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 March 31, 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)

 

 

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):

 

 

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 April 29, 2016, 139,230,156 shares of the registrant’s common stock, $0.01 par value, were outstanding.

 

 

Table of Contents

 

FLUOR CORPORATION

 

FORM 10-Q

 

March 31, 2016

TABLE OF CONTENTS

 

			PAGE
Part I:	Financial Information
	Item 1:	Financial Statements
		Condensed Consolidated Statement of Earnings for the Three Months Ended March 31, 2016 and 2015 (Unaudited)	2
		Condensed Consolidated Statement of Comprehensive Income for the Three Months Ended March  31, 2016 and 2015 (Unaudited)	3
		Condensed Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015 (Unaudited)	4
		Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 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	25
	Item 3:	Quantitative and Qualitative Disclosures about Market Risk	35
	Item 4:	Controls and Procedures	35
	Changes in Consolidated Backlog (Unaudited)		36
Part II:	Other Information
	Item 1:	Legal Proceedings	37
	Item 1A:	Risk Factors	37
	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 6:	Exhibits	38
Signatures			41

 

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PART I:  FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

 

UNAUDITED

 

		Three Months Ended
		March 31,
(in thousands, except per share amounts)		2016			2015
TOTAL REVENUE		$	4,423,889		$	4,548,649
TOTAL COST OF REVENUE		4,168,067			4,251,189
OTHER (INCOME) AND EXPENSES
Corporate general and administrative expense		55,113			41,110
Interest expense		14,645			12,168
Interest income		(3,156		)	(4,696		)
Total cost and expenses		4,234,669			4,299,771
EARNINGS BEFORE TAXES		189,220			248,878
INCOME TAX EXPENSE		70,209			83,274
NET EARNINGS		119,011			165,604
LESS: NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTERESTS		14,688			21,525
NET EARNINGS ATTRIBUTABLE TO FLUOR CORPORATION		$	104,323		$	144,079
BASIC EARNINGS PER SHARE		$	0.75		$	0.98
DILUTED EARNINGS PER SHARE		$	0.74		$	0.96
SHARES USED TO CALCULATE EARNINGS PER SHARE
BASIC		138,950			147,731
DILUTED		140,865			149,915
DIVIDENDS DECLARED PER SHARE		$	0.21		$	0.21

 

See Notes to Condensed Consolidated Financial Statements.

 

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FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

UNAUDITED

 

		Three Months Ended
		March 31,
(in thousands)		2016			2015
NET EARNINGS		$	119,011		$	165,604
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustment		22,336			(48,724		)
Ownership share of equity method investees’ other comprehensive loss		(8,018		)	(4,481		)
Defined benefit pension and postretirement plan adjustments		(3,325		)	2,688
Unrealized gain on derivative contracts		3,602			894
Unrealized gain on available-for-sale securities		847			609
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX		15,442			(49,014		)
COMPREHENSIVE INCOME		134,453			116,590
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		14,744			22,116
COMPREHENSIVE INCOME ATTRIBUTABLE TO FLUOR CORPORATION		$	119,709		$	94,474

 

See Notes to Condensed Consolidated Financial Statements.

 

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FLUOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

 

UNAUDITED

 

		March 31,			December 31,
(in thousands, except share and per share amounts)		2016			2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents ($365,108 and $289,991 related to variable interest entities (“VIEs”))		$	1,697,491		$	1,949,886
Marketable securities, current ($65,176 and $70,176 related to VIEs)		167,130			197,092
Accounts and notes receivable, net ($235,306 and $186,833 related to VIEs)		1,496,829			1,203,024
Contract work in progress ($203,986 and $178,826 related to VIEs)		1,606,203			1,376,471
Other current assets ($27,968 and $27,362 related to VIEs)		435,216			378,927
Total current assets		5,402,869			5,105,400
Marketable securities, noncurrent		152,843			220,634
Property, plant and equipment (“PP&E”) ((net of accumulated depreciation of $1,060,862 and $1,046,077) (net PP&E of $70,609 and $70,247 related to VIEs))		1,065,264			892,340
Investments and goodwill		1,482,512			449,576
Deferred taxes		362,699			394,832
Deferred compensation trusts		326,444			360,725
Other assets ($24,259 and $24,141 related to VIEs)		209,096			201,899
TOTAL ASSETS		$	9,001,727		$	7,625,406
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade accounts payable ($221,556 and $178,139 related to VIEs)		$	1,578,073		$	1,266,509
Revolving credit facility and other borrowings		118,926			—
Advance billings on contracts ($208,669 and $188,484 related to VIEs)		745,078			754,037
Accrued salaries, wages and benefits ($51,987 and $47,526 related to VIEs)		766,272			669,592
Other accrued liabilities ($55,033 and $25,384 related to VIEs)		381,581			245,214
Total current liabilities		3,589,930			2,935,352
LONG-TERM DEBT		1,572,001			986,564
NONCURRENT LIABILITIES		618,962			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 — 139,222,687 and 139,018,309 shares in 2016 and 2015, respectively		1,392			1,390
Additional paid-in capital		10,819			—
Accumulated other comprehensive loss		(417,389		)	(432,775		)
Retained earnings		3,493,789			3,428,732
Total shareholders’ equity		3,088,611			2,997,347
Noncontrolling interests		132,223			116,152
Total equity		3,220,834			3,113,499
TOTAL LIABILITIES AND EQUITY		$	9,001,727		$	7,625,406

 

See Notes to Condensed Consolidated Financial Statements.

 

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FLUOR CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

UNAUDITED

 

		Three Months Ended
		March 31,
(in thousands)		2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings		$	119,011		$	165,604
Adjustments to reconcile net earnings to cash provided (utilized) by operating activities:
Depreciation of fixed assets		47,147			47,803
Amortization of intangibles		222			223
(Earnings) loss from equity method investments, net of distributions		(2,697		)	(7,386		)
Gain on sale of property, plant and equipment		(6,788		)	(8,841		)
Amortization of stock-based awards		13,921			12,546
Deferred compensation trust		34,280			33,604
Deferred compensation obligation		5,655			6,164
Deferred taxes		34,286			143,601
Net retirement plan accrual (contributions)		(10,125		)	3,391
Changes in operating assets and liabilities		(126,049		)	(52,775		)
Cash outflows from discontinued operations		—			(306,490		)
Other items		5,792			1,838
Cash provided by operating activities		114,655			39,282
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities		(103,587		)	(147,068		)
Proceeds from the sales and maturities of marketable securities		202,286			194,635
Capital expenditures		(48,576		)	(73,883		)
Proceeds from disposal of property, plant and equipment		25,881			29,905
Investments in partnerships and joint ventures		(402,434		)	(21,537		)
Acquisitions, net of cash acquired		(240,754		)	—
Other items		7,236			(197		)
Cash utilized by investing activities		(559,948		)	(18,145		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock		(9,718		)	(111,658		)
Dividends paid		(29,941		)	(32,363		)
Proceeds from issuance of 1.75% Senior Notes		552,958			—
Debt issuance costs		(3,186		)	—
Repayment of Stork Notes and other borrowings		(326,279		)	—
Borrowings under revolving lines of credit		760,000			—
Repayment of borrowings under revolving lines of credit		(760,000		)	—
Distributions paid to noncontrolling interests		(12,829		)	(3,508		)
Capital contributions by noncontrolling interests		1,245			698
Taxes paid on vested restricted stock		(6,971		)	(7,588		)
Stock options exercised		2,681			923
Other items		2,861			(474		)
Cash provided (utilized) by financing activities		170,821			(153,970		)
Effect of exchange rate changes on cash		22,077			(48,999		)
Decrease in cash and cash equivalents		(252,395		)	(181,832		)
Cash and cash equivalents at beginning of period		1,949,886			1,993,125
Cash and cash equivalents at end of period		$	1,697,491		$	1,811,293

 

See Notes to Condensed Consolidated Financial Statements.

 

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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 months ended March 31, 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 March 31, 2016 and 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 months ended March 31, 2016 include the financial statements of Stork Holding B.V. (“Stork”) since March 1, 2016, the date of acquisition. See Note 17 for a further discussion of the acquisition.

 

(2)                  Recent Accounting Pronouncements

 

New accounting pronouncements implemented by the company during the first quarter of 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 in 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

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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 in 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 April 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which amends certain aspects in ASU 2014-09. ASU 2016-10 amends how an entity should identify performance obligations for immaterial promised goods or service, shipping and handling activities and promises that may represent performance obligations. ASU 2016-08 also provides implementation guidance for determining the nature of licensing and royalties arrangements. ASU 2016-10 is effective upon adoption of ASU 2014-09. Management is currently evaluating the impact of adopting ASU 2016-10 on the company’s financial position, results of operations and 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 award transactions which include 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 2016-08, “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 should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. ASU 2016-08 also reframes the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. ASU 2016-08 is effective upon adoption of ASU 2014-09, “Revenue from Contracts with Customers”. Management is currently evaluating the impact of adopting ASU 2016-08 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

 

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FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

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.

 

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 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 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, cash flows and related disclosures.

 

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.

 

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FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

(3)                  Other Comprehensive Income (Loss)

 

The tax effects of the components of other comprehensive income (loss) (“OCI”) for the three months ended March 31, 2016 and 2015 are as follows:

 

		Three Months Ended									Three Months Ended
		March 31, 2016									March 31, 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		$	35,755		$	(13,419	)	$	22,336		$	(78,271	)	$	29,547		$	(48,724	)
Ownership share of equity method investees’ other comprehensive loss		(12,092		)	4,074			(8,018		)	(6,002		)	1,521			(4,481		)
Defined benefit pension and postretirement plan adjustments		(2,550		)	(775		)	(3,325		)	4,301			(1,613		)	2,688
Unrealized gain on derivative contracts		5,785			(2,183		)	3,602			1,414			(520		)	894
Unrealized gain on available-for-sale securities		1,355			(508		)	847			974			(365		)	609
Total other comprehensive income (loss)		28,253			(12,811		)	15,442			(77,584		)	28,570			(49,014		)
Less: Other comprehensive income attributable to noncontrolling interests		56			—			56			591			—			591
Other comprehensive income (loss) attributable to Fluor Corporation		$	28,197		$	(12,811	)	$	15,386		$	(78,175	)	$	28,570		$	(49,605	)

 

The changes in accumulated other comprehensive income (“AOCI”) balances by component (after-tax) for the three months ended March 31, 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		22,362			(8,018		)	(4,617		)	1,796			810			12,333
Amounts reclassified from AOCI		—			—			1,292			1,724			37			3,053
Net other comprehensive income (loss)		22,362			(8,018		)	(3,325		)	3,520			847			15,386
Balance as of March 31, 2016		$	(200,207	)	$	(45,967	)	$	(165,855	)	$	(5,735	)	$	375		$	(417,389	)
Attributable to Noncontrolling Interests:
Balance as of December 31, 2015		$	(114	)	$	—		$	—		$	(510	)	$	—		$	(624	)
Other comprehensive loss before reclassifications		(26		)	—			—			(16		)	—			(42		)
Amounts reclassified from AOCI		—			—			—			98			—			98
Net other comprehensive income (loss)		(26		)	—			—			82			—			56
Balance as of March 31, 2016		$	(140	)	$	—		$	—		$	(428	)	$	—		$	(568	)

 

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FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

The changes in AOCI balances by component (after-tax) for the three months ended March 31, 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		(49,244		)	(4,481		)	—			596			678			(52,451		)
Amounts reclassified from AOCI		—			—			2,688			227			(69		)	2,846
Net other comprehensive income (loss)		(49,244		)	(4,481		)	2,688			823			609			(49,605		)
Balance as of March 31, 2015		$	(168,660	)	$	(34,917	)	$	(322,457	)	$	(8,131	)	$	348		$	(533,817	)
Attributable to Noncontrolling Interests:
Balance as of December 31, 2014		$	1,328		$	—		$	—		$	(685	)	$	—		$	643
Other comprehensive income (loss) before reclassifications		520			—			—			(3		)	—			517
Amounts reclassified from AOCI		—			—			—			74			—			74
Net other comprehensive income income		520			—			—			71			—			591
Balance as of March 31, 2015		$	1,848		$	—		$	—		$	(614	)	$	—		$	1,234

 

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

 

				Three Months Ended
		Location in Condensed		March 31,
(in thousands)		Consolidated Statement of Earnings		2016			2015
Component of AOCI:
Defined benefit pension plan adjustments		Various accounts(1)		$	(2,067	)	$	(4,301	)
Income tax benefit		Income tax expense		775			1,613
Net of tax				$	(1,292	)	$	(2,688	)
Unrealized loss on derivative contracts:
Commodity and foreign currency contracts		Total cost of revenue		$	(2,472	)	$	(62	)
Interest rate contracts		Interest expense		(419		)	(419		)
Income tax benefit (net)		Income tax expense		1,069			180
Net of tax				(1,822		)	(301		)
Less: Noncontrolling interests		Net earnings attributable to noncontrolling interests		(98		)	(74		)
Net of tax and noncontrolling interests				$	(1,724	)	$	(227	)
Unrealized gain (loss) on available-for-sale securities		Corporate general and administrative expense		$	(59	)	$	110
Income tax benefit (expense)		Income tax expense		22			(41		)
Net of tax				$	(37	)	$	69

 

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

 

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Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

(4)                Income Taxes

 

The effective tax rates for the three months ended March 31, 2016 and 2015 were 37.1 percent and 33.5 percent, respectively. The higher effective rate for the three months ended March 31, 2016 is primarily due to foreign losses without benefit. Both periods benefit from earnings attributable to noncontrolling interests for which income taxes are not typically the responsibility of the company.

 

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 $13 million and $10 million for the three months ended March 31, 2016 and 2015, respectively. Income tax payments, net of refunds, were $27 million and $62 million during the three-month periods ended March 31, 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.

 

The calculations of the basic and diluted EPS for the three months ended March 31, 2016 and 2015 are presented below:

 

		Three Months Ended
		March 31,
(in thousands, except per share amounts)		2016			2015
Net earnings attributable to Fluor Corporation		$	104,323		$	144,079
Basic EPS attributable to Fluor Corporation:
Weighted average common shares outstanding		138,950			147,731
Basic earnings per share		$	0.75		$	0.98
Diluted EPS attributable to Fluor Corporation:
Weighted average common shares outstanding		138,950			147,731
Diluted effect:
Employee stock options, restricted stock units and shares and Value Driver Incentive units		1,915			1,825
Conversion equivalent of dilutive convertible debt		—			359
Weighted average diluted shares outstanding		140,865			149,915
Diluted earnings per share		$	0.74		$	0.96
Anti-dilutive securities not included above		3,727			3,162

 

During the three months ended March 31, 2016 and 2015, the company repurchased and cancelled 202,650 and 1,939,997 shares, respectively, of its common stock under its stock repurchase program for $10 million and $112 million, respectively.

 

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Table of Contents

 

FLUOR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

(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

 

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 March 31, 2016 and December 31, 2015:

 

		March 31, 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)		$	4,262		$	4,262		$	—		$	—		$	19,161		$	19,161		$	—		$	—
Marketable securities, current(2)		61,549			—			61,549			—			87,763			—			87,763			—
Deferred compensation trusts(3)		27,190			27,190			—			—			60,003			60,003			—			—
Marketable securities, noncurrent(4)		152,843			—			152,843			—			220,634			—			220,634			—
Derivative assets(5)
Commodity contracts		—			—			—			—			341			—			341			—
Foreign currency contracts		13,997			—			13,997			—			8,439			—			8,439			—
Liabilities:
Derivative liabilities(5)
Commodity contracts		$	1,811		$	—		$	1,811		$	—		$	2,510		$	—		$	2,510		$	—
Foreign currency contracts		11,949			—			11,949			—			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 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.

 

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