Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

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
(State or other jurisdiction of
 incorporation or organization)

 

33-0927079
(I.R.S. Employer
Identification No.)

 

 

 

6700 Las Colinas Boulevard
Irving, Texas
(Address of principal executive offices)

 


75039
(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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting 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

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of October 24, 2014, 156,220,578 shares of the registrant’s common stock, $0.01 par value, were outstanding.

 

 

 



Table of Contents

 

FLUOR CORPORATION

 

FORM 10-Q

 

September 30, 2014

 

TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

 

 

Part I:

Financial Information

 

 

 

 

 

 

 

 

Item 1:

Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Earnings for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheet as of September 30, 2014 and December 31, 2013 (Unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (Unaudited)

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

 

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

 

 

 

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

 

33

 

 

 

 

 

 

Item 4:

Controls and Procedures

 

33

 

 

 

 

 

 

Changes in Consolidated Backlog (Unaudited)

 

34

 

 

 

 

 

Part II:

Other Information

 

 

 

 

 

 

 

 

Item 1:

Legal Proceedings

 

35

 

 

 

 

 

 

Item 1A:

Risk Factors

 

35

 

 

 

 

 

 

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

 

 

 

 

 

 

Item 6:

Exhibits

 

36

 

 

 

 

 

Signatures

 

39

 

1



Table of Contents

 

PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

 

UNAUDITED

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in thousands, except per share amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

$

5,440,081

 

$

6,684,216

 

$

16,076,381

 

$

21,060,168

 

 

 

 

 

 

 

 

 

 

 

TOTAL COST OF REVENUE

 

5,059,960

 

6,329,685

 

15,038,616

 

20,030,907

 

 

 

 

 

 

 

 

 

 

 

OTHER (INCOME) AND EXPENSES

 

 

 

 

 

 

 

 

 

Corporate general and administrative expense

 

35,131

 

46,070

 

129,615

 

110,590

 

Interest expense

 

5,979

 

6,435

 

20,321

 

19,838

 

Interest income

 

(4,373

)

(2,716

)

(12,312

)

(10,948

)

Total cost and expenses

 

5,096,697

 

6,379,474

 

15,176,240

 

20,150,387

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS BEFORE TAXES

 

343,384

 

304,742

 

900,141

 

909,781

 

INCOME TAX EXPENSE

 

114,635

 

87,391

 

282,919

 

271,834

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS

 

228,749

 

217,351

 

617,222

 

637,947

 

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES

 

(113,859

)

 

(199,042

)

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

114,890

 

217,351

 

418,180

 

637,947

 

 

 

 

 

 

 

 

 

 

 

LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

45,388

 

44,305

 

121,814

 

137,031

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION

 

$

69,502

 

$

173,046

 

$

296,366

 

$

500,916

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

183,361

 

$

173,046

 

$

495,408

 

$

500,916

 

Loss from discontinued operations, net of taxes

 

(113,859

)

 

(199,042

)

 

Net earnings

 

$

69,502

 

$

173,046

 

$

296,366

 

$

500,916

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.17

 

$

1.06

 

$

3.12

 

$

3.08

 

Loss from discontinued operations, net of taxes

 

(0.73

)

 

(1.25

)

 

Net earnings

 

$

0.44

 

$

1.06

 

$

1.87

 

$

3.08

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.15

 

$

1.05

 

$

3.08

 

$

3.05

 

Loss from discontinued operations, net of taxes

 

(0.71

)

 

(1.24

)

 

Net earnings

 

$

0.44

 

$

1.05

 

$

1.84

 

$

3.05

 

 

 

 

 

 

 

 

 

 

 

SHARES USED TO CALCULATE EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

BASIC

 

157,332

 

162,940

 

158,670

 

162,715

 

DILUTED

 

159,456

 

164,845

 

160,756

 

164,324

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS DECLARED PER SHARE

 

$

0.21

 

$

0.16

 

$

0.63

 

$

0.48

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

UNAUDITED

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in thousands)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

114,890

 

$

217,351

 

$

418,180

 

$

637,947

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(66,381

)

26,192

 

(65,672

)

(30,555

)

Ownership share of equity method investees’ other comprehensive income (loss)

 

(1,127

)

2,262

 

9,218

 

8,353

 

Defined benefit pension and postretirement plan adjustments

 

11,339

 

(4,045

)

14,496

 

4,780

 

Unrealized gain (loss) on derivative contracts

 

(2,109

)

1,015

 

(1,604

)

(827

)

Unrealized gain (loss) on debt securities

 

(345

)

365

 

(132

)

(732

)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

(58,623

)

25,789

 

(43,694

)

(18,981

)

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

56,267

 

243,140

 

374,486

 

618,966

 

 

 

 

 

 

 

 

 

 

 

LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

44,555

 

43,902

 

117,007

 

136,681

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO FLUOR CORPORATION

 

$

11,712

 

$

199,238

 

$

257,479

 

$

482,285

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

 

UNAUDITED

 

 

 

September 30,

 

December 31,

 

(in thousands, except share and per share amounts)

 

2014

 

2013

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents ($410,859 and $488,426 related to variable interest entities (“VIEs”))

 

$

1,900,197

 

$

2,283,582

 

Marketable securities, current ($64,145 and $64,084 related to VIEs)

 

167,323

 

186,023

 

Accounts and notes receivable, net ($211,036 and $220,705 related to VIEs)

 

1,150,276

 

1,274,024

 

Contract work in progress ($221,665 and $238,895 related to VIEs)

 

1,743,707

 

1,740,821

 

Deferred taxes

 

360,265

 

245,796

 

Other current assets

 

337,712

 

273,437

 

Total current assets

 

5,659,480

 

6,003,683

 

Marketable securities, noncurrent

 

334,008

 

275,402

 

Property, plant and equipment (“PP&E”) ((net of accumulated depreciation of $1,116,255 and $1,106,925) (net PP&E of $69,203 and $87,774 related to VIEs))

 

970,605

 

966,953

 

Investments and goodwill

 

304,341

 

312,293

 

Deferred taxes

 

97,407

 

139,773

 

Deferred compensation trusts

 

396,723

 

388,408

 

Other

 

286,141

 

237,338

 

TOTAL ASSETS

 

$

8,048,705

 

$

8,323,850

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Trade accounts payable ($234,339 and $311,892 related to VIEs)

 

$

1,457,605

 

$

1,641,109

 

Convertible senior notes and other borrowings

 

29,822

 

29,839

 

Advance billings on contracts ($185,577 and $327,820 related to VIEs)

 

565,136

 

743,524

 

Accrued salaries, wages and benefits ($54,728 and $64,064 related to VIEs)

 

667,705

 

753,452

 

Other accrued liabilities ($31,769 and $25,517 related to VIEs)

 

583,009

 

239,236

 

Total current liabilities

 

3,303,277

 

3,407,160

 

LONG-TERM DEBT DUE AFTER ONE YEAR

 

496,935

 

496,604

 

NONCURRENT LIABILITIES

 

538,815

 

539,263

 

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 – 156,527,652 and 161,287,818 shares in 2014 and 2013, respectively

 

1,565

 

1,613

 

Additional paid-in capital

 

 

12,911

 

Accumulated other comprehensive loss

 

(337,088

)

(298,201

)

Retained earnings

 

3,894,404

 

4,040,664

 

Total shareholders’ equity

 

3,558,881

 

3,756,987

 

Noncontrolling interests

 

150,797

 

123,836

 

Total equity

 

3,709,678

 

3,880,823

 

TOTAL LIABILITIES AND EQUITY

 

$

8,048,705

 

$

8,323,850

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

UNAUDITED

 

 

 

Nine Months Ended
September 30,

 

(in thousands)

 

2014

 

2013

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net earnings

 

$

418,180

 

$

637,947

 

Adjustments to reconcile net earnings to cash provided (utilized) by operating activities:

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

199,042

 

 

Depreciation of fixed assets

 

143,825

 

162,264

 

Amortization of intangibles

 

669

 

576

 

Loss (gain) on sales of equity method investments

 

2,158

 

(2,370

)

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

 

(4,093

)

11,409

 

Gain on sale of property, plant and equipment

 

(23,270

)

(10,107

)

Restricted stock and stock option amortization

 

36,256

 

31,861

 

Deferred compensation trust

 

(8,315

)

(31,718

)

Deferred compensation obligation

 

8,266

 

34,588

 

Deferred taxes

 

58,074

 

(40,980

)

Excess tax benefit from stock-based plans

 

(3,965

)

(4,501

)

Net retirement plan (contributions) accrual

 

(35,910

)

2,436

 

Changes in operating assets and liabilities

 

(374,107

)

(89,817

)

Cash outflows from discontinued operations

 

(4,680

)

 

Other items

 

(4,781

)

955

 

Cash provided by operating activities

 

407,349

 

702,543

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of marketable securities

 

(275,907

)

(348,949

)

Proceeds from the sales and maturities of marketable securities

 

233,506

 

361,084

 

Capital expenditures

 

(222,561

)

(181,059

)

Proceeds from disposal of property, plant and equipment

 

72,468

 

43,737

 

Proceeds from sales of equity method investments

 

44,000

 

3,005

 

Investments in partnerships and joint ventures

 

(34,185

)

(37,540

)

Consolidation of a variable interest entity

 

 

24,675

 

Acquisitions

 

 

(7,674

)

Other items

 

1,959

 

8,988

 

Cash utilized by investing activities

 

(180,720

)

(133,733

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Repurchase of common stock

 

(410,637

)

 

Dividends paid

 

(92,975

)

(52,457

)

Repayment of 5.625% Municipal Bonds

 

 

(17,795

)

Repayment of convertible debt and notes payable

 

(74

)

(8,640

)

Distributions paid to noncontrolling interests

 

(75,510

)

(79,549

)

Capital contributions by noncontrolling interests

 

2,210

 

1,549

 

Taxes paid on vested restricted stock

 

(11,426

)

(11,404

)

Stock options exercised

 

23,961

 

21,613

 

Excess tax benefit from stock-based plans

 

3,965

 

4,501

 

Other items

 

(1,788

)

6,467

 

Cash utilized by financing activities

 

(562,274

)

(135,715

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(47,740

)

(50,066

)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(383,385

)

383,029

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

2,283,582

 

2,154,541

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

1,900,197

 

$

2,537,570

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

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 December 31, 2013 Annual Report on Form 10-K. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30, 2014 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 September 30, 2014 and its consolidated results of operations and cash flows for the interim periods presented. All significant intercompany transactions of consolidated subsidiaries are eliminated. Certain amounts in 2013 have been reclassified to conform to the 2014 presentation. 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.

 

(2)                  Recent Accounting Pronouncements

 

New accounting pronouncements implemented by the company during the nine months ended September 30, 2014 or requiring implementation in future periods are discussed below or elsewhere in the notes, where appropriate.

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and subsequent interim reporting periods. The adoption of ASU 2014-15 will not have any impact on the company’s financial position, results of operations or cash flows.

 

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period.” This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. ASU 2014-12 is effective for interim and annual reporting periods beginning after December 15, 2015. Management does not expect the adoption of ASU 2014-12 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In June 2014, the FASB issued ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures,” which makes limited amendments to the guidance in Accounting Standards Codification (“ASC”) 860, “Transfers and Servicing,” on accounting for certain repurchase agreements (“repos”). The ASU (1) requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements); (2) eliminates accounting guidance on linked repurchase financing transactions; and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions and repurchase-to-maturity transactions) accounted for as secured borrowings. This ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management does not expect the adoption of ASU 2014-11 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 outlines a five-step process for revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards, and also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Major provisions include determining which goods and services are distinct and require separate accounting, how variable consideration (which may include change orders and claims) is recognized, whether revenue should be recognized at a point in time or over time and ensuring the time value of money is considered in the transaction price. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016 and can be applied either retrospectively to each prior period

 

6



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

presented or as a cumulative-effect adjustment as of the date of adoption. Management is currently evaluating the impact of adopting ASU 2014-09 on the company’s financial position, results of operations and cash flows.

 

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal transactions that do not meet the discontinued operations criteria. This ASU requires discontinued operations treatment for disposals of a component or group of components of an entity that represent a strategic shift that has or will have a major impact on an entity’s operations or financial results. ASU 2014-08 also expands the scope of ASC 205-20, “Discontinued Operations,” to disposals of equity method investments and acquired businesses held for sale. This ASU is effective prospectively for all disposals or classifications as held for sale that occur in interim and annual reporting periods beginning after December 15, 2014. Management does not expect the adoption of ASU 2014-08 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In January 2014, the FASB issued ASU 2014-05, “Service Concession Arrangements.” This ASU clarifies that, unless certain circumstances are met, operating entities should not account for certain concession arrangements with public-sector entities as leases and should not recognize the related infrastructure as property, plant and equipment. This ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management does not expect the adoption of ASU 2014-05 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2014, the company adopted ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This ASU clarifies the financial statement presentation of unrecognized tax benefits in certain circumstances. The adoption of ASU 2013-11 did not have an impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2014, the company adopted ASU 2013-07, “Liquidation Basis of Accounting,” which clarifies when an entity should apply the liquidation basis of accounting. In addition, ASU 2013-07 provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The adoption of ASU 2013-07 did not have an impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2014, the company adopted ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” The objective of ASU 2013-05 is to resolve a practice diversity in circumstances where reporting entities release cumulative translation adjustments into net income when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. The adoption of ASU 2013-05 did not have an impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2014, the company adopted ASU 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date,” which addresses the recognition, measurement and disclosure of certain obligations including debt arrangements, other contractual obligations and settled litigation and judicial rulings. The adoption of ASU 2013-04 did not have an impact on the company’s financial position, results of operations or cash flows.

 

(3)                  Discontinued Operations

 

During the three and nine months ended September 30, 2014, the company recorded an after-tax loss from discontinued operations of $114 million and $199 million, respectively, in connection with the reassessment of estimated loss contingencies related to the lead business of St. Joe Minerals Corporation and The Doe Run Company in Herculaneum, Missouri. The related tax effects associated with these losses were $64 million and $111 million for the three and nine months ended September 30, 2014, respectively. See further discussion of this matter in Note 14.

 

7



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(4)                  Other Comprehensive Income (Loss)

 

The tax effects of the components of other comprehensive income (loss) (“OCI”) for the three months ended September 30, 2014 and 2013 are as follows:

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

September 30, 2014

 

September 30, 2013

 

 

 

 

 

Tax

 

 

 

 

 

Tax

 

 

 

 

 

Before-Tax

 

Benefit

 

Net-of-Tax

 

Before-Tax

 

Benefit

 

Net-of-Tax

 

(in thousands)

 

Amount

 

(Expense)

 

Amount

 

Amount

 

(Expense)

 

Amount

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

$

(105,841

)

$

39,460

 

$

(66,381

)

$

42,074

 

$

(15,882

)

$

26,192

 

Ownership share of equity method investees’ other comprehensive income (loss)

 

(1,724

)

597

 

(1,127

)

3,118

 

(856

)

2,262

 

Defined benefit pension and postretirement plan adjustments

 

18,142

 

(6,803

)

11,339

 

(6,472

)

2,427

 

(4,045

)

Unrealized gain (loss) on derivative contracts

 

(3,244

)

1,135

 

(2,109

)

1,700

 

(685

)

1,015

 

Unrealized gain (loss) on debt securities

 

(552

)

207

 

(345

)

585

 

(220

)

365

 

Total other comprehensive income (loss)

 

(93,219

)

34,596

 

(58,623

)

41,005

 

(15,216

)

25,789

 

Less: Other comprehensive loss attributable to noncontrolling interests

 

(833

)

 

(833

)

(403

)

 

(403

)

Other comprehensive income (loss) attributable to Fluor Corporation

 

$

(92,386

)

$

34,596

 

$

(57,790

)

$

41,408

 

$

(15,216

)

$

26,192

 

 

The tax effects of the components of OCI for the nine months ended September 30, 2014 and 2013 are as follows:

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2014

 

September 30, 2013

 

 

 

 

 

Tax

 

 

 

 

 

Tax

 

 

 

 

 

Before-Tax

 

Benefit

 

Net-of-Tax

 

Before-Tax

 

Benefit

 

Net-of-Tax

 

(in thousands)

 

Amount

 

(Expense)

 

Amount

 

Amount

 

(Expense)

 

Amount

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

$

(102,282

)

$

36,610

 

$

(65,672

)

$

(48,753

)

$

18,198

 

$

(30,555

)

Ownership share of equity method investees’ other comprehensive income

 

16,508

 

(7,290

)

9,218

 

11,471

 

(3,118

)

8,353

 

Defined benefit pension and postretirement plan adjustments

 

23,193

 

(8,697

)

14,496

 

7,648

 

(2,868

)

4,780

 

Unrealized loss on derivative contracts

 

(2,463

)

859

 

(1,604

)

(1,247

)

420

 

(827

)

Unrealized loss on debt securities

 

(212

)

80

 

(132

)

(1,170

)

438

 

(732

)

Total other comprehensive loss

 

(65,256

)

21,562

 

(43,694

)

(32,051

)

13,070

 

(18,981

)

Less: Other comprehensive loss attributable to noncontrolling interests

 

(4,807

)

 

(4,807

)

(350

)

 

(350

)

Other comprehensive loss attributable to Fluor Corporation

 

$

(60,449

)

$

21,562

 

$

(38,887

)

$

(31,701

)

$

13,070

 

$

(18,631

)

 

8



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

The changes in accumulated other comprehensive income (“AOCI”) balances by component (after-tax) for the three months ended September 30, 2014 are as follows:

 

(in thousands)

 

Foreign
Currency
Translation

 

Ownership Share
of Equity Method
Investees’ Other
Comprehensive
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 June 30, 2014

 

$

4,587

 

$

(21,929

)

$

(255,140

)

$

(7,205

)

$

389

 

$

(279,298

)

Other comprehensive income (loss) before reclassifications

 

(65,767

)

(1,127

)

9,315

 

(1,963

)

(325

)

(59,867

)

Amounts reclassified from AOCI

 

 

 

2,024

 

73

 

(20

)

2,077

 

Net other comprehensive income (loss)

 

(65,767

)

(1,127

)

11,339

 

(1,890

)

(345

)

(57,790

)

Balance as of September 30, 2014

 

$

(61,180

)

$

(23,056

)

$

(243,801

)

$

(9,095

)

$

44

 

$

(337,088

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2014

 

$

3,843

 

$

 

$

 

$

135

 

$

 

$

3,978

 

Other comprehensive loss before reclassifications

 

(614

)

 

 

(225

)

 

(839

)

Amounts reclassified from AOCI

 

 

 

 

6

 

 

6

 

Net other comprehensive loss

 

(614

)

 

 

(219

)

 

(833

)

Balance as of September 30, 2014

 

$

3,229

 

$

 

$

 

$

(84

)

$

 

$

3,145

 

 

The changes in AOCI balances by component (after-tax) for the nine months ended September 30, 2014 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, 2013

 

$

(164

)

$

(32,274

)

$

(258,297

)

$

(7,642

)

$

176

 

$

(298,201

)

Other comprehensive income (loss) before reclassifications

 

(61,016

)

9,218

 

8,364

 

(1,690

)

(123

)

(45,247

)

Amounts reclassified from AOCI

 

 

 

6,132

 

237

 

(9

)

6,360

 

Net other comprehensive income (loss)

 

(61,016

)

9,218

 

14,496

 

(1,453

)

(132

)

(38,887

)

Balance as of September 30, 2014

 

$

(61,180

)

$

(23,056

)

$

(243,801

)

$

(9,095

)

$

44

 

$

(337,088

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

 

$

7,885

 

$

 

$

 

$

67

 

$

 

$

7,952

 

Other comprehensive loss before reclassifications

 

(4,656

)

 

 

(166

)

 

(4,822

)

Amounts reclassified from AOCI

 

 

 

 

15

 

 

15

 

Net other comprehensive loss

 

(4,656

)

 

 

(151

)

 

(4,807

)

Balance as of September 30, 2014

 

$

3,229

 

$

 

$

 

$

(84

)

$

 

$

3,145

 

 

9



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

The changes in AOCI balances by component (after-tax) for the three months ended September 30, 2013 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 June 30, 2013

 

$

(10,902

)

$

(36,928

)

$

(243,899

)

$

(10,801

)

$

(143

)

$

(302,673

)

Other comprehensive income (loss) before reclassifications

 

26,471

 

2,262

 

(6,057

)

(443

)

367

 

22,600

 

Amounts reclassified from AOCI

 

 

 

2,012

 

1,582

 

(2

)

3,592

 

Net other comprehensive income (loss)

 

26,471

 

2,262

 

(4,045

)

1,139

 

365

 

26,192

 

Balance as of September 30, 2013

 

$

15,569

 

$

(34,666

)

$

(247,944

)

$

(9,662

)

$

222

 

$

(276,481

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2013

 

$

8,777

 

$

 

$

 

$

 

$

 

$

8,777

 

Other comprehensive loss before reclassifications

 

(279

)

 

 

(124

)

 

(403

)

Amounts reclassified from AOCI

 

 

 

 

 

 

 

Net other comprehensive loss

 

(279

)

 

 

(124

)

 

(403

)

Balance as of September 30, 2013

 

$

8,498

 

$

 

$

 

$

(124

)

$

 

$

8,374

 

 

The changes in AOCI balances by component (after-tax) for the nine months ended September 30, 2013 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, 2012

 

$

45,899

 

$

(43,019

)

$

(252,724

)

$

(8,960

)

$

954

 

$

(257,850

)

Other comprehensive income (loss) before reclassifications

 

(30,330

)

8,353

 

(1,261

)

(2,883

)

(645

)

(26,766

)

Amounts reclassified from AOCI

 

 

 

6,041

 

2,181

 

(87

)

8,135

 

Net other comprehensive income (loss)

 

(30,330

)

8,353

 

4,780

 

(702

)

(732

)

(18,631

)

Balance as of September 30, 2013

 

$

15,569

 

$

(34,666

)

$

(247,944

)

$

(9,662

)

$

222

 

$

(276,481

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

 

$

8,723

 

$

 

$

 

$

1

 

$

 

$

8,724

 

Other comprehensive loss before reclassifications

 

(225

)

 

 

(124

)

 

(349

)

Amounts reclassified from AOCI

 

 

 

 

(1

)

 

(1

)

Net other comprehensive loss

 

(225

)

 

 

(125

)

 

(350

)

Balance as of September 30, 2013

 

$

8,498

 

$

 

$

 

$

(124

)

$

 

$

8,374

 

 

10



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

The significant items reclassified out of AOCI and the corresponding location in and impact in the Condensed Consolidated Statement of Earnings are as follows:

 

 

 

Location in

 

Three Months Ended

 

Nine Months Ended

 

 

 

Condensed Consolidated

 

September 30,

 

September 30,

 

(in thousands)

 

Statement of Earnings

 

2014

 

2013

 

2014

 

2013

 

Component of AOCI:

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

 

Various accounts(1)

 

$

(3,239

)

$

(3,220

)

$

(9,811

)

$

(9,666

)

Income tax benefit

 

Income tax expense

 

1,215

 

1,208

 

3,679

 

3,625

 

Net of tax

 

 

 

$

(2,024

)

$

(2,012

)

$

(6,132

)

$

(6,041

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on derivative contracts:

 

 

 

 

 

 

 

 

 

 

 

Commodity and foreign currency contracts

 

Total cost of revenue

 

$

293

 

$

(2,112

)

$

842

 

$

(2,237

)

Interest rate contracts

 

Interest expense

 

(419

)

(419

)

(1,258

)

(1,258

)

Income tax benefit (net)

 

Income tax expense

 

47

 

949

 

164

 

1,315

 

Net of tax

 

 

 

(79

)

(1,582

)

(252

)

(2,180

)

Less: Noncontrolling interests

 

Net earnings attributable to noncontrolling interests

 

(6

)

 

(15

)

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Net of tax and noncontrolling interests

 

 

 

$

(73

)

$

(1,582

)

$

(237

)

$

(2,181

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

Corporate general and administrative expense

 

$

31

 

$

3

 

$

14

 

$

139

 

Income tax expense

 

Income tax expense

 

(11

)

(1

)

(5

)

(52

)

Net of tax

 

 

 

$

20

 

$

2

 

$

9

 

$

87

 

 


(1)           Defined benefit pension plan adjustments were reclassified primarily to total cost of revenue and corporate general and administrative expense.

 

(5)                Income Taxes

 

The effective tax rate on earnings from continuing operations for the three and nine months ended September 30, 2014 was 33.4 percent and 31.4 percent, respectively, compared to 28.7 percent and 29.9 percent for the corresponding periods of 2013. The higher effective tax rates for the three and nine months ended September 30, 2014 were primarily due to a benefit in 2013 of U.S. federal tax research credits which have not been extended beyond 2013. All periods benefited from earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company. The company’s effective tax rates from discontinued operations for the three and nine months ended September 30, 2014 were 35.9 percent and 35.8 percent, respectively.

 

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 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 2006.

 

11



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(6)                  Cash Paid for Interest and Taxes

 

Cash paid for interest was $21 million for both the nine months ended September 30, 2014 and 2013, respectively. Income tax payments, net of refunds, were $240 million and $153 million during the nine-month periods ended September 30, 2014 and 2013, 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 and nine months ended September 30, 2014 and 2013 are presented below:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

183,361

 

$

173,046

 

$

495,408

 

$

500,916

 

Loss from discontinued operations, net of taxes

 

(113,859

)

 

(199,042

)

 

Net earnings

 

$

69,502

 

$

173,046

 

$

296,366

 

$

500,916

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

157,332

 

162,940

 

158,670

 

162,715

 

 

 

 

 

 

 

 

 

 

 

Basic EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.17

 

$

1.06

 

$

3.12

 

$

3.08

 

Loss from discontinued operations, net of taxes

 

(0.73

)

 

(1.25

)

 

Net earnings

 

$

0.44

 

$

1.06

 

$

1.87

 

$

3.08

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

157,332

 

162,940

 

158,670

 

162,715

 

 

 

 

 

 

 

 

 

 

 

Diluted effect:

 

 

 

 

 

 

 

 

 

Employee stock options, restricted stock units and shares and Value Driver Incentive units

 

1,726

 

1,490

 

1,663

 

1,218

 

Conversion equivalent of dilutive convertible debt

 

398

 

415

 

423

 

391

 

Weighted average diluted shares outstanding

 

159,456

 

164,845

 

160,756

 

164,324

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.15

 

$

1.05

 

$

3.08

 

$

3.05

 

Loss from discontinued operations, net of taxes

 

(0.71

)

 

(1.24

)

 

Net earnings

 

$

0.44

 

$

1.05

 

$

1.84

 

$

3.05

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive securities not included above

 

667

 

1,845

 

596

 

1,914

 

 

During the three and nine months ended September 30, 2014, the company repurchased and cancelled 1,218,503 and 5,431,188 shares of its common stock, respectively, under its stock repurchase program for $87 million and $411 million, respectively.

 

12



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(8)                  Fair Value of Financial Instruments

 

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.

 

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 September 30, 2014 and December 31, 2013:

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Fair Value Hierarchy

 

Fair Value Hierarchy

 

(in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents(1)

 

$

 13,781

 

$

 13,781

 

$

 —

 

$

 —

 

$

 50,081

 

$

 50,081

 

$

 —

 

$

 —

 

Marketable securities, current(2)

 

93,289

 

 

93,289

 

 

111,333

 

 

111,333

 

 

 

Deferred compensation trusts(3)

 

91,200

 

91,200

 

 

 

87,507

 

87,507

 

 

 

Marketable securities, noncurrent(4)

 

334,008

 

 

334,008

 

 

275,402

 

 

275,402

 

 

Derivative assets(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

89

 

 

89

 

 

438

 

 

438

 

 

Foreign currency contracts

 

196

 

 

196

 

 

855

 

 

855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

 290

 

$

 —

 

$

 290

 

$

 —

 

$

 3

 

$

 —

 

$

 3

 

$

 —

 

Foreign currency contracts

 

4,491

 

 

4,491

 

 

967

 

 

967

 

 

 


(1) Consists primarily of registered money market funds valued at fair value. These investments represent the net asset value of the shares of such funds as of the close of business at the end of the period.

 

(2) Consists of investments in U.S. agency securities, U.S. Treasury securities, corporate debt securities, commercial paper and other debt securities with maturities of less than one year that are valued based on pricing models, which are determined from a compilation of primarily observable market information, broker quotes in non-active markets or similar assets.

 

(3) Consists primarily 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.

 

(4) Consists of investments in U.S. agency securities, U.S. Treasury securities, corporate debt securities and other debt securities with maturities ranging from one year to three years that are valued based on pricing models, which are determined from a compilation of primarily observable market information, broker quotes in non-active markets or similar assets.

 

(5)     See Note 9 for the classification of commodity contracts and foreign currency contracts in the Condensed Consolidated Balance Sheet. Commodity contracts and 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.

 

13



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

All of the company’s financial instruments carried at fair value are included in the table above. All of the above financial instruments are available-for-sale securities except for those held in the deferred compensation trusts (which are trading securities) and derivative assets and liabilities. The company has determined that there was no other-than-temporary impairment of available-for-sale securities with unrealized losses, and the company expects to recover the entire cost basis of the securities. The available-for-sale securities are made up of the following security types as of September 30, 2014: money market funds of $14 million, U.S. agency securities of $82 million, U.S. Treasury securities of $97 million, corporate debt securities of $245 million and other debt securities of $3 million. As of December 31, 2013, available-for-sale securities consisted of money market funds of $50 million, U.S. agency securities of $119 million, U.S. Treasury securities of $26 million, corporate debt securities of $235 million and commercial paper of $7 million. The amortized cost of these available-for-sale securities is not materially different from the fair value. During the three and nine months ended September 30, 2014, proceeds from the sales and maturities of available-for-sale securities were $40 million and $157 million, respectively, compared to $29 million and $235 million for the corresponding periods of 2013.

 

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:

 

 

 

 

 

September 30, 2014

 

December 31, 2013

 

 

 

Fair Value

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(in thousands)

 

Hierarchy

 

Value

 

Value

 

Value

 

Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash(1)

 

Level 1

 

$

1,132,282

 

$

1,132,282

 

$

1,444,656

 

$

1,444,656

 

Cash equivalents(2)

 

Level 2

 

754,134

 

754,134

 

788,845

 

788,845

 

Marketable securities, current(3)

 

Level 2

 

74,034

 

74,034

 

74,690

 

74,690

 

Notes receivable, including noncurrent portion(4)

 

Level 3

 

18,817

 

18,817

 

27,602

 

27,602

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

3.375% Senior Notes(5)

 

Level 2

 

$

496,935

 

$

513,021

 

$

496,604

 

$

484,204

 

1.5% Convertible Senior Notes(5)

 

Level 2

 

18,324

 

45,016

 

18,398

 

54,027

 

Other borrowings(6)

 

Level 2

 

11,498

 

11,498

 

11,441

 

11,441

 

 


(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.

 

(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 3.375% Senior Notes and 1.5% Convertible Senior Notes are estimated based on quoted market prices for similar issues.

 

(6)     Other borrowings primarily represent amounts outstanding under a short-term credit facility. The carrying amount of borrowings under this credit facility 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

 

14



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

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 derivative instruments as hedging instruments to mitigate the risk. These 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, as well as its risk management objectives and strategies for undertaking the hedge transaction. The company also formally assesses, both at inception and at least quarterly thereafter, whether the hedging instruments are highly effective in offsetting changes in the fair value of the hedged items. The fair values of all hedging instruments are recognized as assets or liabilities at the balance sheet date. For fair value hedges, the effective portion of 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 effective portion of 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. Any ineffective portion of a hedging instrument’s change in fair value is immediately recognized in earnings. The company does not enter into derivative instruments for speculative purposes. 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 September 30, 2014, the company had total gross notional amounts of $216 million of foreign currency contracts and $9 million of commodity contracts outstanding relating to engineering and construction contract obligations and monetary assets and liabilities denominated in nonfunctional currencies. The foreign currency contracts are of varying duration, none of which extend beyond September 2016. The commodity contracts are of varying duration, none of which extend beyond May 2017. The impact to earnings due to hedge ineffectiveness was immaterial for the three and nine months ended September 30, 2014 and 2013.

 

The fair values of derivatives designated as hedging instruments under ASC 815 as of September 30, 2014 and December 31, 2013 were as follows:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet

 

September 30,

 

December 31,

 

Balance Sheet

 

September 30,

 

December 31,

 

(in thousands)

 

Location

 

2014

 

2013

 

Location

 

2014

 

2013

 

Commodity contracts

 

Other current assets

 

$

65

 

$