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 |
|
33-0927079 |
|
|
|
6700 Las Colinas Boulevard |
|
75039 |
469-398-7000
(Registrants 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 |
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Accelerated filer o |
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|
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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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 registrants common stock, $0.01 par value, were outstanding.
FLUOR CORPORATION
June 30, 2015
TABLE OF CONTENTS
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 |
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33,762 |
|
76,426 |
| ||||
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|
|
|
|
|
|
|
|
| ||||
NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION |
|
$ |
148,507 |
|
$ |
77,790 |
|
$ |
292,586 |
|
$ |
226,864 |
|
|
|
|
|
|
|
|
|
|
| ||||
AMOUNTS ATTRIBUTABLE TO FLUOR CORPORATION |
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|
|
|
|
|
|
|
| ||||
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.
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.
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.
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.
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 companys 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 companys 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 companys 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 entitys 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 companys 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 companys financial position, results of operations or cash flows.
In April 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-05, Customers 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 companys financial position, result of operations or cash flows.
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 companys 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 companys 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 companys financial position, results of operations or cash flows.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. This ASU requires management to perform interim and annual assessments of an entitys 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 entitys 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 companys 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 companys 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 companys 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.
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 |
|
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 |
|
Ownership Share |
|
Defined Benefit |
|
Unrealized |
|
Unrealized |
|
Accumulated |
| ||||||
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 |
|
Ownership Share |
|
Defined Benefit |
|
Unrealized |
|
Unrealized |
|
Accumulated |
| ||||||
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 |
|
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 |
|
Ownership Share |
|
Defined Benefit |
|
Unrealized |
|
Unrealized Gain |
|
Accumulated |
| ||||||
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 |
|
Ownership Share |
|
Defined Benefit |
|
Unrealized |
|
Unrealized Gain |
|
Accumulated |
| ||||||
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 |
|
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.
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.
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 companys 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.
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
All of the companys 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 companys 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.
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 instruments 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 instruments 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 |