Fluor 2014 Annual Report Download - page 103

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FLUOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
carrying amount. If the carrying amount of a reporting unit exceeds its fair value, a second step is
performed to measure the amount of potential impairment. In the second step, the company compares the
implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If
the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an
impairment loss is recognized. During 2014, the company completed its annual goodwill impairment test in
the first quarter and quantitatively determined that none of the goodwill was impaired. Goodwill for each
of the company’s segments is shown in ‘‘16. Operations by Business Segment and Geographical Area.’’
The company had intangible assets with a carrying value of $23 million and $24 million as of
December 31, 2014 and 2013, respectively. Intangible assets with indefinite lives are not amortized but are
subject to annual impairment tests. Interim testing for impairment is also performed if indicators of
potential impairment exist. An intangible asset with an indefinite life is impaired if its carrying value
exceeds its fair value. As of December 31, 2014, none of the company’s intangible assets with indefinite
lives were impaired. Intangible assets with finite lives are amortized on a straight-line basis over the useful
lives of those assets, ranging from one year to ten years.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events
that have been recognized in the company’s financial statements or tax returns. The company evaluates the
realizability of its deferred tax assets and maintains a valuation allowance, if necessary, to reduce certain
deferred tax assets to amounts that are more likely than not to be realized. The factors used to assess the
likelihood of realization are the company’s forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted
taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax
assets and could result in an increase in the company’s effective tax rate on future earnings.
Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in
the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent
financial reporting period in which that threshold is no longer met. The company recognizes potential
interest and penalties related to unrecognized tax benefits within its global operations in income tax
expense.
Judgment is required in determining the consolidated provision for income taxes as the company
considers its worldwide taxable earnings and the impact of the continuing audit process conducted by
various tax authorities. The final outcome of these audits by foreign jurisdictions, the Internal Revenue
Service and various state governments could differ materially from that which is reflected in the
Consolidated Financial Statements.
Derivatives and Hedging
The company limits exposure to foreign currency fluctuations in most of its engineering and
construction contracts through provisions that require client payments in currencies corresponding to the
currencies in which cost is incurred. Certain financial exposure, which includes currency and commodity
price risk associated with engineering and construction contracts, currency risk associated with monetary
assets and liabilities denominated in nonfunctional currencies and risk associated with interest rate
volatility, may subject the company to earnings volatility. In cases where financial exposure is identified,
the company generally implements a hedging strategy utilizing derivative instruments as hedging
instruments to mitigate the risk. These hedging instruments are designated as either fair value or cash flow
hedges in accordance with ASC 815, ‘‘Derivatives and Hedging.’’ The company formally documents its
F-10