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 June 30, 2015

 

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 July 24, 2015, 144,943,262 shares of the registrant’s common stock, $0.01 par value, were outstanding.

 

 

 



Table of Contents

 

FLUOR CORPORATION

 

FORM 10-Q

 

June 30, 2015

 

TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

 

 

Part I:

Financial Information

 

 

 

 

 

 

 

 

Item 1:

Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Earnings for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheet as of June 30, 2015 and December 31, 2014 (Unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (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 

 

Six Months Ended 

 

 

 

June 30,

 

June 30,

 

(in thousands, except per share amounts)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

$

4,810,106

 

$

5,251,664

 

$

9,358,755

 

$

10,636,300

 

 

 

 

 

 

 

 

 

 

 

TOTAL COST OF REVENUE

 

4,516,125

 

4,906,352

 

8,767,314

 

9,978,656

 

 

 

 

 

 

 

 

 

 

 

OTHER (INCOME) AND EXPENSES

 

 

 

 

 

 

 

 

 

Corporate general and administrative expense

 

47,785

 

56,711

 

88,895

 

94,484

 

Interest expense

 

11,401

 

7,445

 

23,569

 

14,342

 

Interest income

 

(4,054

)

(4,133

)

(8,750

)

(7,939

)

Total cost and expenses

 

4,571,257

 

4,966,375

 

8,871,028

 

10,079,543

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS BEFORE TAXES

 

238,849

 

285,289

 

487,727

 

556,757

 

INCOME TAX EXPENSE

 

78,105

 

90,126

 

161,379

 

168,284

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS

 

160,744

 

195,163

 

326,348

 

388,473

 

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES

 

 

(85,183

)

 

(85,183

)

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

160,744

 

109,980

 

326,348

 

303,290

 

 

 

 

 

 

 

 

 

 

 

LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

12,237

 

32,190

 

33,762

 

76,426

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION

 

$

148,507

 

$

77,790

 

$

292,586

 

$

226,864

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

148,507

 

$

162,973

 

$

292,586

 

$

312,047

 

Loss from discontinued operations, net of taxes

 

 

(85,183

)

 

(85,183

)

Net earnings

 

$

148,507

 

$

77,790

 

$

292,586

 

$

226,864

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.02

 

$

1.03

 

$

1.99

 

$

1.96

 

Loss from discontinued operations, net of taxes

 

 

(0.54

)

 

(0.54

)

Net earnings

 

$

1.02

 

$

0.49

 

$

1.99

 

$

1.42

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.00

 

$

1.02

 

$

1.96

 

$

1.93

 

Loss from discontinued operations, net of taxes

 

 

(0.54

)

 

(0.52

)

Net earnings

 

$

1.00

 

$

0.48

 

$

1.96

 

$

1.41

 

 

 

 

 

 

 

 

 

 

 

SHARES USED TO CALCULATE EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

BASIC

 

146,261

 

158,465

 

146,996

 

159,339

 

DILUTED

 

147,921

 

160,454

 

148,918

 

161,407

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS DECLARED PER SHARE

 

$

0.21

 

$

0.21

 

$

0.42

 

$

0.42

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

UNAUDITED

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

160,744

 

$

109,980

 

$

326,348

 

$

303,290

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

12,885

 

13,438

 

(35,839

)

709

 

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

 

1,653

 

12,343

 

(2,828

)

10,345

 

Defined benefit pension and postretirement plan adjustments

 

2,677

 

1,509

 

5,365

 

3,157

 

Unrealized gain on derivative contracts

 

496

 

934

 

1,390

 

505

 

Unrealized gain (loss) on available-for-sale securities

 

(235

)

231

 

374

 

213

 

 

 

 

 

 

 

 

 

 

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

17,476

 

28,455

 

(31,538

)

14,929

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

178,220

 

138,435

 

294,810

 

318,219

 

 

 

 

 

 

 

 

 

 

 

LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

11,626

 

32,555

 

33,742

 

72,452

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO FLUOR CORPORATION

 

$

166,594

 

$

105,880

 

$

261,068

 

$

245,767

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

 

UNAUDITED

 

 

 

June 30,

 

December 31,

 

(in thousands, except share and per share amounts)

 

2015

 

2014

 

 

 

 

 

 

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents ($281,828 and $352,996 related to variable interest entities (“VIEs”))

 

$

1,723,760

 

$

1,993,125

 

Marketable securities, current ($70,065 and $14,082 related to VIEs)

 

166,082

 

105,131

 

Accounts and notes receivable, net ($235,075 and $193,565 related to VIEs)

 

1,265,879

 

1,471,705

 

Contract work in progress ($196,177 and $166,334 related to VIEs)

 

1,507,880

 

1,587,275

 

Deferred taxes

 

201,895

 

340,223

 

Other current assets ($18,407 and $38,848 related to VIEs)

 

337,221

 

260,588

 

Total current assets

 

5,202,717

 

5,758,047

 

 

 

 

 

 

 

Marketable securities, noncurrent

 

242,570

 

343,644

 

Property, plant and equipment (“PP&E”) ((net of accumulated depreciation of $1,078,281 and $1,081,198) (net PP&E of $84,848 and $77,579 related to VIEs))

 

964,409

 

980,263

 

Investments and goodwill

 

352,735

 

302,757

 

Deferred taxes

 

210,961

 

201,004

 

Deferred compensation trusts

 

369,269

 

405,022

 

Other assets ($24,618 and $24,003 related to VIEs)

 

217,712

 

203,692

 

TOTAL ASSETS

 

$

7,560,373

 

$

8,194,429

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Trade accounts payable ($178,738 and $213,837 related to VIEs)

 

$

1,212,814

 

$

1,422,084

 

Convertible senior notes and other borrowings

 

 

28,742

 

Advance billings on contracts ($183,831 and $151,321 related to VIEs)

 

577,376

 

569,418

 

Accrued salaries, wages and benefits ($51,947 and $51,749 related to VIEs)

 

688,219

 

725,586

 

Other accrued liabilities ($17,420 and $21,709 related to VIEs)

 

264,140

 

585,023

 

Total current liabilities

 

2,742,549

 

3,330,853

 

 

 

 

 

 

 

LONG-TERM DEBT DUE AFTER ONE YEAR

 

992,460

 

991,685

 

NONCURRENT LIABILITIES

 

603,762

 

648,061

 

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 — 145,384,573 and 148,633,640 shares in 2015 and 2014, respectively

 

1,454

 

1,486

 

Additional paid-in capital

 

 

 

Accumulated other comprehensive loss

 

(515,730

)

(484,212

)

Retained earnings

 

3,630,881

 

3,593,597

 

Total shareholders’ equity

 

3,116,605

 

3,110,871

 

 

 

 

 

 

 

Noncontrolling interests

 

104,997

 

112,959

 

 

 

 

 

 

 

Total equity

 

3,221,602

 

3,223,830

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

7,560,373

 

$

8,194,429

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

UNAUDITED

 

 

 

Six Months Ended 

 

 

 

June 30,

 

(in thousands)

 

2015

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net earnings

 

$

326,348

 

$

303,290

 

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

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

 

85,183

 

Depreciation of fixed assets

 

94,695

 

94,863

 

Amortization of intangibles

 

445

 

446

 

Loss on sales of equity method investments

 

 

2,158

 

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

 

(7,377

)

1,027

 

Gain on sale of property, plant and equipment

 

(18,034

)

(12,146

)

Restricted stock and stock option amortization

 

27,774

 

23,761

 

Deferred compensation trust

 

35,754

 

(13,155

)

Deferred compensation obligation

 

3,169

 

16,446

 

Deferred taxes

 

146,941

 

(22,892

)

Excess tax benefit from stock-based plans

 

 

(3,857

)

Net retirement plan accrual (contributions)

 

6,968

 

(3,628

)

Changes in operating assets and liabilities

 

(111,957

)

(38,785

)

Cash outflows from discontinued operations

 

(306,490

)

(3,115

)

Other items

 

5,953

 

(3,867

)

Cash provided by operating activities

 

204,189

 

425,729

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of marketable securities

 

(182,561

)

(197,656

)

Proceeds from the sales and maturities of marketable securities

 

220,728

 

164,903

 

Capital expenditures

 

(133,487

)

(148,916

)

Proceeds from disposal of property, plant and equipment

 

54,890

 

47,105

 

Proceeds from sales of equity method investments

 

 

44,000

 

Investments in partnerships and joint ventures

 

(47,458

)

(17,999

)

Other items

 

911

 

1,959

 

Cash utilized by investing activities

 

(86,977

)

(106,604

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Repurchase of common stock

 

(214,253

)

(323,500

)

Dividends paid

 

(63,531

)

(59,681

)

Repayment of convertible debt and other borrowings

 

(28,425

)

(73

)

Distributions paid to noncontrolling interests

 

(41,766

)

(44,284

)

Capital contributions by noncontrolling interests

 

2,294

 

190

 

Taxes paid on vested restricted stock

 

(8,392

)

(11,141

)

Stock options exercised

 

1,162

 

15,378

 

Excess tax benefit from stock-based plans

 

 

3,857

 

Other items

 

(3,495

)

(1,870

)

Cash utilized by financing activities

 

(356,406

)

(421,124

)

Effect of exchange rate changes on cash

 

(30,171

)

1,226

 

Decrease in cash and cash equivalents

 

(269,365

)

(100,773

)

Cash and cash equivalents at beginning of period

 

1,993,125

 

2,283,582

 

Cash and cash equivalents at end of period

 

$

1,723,760

 

$

2,182,809

 

 

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, 2014 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 six months ended June 30, 2015 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 June 30, 2015 and its consolidated results of operations and cash flows for the interim periods presented. All significant intercompany transactions of consolidated subsidiaries are eliminated. Management has evaluated all material events occurring subsequent to the date of the financial statements up to the filing date of this Form 10-Q.

 

(2)                  Recent Accounting Pronouncements

 

New accounting pronouncements implemented by the company during the first six months of 2015 or requiring implementation in future periods are discussed below or elsewhere in the notes, where appropriate.

 

In the second quarter of 2015, the company adopted Accounting Standards Update (“ASU”) 2015-08, “Pushdown Accounting: Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 115,” which provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon acquisition. The adoption of ASU 2015-08 did not have an impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2015, the company adopted 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. The adoption of ASU 2014-11 did not have a material impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2015, the company adopted 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. The adoption of ASU 2014-08 did not have a material impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2015, the company adopted 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. The adoption of ASU 2014-05 did not have a material impact on the company’s financial position, results of operations or cash flows.

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. Management does not expect the adoption of ASU 2015-05 to have a material impact on the company’s financial position, result of operations or cash flows.

 

6



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU changes the presentation of debt issuance costs on the balance sheet by requiring entities to present such costs as a direct deduction from the related debt liability rather than as an asset. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015. Management does not expect the adoption of ASU 2015-03 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis.” This ASU amends the consolidation guidance for VIEs and general partners’ investments in limited partnerships and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. Management does not expect the adoption of ASU 2015-02 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In January 2015, the FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” Under this ASU, an entity will no longer be allowed to separately disclose extraordinary items, net of tax, in the income statement after income from continuing operations if an event or transaction is unusual in nature and occurs infrequently. ASU 2015-01 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. Upon adoption, the company may elect prospective or retrospective application. Management does not expect the adoption of ASU 2015-01 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In August 2014, the FASB issued 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. Management does not expect the adoption of ASU 2014-15 to  have a material impact on the company’s financial position, results of operations or cash flows.

 

In June 2014, the FASB issued ASU 2014-12, “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 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 currently effective for interim and annual reporting periods beginning after December 15, 2016 and can be applied either retrospectively to each prior period 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.

 

(3)                  Discontinued Operations

 

The company recorded a loss from discontinued operations of $85 million (net of taxes of $47 million) during the three months ended June 30, 2014 in connection with the reassessment of estimated loss contingencies related to the lead business of St. Joe Minerals Corporation (“St. Joe”) and The Doe Run Company (“Doe Run”) in Herculaneum, Missouri, which are discontinued operations. In 1994, the company sold its interests in St. Joe and Doe Run, along with all liabilities associated with its lead business, pursuant to a sale agreement in which the buyer agreed to indemnify the company for those liabilities.

 

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 June 30, 2015 and 2014 are as follows:

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

 

 

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

 

$

21,082

 

$

(8,197

)

$

12,885

 

$

21,359

 

$

(7,921

)

$

13,438

 

Ownership share of equity method investees’ other comprehensive income

 

1,838

 

(185

)

1,653

 

19,176

 

(6,833

)

12,343

 

Defined benefit pension and postretirement plan adjustments

 

4,283

 

(1,606

)

2,677

 

2,415

 

(906

)

1,509

 

Unrealized gain on derivative contracts

 

648

 

(152

)

496

 

1,426

 

(492

)

934

 

Unrealized gain (loss) on available-for-sale securities

 

(375

)

140

 

(235

)

369

 

(138

)

231

 

Total other comprehensive income

 

27,476

 

(10,000

)

17,476

 

44,745

 

(16,290

)

28,455

 

Less: Other comprehensive income (loss) attributable to noncontrolling interests

 

(611

)

 

(611

)

365

 

 

365

 

Other comprehensive income attributable to Fluor Corporation

 

$

28,087

 

$

(10,000

)

$

18,087

 

$

44,380

 

$

(16,290

)

$

28,090

 

 

The tax effects of the components of OCI for the six months ended June 30, 2015 and 2014 are as follows:

 

 

 

Six Months Ended

 

Six Months Ended

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

 

 

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

 

$

(57,189

)

$

21,350

 

$

(35,839

)

$

3,559

 

$

(2,850

)

$

709

 

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

 

(4,164

)

1,336

 

(2,828

)

18,232

 

(7,887

)

10,345

 

Defined benefit pension and postretirement plan adjustments

 

8,584

 

(3,219

)

5,365

 

5,051

 

(1,894

)

3,157

 

Unrealized gain on derivative contracts

 

2,062

 

(672

)

1,390

 

781

 

(276

)

505

 

Unrealized gain on available-for-sale securities

 

599

 

(225

)

374

 

340

 

(127

)

213

 

Total other comprehensive income (loss)

 

(50,108

)

18,570

 

(31,538

)

27,963

 

(13,034

)

14,929

 

Less: Other comprehensive loss attributable to noncontrolling interests

 

(20

)

 

(20

)

(3,974

)

 

(3,974

)

Other comprehensive income (loss) attributable to Fluor Corporation

 

$

(50,088

)

$

18,570

 

$

(31,518

)

$

31,937

 

$

(13,034

)

$

18,903

 

 

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 June 30, 2015 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 March 31, 2015

 

$

(168,660

)

$

(34,917

)

$

(322,457

)

$

(8,131

)

$

348

 

$

(533,817

)

Other comprehensive income (loss) before reclassifications

 

13,660

 

1,653

 

 

(120

)

(234

)

14,959

 

Amounts reclassified from AOCI

 

 

 

2,677

 

452

 

(1

)

3,128

 

Net other comprehensive income (loss)

 

13,660

 

1,653

 

2,677

 

332

 

(235

)

18,087

 

Balance as of June 30, 2015

 

$

(155,000

)

$

(33,264

)

$

(319,780

)

$

(7,799

)

$

113

 

$

(515,730

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2015

 

$

1,848

 

$

 

$

 

$

(614

)

$

 

$

1,234

 

Other comprehensive income (loss) before reclassifications

 

(775

)

 

 

105

 

 

(670

)

Amounts reclassified from AOCI

 

 

 

 

59

 

 

59

 

Net other comprehensive income (loss)

 

(775

)

 

 

164

 

 

(611

)

Balance as of June 30, 2015

 

$

1,073

 

$

 

$

 

$

(450

)

$

 

$

623

 

 

The changes in AOCI balances by component (after-tax) for the six months ended June 30, 2015 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, 2014

 

$

(119,416

)

$

(30,436

)

$

(325,145

)

$

(8,954

)

$

(261

)

$

(484,212

)

Other comprehensive income (loss) before reclassifications

 

(35,584

)

(2,828

)

 

476

 

444

 

(37,492

)

Amounts reclassified from AOCI

 

 

 

5,365

 

679

 

(70

)

5,974

 

Net other comprehensive income (loss)

 

(35,584

)

(2,828

)

5,365

 

1,155

 

374

 

(31,518

)

Balance as of June 30, 2015

 

$

(155,000

)

$

(33,264

)

$

(319,780

)

$

(7,799

)

$

113

 

$

(515,730

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

 

$

1,328

 

$

 

$

 

$

(685

)

$

 

$

643

 

Other comprehensive income (loss) before reclassifications

 

(255

)

 

 

102

 

 

(153

)

Amounts reclassified from AOCI

 

 

 

 

133

 

 

133

 

Net other comprehensive income (loss)

 

(255

)

 

 

235

 

 

(20

)

Balance as of June 30, 2015

 

$

1,073

 

$

 

$

 

$

(450

)

$

 

$

623

 

 

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 June 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 March 31, 2014

 

$

(8,615

)

$

(34,272

)

$

(256,649

)

$

(8,010

)

$

158

 

$

(307,388

)

Other comprehensive income (loss) before reclassifications

 

13,202

 

12,343

 

(548

)

817

 

228

 

26,042

 

Amounts reclassified from AOCI

 

 

 

2,057

 

(12

)

3

 

2,048

 

Net other comprehensive income

 

13,202

 

12,343

 

1,509

 

805

 

231

 

28,090

 

Balance as of June 30, 2014

 

$

4,587

 

$

(21,929

)

$

(255,140

)

$

(7,205

)

$

389

 

$

(279,298

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2014

 

$

3,607

 

$

 

$

 

$

6

 

$

 

$

3,613

 

Other comprehensive income before reclassifications

 

236

 

 

 

123

 

 

359

 

Amounts reclassified from AOCI

 

 

 

 

6

 

 

6

 

Net other comprehensive income

 

236

 

 

 

129

 

 

365

 

Balance as of June 30, 2014

 

$

3,843

 

$

 

$

 

$

135

 

$

 

$

3,978

 

 

The changes in AOCI balances by component (after-tax) for the six months ended June 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

 

4,751

 

10,345

 

(951

)

273

 

202

 

14,620

 

Amounts reclassified from AOCI

 

 

 

4,108

 

164

 

11

 

4,283

 

Net other comprehensive income

 

4,751

 

10,345

 

3,157

 

437

 

213

 

18,903

 

Balance as of June 30, 2014

 

$

4,587

 

$

(21,929

)

$

(255,140

)

$

(7,205

)

$

389

 

$

(279,298

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

 

$

7,885

 

$

 

$

 

$

67

 

$

 

$

7,952

 

Other comprehensive income (loss) before reclassifications

 

(4,042

)

 

 

59

 

 

(3,983

)

Amounts reclassified from AOCI

 

 

 

 

9

 

 

9

 

Net other comprehensive income (loss)

 

(4,042

)

 

 

68

 

 

(3,974

)

Balance as of June 30, 2014

 

$

3,843

 

$

 

$

 

$

135

 

$

 

$

3,978

 

 

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 and impact on the Condensed Consolidated Statement of Earnings are as follows:

 

 

 

Location in

 

Three Months Ended

 

Six Months Ended

 

 

 

Condensed Consolidated

 

June 30,

 

June 30,

 

(in thousands)

 

Statement of Earnings

 

2015

 

2014

 

2015

 

2014

 

Component of AOCI:

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

 

Various accounts(1)

 

$

(4,283

)

$

(3,291

)

$

(8,584

)

$

(6,572

)

Income tax benefit

 

Income tax expense

 

1,606

 

1,234

 

3,219

 

2,464

 

Net of tax

 

 

 

$

(2,677

)

$

(2,057

)

$

(5,365

)

$

(4,108

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on derivative contracts:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts and foreign currency contracts

 

Total cost of revenue

 

$

(398

)

$

420

 

$

(460

)

$

549

 

Interest rate contracts

 

Interest expense

 

(420

)

(420

)

(839

)

(839

)

Income tax benefit (net)

 

Income tax expense

 

307

 

6

 

487

 

117

 

Net of tax

 

 

 

(511

)

6

 

(812

)

(173

)

Less: Noncontrolling interests

 

Net earnings attributable to noncontrolling interests

 

(59

)

(6

)

(133

)

(9

)

Net of tax and noncontrolling interests

 

 

 

$

(452

)

$

12

 

$

(679

)

$

(164

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

Corporate general and administrative expense

 

$

2

 

$

(4

)

$

112

 

$

(17

)

Income tax benefit (expense)

 

Income tax expense

 

(1

)

1

 

(42

)

6

 

Net of tax

 

 

 

$

1

 

$

(3

)

$

70

 

$

(11

)

 


(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 six months ended June 30, 2015 was 32.7 percent and 33.1 percent, respectively, compared to 31.6 percent and 30.2 percent for the corresponding periods of 2014. The slightly higher effective tax rate for the three months ended June 30, 2015 compared to the same period in the prior year was primarily due to lower earnings attributable to noncontrolling interests for which taxes are not the responsibility of the company, which was partially offset by a benefit for an IRS settlement in 2015. The higher effective tax rate for the six months ended June 30, 2015 was due to lower earnings attributable to noncontrolling interests, which was partially offset by the benefit for the IRS settlement in 2015 and the recognition of a deferred tax benefit attributable to foreign taxes previously paid on certain unremitted foreign earnings in 2014.

 

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 2009.

 

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 and $12 million for the six months ended June 30, 2015 and 2014, respectively. Income tax payments, net of refunds, were $115 million and $142 million during the six-month periods ended June 30, 2015 and 2014, 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 six months ended June 30, 2015 and 2014 are presented below:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands, except per share amounts)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

148,507

 

$

162,973

 

$

292,586

 

$

312,047

 

Loss from discontinued operations, net of taxes

 

 

(85,183

)

 

(85,183

)

Net earnings

 

$

148,507

 

$

77,790

 

$

292,586

 

$

226,864

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

146,261

 

158,465

 

146,996

 

159,339

 

 

 

 

 

 

 

 

 

 

 

Basic EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.02

 

$

1.03

 

$

1.99

 

$

1.96

 

Loss from discontinued operations, net of taxes

 

 

(0.54

)

 

(0.54

)

Net earnings

 

$

1.02

 

$

0.49

 

$

1.99

 

$

1.42

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

146,261

 

158,465

 

146,996

 

159,339

 

 

 

 

 

 

 

 

 

 

 

Diluted effect:

 

 

 

 

 

 

 

 

 

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

 

1,660

 

1,555

 

1,742

 

1,632

 

Conversion equivalent of dilutive convertible debt

 

 

434

 

180

 

436

 

Weighted average diluted shares outstanding

 

147,921

 

160,454

 

148,918

 

161,407

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.00

 

$

1.02

 

$

1.96

 

$

1.93

 

Loss from discontinued operations, net of taxes

 

 

(0.54

)

 

(0.52

)

Net earnings

 

$

1.00

 

$

0.48

 

$

1.96

 

$

1.41

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive securities not included above

 

3,499

 

680

 

3,330

 

560

 

 

During the three and six months ended June 30, 2015, the company repurchased and cancelled 1,782,679 and 3,722,676 shares, respectively, of its common stock under its stock repurchase program for $103 million and $214 million, respectively. During the three and six months ended June 30, 2014, the company repurchased and cancelled 1,750,885 and 4,212,685 shares, respectively, of its common stock under its stock repurchase program for $132 million and $324 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 June 30, 2015 and December 31, 2014:

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

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)

 

$

588

 

$

588

 

$

 

$

 

$

14,419

 

$

14,419

 

$

 

$

 

Marketable securities, current(2)

 

85,502

 

 

85,502

 

 

80,706

 

 

80,706

 

 

Deferred compensation trusts(3)

 

56,449

 

56,449

 

 

 

94,893

 

94,893

 

 

 

Marketable securities, noncurrent(4)

 

242,570

 

 

242,570

 

 

343,644

 

 

343,644

 

 

Derivative assets(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

262

 

 

262

 

 

561

 

 

561

 

 

Foreign currency contracts

 

10,822

 

 

10,822

 

 

180

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

1,565

 

$

 

$

1,565

 

$

 

$

2,290

 

$

 

$

2,290

 

$

 

Foreign currency contracts

 

11,921

 

 

11,921

 

 

4,392

 

 

4,392

 

 

 


(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 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 and corporate 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 and foreign currency contracts in the Condensed Consolidated Balance Sheet. Commodity 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 June 30, 2015: money market funds of $1 million, U.S. agency securities of $56 million, U.S. Treasury securities of $68 million, corporate debt securities of $202 million and other debt securities of $2 million. As of December 31, 2014, available-for-sale securities consisted of money market funds of $14 million, U.S. agency securities of $73 million, U.S. Treasury securities of $107 million and corporate debt securities of $245 million. The amortized cost of these available-for-sale securities is not materially different from the fair value. During the three and six months ended June 30, 2015, proceeds from sales and maturities of available-for-sale securities were $20 million and $203 million, respectively, compared to $53 million and $117 million for the corresponding periods of 2014.

 

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:

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

Fair Value

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(in thousands)

 

Hierarchy

 

Value

 

Value

 

Value

 

Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash(1)

 

Level 1

 

$

1,017,820

 

$

1,017,820

 

$

1,224,834

 

$

1,224,834

 

Cash equivalents(2)

 

Level 2

 

705,352

 

705,352

 

753,872

 

753,872

 

Marketable securities, current(3)

 

Level 2

 

80,580

 

80,580

 

24,425

 

24,425

 

Notes receivable, including noncurrent portion(4)

 

Level 3

 

16,943

 

16,943

 

19,284

 

19,284

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

3.375% Senior Notes(5)

 

Level 2

 

$

497,265

 

$

512,904

 

$

497,045

 

$

510,465

 

3.5% Senior Notes(5)

 

Level 2

 

494,909

 

499,111

 

494,640

 

498,914

 

1.5% Convertible Senior Notes(5)

 

Level 2

 

 

 

18,324

 

40,826

 

Other borrowings(6)

 

Level 2

 

286

 

286

 

10,418

 

10,418

 

 


(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, 3.5% Senior Notes and 1.5% Convertible Senior Notes were estimated based on quoted market prices for similar issues.

 

(6)     Other borrowings as of December 31, 2014 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.

 

14



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(9)                  Derivatives and Hedging

 

The company limits exposure to foreign currency fluctuations in most of its engineering and construction contracts through provisions that require client payments in currencies corresponding to the currencies in which cost is incurred. Certain financial exposure, which includes currency and commodity price risk associated with engineering and construction contracts, currency risk associated with monetary assets and liabilities denominated in nonfunctional currencies and risk associated with interest rate volatility, may subject the company to earnings volatility. In cases where financial exposure is identified, the company generally implements a hedging strategy utilizing 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 June 30, 2015, the company had total gross notional amounts of $852 million of foreign currency contracts and $8 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 December 2017. 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 six months ended June 30, 2015 and 2014.

 

The fair values of derivatives designated as hedging instruments under ASC 815 as of June 30, 2015 and December 31, 2014 were as follows:

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet

 

June 30,

 

December 31,

 

Balance Sheet

 

June 30,

 

December 31,

 

(in thousands)

 

Location

 

2015

 

2014

 

Location

 

2015

 

2014

 

Commodity contracts

 

Other current assets

 

$

175

 

$

365

 

Other accrued liabilities

 

$

883

 

$

1,362

 

Foreign currency contracts

 

Other current assets

 

6,214

 

128

 

Other accrued liabilities

 

6,955

 

3,721

 

Commodity contracts

 

Other assets

 

87

 

196

 

Noncurrent liabilities

 

682

 

928

 

Foreign currency contracts

 

Other assets

 

4,608

 

52

 

Noncurrent liabilities

 

4,966

 

671

 

Total

 

 

 

$

11,084

 

$

741

 

 

 

$

13,486

 

$

6,682