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, 2016

 

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

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

6700 Las Colinas Boulevard
Irving, Texas

 

75039

(Address of principal executive offices)

 

(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 28, 2016, 139,250,204 shares of the registrant’s common stock, $0.01 par value, were outstanding.

 

 

 



Table of Contents

 

FLUOR CORPORATION

 

FORM 10-Q

 

September 30, 2016

 

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, 2016 and 2015 (Unaudited)

2

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015 (Unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheet as of September 30, 2016 and December 31, 2015 (Unaudited)

4

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

 

 

 

Item 2:

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

30

 

 

 

 

 

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

40

 

 

 

 

 

Item 4:

Controls and Procedures

40

 

 

 

 

 

Changes in Consolidated Backlog (Unaudited)

41

 

 

 

 

Part II:

Other Information

 

 

 

 

 

 

Item 1:

Legal Proceedings

42

 

 

 

 

 

Item 1A:

Risk Factors

42

 

 

 

 

 

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

 

 

 

 

Item 6:

Exhibits

43

 

 

 

 

Signatures

 

 

46

 

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)

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

TOTAL REVENUE

 

$

4,766,864

 

$

4,384,612

 

$

14,046,870

 

$

13,743,367

 

 

 

 

 

 

 

 

 

 

 

TOTAL COST OF REVENUE

 

4,729,637

 

4,133,819

 

13,505,572

 

12,901,133

 

 

 

 

 

 

 

 

 

 

 

OTHER (INCOME) AND EXPENSES

 

 

 

 

 

 

 

 

 

Gain related to a partial sale of a subsidiary

 

 

(68,162

)

 

(68,162

)

Corporate general and administrative expense

 

27,144

 

35,165

 

134,897

 

124,060

 

Interest expense

 

17,377

 

10,170

 

50,741

 

33,739

 

Interest income

 

(4,643

)

(4,590

)

(12,312

)

(13,340

)

Total cost and expenses

 

4,769,515

 

4,106,402

 

13,678,898

 

12,977,430

 

 

 

 

 

 

 

 

 

 

 

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES

 

(2,651

)

278,210

 

367,972

 

765,937

 

INCOME TAX EXPENSE (BENEFIT)

 

(20,057

)

91,417

 

111,501

 

252,796

 

 

 

 

 

 

 

 

 

 

 

EARNINGS FROM CONTINUING OPERATIONS

 

17,406

 

186,793

 

256,471

 

513,141

 

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES

 

 

(5,057

)

 

(5,057

)

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

17,406

 

181,736

 

256,471

 

508,084

 

 

 

 

 

 

 

 

 

 

 

LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

12,602

 

10,453

 

45,531

 

44,215

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION

 

$

4,804

 

$

171,283

 

$

210,940

 

$

463,869

 

 

 

 

 

 

 

 

 

 

 

AMOUNTS ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

4,804

 

$

176,340

 

$

210,940

 

$

468,926

 

Loss from discontinued operations, net of taxes

 

 

(5,057

)

 

(5,057

)

Net earnings

 

$

4,804

 

$

171,283

 

$

210,940

 

$

463,869

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.03

 

$

1.22

 

$

1.52

 

$

3.21

 

Loss from discontinued operations, net of taxes

 

 

(0.03

)

 

(0.03

)

Net earnings

 

$

0.03

 

$

1.19

 

$

1.52

 

$

3.18

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS (LOSS) PER SHARE ATTRIBUTABLE TO FLUOR CORPORATION

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.03

 

$

1.21

 

$

1.50

 

$

3.17

 

Loss from discontinued operations, net of taxes

 

 

(0.04

)

 

(0.04

)

Net earnings

 

$

0.03

 

$

1.17

 

$

1.50

 

$

3.13

 

 

 

 

 

 

 

 

 

 

 

SHARES USED TO CALCULATE EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

BASIC

 

139,250

 

144,293

 

139,142

 

146,095

 

DILUTED

 

140,924

 

146,085

 

140,863

 

147,974

 

 

 

 

 

 

 

 

 

 

 

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)

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

NET EARNINGS

 

$

17,406

 

$

181,736

 

$

256,471

 

$

508,084

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(23,227

)

(45,053

)

(39,407

)

(80,892

)

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

 

2,748

 

(5,363

)

3,114

 

(8,191

)

Defined benefit pension and postretirement plan adjustments

 

1,289

 

(9,347

)

(828

)

(3,982

)

Unrealized gain (loss) on derivative contracts

 

1,980

 

(4,093

)

2,901

 

(2,703

)

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

 

(280

)

358

 

832

 

732

 

TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX

 

(17,490

)

(63,498

)

(33,388

)

(95,036

)

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

(84

)

118,238

 

223,083

 

413,048

 

 

 

 

 

 

 

 

 

 

 

LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

12,030

 

10,361

 

45,714

 

44,103

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO FLUOR CORPORATION

 

$

(12,114

)

$

107,877

 

$

177,369

 

$

368,945

 

 

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)

 

2016

 

2015

 

 

 

 

 

 

 

ASSETS 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents ($428,857 and $289,991 related to variable interest entities (“VIEs”))

 

$

1,780,374

 

$

1,949,886

 

Marketable securities, current ($77,232 and $70,176 related to VIEs)

 

130,821

 

197,092

 

Accounts and notes receivable, net ($239,206 and $186,833 related to VIEs)

 

1,670,172

 

1,203,024

 

Contract work in progress ($170,308 and $178,826 related to VIEs)

 

1,623,956

 

1,376,471

 

Other current assets ($33,295 and $27,362 related to VIEs)

 

536,255

 

378,927

 

Total current assets

 

5,741,578

 

5,105,400

 

 

 

 

 

 

 

Marketable securities, noncurrent

 

150,411

 

220,634

 

Property, plant and equipment (“PP&E”) ((net of accumulated depreciation of $1,098,798 and $1,046,077) (net PP&E of $65,173 and $70,247 related to VIEs))

 

1,042,354

 

892,340

 

Goodwill

 

593,161

 

111,646

 

Investments

 

745,688

 

337,930

 

Deferred taxes

 

314,939

 

394,832

 

Deferred compensation trusts

 

345,701

 

360,725

 

Other assets ($24,806 and $24,141 related to VIEs)

 

382,774

 

201,899

 

TOTAL ASSETS

 

$

9,316,606

 

$

7,625,406

 

 

 

 

 

 

 

LIABILITIES AND EQUITY 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Trade accounts payable ($242,531 and $178,139 related to VIEs)

 

$

1,642,739

 

$

1,266,509

 

Revolving credit facility and other borrowings

 

133,693

 

 

Advance billings on contracts ($230,096 and $188,484 related to VIEs)

 

716,592

 

754,037

 

Accrued salaries, wages and benefits ($39,419 and $47,526 related to VIEs)

 

755,027

 

669,592

 

Other accrued liabilities ($41,622 and $25,384 related to VIEs)

 

628,146

 

245,214

 

Total current liabilities

 

3,876,197

 

2,935,352

 

 

 

 

 

 

 

LONG-TERM DEBT DUE AFTER ONE YEAR

 

1,555,522

 

986,564

 

NONCURRENT LIABILITIES

 

630,279

 

589,991

 

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 — 139,250,204 and 139,018,309 shares in 2016 and 2015, respectively

 

1,393

 

1,390

 

Additional paid-in capital

 

29,985

 

 

Accumulated other comprehensive loss

 

(466,346

)

(432,775

)

Retained earnings

 

3,541,253

 

3,428,732

 

Total shareholders’ equity

 

3,106,285

 

2,997,347

 

 

 

 

 

 

 

Noncontrolling interests

 

148,323

 

116,152

 

 

 

 

 

 

 

Total equity

 

3,254,608

 

3,113,499

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

9,316,606

 

$

7,625,406

 

 

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)

 

2016

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net earnings

 

$

256,471

 

$

508,084

 

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

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

 

5,057

 

Depreciation of fixed assets

 

155,115

 

140,961

 

Amortization of intangibles

 

12,424

 

668

 

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

 

12,381

 

(5,825

)

Gain related to a partial sale of a subsidiary

 

 

(68,162

)

Gain on sale of property, plant and equipment

 

(15,408

)

(22,329

)

Amortization of stock-based awards

 

31,842

 

41,424

 

Deferred compensation trust

 

(19,546

)

55,919

 

Deferred compensation obligation

 

25,213

 

(20,778

)

Deferred taxes

 

58,772

 

78,302

 

Net retirement plan accrual (contributions)

 

(7,880

)

(11,056

)

Changes in operating assets and liabilities

 

(57,538

)

178,281

 

Cash outflows from discontinued operations

 

 

(312,451

)

Other items

 

638

 

2,328

 

Cash provided by operating activities

 

452,484

 

570,423

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of marketable securities

 

(279,387

)

(362,790

)

Proceeds from the sales and maturities of marketable securities

 

415,862

 

324,057

 

Capital expenditures

 

(165,514

)

(181,078

)

Proceeds from disposal of property, plant and equipment

 

60,773

 

70,403

 

Proceeds from a partial sale of a subsidiary

 

 

45,566

 

Investments in partnerships and joint ventures

 

(518,009

)

(80,886

)

Acquisitions, net of cash acquired

 

(240,740

)

 

Other items

 

10,237

 

14,479

 

Cash utilized by investing activities

 

(716,778

)

(170,249

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Repurchase of common stock

 

(9,718

)

(359,560

)

Dividends paid

 

(89,026

)

(94,553

)

Proceeds from issuance of 1.75% Senior Notes

 

552,958

 

 

Debt issuance costs

 

(3,513

)

 

Repayment of Stork Notes, convertible debt and other borrowings

 

(331,267

)

(28,425

)

Borrowings under revolving lines of credit

 

883,288

 

 

Repayment of borrowing under revolving lines of credit

 

(884,876

)

 

Distributions paid to noncontrolling interests

 

(25,628

)

(44,577

)

Capital contributions by noncontrolling interests

 

8,571

 

3,628

 

Taxes paid on vested restricted stock

 

(7,006

)

(8,402

)

Stock options exercised

 

3,315

 

1,162

 

Other items

 

711

 

(3,482

)

Cash provided (utilized) by financing activities

 

97,809

 

(534,209

)

Effect of exchange rate changes on cash

 

(3,027

)

(77,691

)

Decrease in cash and cash equivalents

 

(169,512

)

(211,726

)

Cash and cash equivalents at beginning of period

 

1,949,886

 

1,993,125

 

Cash and cash equivalents at end of period

 

$

1,780,374

 

$

1,781,399

 

 

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, 2015 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, 2016 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, 2016 and December 31, 2015 and its consolidated results of operations and cash flows for the interim periods presented. All significant intercompany transactions of consolidated subsidiaries are eliminated. Certain amounts in 2015 have been reclassified to conform to the 2016 presentation due to the implementation of new accounting pronouncements discussed below. Segment operating information for 2015 has been recast to reflect changes in the composition of the company’s reportable segments as discussed in Note 16. 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.

 

The Condensed Consolidated Financial Statements as of and for the three and nine months ended September 30, 2016 include the financial statements of Stork Holding B.V. (“Stork”) since March 1, 2016, the date of acquisition. See Note 17 for a discussion of the acquisition.

 

(2)                  Recent Accounting Pronouncements

 

New accounting pronouncements implemented by the company during the nine months ended September 30, 2016 or requiring implementation in future periods are discussed below or in the related notes, where appropriate.

 

In the first quarter of 2016, the company adopted Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes” on a retrospective basis. This ASU requires entities to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent. As a result of the adoption of ASU 2015-17, deferred tax assets of $173 million were reclassified from current assets to noncurrent assets on the Condensed Consolidated Balance Sheet as of December 31, 2015. The adoption of ASU 2015-17 did not have any impact on the company’s results of operations or cash flows.

 

In the first quarter of 2016, the company adopted 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. The adoption of ASU 2015-16 did not have any impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2016, the company adopted 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 adoption of ASU 2015-15 did not have any impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2016, the company adopted ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” on a prospective basis. This ASU clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. The adoption of ASU 2015-05 did not have a material impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2016, the company adopted ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” on a retrospective basis. 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. As a result of the adoption of ASU

 

6



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

2015-03, debt issuance costs of $6 million were reclassified from noncurrent assets to a direct deduction of long-term debt on the Condensed Consolidated Balance Sheet as of December 31, 2015. The adoption of ASU 2015-03 did not have any impact on the company’s results of operations or cash flows.

 

In the first quarter of 2016, the company adopted 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. The adoption of ASU 2015-02 did not have a material impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2016, the company adopted 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. The adoption of ASU 2015-01 did not have any impact on the company’s financial position, results of operations or cash flows.

 

In the first quarter of 2016, the company adopted 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. The adoption of ASU 2014-12 did not have any impact on the company’s financial position, results of operations or cash flows.

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 amends the guidance in Accounting Standards Codification (“ASC”) 230, which often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and has resulted in diversity in practice in how certain cash receipts and cash payments are classified. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. Management does not expect the adoption of ASU 2016-13 to have a material impact on the company’s cash flows.

 

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU replace the incurred loss impairment methodology in current practice with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Management does not expect the adoption of ASU 2016-13 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU is intended to simplify various aspects of the accounting for share-based payment awards, including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. ASU 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Management is currently evaluating the impact of adopting ASU 2016-09 on the company’s financial position, results of operations and cash flows.

 

In March 2016, the FASB issued ASU 2016-07, “Simplifying the Transition to the Equity Method of Accounting” which eliminates the requirement to retrospectively apply equity method accounting when an investor obtains significant influence over a previously held investment. ASU 2016-07 is effective for interim and annual reporting periods beginning after December 15, 2016, and should be applied prospectively. Management does not expect the adoption of ASU 2016-07 to have a material impact on the company’s financial position, results of operations or cash flows.

 

In March 2016, the FASB issued ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” This ASU clarifies that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship. ASU 2016-05 is effective for interim and annual reporting periods beginning after December 15, 2016. ASU 2016-05 can be applied on either a prospective or modified retrospective basis. Management does not expect the adoption of ASU 2016-05 to have a material impact on the company’s financial position, results of operations or cash flows.

 

7



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FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

In February 2016, the FASB issued ASU 2016-02, “Leases: Amendments to the FASB Accounting Standards Codification,” which amends the existing guidance on accounting for leases. This ASU requires the recognition of lease assets and lease liabilities on the balance sheet, and the disclosure of key information about leasing arrangements. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted and modified retrospective application is required for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Management is currently evaluating the impact of adopting ASU 2016-02 on the company’s financial position, results of operations or cash flows.

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments — Overall — Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and to recognize any changes in fair value in net income unless the investments qualify for a practicability exception. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Management does not expect the adoption of ASU 2016-01 to have a material impact on the company’s financial position, results of operations or cash flows.

 

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

 

Revenue Recognition

 

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 (performance obligations), 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.

 

As a result of the deferral of the effective date in ASU 2015-14, “Revenue from Contracts with Customers — Deferral of the Effective Date,” 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.

 

In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” which clarifies the principal versus agent guidance in ASU 2014-09. ASU 2016-08 clarifies how an entity determines whether to report revenue gross or net based on whether it controls a specific good or service before it is transferred to a customer. ASU 2016-08 also reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent.

 

In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which amends certain aspects of ASU 2014-09. ASU 2016-10 amends how an entity should identify performance obligations for immaterial promised goods or services, shipping and handling activities and promises that may represent performance obligations. ASU 2016-10 also provides implementation guidance for determining the nature of licensing and royalties arrangements.

 

In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients,” which also clarifies certain aspects of ASU 2014-09 including the assessment of collectability, presentation of sales taxes, treatment of noncash

 

8



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

consideration, and accounting for completed contracts and contract modifications at transition. ASU 2016-12, 2016-10 and 2016-08 are effective upon adoption of ASU 2014-09.

 

Management is currently evaluating the impact of adopting ASU 2014-09, 2016-08, 2016-10 and 2016-12 on the company’s financial position, results of operations, cash flows and related disclosures. Adoption of these ASUs is expected to affect the manner in which the company determines the unit of account for its projects (i.e., performance obligations). Under existing guidance, the company typically segments revenue and margin recognition between the engineering and construction phases of its contracts. Upon adoption, the company expects that the entire engineering and construction contract will typically be a single unit of account (a single performance obligation), which will result in a more constant recognition of revenue and margin over the term of the contract. The company will adopt ASU 2014-09 during the first quarter of 2018. The company expects to adopt this new standard using the modified retrospective method that will result in a cumulative effect adjustment as of the date of adoption.

 

(3)                  Other Comprehensive Income (Loss)

 

The tax effects of the components of other comprehensive income (loss) (“OCI”) for the three months ended September 30, 2016 and 2015 are as follows:

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

September 30, 2016

 

September 30, 2015

 

 

 

 

 

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

 

$

(36,754

)

$

13,527

 

$

(23,227

)

$

(72,085

)

$

27,032

 

$

(45,053

)

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

 

4,086

 

(1,338

)

2,748

 

(8,216

)

2,853

 

(5,363

)

Defined benefit pension and postretirement plan adjustments

 

2,062

 

(773

)

1,289

 

(14,955

)

5,608

 

(9,347

)

Unrealized gain (loss) on derivative contracts

 

3,032

 

(1,052

)

1,980

 

(6,410

)

2,317

 

(4,093

)

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

 

(449

)

169

 

(280

)

572

 

(214

)

358

 

Total other comprehensive loss

 

(28,023

)

10,533

 

(17,490

)

(101,094

)

37,596

 

(63,498

)

Less: Other comprehensive loss attributable to noncontrolling interests

 

(572

)

 

(572

)

(92

)

 

(92

)

Other comprehensive loss attributable to Fluor Corporation

 

$

(27,451

)

$

10,533

 

$

(16,918

)

$

(101,002

)

$

37,596

 

$

(63,406

)

 

9



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The tax effects of the components of OCI for the nine months ended September 30, 2016 and 2015 are as follows:

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2016

 

September 30, 2015

 

 

 

 

 

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

 

$

(62,922

)

$

23,515

 

$

(39,407

)

$

(129,274

)

$

48,382

 

$

(80,892

)

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

 

5,106

 

(1,992

)

3,114

 

(12,380

)

4,189

 

(8,191

)

Defined benefit pension and postretirement plan adjustments

 

1,445

 

(2,273

)

(828

)

(6,371

)

2,389

 

(3,982

)

Unrealized gain (loss) on derivative contracts

 

4,480

 

(1,579

)

2,901

 

(4,348

)

1,645

 

(2,703

)

Unrealized gain on available-for-sale securities

 

1,330

 

(498

)

832

 

1,171

 

(439

)

732

 

Total other comprehensive loss

 

(50,561

)

17,173

 

(33,388

)

(151,202

)

56,166

 

(95,036

)

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

 

183

 

 

183

 

(112

)

 

(112

)

Other comprehensive loss attributable to Fluor Corporation

 

$

(50,744

)

$

17,173

 

$

(33,571

)

$

(151,090

)

$

56,166

 

$

(94,924

)

 

The changes in accumulated other comprehensive income (“AOCI”) balances by component (after-tax) for the three months ended September 30, 2016 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, 2016

 

$

(239,217

)

$

(37,583

)

$

(164,647

)

$

(8,621

)

$

640

 

$

(449,428

)

Other comprehensive income (loss) before reclassifications

 

(22,545

)

2,748

 

 

1,233

 

(220

)

(18,784

)

Amounts reclassified from AOCI

 

 

 

1,289

 

637

 

(60

)

1,866

 

Net other comprehensive income (loss)

 

(22,545

)

2,748

 

1,289

 

1,870

 

(280

)

(16,918

)

Balance as of September 30, 2016

 

$

(261,762

)

$

(34,835

)

$

(163,358

)

$

(6,751

)

$

360

 

$

(466,346

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2016

 

$

354

 

$

 

$

 

$

(223

)

$

 

$

131

 

Other comprehensive income (loss) before reclassifications

 

(682

)

 

 

46

 

 

(636

)

Amounts reclassified from AOCI

 

 

 

 

64

 

 

64

 

Net other comprehensive income (loss)

 

(682

)

 

 

110

 

 

(572

)

Balance as of September 30, 2016

 

$

(328

)

$

 

$

 

$

(113

)

$

 

$

(441

)

 

10



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The changes in AOCI balances by component (after-tax) for the nine months ended September 30, 2016 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, 2015

 

$

(222,569

)

$

(37,949

)

$

(162,530

)

$

(9,255

)

$

(472

)

$

(432,775

)

Other comprehensive income (loss) before reclassifications

 

(39,193

)

3,114

 

(4,617

)

(951

)

915

 

(40,732

)

Amounts reclassified from AOCI

 

 

 

3,789

 

3,455

 

(83

)

7,161

 

Net other comprehensive income (loss)

 

(39,193

)

3,114

 

(828

)

2,504

 

832

 

(33,571

)

Balance as of September 30, 2016

 

$

(261,762

)

$

(34,835

)

$

(163,358

)

$

(6,751

)

$

360

 

$

(466,346

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to Noncontrolling Interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2015

 

$

(114

)

$

 

$

 

$

(510

)

$

 

$

(624

)

Other comprehensive income (loss) before reclassifications

 

(214

)

 

 

156

 

 

(58

)

Amounts reclassified from AOCI

 

 

 

 

241

 

 

241

 

Net other comprehensive income (loss)

 

(214

)

 

 

397

 

 

183

 

Balance as of September 30, 2016

 

$

(328

)

$

 

$

 

$

(113

)

$

 

$

(441

)

 

The changes in 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

 

 

11



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

 

12



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

2016

 

2015

 

2016

 

2015

 

Component of AOCI:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

Gain related to a partial sale of a subsidiary

 

$

 

$

(9,932

)

$

 

$

(9,932

)

Income tax benefit

 

 

 

 

3,724

 

 

3,724

 

Net of tax

 

 

 

$

 

$

(6,208

)

$

 

$

(6,208

)

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

 

Various accounts(1)

 

$

(2,062

)

$

(13,715

)

$

(6,062

)

$

(22,299

)

Income tax benefit

 

Income tax expense (benefit)

 

773

 

5,143

 

2,273

 

8,362

 

Net of tax

 

 

 

$

(1,289

)

$

(8,572

)

$

(3,789

)

$

(13,937

)

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on derivative contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts and foreign currency contracts

 

Total cost of revenue

 

$

(671

)

$

(1,153

)

$

(4,555

)

$

(1,613

)

Interest rate contracts

 

Interest expense

 

(419

)

(419

)

(1,258

)

(1,258

)

Income tax benefit (net)

 

Income tax expense (benefit)

 

389

 

589

 

2,117

 

1,076

 

Net of tax

 

 

 

(701

)

(983

)

(3,696

)

(1,795

)

Less: Noncontrolling interests

 

Net earnings attributable to noncontrolling interests

 

(64

)

(65

)

(241

)

(198

)

Net of tax and noncontrolling interests

 

 

 

$

(637

)

$

(918

)

$

(3,455

)

$

(1,597

)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Corporate general and administrative expense

 

$

97

 

$

(46

)

$

133

 

$

66

 

Income tax benefit (expense)

 

Income tax expense (benefit)

 

(37

)

17

 

(50

)

(25

)

Net of tax

 

 

 

$

60

 

$

(29

)

$

83

 

$

41

 

 


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

 

13



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

(4)                Income Taxes

 

The effective tax rates on earnings from continuing operations for the three and nine months ended September 30, 2016 were impacted by a benefit for a favorable resolution of an IRS audit for tax years 2009-2013 and an increase in the research tax credit. Both the 2015 and 2016 periods benefitted from earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company. 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.

 

(5)                   Cash Paid for Interest and Taxes

 

Cash paid for interest was $55 million and $30 million for the nine months ended September 30, 2016 and 2015, respectively. Income tax payments, net of refunds, were $138 million and $148 million during the nine-month periods ended September 30, 2016 and 2015, respectively.

 

(6)                   Earnings Per Share

 

Diluted earnings per share (“EPS”) reflects the assumed exercise or conversion of all dilutive securities using the treasury stock method.

 

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Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The calculations of the basic and diluted EPS for the three and nine months ended September 30, 2016 and 2015 are presented below:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(in thousands, except per share amounts)

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

4,804

 

$

176,340

 

$

210,940

 

$

468,926

 

Loss from discontinued operations, net of taxes

 

 

(5,057

)

 

(5,057

)

Net earnings

 

$

4,804

 

$

171,283

 

$

210,940

 

$

463,869

 

 

 

 

 

 

 

 

 

 

 

Basic EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

139,250

 

144,293

 

139,142

 

146,095

 

 

 

 

 

 

 

 

 

 

 

Basic EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.03

 

$

1.22

 

$

1.52

 

$

3.21

 

Loss from discontinued operations, net of taxes

 

 

(0.03

)

 

(0.03

)

Net earnings

 

$

0.03

 

$

1.19

 

$

1.52

 

$

3.18

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

139,250

 

144,293

 

139,142

 

146,095

 

 

 

 

 

 

 

 

 

 

 

Diluted effect:

 

 

 

 

 

 

 

 

 

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

 

1,674

 

1,792

 

1,721

 

1,759

 

Conversion equivalent of dilutive convertible debt

 

 

 

 

120

 

Weighted average diluted shares outstanding

 

140,924

 

146,085

 

140,863

 

147,974

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS attributable to Fluor Corporation:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

0.03

 

$

1.21

 

$

1.50

 

$

3.17

 

Loss from discontinued operations, net of taxes

 

 

(0.04

)

 

(0.04

)

Net earnings

 

$

0.03

 

$

1.17

 

$

1.50

 

$

3.13

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive securities not included above

 

4,097

 

3,500

 

3,977

 

3,387

 

 

During the nine months ended September 30, 2016, the company repurchased and cancelled 202,650 shares of its common stock under its stock repurchase program for approximately $10 million. No shares were repurchased during the three months ended September 30, 2016. 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 approximately $145 million and $360 million, respectively.

 

(7)                  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

 

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Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

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, 2016 and December 31, 2015:

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

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)

 

$

18,061

 

$

18,061

 

$

 

$

 

$

19,161

 

$

19,161

 

$

 

$

 

Marketable securities, current(2)

 

51,432

 

 

51,432

 

 

87,763

 

 

87,763

 

 

Deferred compensation trusts(3)

 

31,975

 

31,975

 

 

 

60,003

 

60,003

 

 

 

Marketable securities, noncurrent(4)

 

150,411

 

 

150,411

 

 

220,634

 

 

220,634

 

 

Derivative assets(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

 

 

 

 

341

 

 

341

 

 

Foreign currency contracts

 

31,968

 

 

31,968

 

 

8,439

 

 

8,439

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

839

 

$

 

$

839

 

$

 

$

2,510

 

$

 

$

2,510

 

$

 

Foreign currency contracts

 

34,258

 

 

34,258

 

 

14,138

 

 

14,138

 

 

 


(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.

 

(5)     See Note 8 for the classification of commodity and foreign currency contracts on 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, 2016: money market funds of $18 million, U.S. agency securities of $12 million, U.S. Treasury securities of $87 million and corporate debt securities of $103 million. As of December 31, 2015, available-for-sale securities consisted of money market funds of $19 million, U.S. agency securities of $18 million, U.S. Treasury securities of $102 million and corporate debt securities of $189 million. The amortized cost of these available-for-sale securities is not materially different from the fair value. During the three and nine

 

16



Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

months ended September 30, 2016, proceeds from sales and maturities of available-for-sale securities were $38 million and $252 million, respectively, compared to $94 million and $296 million for the corresponding periods of 2015.

 

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

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

Fair Value

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(in thousands)

 

Hierarchy

 

Value

 

Value

 

Value

 

Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash(1)

 

Level 1

 

$

1,133,215

 

$

1,133,215

 

$

1,073,756

 

$

1,073,756

 

Cash equivalents(2)

 

Level 2

 

629,098

 

629,098

 

856,969

 

856,969

 

Marketable securities, current(3)

 

Level 2

 

79,389

 

79,389

 

109,329

 

109,329

 

Notes receivable, including noncurrent portion(4)

 

Level 3

 

26,330

 

26,330

 

19,182

 

19,182

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

1.750% Senior Notes(5)

 

Level 2

 

$

557,358

 

$

600,490

 

$

 

$

 

3.375% Senior Notes(5)

 

Level 2

 

495,800

 

534,295

 

495,165

 

509,025

 

3.5% Senior Notes(5)

 

Level 2

 

492,120

 

532,545

 

491,399

 

504,265

 

Revolving Credit Facility(6)

 

Level 2

 

89,824

 

89,824

 

 

 

Other borrowings, including noncurrent portion(7)

 

Level 2

 

54,113

 

54,113

 

 

 

 


(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)