Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

 

 

For the quarterly period ended September 30, 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 October 23, 2015, 141,612,486 shares of the registrant’s common stock, $0.01 par value, were outstanding.

 

 

 



Table of Contents

 

FLUOR CORPORATION

 

FORM 10-Q

 

September 30, 2015

 

TABLE OF CONTENTS

 

 

 

PAGE

 

 

 

Part I:

Financial Information

 

 

 

 

 

Item 1:

Financial Statements

 

 

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 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

 

25

 

 

 

 

 

 

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

 

35

 

 

 

 

 

 

Item 4:

Controls and Procedures

 

36

 

 

 

 

 

 

Changes in Consolidated Backlog (Unaudited)

 

37

 

 

 

Part II:

Other Information

 

 

 

 

 

Item 1:

Legal Proceedings

38

 

 

 

 

 

Item 1A:

Risk Factors

38

 

 

 

 

 

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

 

 

Item 6:

Exhibits

39

 

 

 

Signatures

42

 

1



Table of Contents

 

PART I:  FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

 

UNAUDITED

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

$

4,384,612

 

$

5,440,081

 

$

13,743,367

 

$

16,076,381

 

 

 

 

 

 

 

 

 

 

 

TOTAL COST OF REVENUE

 

4,133,819

 

5,059,960

 

12,901,133

 

15,038,616

 

 

 

 

 

 

 

 

 

 

 

OTHER (INCOME) AND EXPENSES

 

 

 

 

 

 

 

 

 

Gain related to a partial sale of a subsidiary

 

(68,162

)

 

(68,162

)

 

Corporate general and administrative expense

 

35,165

 

35,131

 

124,060

 

129,615

 

Interest expense

 

10,170

 

5,979

 

33,739

 

20,321

 

Interest income

 

(4,590

)

(4,373

)

(13,340

)

(12,312

)

Total cost and expenses

 

4,106,402

 

5,096,697

 

12,977,430

 

15,176,240

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS BEFORE TAXES

 

278,210

 

343,384

 

765,937

 

900,141

 

INCOME TAX EXPENSE

 

91,417

 

114,635

 

252,796

 

282,919

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS

 

186,793

 

228,749

 

513,141

 

617,222

 

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES

 

(5,057

)

(113,859

)

(5,057

)

(199,042

)

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

181,736

 

114,890

 

508,084

 

418,180

 

 

 

 

 

 

 

 

 

 

 

LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

10,453

 

45,388

 

44,215

 

121,814

 

NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION

 

$

171,283

 

$

69,502

 

$

463,869

 

$

296,366

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

176,340

 

$

183,361

 

$

468,926

 

$

495,408

 

Loss from discontinued operations, net of taxes

 

(5,057

)

(113,859

)

(5,057

)

(199,042

)

Net earnings

 

$

171,283

 

$

69,502

 

$

463,869

 

$

296,366

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.22

 

$

1.17

 

$

3.21

 

$

3.12

 

Loss from discontinued operations, net of taxes

 

(0.03

)

(0.73

)

(0.03

)

(1.25

)

Net earnings

 

$

1.19

 

$

0.44

 

$

3.18

 

$

1.87

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.21

 

$

1.15

 

$

3.17

 

$

3.08

 

Loss from discontinued operations, net of taxes

 

(0.04

)

(0.71

)

(0.04

)

(1.24

)

Net earnings

 

$

1.17

 

$

0.44

 

$

3.13

 

$

1.84

 

 

 

 

 

 

 

 

 

 

 

SHARES USED TO CALCULATE EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

BASIC

 

144,293

 

157,332

 

146,095

 

158,670

 

DILUTED

 

146,085

 

159,456

 

147,974

 

160,756

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS DECLARED PER SHARE

 

$

0.21

 

$

0.21

 

$

0.63

 

$

0.63

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

UNAUDITED

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

181,736

 

$

114,890

 

$

508,084

 

$

418,180

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(45,053

)

(66,381

)

(80,892

)

(65,672

)

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

 

(5,363

)

(1,127

)

(8,191

)

9,218

 

Defined benefit pension and postretirement plan adjustments

 

(9,347

)

11,339

 

(3,982

)

14,496

 

Unrealized loss on derivative contracts

 

(4,093

)

(2,109

)

(2,703

)

(1,604

)

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

 

358

 

(345

)

732

 

(132

)

TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX

 

(63,498

)

(58,623

)

(95,036

)

(43,694

)

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

118,238

 

56,267

 

413,048

 

374,486

 

 

 

 

 

 

 

 

 

 

 

LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

10,361

 

44,555

 

44,103

 

117,007

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO FLUOR CORPORATION

 

$

107,877

 

$

11,712

 

$

368,945

 

$

257,479

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

 

UNAUDITED

 

 

 

September 30,

 

December 31,

 

(in thousands, except share and per share amounts)

 

2015

 

2014

 

 

 

 

 

 

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents ($287,277 and $352,996 related to variable interest entities (“VIEs”))

 

$

1,781,399

 

$

1,993,125

 

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

 

245,752

 

105,131

 

Accounts and notes receivable, net ($202,887 and $193,565 related to VIEs)

 

1,194,505

 

1,471,705

 

Contract work in progress ($137,075 and $166,334 related to VIEs)

 

1,512,398

 

1,587,275

 

Deferred taxes

 

189,914

 

340,223

 

Other current assets ($23,072 and $38,848 related to VIEs)

 

305,790

 

260,588

 

Total current assets

 

5,229,758

 

5,758,047

 

 

 

 

 

 

 

Marketable securities, noncurrent

 

239,205

 

343,644

 

Property, plant and equipment (“PP&E”) ((net of accumulated depreciation of $1,071,693 and $1,081,198) (net PP&E of $78,401 and $77,579 related to VIEs))

 

929,888

 

980,263

 

Investments and goodwill

 

416,160

 

302,757

 

Deferred taxes

 

220,855

 

201,004

 

Deferred compensation trusts

 

349,103

 

405,022

 

Other assets ($24,428 and $24,003 related to VIEs)

 

214,392

 

203,692

 

TOTAL ASSETS

 

$

7,599,361

 

$

8,194,429

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Trade accounts payable ($172,487 and $213,837 related to VIEs)

 

$

1,247,249

 

$

1,422,084

 

Convertible senior notes and other borrowings

 

 

28,742

 

Advance billings on contracts ($164,393 and $151,321 related to VIEs)

 

652,378

 

569,418

 

Accrued salaries, wages and benefits ($53,651 and $51,749 related to VIEs)

 

700,659

 

725,586

 

Other accrued liabilities ($18,555 and $21,709 related to VIEs)

 

261,515

 

585,023

 

Total current liabilities

 

2,861,801

 

3,330,853

 

 

 

 

 

 

 

LONG-TERM DEBT DUE AFTER ONE YEAR

 

992,689

 

991,685

 

NONCURRENT LIABILITIES

 

568,929

 

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 — 142,219,163 and 148,633,640 shares in 2015 and 2014, respectively

 

1,422

 

1,486

 

Additional paid-in capital

 

 

 

Accumulated other comprehensive loss

 

(579,136

)

(484,212

)

Retained earnings

 

3,640,054

 

3,593,597

 

Total shareholders’ equity

 

3,062,340

 

3,110,871

 

 

 

 

 

 

 

Noncontrolling interests

 

113,602

 

112,959

 

 

 

 

 

 

 

Total equity

 

3,175,942

 

3,223,830

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

7,599,361

 

$

8,194,429

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

UNAUDITED

 

 

 

Nine Months Ended

 

 

 

September 30,

 

(in thousands)

 

2015

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net earnings

 

$

508,084

 

$

418,180

 

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

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

5,057

 

199,042

 

Depreciation of fixed assets

 

140,961

 

143,825

 

Amortization of intangibles

 

668

 

669

 

Loss on sales of equity method investments

 

 

2,158

 

Earnings from equity method investments, net of distributions

 

(5,825

)

(4,093

)

Gain related to a partial sale of a subsidiary

 

(68,162

)

 

Gain on sale of property, plant and equipment

 

(22,329

)

(23,270

)

Restricted stock and stock option amortization

 

41,424

 

36,256

 

Deferred compensation trust

 

55,919

 

(8,315

)

Deferred compensation obligation

 

(20,778

)

8,266

 

Deferred taxes

 

78,302

 

58,074

 

Excess tax benefit from stock-based plans

 

 

(3,965

)

Net retirement plan accrual (contributions)

 

(11,056

)

(35,910

)

Changes in operating assets and liabilities

 

178,281

 

(374,107

)

Cash outflows from discontinued operations

 

(312,451

)

(4,680

)

Other items

 

2,328

 

(4,781

)

Cash provided by operating activities

 

570,423

 

407,349

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of marketable securities

 

(362,790

)

(275,907

)

Proceeds from the sales and maturities of marketable securities

 

324,057

 

233,506

 

Capital expenditures

 

(181,078

)

(222,561

)

Proceeds from disposal of property, plant and equipment

 

70,403

 

72,468

 

Proceeds from a partial sale of a subsidiary

 

45,566

 

 

Proceeds from sales of equity method investments

 

 

44,000

 

Investments in partnerships and joint ventures

 

(80,886

)

(34,185

)

Other items

 

14,479

 

1,959

 

Cash utilized by investing activities

 

(170,249

)

(180,720

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Repurchase of common stock

 

(359,560

)

(410,637

)

Dividends paid

 

(94,553

)

(92,975

)

Repayment of convertible debt and other borrowings

 

(28,425

)

(74

)

Distributions paid to noncontrolling interests

 

(44,577

)

(75,510

)

Capital contributions by noncontrolling interests

 

3,628

 

2,210

 

Taxes paid on vested restricted stock

 

(8,402

)

(11,426

)

Stock options exercised

 

1,162

 

23,961

 

Excess tax benefit from stock-based plans

 

 

3,965

 

Other items

 

(3,482

)

(1,788

)

Cash utilized by financing activities

 

(534,209

)

(562,274

)

Effect of exchange rate changes on cash

 

(77,691

)

(47,740

)

Decrease in cash and cash equivalents

 

(211,726

)

(383,385

)

Cash and cash equivalents at beginning of period

 

1,993,125

 

2,283,582

 

Cash and cash equivalents at end of period

 

$

1,781,399

 

$

1,900,197

 

 

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 nine months ended September 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 September 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 nine months ended September 30, 2015 or requiring implementation in future periods are discussed below or in the related 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 September 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” This ASU requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for interim and annual reporting periods beginning after December 15, 2015, and should be applied prospectively to adjustments to provisional amounts that occur after the effective date. Management does not

 

6



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

expect the adoption of ASU 2015-16 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update),” which clarifies the presentation and measurement of debt issuance costs incurred in connection with line of credit arrangements. The SEC staff has indicated that they would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement.

 

In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers — Deferral of the Effective Date” which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09, “Revenue from Contracts with Customers,” 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. The company will now be required to adopt ASU 2014-09 for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of interim and annual reporting periods beginning after December 15, 2016. ASU 2014-09 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.

 

In April 2015, the 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, results of operations or cash flows.

 

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

 

7



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

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.

 

(3)                  Discontinued Operations

 

During the three and nine months ended September 30, 2014, the company recorded an after-tax loss from discontinued operations of $114 million and $199 million, respectively, in connection with the reassessment of estimated loss contingencies related to the lead business of St. Joe Minerals Corporation and The Doe Run Company in Herculaneum, Missouri, which the company sold in 1994. The tax effects associated with these losses were $64 million and $111 million for the three and nine months ended September 30, 2014, respectively. During both the three and nine months ended September 30, 2015, the company recorded an after-tax loss from discontinued operations of $5 million resulting from the settlement of lead exposure cases related to the divested lead business and the payment of legal fees incurred in connection with a pending indemnification action against the buyer of the lead business for these settlements and others. The tax effects associated with these losses were $3 million for both the three and nine months ended September 30, 2015.

 

(4)                  Other Comprehensive Income (Loss)

 

The tax effects of the components of other comprehensive income (loss) (“OCI”) for the three months ended September 30, 2015 and 2014 are as follows:

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

September 30, 2015

 

September 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

 

$

(72,085

)

$

27,032

 

$

(45,053

)

$

(105,841

)

$

39,460

 

$

(66,381

)

Ownership share of equity method investees’ Other comprehensive loss

 

(8,216

)

2,853

 

(5,363

)

(1,724

)

597

 

(1,127

)

Defined benefit pension and postretirement plan adjustments

 

(14,955

)

5,608

 

(9,347

)

18,142

 

(6,803

)

11,339

 

Unrealized loss on derivative contracts

 

(6,410

)

2,317

 

(4,093

)

(3,244

)

1,135

 

(2,109

)

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

 

572

 

(214

)

358

 

(552

)

207

 

(345

)

Total other comprehensive loss

 

(101,094

)

37,596

 

(63,498

)

(93,219

)

34,596

 

(58,623

)

Less: Other comprehensive loss attributable to noncontrolling interests

 

(92

)

 

(92

)

(833

)

 

(833

)

Other comprehensive loss attributable to Fluor Corporation

 

$

(101,002

)

$

37,596

 

$

(63,406

)

$

(92,386

)

$

34,596

 

$

(57,790

)

 

8



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

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

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2015

 

September 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

 

$

(129,274

)

$

48,382

 

$

(80,892

)

$

(102,282

)

$

36,610

 

$

(65,672

)

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

 

(12,380

)

4,189

 

(8,191

)

16,508

 

(7,290

)

9,218

 

Defined benefit pension and postretirement plan adjustments

 

(6,371

)

2,389

 

(3,982

)

23,193

 

(8,697

)

14,496

 

Unrealized loss on derivative contracts

 

(4,348

)

1,645

 

(2,703

)

(2,463

)

859

 

(1,604

)

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

 

1,171

 

(439

)

732

 

(212

)

80

 

(132

)

Total other comprehensive loss

 

(151,202

)

56,166

 

(95,036

)

(65,256

)

21,562

 

(43,694

)

Less: Other comprehensive loss attributable to noncontrolling interests

 

(112

)

 

(112

)

(4,807

)

 

(4,807

)

Other comprehensive loss attributable to Fluor Corporation

 

$

(151,090

)

$

56,166

 

$

(94,924

)

$

(60,449

)

$

21,562

 

$

(38,887

)

 

The changes in accumulated other comprehensive income (“AOCI”) balances by component (after-tax) for the three months ended September 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 June 30, 2015

 

$

(155,000

)

$

(33,264

)

$

(319,780

)

$

(7,799

)

$

113

 

$

(515,730

)

Other comprehensive income (loss) before reclassifications

 

(51,260

)

(5,363

)

(17,919

)

(4,920

)

329

 

(79,133

)

Amounts reclassified from AOCI

 

6,208

 

 

8,572

 

918

 

29

 

15,727

 

Net other comprehensive income (loss)

 

(45,052

)

(5,363

)

(9,347

)

(4,002

)

358

 

(63,406

)

Balance as of September 30, 2015

 

$

(200,052

)

$

(38,627

)

$

(329,127

)

$

(11,801

)

$

471

 

$

(579,136

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2015

 

$

1,073

 

$

 

$

 

$

(450

)

$

 

$

623

 

Other comprehensive loss before reclassifications

 

(1

)

 

 

(156

)

 

(157

)

Amounts reclassified from AOCI

 

 

 

 

65

 

 

65

 

Net other comprehensive loss

 

(1

)

 

 

(91

)

 

(92

)

Balance as of September 30, 2015

 

$

1,072

 

$

 

$

 

$

(541

)

$

 

$

531

 

 

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 nine months ended September 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

 

(86,844

)

(8,191

)

(17,919

)

(4,444

)

773

 

(116,625

)

Amounts reclassified from AOCI

 

6,208

 

 

13,937

 

1,597

 

(41

)

21,701

 

Net other comprehensive income (loss)

 

(80,636

)

(8,191

)

(3,982

)

(2,847

)

732

 

(94,924

)

Balance as of September 30, 2015

 

$

(200,052

)

$

(38,627

)

$

(329,127

)

$

(11,801

)

$

471

 

$

(579,136

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

 

$

1,328

 

$

 

$

 

$

(685

)

$

 

$

643

 

Other comprehensive loss before reclassifications

 

(256

)

 

 

(54

)

 

(310

)

Amounts reclassified from AOCI

 

 

 

 

198

 

 

198

 

Net other comprehensive income (loss)

 

(256

)

 

 

144

 

 

(112

)

Balance as of September 30, 2015

 

$

1,072

 

$

 

$

 

$

(541

)

$

 

$

531

 

 

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

 

(in thousands)

 

Foreign
Currency
Translation

 

Ownership Share
of Equity Method
Investees’ Other
Comprehensive
Income (Loss)

 

Defined Benefit
Pension and
Postretirement
Plans

 

Unrealized
Gain (Loss)
on
Derivative
Contracts

 

Unrealized Gain
(Loss) on
Available-for-
Sale Securities

 

Accumulated
Other
Comprehensive
Income (Loss),
Net

 

Attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2014

 

$

4,587

 

$

(21,929

)

$

(255,140

)

$

(7,205

)

$

389

 

$

(279,298

)

Other comprehensive income (loss) before reclassifications

 

(65,767

)

(1,127

)

9,315

 

(1,963

)

(325

)

(59,867

)

Amounts reclassified from AOCI

 

 

 

2,024

 

73

 

(20

)

2,077

 

Net other comprehensive income (loss)

 

(65,767

)

(1,127

)

11,339

 

(1,890

)

(345

)

(57,790

)

Balance as of September 30, 2014

 

$

(61,180

)

$

(23,056

)

$

(243,801

)

$

(9,095

)

$

44

 

$

(337,088

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2014

 

$

3,843

 

$

 

$

 

$

135

 

$

 

$

3,978

 

Other comprehensive loss before reclassifications

 

(614

)

 

 

(225

)

 

(839

)

Amounts reclassified from AOCI

 

 

 

 

6

 

 

6

 

Net other comprehensive loss

 

(614

)

 

 

(219

)

 

(833

)

Balance as of September 30, 2014

 

$

3,229

 

$

 

$

 

$

(84

)

$

 

$

3,145

 

 

10



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

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

 

(in thousands)

 

Foreign
Currency
Translation

 

Ownership Share
of Equity Method
Investees’ Other
Comprehensive
Income (Loss)

 

Defined Benefit
Pension and
Postretirement
Plans

 

Unrealized
Gain (Loss)
on
Derivative
Contracts

 

Unrealized Gain
(Loss) on
Available-for-
Sale Securities

 

Accumulated
Other
Comprehensive
Income (Loss),
Net

 

Attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

 

$

(164

)

$

(32,274

)

$

(258,297

)

$

(7,642

)

$

176

 

$

(298,201

)

Other comprehensive income (loss) before reclassifications

 

(61,016

)

9,218

 

8,364

 

(1,690

)

(123

)

(45,247

)

Amounts reclassified from AOCI

 

 

 

6,132

 

237

 

(9

)

6,360

 

Net other comprehensive income (loss)

 

(61,016

)

9,218

 

14,496

 

(1,453

)

(132

)

(38,887

)

Balance as of September 30, 2014

 

$

(61,180

)

$

(23,056

)

$

(243,801

)

$

(9,095

)

$

44

 

$

(337,088

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

 

$

7,885

 

$

 

$

 

$

67

 

$

 

$

7,952

 

Other comprehensive loss before reclassifications

 

(4,656

)

 

 

(166

)

 

(4,822

)

Amounts reclassified from AOCI

 

 

 

 

15

 

 

15

 

Net other comprehensive loss

 

(4,656

)

 

 

(151

)

 

(4,807

)

Balance as of September 30, 2014

 

$

3,229

 

$

 

$

 

$

(84

)

$

 

$

3,145

 

 

11



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

 

Nine Months Ended

 

 

 

Condensed Consolidated

 

September 30,

 

September 30,

 

(in thousands)

 

Statement of Earnings

 

2015

 

2014

 

2015

 

2014

 

Component of AOCI:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

Gain related to a partial sale of a subsidiary

 

$

(9,932

)

$

 

$

(9,932

)

$

 

Income tax benefit

 

Income tax expense

 

3,724

 

 

3,724

 

 

Net of tax

 

 

 

$

(6,208

)

$

 

$

(6,208

)

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

 

Various accounts(1)

 

$

(13,715

)

$

(3,239

)

$

(22,299

)

$

(9,811

)

Income tax benefit

 

Income tax expense

 

5,143

 

1,215

 

8,362

 

3,679

 

Net of tax

 

 

 

$

(8,572

)

$

(2,024

)

$

(13,937

)

$

(6,132

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on derivative contracts:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts and foreign currency contracts

 

Total cost of revenue

 

$

(1,153

)

$

293

 

$

(1,613

)

$

842

 

Interest rate contracts

 

Interest expense

 

(419

)

(419

)

(1,258

)

(1,258

)

Income tax benefit (net)

 

Income tax expense

 

589

 

47

 

1,076

 

164

 

Net of tax

 

 

 

(983

)

(79

)

(1,795

)

(252

)

Less: Noncontrolling interests

 

Net earnings attributable to noncontrolling interests

 

(65

)

(6

)

(198

)

(15

)

Net of tax and noncontrolling interests

 

 

 

$

(918

)

$

(73

)

$

(1,597

)

$

(237

)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Corporate general and administrative expense

 

$

(46

)

$

31

 

$

66

 

$

14

 

Income tax benefit (expense)

 

Income tax expense

 

17

 

(11

)

(25

)

(5

)

Net of tax

 

 

 

$

(29

)

$

20

 

$

41

 

$

9

 

 


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

 

(5)                Income Taxes

 

The effective tax rate on earnings from continuing operations for the three and nine months ended September 30, 2015 was 32.9 percent and 33.0 percent, respectively, compared to 33.4 percent and 31.4 percent for the corresponding periods of 2014. The effective tax rate for all periods benefits from earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company. Additionally, the effective tax rate for the three months ended September 30, 2014 was unfavorably impacted by foreign losses for which the company will not receive a benefit. The effective tax rate for the nine months ended September 30, 2015 also benefited from an IRS settlement in 2015. The company’s effective tax rate on the loss from discontinued operations for the three and nine months ended September 30, 2015 was 35.5 percent.

 

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 2012.

 

12



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 $30 million and $21 million for the nine months ended September 30, 2015 and 2014, respectively. Income tax payments, net of refunds, were $148 million and $240 million during the nine-month periods ended September 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 nine months ended September 30, 2015 and 2014 are presented below:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

176,340

 

$

183,361

 

$

468,926

 

$

495,408

 

Loss from discontinued operations, net of taxes

 

(5,057

)

(113,859

)

(5,057

)

(199,042

)

Net earnings

 

$

171,283

 

$

69,502

 

$

463,869

 

$

296,366

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

144,293

 

157,332

 

146,095

 

158,670

 

 

 

 

 

 

 

 

 

 

 

Basic EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.22

 

$

1.17

 

$

3.21

 

$

3.12

 

Loss from discontinued operations, net of taxes

 

(0.03

)

(0.73

)

(0.03

)

(1.25

)

Net earnings

 

$

1.19

 

$

0.44

 

$

3.18

 

$

1.87

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

144,293

 

157,332

 

146,095

 

158,670

 

 

 

 

 

 

 

 

 

 

 

Diluted effect:

 

 

 

 

 

 

 

 

 

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

 

1,792

 

1,726

 

1,759

 

1,663

 

Conversion equivalent of dilutive convertible debt

 

 

398

 

120

 

423

 

Weighted average diluted shares outstanding

 

146,085

 

159,456

 

147,974

 

160,756

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.21

 

$

1.15

 

$

3.17

 

$

3.08

 

Loss from discontinued operations, net of taxes

 

(0.04

)

(0.71

)

(0.04

)

(1.24

)

Net earnings

 

$

1.17

 

$

0.44

 

$

3.13

 

$

1.84

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive securities not included above

 

3,500

 

667

 

3,387

 

596

 

 

During the three and nine months ended September 30, 2015, the company repurchased and cancelled 3,165,855 and 6,888,531 shares, respectively, of its common stock under its stock repurchase program for $145 million and $360 million, respectively. During the three and nine months ended September 30, 2014, the company repurchased and cancelled 1,218,503 and 5,431,188 shares, respectively, of its common stock under its stock repurchase program for $87 million and $411 million, respectively.

 

13



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(8)                  Fair Value Measurements

 

The fair value hierarchy established by ASC 820, “Fair Value Measurement,” prioritizes the use of inputs used in valuation techniques into the following three levels:

 

· Level 1

quoted prices in active markets for identical assets and liabilities

· Level 2

inputs other than quoted prices in active markets for identical assets and liabilities that are observable, either directly or indirectly

· Level 3

unobservable inputs

 

The company measures and reports assets and liabilities at fair value utilizing pricing information received from third parties. The company performs procedures to verify the reasonableness of pricing information received for significant assets and liabilities classified as Level 2.

 

The following table presents, for each of the fair value hierarchy levels required under ASC 820-10, the company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:

 

 

 

September 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)

 

$

7,384

 

$

7,384

 

$

 

$

 

$

14,419

 

$

14,419

 

$

 

$

 

Marketable securities, current(2)

 

81,731

 

 

81,731

 

 

80,706

 

 

80,706

 

 

Deferred compensation trusts(3)

 

59,898

 

59,898

 

 

 

94,893

 

94,893

 

 

 

Marketable securities, noncurrent(4)

 

239,205

 

 

239,205

 

 

343,644

 

 

343,644

 

 

Derivative assets(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

335

 

 

335

 

 

561

 

 

561

 

 

Foreign currency contracts

 

7,258

 

 

7,258

 

 

180

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

2,149

 

$

 

$

2,149

 

$

 

$

2,290

 

$

 

$

2,290

 

$

 

Foreign currency contracts

 

16,735

 

 

16,735

 

 

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 and corporate 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.

 

14



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(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.

 

All of the company’s financial instruments carried at fair value are included in the table above. All of the above financial instruments are available-for-sale securities except for those held in the deferred compensation trusts (which are trading securities) and derivative assets and liabilities. The company has determined that there was no other-than-temporary impairment of available-for-sale securities with unrealized losses, and the company expects to recover the entire cost basis of the securities. The available-for-sale securities are made up of the following security types as of September 30, 2015: money market funds of $7 million, U.S. agency securities of $32 million, U.S. Treasury securities of $96 million and corporate debt securities of $193 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 nine months ended September 30, 2015, proceeds from sales and maturities of available-for-sale securities were $94 million and $296 million, respectively, compared to $40 million and $157 million for the corresponding periods of 2014.

 

In addition to assets and liabilities that are measured at fair value on a recurring basis, the company is required to measure certain assets and liabilities at fair value on a nonrecurring basis. On September 30, 2015, the company sold 50% of its ownership in its principal Spanish operating subsidiary for a cash purchase price of approximately $46 million subject to certain purchase price adjustments. In connection with the deconsolidation of the former subsidiary, the company has accounted for its retained noncontrolling interest at its estimated fair value of $44 million as of September 30, 2015. The fair value was estimated using a combination of income-based and market-based valuation approaches utilizing unobservable Level 3 inputs, including significant management assumptions such as forecasted revenue and operating margins, weighted average cost of capital and EBITDA multiples. Observable inputs, such as the cash consideration received for the divested share of the entity, were also considered. (See Note 18 for a further discussion of the sale.)

 

The carrying values and estimated fair values of the company’s financial instruments that are not required to be measured at fair value in the Condensed Consolidated Balance Sheet are as follows:

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

Fair Value

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(in thousands)

 

Hierarchy

 

Value

 

Value

 

Value

 

Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash(1)

 

Level 1

 

$

1,035,602

 

$

1,035,602

 

$

1,224,834

 

$

1,224,834

 

Cash equivalents(2)

 

Level 2

 

738,413

 

738,413

 

753,872

 

753,872

 

Marketable securities, current(3)

 

Level 2

 

164,021

 

164,021

 

24,425

 

24,425

 

Notes receivable, including noncurrent portion(4)

 

Level 3

 

20,189

 

20,189

 

19,284

 

19,284

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

3.375% Senior Notes(5)

 

Level 2

 

$

497,375

 

$

516,475

 

$

497,045

 

$

510,465

 

3.5% Senior Notes(5)

 

Level 2

 

495,044

 

506,375

 

494,640

 

498,914

 

1.5% Convertible Senior Notes(5)

 

Level 2

 

 

 

18,324

 

40,826

 

Other borrowings(6)

 

Level 2

 

270

 

270

 

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.

 

15



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(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.

 

(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 September 30, 2015, the company had total gross notional amounts of $870 million of foreign currency contracts and $9 million of commodity contracts outstanding relating to engineering and construction contract obligations and monetary assets and liabilities denominated in nonfunctional currencies. Both the foreign currency and commodity contracts are of varying duration, none of which extend beyond December 2017. The impact to earnings due to hedge ineffectiveness was immaterial for the three and nine months ended September 30, 2015 and 2014.

 

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

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet

 

September 30,

 

December 31,

 

Balance Sheet

 

September 30,

 

December 31,

 

(in thousands)

 

Location

 

2015

 

2014