Fluor 2013 Annual Report Download - page 110

Download and view the complete annual report

Please find page 110 of the 2013 Fluor annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 148

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148

FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
assets and liabilities denominated in nonfunctional currencies and risk associated with interest rate
volatility, may subject the company to earnings volatility. In cases where financial exposure is identified,
the company generally implements a hedging strategy utilizing derivative instruments as hedging
instruments to mitigate the risk. These hedging instruments are designated as either fair value or cash flow
hedges in accordance with ASC 815, ‘‘Derivatives and Hedging.’’ The company formally documents its
hedge relationships at inception, including identification of the hedging instruments and the hedged items,
as well as its risk management objectives and strategies for undertaking the hedge transaction. The
company also formally assesses, both at inception and at least quarterly thereafter, whether the hedging
instruments are highly effective in offsetting changes in the fair value of the hedged items. The fair values
of all hedging instruments are recognized as assets or liabilities at the balance sheet date. For fair value
hedges, the effective portion of the change in the fair value of the hedging instrument is offset against the
change in the fair value of the underlying asset or liability through earnings. For cash flow hedges, the
effective portion of the hedging instruments’ gains or losses due to changes in fair value are recorded as a
component of accumulated other comprehensive income (loss) (‘‘AOCI’’) and are reclassified into earnings
when the hedged items settle. Any ineffective portion of a hedging instrument’s change in fair value is
immediately recognized in earnings. The company does not enter into derivative instruments for
speculative purposes.
Under ASC 815, in certain limited circumstances, foreign currency payment provisions could be
deemed embedded derivatives. As of December 31, 2013, 2012 and 2011, the company had no significant
embedded derivatives in any of its contracts.
The company maintains master netting arrangements with certain counterparties to facilitate the
settlement of derivative instruments; however, the company reports the fair value of derivative instruments
on a gross basis.
Concentrations of Credit Risk
Accounts receivable and all contract work in progress are from clients in various industries and
locations throughout the world. Most contracts require payments as the projects progress or, in certain
cases, advance payments. The company generally does not require collateral, but in most cases can place
liens against the property, plant or equipment constructed or terminate the contract, if a material default
occurs. The company evaluates the counterparty credit risk of third parties as part of its project risk review
process and in determining the appropriate level of reserves. The company maintains adequate reserves
for potential credit losses and generally such losses have been minimal and within management’s estimates.
Cash and marketable securities are deposited with major banks throughout the world. Such deposits
are placed with high quality institutions and the amounts invested in any single institution are limited to
the extent possible in order to minimize concentration of counterparty credit risk.
The company’s counterparties for derivative contracts are large financial institutions selected based on
profitability, strength of balance sheet, credit ratings and capacity for timely payment of financial
commitments. There are no significant concentrations of credit risk with any individual counterparty
related to our derivative contracts.
The company monitors the credit quality of its counterparties and has not incurred any significant
credit risk losses related to its deposits or derivative contracts.
Stock-Based Plans
The company applies the provisions of ASC 718 ‘‘Compensation — Stock Compensation’’ in its
accounting and reporting for stock-based compensation. ASC 718 requires all stock-based payments to
employees, including grants of employee stock options, to be recognized in the income statement based on
F-11