Impairment, Restructuring and Other Exit Costs

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

During the first quarter of 2019, the company initiated a broad restructuring plan designed to optimize costs and improve operational efficiency. During the second and third quarters of 2019, the company approved additional restructuring activities in connection with its plan. Activities approved in the first nine months of 2019 primarily relate to the rationalization of resources, real estate and overhead across various geographies, as well as the liquidation of certain components of the AMECO business that are being excluded from sale. Total restructuring and other exit costs of approximately $250 million, including those recognized during the first nine months of 2019, are expected to be incurred as part of the restructuring plan. Estimated restructuring and other exit costs include severance of approximately $100 million, asset impairment charges of approximately $60 million, entity liquidation costs, including recognition of cumulative translation adjustments, of approximately $80 million and other exit costs of approximately $10 million. The company expects that its restructuring activities will be substantially completed in 2020. Additional restructuring activities may be identified and approved as part of the plan.

During the three and nine months ended September 30, 2019, restructuring charges totaling $44 million and $98 million, respectively, were included in “Impairment, restructuring and other exit costs” on the Condensed Consolidated Statement of Operations. These restructuring charges included severance costs of $3 million, lease termination costs of $6 million and restructuring related asset impairments of $35 million during the three months ended September 30, 2019 and severance costs of $35 million, lease termination costs of $6 million and restructuring related asset impairment charges of $57 million during the nine months ended September 30, 2019. Asset impairment charges included the write down of assets held for sale to fair value less cost to sell and the write down of certain other assets to fair value.

The fair value of assets and liabilities held for sale and other impaired assets, primarily construction equipment, was estimated using observable Level 2 inputs for identical assets. See Note 21 for a summary of assets and liabilities classified as held for sale on the Condensed Consolidated Balance Sheet as of September 30, 2019 and December 31, 2018. The fair value of the other impaired assets was $25 million as of September 30, 2019. These assets were included in "Property, plant and equipment" and "Other assets" on the Condensed Consolidated Balance Sheet.

A reconciliation of the beginning and ending restructuring liability is as follows:



(in thousands)	Severance			Lease Exit Costs			Other			Total
Balance as of January 1, 2019	$	—		$	—		$	—		$	—
Restructuring charges accrued during the period	34,617			5,289			327			40,233
Cash payments / settlements during the period	(13,987		)	(93		)	(568		)	(14,648		)
Currency translation	(568		)	—			—			(568		)
Balance as of September 30, 2019	$	20,062		$	5,196		$	(241	)	$	25,017

Impairment

Given recent performance in certain businesses and geographies, the significant drop in the company's stock price since its second quarter earnings release, and recent changes in pursuit criteria, the company performed interim impairment tests of its goodwill, intangible assets and significant investments.

The company quantitatively determined that none of its goodwill was impaired. However, the company recognized an impairment loss of $34 million on its intangible customer relationships associated with the 2016 Stork acquisition. The loss was included in “Impairment, restructuring and other exit costs” on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019. The fair value of the customer relationships was determined by a third party using an income-based approach that utilized unobservable Level 3 inputs, including significant management assumptions such as forecasted revenue and operating margins, customer attrition and weighted average cost of capital. The net carrying value of the customer relationships was $32 million as of September 30, 2019 and was included in "Other assets" on the Condensed Consolidated Balance Sheet.

The company also evaluated its significant investments and determined that certain of its investments, CFHI and Sacyr Fluor, were other-than-temporarily impaired as of September 30, 2019. 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 a 51% ownership interest. Sacyr Fluor is a 50/50 joint venture between the company and Sacyr Industrial in Spain. The company recognized impairment losses of $225 million and $31 million on its investments in CFHI and Sacyr Fluor, respectively. These losses were included in “Impairment, restructuring and other exit costs” on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2019. The fair value of these investments was determined using an income-based approach that utilized unobservable Level 3 inputs, including significant management assumptions such as forecasted revenue and operating margins and weighted average cost of capital. As of September 30, 2019, the carrying value of the company's investments in CFHI and Sacyr Fluor was $112 million and $6 million, respectively, and was included in "Investments" on the Condensed Consolidated Balance Sheet. The company intends to continue exploring strategic alternatives for its investment in CFHI, which could include dilution of the company's ownership interest in the joint venture.