Fair Value of Financial Instruments
Fluor Corporation included the following footnote in its 1995 annual report:
Fair Value of Financial Instruments
The estimated fair value of the company’s financial instruments is as follows:
|
Dollars in thousands/ At October 31 |
Carrying Amount |
1995 Fair Value |
Carrying Amount |
1994 Fair Value |
|
Assets |
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|
Cash and cash equivalents |
$292,934 |
$292,934 |
$374,468 |
$374,468 |
|
Marketable securities |
137,758 |
137,758 |
117,618 |
19,555 |
|
Notes receivable including |
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|
noncurrent portion |
83,515 |
86,769 |
104,117 |
105,088 |
|
Long term investments |
30,990 |
32,127 |
15,811 |
16,616 |
|
Liabilities |
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|
Commercial paper and |
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|
notes payable |
29,937 |
29,937 |
19,957 |
19,957 |
|
Long term debt including |
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|
current portion |
27,248 |
28,420 |
62,367 |
64,405 |
|
Other noncurrent |
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|
financial liabilities |
2,572 |
2,572 |
2,691 |
2,691 |
|
Off balance sheet financial |
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|
instruments |
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|
Foreign currency contract |
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|
obligations |
— |
(2,146) |
— |
219 |
|
Letters of credit |
— |
572 |
— |
740 |
|
Line of credit |
— |
997 |
— |
1,384 |
Fair values were determined as follows:
The carrying amounts of cash and cash equivalents, short term notes receivable, commercial paper and notes payable approximates fair value because of the short term maturity of these instruments.
Marketable securities and long term investments are based on quoted market prices for these or similar instruments. Long term notes receivable are estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings.
The fair value of long term debt, including current portion, is estimated based on quoted market prices for the same or similar issues or on the current rates offered to the company for debt of the same maturities.
Other noncurrent financial liabilities consist primarily of deferred payments, for which cost approximates fair value.
Foreign currency contract obligations are estimated by obtaining quotes from brokers.
Letters of credit and line of credit amounts are based on fees currently charged for similar agreements or on the estimated cost to terminate or settle the obligations. Additional information:
|
(Absolute dollars) |
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|
Total assets |
October 31, 1995 |
October 31, 1994 |
|
|
$3,228,906,000 |
$2,824,768,000 |
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|
Year Ended October 31 |
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|
Earnings before taxes |
1995 |
1994 |
1993 |
|
$362,214,000 |
$303,299,000 |
$242,200,000 |
|
Required Give your opinion as to the fair value of financial instruments in relation to carrying amount. Develop data to support your opinion.