 | (27) |
| Capital expenditures | (71) | (38) |
| Proceeds from sale of assets (including AMECO-South America in 2023) | 23 | 29 |
| Investments in partnerships and joint ventures | (13) | (47) |
| Other | 5 | 19 |
| Investing cash flow | (46) | (64) |
| **FINANCING CASH FLOW** |  |  |
| Proceeds from issuance of 2029 Notes, net of issuance costs | 560 | — |
| Capped call transactions related to 2029 Notes | (73) | — |
| Proceeds from NuScale de-SPAC transaction | — | 341 |
| Proceeds from sale of NuScale interest | — | 107 |
| Purchases and retirement of debt | (249) | (23) |
| Dividends paid on CPS | (29) | (29) |
| Make-whole payment on conversion of CPS | (27) | — |
| Distributions to NCI (net of capital contributions) | (36) | (15) |
| Other | (15) | (3) |
| 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 |
| Cash paid during the period for: |  |  |
| Interest | $46 | $43 |
| Income taxes (net of refunds) | 129 | 71 |

#### Operating Activities

Cash flows from operating activities result primarily from our EPC activities and are affected by our earnings level and changes in working capital associated with such activities. Working capital levels vary from period to period and are primarily affected by our volume of work and billing schedules on our projects. These levels are also impacted by the stage of completion and commercial terms of engineering and construction projects, as well as our execution of our projects compared to their budget. Working capital requirements also vary by project and the payments terms agreed to with our clients, vendors and subcontractors. Most contracts require payments as the projects progress. Additionally, certain projects receive advance payments from clients. A typical trend for our lump-sum projects is to have higher cash balances during the initial phases of execution due to deposits paid to us which then diminish toward the end of the construction phase. As a result, our cash position is reduced as customer advances are utilized, unless they are replaced by advances on other projects. We maintain cash reserves and borrowing facilities to provide additional working capital in the event that a project’s net operating cash outflows exceed its available cash balances. As of September 30, 2023, our backlog included $1.4 billion for loss projects which will impact our operating cash flow in future periods.

Our operating cash flow for the 2023 Period was negatively impacted by increases in working capital on several large projects and higher tax payments. We also funded an estimated $82 million on loss projects during the 2023 Period. Although earnings significantly improved during the 2023 Quarter, operating cash flow remained flat due to the increase in working capital. During the fourth quarter of 2023, we expect to receive cash settlements on certain project claims and disputes and cash distributions from one of our largest joint ventures as well as a potential tax refund.

#### Investing Activities

We hold cash in bank deposits and marketable securities which are governed by our investment policy. This policy focuses on, in order of priority, the preservation of capital, maintenance of liquidity and maximization of yield. These investments may include money market funds, bank deposits placed with highly-rated financial institutions, repurchase agreements that are fully collateralized by U.S. Government-related securities, high-grade commercial paper and high quality short-term and medium-term fixed income securities.

Capital expenditures in the 2023 and 2022 Periods were primarily related to construction equipment on certain infrastructure projects as well as expenditures for facilities and investments in IT.

Proceeds from sales of assets during the 2023 Period included $17 million for the sale of our AMECO South America business, which included operations in Chile and Peru. Proceeds from sales of assets during the 2022 Period included the sale of the majority of our interest in an infrastructure joint venture in Canada.

Investments in unconsolidated partnerships and joint ventures in the 2023 Period included capital contributions to a Mission Solutions joint venture and two infrastructure joint ventures. Investments in unconsolidated partnerships and joint ventures in the 2022 Period included capital contributions to a Mission Solutions joint venture and an infrastructure joint venture.

#### Financing Activities

In August 2023, we issued $575 million of 1.125% Convertible Senior Notes (the “2029 Notes”) due August 15, 2029 and received net proceeds of $560 million. Interest on the 2029 Notes is payable semi-annually on February 15 and August 15, beginning on February 15, 2024. The conversion rate for the 2029 Notes is 22.0420 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of $45.37 per share. Holders may convert their 2029 Notes any time before May 2029 under the following conditions:

- if the last reported price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to $58.98 on each applicable trading day;
- during the five-business day period after any five-consecutive trading day period in which the trading price of the 2029 Notes was less than 98% of the product of the last reported stock price and the conversion rate;
- if we call any or all of the 2029 Notes for redemption; or
- upon the occurrence of specified events as described in the applicable indenture.

In addition, holders may convert their 2029 Notes any time beginning on May 15, 2029 and prior to maturity without regard to the foregoing circumstances. Upon any conversion, we will repay the principal amount of the notes in cash and may elect to convey the conversion premium in any combination of cash and shares of our common stock. Certain events could cause the conversion rate to increase, including a make-whole fundamental change or redemption, but in no event will the conversion rate for a single note exceed 29.2056 shares of our common stock, other than for customary adjustments described in the applicable indenture.

After August 2026, we may elect to redeem up to all of the outstanding 2029 Notes if our common stock has a prevailing per share closing price in excess of $58.98. In such election, all principal would be settled in cash and could result in a make-whole premium if the holders also elect to convert. We may elect to pay any make-whole premium in any combination of cash and shares of our common stock.

In connection with the 2029 Notes offering, we entered into capped call transactions with certain banks. The strike price of the capped call options corresponds to the conversion price of the 2029 Notes of $45.37 per share. The capped call options are expected to offset potential dilution to our common stock upon conversion of any 2029 Notes and/or offset any cash payments we are required to make for any conversion premium if our stock price is greater than $45.37. The upper limit of the capped calls is $68.48 per share. If our stock price exceeds $68.48, there would be unmitigated dilution and/or no offset of any cash payments attributable to the amount by which our stock exceeds the cap price. We will not be required to make any cash payments to option counterparties upon the exercise of capped call options, but we will be entitled to receive from them shares of our common stock or an amount of cash based on the amount by which the market price of our common stock exceeds the strike price of the capped calls. The capped call transactions are not part of the terms of the 2029 Notes and are accounted for as separate transactions. As the capped call options are indexed to our own stock, they are recorded in shareholders’ equity and are not accounted for as derivatives. The cost of the capped call transactions was $73 million which was recorded as a reduction to APIC, and will not be subject to periodic remeasurement.

In August 2023, we completed a tender offer in which we repurchased $115 million of outstanding 2024 Notes, excluding accrued interest, for consideration of $975.03 per $1,000 principal amount of the notes. In January 2023, we redeemed the remaining €129 million of outstanding 2023 Notes for $140 million. In June 2022, we redeemed €22 million of outstanding 2023 Notes for $23 million.

As a result of a reverse recapitalization, NuScale received cash of $341 million during the 2022 Period, consisting of $235 million in PIPE funding and $145 million in cash in trust, partially offset by transaction costs of $39 million. In April 2022, we sold approximately 5% of the ownership of NuScale to Japan NuScale Innovation, LLC for $107 million.

In September 2023, we exercised our mandatory conversion rights on our CPS in which all of the outstanding shares of CPS converted to 44.9585 shares of our common stock, plus a cash payment of $45.23 per CPS for a make-whole premium. The total make-whole premium amounted to $27 million, approximately $2 million less than the remaining undiscounted guaranteed dividend stream. First, second and third quarter CPS dividends of $10 million were paid in February, May and August 2023. Upon conversion, all dividends on the CPS have ceased. We have no obligation for accumulated but unpaid dividends since the last record date.

Distributions paid to holders of NCI represent cash outflows to partners of consolidated partnerships or joint ventures created primarily for the execution of single contracts or projects. Distributions in the 2023 Period related to a Mission Solutions joint venture and two infrastructure joint ventures. Distributions in the 2022 Period related to joint ventures in all our segments. Capital contributions by NCI during the 2023 Period related to investments by NuScale's NCI holders.

We have a common stock repurchase program, authorized by our Board of Directors, to purchase shares in the open market or privately negotiated transactions at our discretion. As of September 30, 2023, over 10 million shares could still be purchased under the existing stock repurchase program, although we do not have any immediate intent to begin such repurchases.

#### Letters of Credit

As of September 30, 2023, letters of credit totaling $422 million were outstanding under committed lines of credit. As of September 30, 2023, letters of credit totaling $920 million were outstanding under uncommitted lines of credit including letters of credit totaling $344 million for two lump-sum projects in Kuwait that are substantially complete except for the resolution of unapproved change orders and extension of time claims. Letters of credit are ordinarily provided to indemnify our clients if we fail to perform our obligations under our contracts. Surety bonds may be used as an alternative to letters of credit.

#### Guarantees

The maximum potential amount of future payments that we could be required to make under outstanding performance guarantees, which represents the remaining cost of work to be performed, was estimated to be $16 billion as of September 30, 2023.

Financial guarantees, made in the ordinary course of business in certain limited circumstances, are entered into with financial institutions and other credit grantors and generally obligate us to make payment in the event of a default by the borrower. These arrangements generally require the borrower to pledge collateral to support the fulfillment of the borrower’s obligation.

## Market risk

As filed, 146 characters.

There have been no material changes to market risk during the 2023 Period. Accordingly, our disclosures provided in the 2022 10-K remain relevant.

## Controls and procedures

As filed, 1,277 characters.

### Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) are effective as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 of the Exchange Act.

### Changes in Internal Control over Financial Reporting

There were no changes to our ICFR that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our ICFR.

### CHANGES IN CONSOLIDATED BACKLOG

UNAUDITED

*(in millions)*

|  | 3ME September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Backlog, July 1 | $25,483 | $19,519 |
| New awards | 4,976 | 9,743 |
| Adjustments and cancellations, net | (519) | (276) |
| Work performed | (3,936) | (3,563) |
| Backlog, September 30 | $26,004 | $25,423 |

*(in millions)*

|  | 9ME September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Backlog, January 1 | $26,049 | $20,800 |
| New awards | 11,920 | 15,219 |
| Adjustments and cancellations, net | (404) | (711) |
| Work performed | (11,561) | (9,885) |
| Backlog, September 30 | $26,004 | $25,423 |

31

## Risk factors

As filed, 2,857 characters.

Changes from our risk factors as disclosed in the 2022 10-K follow:

***The capped call transactions may affect the value of the 2029 Notes and the market price of our common stock.***

In connection with the pricing of the 2029 Notes, we entered into capped call transactions with the option counterparties.

The capped call transactions are expected generally to mitigate potential dilution to our common stock upon

conversion of any 2029 Notes and/or offset any cash payments we are required to make in excess of the principal amount of

converted 2029 Notes, subject to a cap.

After initially establishing their initial hedges of the capped call transactions, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions (and are

likely to do so on each exercise date for the capped call transactions or following any termination of any portion of

the capped call transactions in connection with any repurchase, redemption or early conversion of the 2029 Notes). This

activity could cause or avoid an increase or decrease in the market price of our common stock and/or the 2029 Notes, which

could affect an investor's ability to convert the 2029 Notes and, to the extent the activity occurs following conversion or during any observation period related to a conversion of 2029 Notes, it could affect the amount and value of the consideration that an investor will receive upon conversion of such 2029 Notes.

***We are subject to counterparty risk with respect to the capped call transactions.***

The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might

default under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be

secured by any collateral. Global economic conditions have resulted in the actual or perceived failure or financial

difficulties of several financial institutions and could adversely impact the option counterparties’ performance under

the capped call transactions. If an option counterparty becomes subject to insolvency proceedings, we could become

an unsecured creditor with a claim equal to our exposure at that time. Our exposure will depend on many factors but,

generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our

common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and/or

more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the

financial stability or viability of the option counterparties.

Filed Nov 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-036490. Last ingested by Listed: Oct 24, 2026, 15:05 ET. No prices; not investment advice.