Fluor 2008 Annual Report Download - page 120

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FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
typically limited to the aggregate of the carrying value of the investment and future funding commitments.
Future funding commitments at December 31, 2008 for the unconsolidated VIEs were $24 million.
In some cases, the company is required to consolidate VIEs. The carrying value of the assets and
liabilities for consolidated VIEs at December 31, 2008 was $281 million and $202 million, respectively.
None of the VIEs are individually material to the company’s results of operations, financial position
or cash flows. Below is a discussion of a couple of the company’s more unique VIEs and related accounting
considerations.
National Roads Telecommunications Services (‘‘NRTS’’) Project
In 2005, the company’s Industrial & Infrastructure segment was awarded a $544 million project by a
joint venture, GeneSYS Telecommunications Limited (‘‘GeneSYS’’), in which the company owns a
45 percent interest and HSBC Infrastructure Fund Management Limited owns a 55 percent interest. The
project was entered into with the United Kingdom Secretary of State for Transport (the ‘‘Highways
Agency’’) to design, build, maintain and finance a significant upgrade to the integrated transmission
network throughout England’s motorways. GeneSYS financed the engineering and construction (‘‘E&C’’)
of the upgraded telecommunications infrastructure with approximately $279 million of non-recourse debt
(the ‘‘term loan facility’’) from a consortium of lenders (the ‘‘Banks’’) along with joint venture member
equity contributions and subordinated debt which were financed during the construction period utilizing
equity bridge loans from outside lenders. During September 2007, the joint venture members paid their
required permanent financing commitments in the amount of $44 million and were issued Subordinated
Notes by GeneSYS. These funds were used by GeneSYS to repay the temporary construction term
financing including the company’s equity bridge loan. In early October 2007, the newly constructed
network achieved operational status and was fully accepted by the Highways Agency on December 20,
2007, thereby concluding the E&C phase and entering the operations and maintenance phase of the
project.
Based on a qualitative analysis of the variable interests of all parties involved at the formation of
GeneSYS, under the provisions of FIN 46(R), the company was initially determined to be the primary
beneficiary of the joint venture. The company’s consolidated financial statements included the accounts of
GeneSYS, and, accordingly, the non-recourse debt provided by the Banks at the inception of the venture.
Effective October 1, 2007, the company no longer consolidates the accounts of GeneSYS because it is no
longer the primary beneficiary of the joint venture.
FIN 46(R) requires that the initial determination of whether an entity is a VIE shall be reconsidered
under certain conditions. One of those conditions is when the entity’s governing documents or contractual
arrangements are changed in a manner that changes the characteristics or adequacy of the entity’s equity
investment at risk. Such an event occurred in September 2007 upon the infusion of capital by the joint
venture members which resulted in permanent financing through issuance of Subordinated Debentures by
GeneSYS that replaced the temporary equity bridge loans that had been provided by outside lenders. This
refinancing of temporary debt with permanent debt constituted a change in the governing documents of
GeneSYS that required reconsideration of GeneSYS as a VIE.
Based on the new capitalization structure of GeneSYS, the adequacy of the equity at risk in GeneSYS
was evaluated and found to be inadequate to finance its operations without additional subordinated
financial support. Accordingly, upon reconsideration, GeneSYS continues to be a VIE. Because the
company holds a variable interest in the entity through its equity and debt investments, a qualitative
evaluation was undertaken to determine if it was the primary beneficiary. In this evaluation, the company
considered all parties that have direct or implicit variable interests based on the contractual arrangements
existing at the time of reconsideration. Based on this evaluation, the company determined that it was no
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