UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) 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
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(Exact name of registrant as specified in its charter)
Delaware 33-0927079
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
One Enterprise Drive, Aliso Viejo, CA 92656
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(Address of principal executive offices)
(949) 349-2000
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(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 ( )
As of July 31, 2001 there were 80,124,146 shares of common stock outstanding.
FLUOR CORPORATION
FORM 10-Q
June 30, 2001
TABLE OF CONTENTS PAGE
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Part I: Financial Information
Condensed Consolidated Statement of Earnings for the Three Months Ended
June 30, 2001 and July 31, 2000......................................... 2
Condensed Consolidated Statement of Earnings for the Six Months Ended
June 30, 2001 and July 31, 2000......................................... 3
Condensed Consolidated Balance Sheet at June 30, 2001 and
December 31, 2000....................................................... 4
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 2001 and July 31, 2000................................... 6
Notes to Condensed Consolidated Financial Statements.................... 7
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 12
Changes in Consolidated Backlog......................................... 19
Part II: Other Information................................................ 20
Signatures.................................................................... 21
1
Part I: Financial Information
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended June 30, 2001 and July 31, 2000
UNAUDITED
In thousands, except per share amounts 2001 2000
- ------------------------------------------------------------------------------------------------
REVENUES $ 2,338,430 $ 2,627,544
------------------------------------------
COSTS AND EXPENSES
Cost of revenues 2,253,144 2,583,810
Corporate administrative and general expense 31,361 26,261
Interest expense 9,193 7,167
Interest income (5,251) (2,188)
------------------------------------------
Total costs and expenses 2,288,447 2,615,050
------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE TAXES 49,983 12,494
INCOME TAX EXPENSE 15,744 3,326
------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS 34,239 9,168
EARNINGS FROM DISCONTINUED
OPERATIONS, NET OF TAXES -- 24,170
------------------------------------------
NET EARNINGS $ 34,239 $ 33,338
==========================================
BASIC EARNINGS PER SHARE
CONTINUING OPERATIONS $ 0.44 $ 0.12
DISCONTINUED OPERATIONS -- 0.32
------------------------------------------
NET EARNINGS $ 0.44 $ 0.44
==========================================
DILUTED EARNINGS PER SHARE
CONTINUING OPERATIONS $ 0.43 $ 0.12
DISCONTINUED OPERATIONS -- 0.32
------------------------------------------
NET EARNINGS $ 0.43 $ 0.44
==========================================
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 78,138 74,964
==========================================
DILUTED EARNINGS PER SHARE 79,878 76,097
==========================================
See Accompanying Notes
2
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Six Months Ended June 30, 2001 and July 31, 2000
UNAUDITED
In thousands, except per share amounts 2001 2000
- ------------------------------------------------------------------------------------------------
REVENUES $ 4,361,249 $ 4,923,206
------------------------------------------
COSTS AND EXPENSES
Cost of revenues 4,191,960 4,813,685
Special provision - (17,919)
Corporate administrative and general expense 92,894 53,513
Interest expense 19,538 13,153
Interest income (8,187) (4,907)
------------------------------------------
Total costs and expenses 4,296,205 4,857,525
------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE TAXES 65,044 65,681
INCOME TAX EXPENSE 19,613 19,787
------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS 45,431 45,894
EARNINGS FROM DISCONTINUED
OPERATIONS, NET OF TAXES - 38,486
------------------------------------------
NET EARNINGS $ 45,431 $ 84,380
==========================================
BASIC EARNINGS PER SHARE
CONTINUING OPERATIONS $ 0.59 $ 0.61
DISCONTINUED OPERATIONS - 0.51
------------------------------------------
NET EARNINGS $ 0.59 $ 1.12
==========================================
DILUTED EARNINGS PER SHARE
CONTINUING OPERATIONS $ 0.58 $ 0.60
DISCONTINUED OPERATIONS 0.50
------------------------------------------
NET EARNINGS $ 0.58 $ 1.10
==========================================
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 76,671 75,209
==========================================
DILUTED EARNINGS PER SHARE 78,431 76,444
==========================================
See Accompanying Notes
3
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2001 and December 31, 2000
UNAUDITED
June 30, December 31,
$ in thousands 2001 2000
- ---------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 311,011 $ 21,850
Accounts and notes receivable 706,846 680,836
Contract work in progress 466,180 366,223
Deferred taxes 118,230 116,753
Inventory and other current assets 224,556 196,596
----------------------------------------
Total current assets 1,826,823 1,382,258
Property, plant and equipment (net of accumulated
depreciation and amortization of $417,990 and $450,709,
respectively) 636,897 760,876
Investments and goodwill, net 192,472 192,795
Deferred taxes 77,230 82,452
Other 286,315 282,180
----------------------------------------
$ 3,019,737 $ 2,700,561
========================================
(Continued On Next Page)
4
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2001 and December 31, 2000
UNAUDITED
June 30, December 31,
$ in thousands 2001 2000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 482,616 $ 482,930
Short-term debt 38,415 227,793
Advances from affiliate 384,728 153,088
Advance billings on contracts 334,471 311,239
Accrued salaries, wages and benefit plans 309,086 288,699
Other accrued liabilities 203,839 184,332
-------------------------------------------
Total current liabilities 1,753,155 1,648,081
-------------------------------------------
Long-term debt due after one year 17,585 17,576
Other noncurrent liabilities 415,545 401,827
Contingencies and commitments
Shareholders' equity
Capital stock
Preferred - authorized 20,000,000 shares
without par value; none issued --- ---
Common - authorized 150,000,000 shares
of $0.01 par value; issued and outstanding-
80,117,244 shares and 74,609,050 shares,
respectively 801 746
Additional capital 345,687 167,869
Unamortized executive stock plan expense (26,447) (32,411)
Accumulated other comprehensive loss (46,338) (42,719)
Retained earnings 559,749 539,592
-------------------------------------------
Total shareholders' equity 833,452 633,077
-------------------------------------------
$ 3,019,737 $ 2,700,561
===========================================
See Accompanying Notes
5
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2001 and July 31, 2000
UNAUDITED
$ in thousands 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 45,431 $ 84,380
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization - continuing
operations 62,214 71,784
Depreciation, depletion and amortization -
discontinued operations -- 83,776
Deferred taxes 5,480 1,220
Special provision, net of cash paid (3,868) (29,148)
Asset write-off -- 17,762
Changes in operating assets and liabilities, excluding
effects of business acquisitions/dispositions 156,305 (84,535)
Equity in earnings of investee (6,013) (4,684)
Other, net 16,257 (122)
----------------------------------------
Cash provided by operating activities 275,806 140,433
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - continuing operations (102,394) (164,900)
Capital expenditures - discontinued operations -- (88,624)
Proceeds from sale of property, plant and equipment 31,916 49,633
Investments, net 9,299 40,084
Other, net 6,109 (12,989)
----------------------------------------
Cash utilized by investing activities (55,070) (176,796)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (12,455) (38,026)
(Decrease) increase in short-term borrowings (188,801) 56,995
Proceeds from sale/leaseback transaction 127,000 --
Stock options exercised 143,745 18
Purchases of common stock -- (23,003)
Other, net (1,064) (2,113)
----------------------------------------
Cash provided (utilized) by financing activities 68,425 (6,129)
----------------------------------------
Increase (decrease) in cash and cash equivalents 289,161 (42,492)
Cash and cash equivalents at beginning of period 21,850 148,130
----------------------------------------
Cash and cash equivalents at end of period $ 311,011 $ 105,638
========================================
See Accompanying Notes
6
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) On November 30, 2000, a reverse spin-off distribution to shareholders was
effected which separated Fluor Corporation (Fluor) into two publicly-traded
companies - a "new" Fluor ("New Fluor" or the "company") and Massey Energy
Company ("Massey"). The reverse spin-off was accomplished through the
distribution of 100% of the common stock of New Fluor to shareholders of
existing Fluor. As a result, each existing Fluor shareholder received one
share of New Fluor common stock for each share of existing Fluor common
stock and retained their shares in existing Fluor, whose name was changed
to Massey Energy Company. Because of the relative significance of the
company's operations to Fluor, the company is treated as the "accounting
successor" for financial reporting purposes. Accordingly, Massey's results
of operations for periods preceding the separation date are presented as
discontinued operations.
In connection with the reverse spin-off, the company changed to a calendar-
year basis of reporting financial results. For comparative purposes, the
fiscal year 2000 periods that ended closest to June 30 (the three and six
months ended July 31, 2000 or the "comparison periods") are presented in
the accompanying condensed consolidated financial statements and these
notes.
The condensed consolidated financial statements do not include footnotes
and certain financial information normally presented annually under
generally accepted accounting principles and, therefore, should be read in
conjunction with the company's October 31, 2000 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 and six months ended June 30, 2001 are not necessarily indicative of
results that can be expected for a full year.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal
recurring accruals) which, in the opinion of the company, are necessary to
present fairly its consolidated financial position at June 30, 2001 and its
consolidated results of operations and cash flows for the three and six
months ended June 30, 2001 and July 31, 2000.
Certain 2000 amounts have been reclassified to conform with the 2001
presentation.
7
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(2) Inventories comprise the following:
June 30, December 31,
$ in thousands 2001 2000
-----------------------------------------------------------------------------------------------
Equipment for sale/rental $ 69,325 $ 81,511
Supplies and other 34,473 35,053
-------------------------------------------
$ 103,798 $ 116,564
===========================================
(3) Short-term debt comprises the following:
June 30, December 31,
$ in thousands 2001 2000
----------------------------------------------------------------------------------------------
Commercial paper $ --- $ 191,720
Notes payable to banks 38,010 35,091
Trade notes payable 405 982
-------------------------------------------
$ 38,415 $ 227,793
===========================================
(4) Advances from affiliate relate to cash received by a joint venture entity
from advance billings on contracts, which are made available to the
partners. Such advances are classified as an operating liability of the
company.
(5) Total comprehensive income represents the net change in shareholders'
equity during a period from sources other than transactions with
shareholders and as such, includes net earnings. For the company, the only
other component of total comprehensive income is the change in the
cumulative foreign currency translation adjustments recorded in
shareholders' equity.
The components of comprehensive income, net of related tax, are as follows:
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------
June 30, July 31, June 30, July 31,
$ in thousands 2001 2000 2001 2000
------------------------------------------------------------------------------------------------------
Net earnings $ 34,239 $ 33,338 $ 45,431 $ 84,380
Foreign currency translation
adjustment 1,158 (3,452) (3,619) (7,483)
-------------------------------- ----------------------------------
Comprehensive income $ 35,397 $ 29,886 $ 41,812 $ 76,897
================================ ==================================
8
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(6) Cash paid for interest was $25.6 million and $32.0 million for the six
month periods ended June 30, 2001 and July 31, 2000, respectively. Income
tax payments, net of receipts, were $24.4 million and $37.3 million during
the six month periods ended June 30, 2001 and July 31, 2000, respectively.
(7) During 2001, New Fluor reorganized its business units to facilitate its
leadership as a single, highly focused company. The business units are
grouped into three segments: Engineering, Procurement and Construction
(EPC), Asset Services and Business Services and Other. The EPC segment
includes six business units: Energy & Chemicals, Duke/Fluor Daniel,
Manufacturing and Life Sciences, Telecommunications, Mining and
Transportation. The Asset Services segment includes three business units:
American Equipment Company, Fluor Federal Services and Global Services. The
Business Services and Other segment includes three business units: Fluor
Signature Services (the company's shared services organization), TRS
Staffing Solutions and New Ventures. Additionally, certain management costs
that were previously charged to business segments are now included in
corporate administrative and general expense. Prior year amounts have been
restated to conform to the current organization structure.
Total assets for the Business Services and Other segment were $343.3
million at June 30, 2001, compared with $502.3 million at December 31,
2000. The decline during 2001 was primarily the result of the sale of the
company's Sugar Land, Texas facility in June, 2001. A significant portion
of that facility was leased-back by the company.
Operating information by segment for the company's continuing operations
are as follows for the three months ended June 30, 2001 and July 31, 2000:
Business
Asset Services
$ in millions EPC Services and Other Total
- -------------------------------------------------------------------------------------------------------
2001
External revenues $1,681.4 $610.5 $ 46.5 $2,338.4
Operating profit (loss) 71.4 28.0 (14.1) 85.3
2000
External revenues $1,978.9 $593.1 $ 55.5 $2,627.5
Operating profit (loss) 24.3 31.1 (11.7) 43.7
9
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(7) (continued)
A reconciliation of the segment information to consolidated amounts for
the three months ended June 30, 2001 and July 31, 2000 is as follows:
$ in millions 2001 2000
------------------------------------------------------------------------------------------------
Total segment operating profit $ 85.3 $ 43.7
Corporate administrative and general expense (31.4) (26.3)
Interest expense, net (3.9) (4.9)
---------------------------------------
Earnings from continuing operations before taxes $ 50.0 $ 12.5
=======================================
Operating information by segment for the company's continuing operations
are as follows for the six months ended June 30, 2001 and July 31, 2000:
Business
Asset Services
$ in millions EPC Services and Other Total
------------------------------------------------------------------------------------------------
2001
External revenues $3,058.2 $1,204.9 $ 98.1 $4,361.2
Operating profit (loss) 136.4 54.4 (21.6) 169.2
2000
External revenues $3,710.2 $1,096.2 $116.8 $4,923.2
Operating profit (loss) 87.5 57.5 (16.2) 128.8
A reconciliation of the segment information to consolidated amounts for
the six months ended June 30, 2001 and July 31, 2000 is as follows:
$ in millions 2001 2000
------------------------------------------------------------------------------------------------
Total segment operating profit $ 169.2 $ 128.8
Loss on business disposition not allocated to a segment --- (19.3)
Special provision --- 17.9
Corporate administrative and general expense (92.9) (53.5)
Interest expense, net (11.3) (8.2)
---------------------------------------
Earnings from continuing operations before taxes $ 65.0 $ 65.7
=======================================
10
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(8) The company uses forward exchange contracts to hedge certain foreign
currency transactions entered into in the ordinary course of business. The
company does not engage in currency speculation. The company's forward
exchange contracts do not subject the company to significant risk from
exchange rate movements because gains and losses on such contracts offset
losses and gains, respectively, in the transactions being hedged.
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 derivatives that are used in
hedging transactions are highly effective in offsetting changes in the fair
value of the hedged items.
The company generally limits exposure to foreign currency fluctuations in
most of its engineering and construction contracts through provisions that
require client payments in U.S. dollars or other currencies corresponding
to the currency in which costs are incurred. As a result, the company
generally does not need to hedge foreign currency cash flows for contract
work performed. Under certain limited circumstances, such foreign currency
payment provisions could be deemed embedded derivatives. As of June 30,
2001, the company had no significant embedded derivatives in any of its
contracts.
(9) In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". These statements will be
effective for the company's calendar year 2002. Under the new rules,
goodwill will no longer be amortized but will be subject to annual
impairment tests. Application of the nonamortization provisions is expected
to result in an increase in net income of approximately $6 million ($0.07
per diluted share) per year. During 2002, the company will perform the
first of the required impairment tests of goodwill and has not yet
determined what the effect such tests will have on results of operations or
financial position of the company.
11
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is provided to increase understanding of,
and should be read in conjunction with, the condensed consolidated financial
statements and accompanying notes and the company's October 31, 2000 annual
report on Form 10-K. For purposes of reviewing this document, "operating profit"
is calculated as revenues less cost of revenues excluding: special provision;
corporate administrative and general expense; interest expense; interest income;
domestic and foreign income taxes; other non-operating income and expense items;
and gain or loss on discontinued operations.
The company has changed to a calendar-year basis of reporting financial results,
effective January 1, 2001. For comparative purposes, the fiscal 2000 periods
that ended closest to June 30 (the three and six months ended July 31, 2000 or
the "comparison periods") are presented in the accompanying condensed
consolidated financial statements and the following discussion.
FORWARD-LOOKING INFORMATION
Statements regarding the company's projected earning levels, new awards and
backlog levels and the implementation of strategic initiatives and
organizational changes are forward looking in nature. These forward-looking
statements reflect current analysis of existing information. Caution must be
exercised in relying on forward-looking statements. Due to known and unknown
risks, the company's actual results may differ materially from its expectations
or projections. Factors potentially contributing to such differences include,
among others:
. Changes in global business, economic, political and social conditions;
. The company's failure to receive anticipated new contract awards;
. Customer cancellations of, or scope adjustments to, existing contracts;
. Difficulties or delays incurred in the execution of construction contracts
resulting in cost overruns or liabilities;
. Customer delays or defaults in making payments;
. Difficulties and delays incurred in the implementation of strategic
initiatives; and
. Competition in the global engineering and construction industry.
While most risks affect only future costs or revenues anticipated by the
company, some risks may relate to accruals that have already been reflected in
earnings. The company's failure to receive payments of accrued amounts could
result in a charge against future earnings.
Additional information concerning these and other factors can be found in press
releases as well as periodic filings with the Securities and Exchange
Commission, including the discussion under the heading "Item 1. Business - Other
Matters - Company Business Risks" in the company's Form 10-K filed January 29,
2001. These filings are available either publicly or upon request from Fluor's
Investor Relations Department: (949) 349-3909. The company disclaims any intent
or obligation to update its forward-looking statements.
12
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF CONTINUING OPERATIONS
Revenues for the three and six month periods ended June 30, 2001 were $2,338.4
million and $4,361.2 million, respectively, compared with $2,627.5 million and
$4,923.2 million, respectively, for the three and six months ended July 31,
2000. Net earnings from continuing operations for the three and six months ended
June 30, 2001 were $34.2 million and $45.4 million, compared with $9.2 million
and $45.9 million, respectively, for the 2000 comparison periods. Because of a
significant increase in the trading price of the company's common stock during
2001, operating results for the three and six months ended June 30, 2001 were
impacted by stock-price based compensation charges of $1.9 million after tax
($0.02 per diluted share) and $18.1 million after tax ($0.23 per diluted share),
respectively. Operating results for the six months ended July 31, 2000 were
impacted by two unusual items. First, $17.9 million ($0.23 per diluted share) of
the special provision that was recorded during fiscal year 1999 was credited to
earnings as a result of the company's decision to retain ownership and remain in
its current office location in Camberley, U.K. Additionally, a charge in the
amount of $19.3 million ($0.25 per diluted share) was recorded that related to
the write-off of certain assets and the loss on the sale of a European-based
consulting business. As discussed in greater detail in the following section,
the EPC segment recorded a significant provision for a cost overrun on one
project during the three months ended July 31, 2000.
Consolidated new awards for the three and six months ended June 30, 2001
increased 12 percent and 26 percent to $2.5 billion and $5.0 billion from $2.2
billion and $4.0 billion in the 2000 comparison periods. Consolidated backlog at
June 30, 2001 was $10.6 billion, an increase of 21 percent over the July 31,
2000 backlog of $8.8 billion. Approximately 15 percent and 21 percent of
consolidated new awards for the three and six months ended June 30, 2001 were
for projects located outside of the United States. As of June 30, 2001,
approximately 41 percent of consolidated backlog relates to international
projects, compared with 44 percent at July 31, 2000.
13
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
EPC
Revenues and operating profit for the EPC segment are summarized as follows:
Three Months Ended Six Months Ended
---------------------------- ------------------------------
June 30, July 31, June 30, July 31,
$ in millions 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------
Revenues $1,681.4 $1,978.9 $3,058.2 $3,710.2
Operating profit 71.4 24.3 136.4 87.5
Revenues have declined during the 2001 periods relative to the 2000 comparison
periods, primarily due to a decrease in the volume of work performed. The lower
level of new awards experienced during 1999 and the first half of 2000 has
contributed to the reduced volume of contract execution in the three and six
months ended June 30, 2001.
Operating profit has increased significantly during 2001. Expressed as
percentages of revenues, the operating profit margin was 4.2 percent and 4.5
percent for the three and six months ended June 30, 2001, significant
improvements over the 1.2 percent and 2.4 percent realized in the 2000
comparison periods. During the three months ended July 31, 2000, the EPC segment
recorded a provision of $54 million, representing its equal share of cost
overruns on a Duke/Fluor Daniel lump sum power project in Dearborn, Michigan.
Duke/Fluor Daniel is a joint-venture partnership between Duke Energy and the
company. During 2000, the Dearborn project was impacted by a number of adverse
factors, including labor productivity and substantial scope of work changes.
New awards for the EPC segment in the three and six months ended June 30, 2001
were $2,064.6 million and $4,141.4 million, respectively, compared with $1,739.3
million and $3,355.0 million for the 2000 comparison periods. The increase in
new awards during 2001 resulted from strong demand for new power-generating
facilities and the continuing development of large, multi-year projects in the
Energy & Chemicals business unit.
14
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table sets forth backlog for each of the segment's business units:
June 30, December 31, July 31,
$ in millions 2001 2000 2000
- -----------------------------------------------------------------------------------------------
Energy & Chemicals $3,543.8 $3,350.8 $2,596.6
Duke / Fluor Daniel 2,195.4 1,315.2 1,099.9
Manufacturing & Life Sciences 1,358.1 1,039.0 1,153.4
Telecommunications 374.9 883.8 1,017.6
Mining 678.8 694.3 1,002.8
Transportation 269.9 302.8 381.6
--------------------------------------------
Total EPC backlog $8,420.9 $7,585.9 $7,251.9
============================================
The overall increase in backlog for the EPC segment at June 30, 2001 compared
with July 31, 2000 is consistent with the improving trend in new awards in the
energy, chemicals and power markets. Although backlog reflects business which is
considered to be firm, cancellations or scope adjustments may occur. Backlog is
adjusted to reflect any known project cancellations, deferrals and revised
project scope and cost, both upward and downward. Backlog for the
Telecommunications business unit at June 30, 2001 includes a $400 million
downward adjustment for a reduction in scope on one project that occurred during
the first quarter of the year.
ASSET SERVICES
Revenues and operating profit for the Asset Services segment are summarized as
follows:
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, July 31, June 30, July 31,
$ in millions 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------
Revenues $610.5 $593.1 $1,204.9 $1,096.2
Operating profit 28.0 31.1 54.4 57.5
Revenues have increased during the 2001 periods, due to a higher volume of work
performed at both the Fluor Federal Services and Global Services business units.
Operating profit for the 2001 periods was modestly lower compared with the 2000
periods. As a percent of revenues, operating profit declined to 4.6 percent and
4.5 percent during the three and six months ended June 30, 2001 compared with
5.3 percent and 5.2 percent during the respective 2000 comparison periods. These
declines have resulted primarily from growth in renewable, ongoing maintenance
contracts, which have lower risk and therefore lower margins.
15
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
New awards for the Asset Services segment in the three and six months ended June
30, 2001 were $426.9 million and $884.3 million, respectively, compared with
$478.3 million and $641.5 million for the 2000 comparison periods. The nature
and size of Asset Services projects can result in variability in new award
levels from period to period.
The American Equipment Company business unit does not generate activity that is
included in backlog. The following table sets forth backlog for the segment's
other business units:
June 30, December 31, July 31,
$ in millions 2001 2000 2000
- ---------------------------------------------------------------------------
Global Services $1,964.5 $1,578.7 $1,362.7
Fluor Federal Services 235.2 602.1 177.9
-----------------------------------------
Total Asset Services backlog $2,199.7 $2,180.8 $1,540.6
=========================================
The overall increase in backlog for the Asset Services segment at June 30, 2001
compared with July 31, 2000 is consistent with growth in new awards in Global
Services and the annual renewal of Department of Energy work at Fernald and
Hanford that occurred during the latter part of fiscal year 2000. Although
backlog reflects business which is considered to be firm, cancellations or scope
adjustments may occur. Backlog is adjusted to reflect any known project
cancellations, deferrals and revised project scope and cost, both upward and
downward.
BUSINESS SERVICES AND OTHER
Revenues and operating loss for the Business Services and Other segment are
summarized as follows:
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, July 31, June 30, July 31,
$ in millions 2001 2000 2001 2000
- -------------------------------------------------------------------------
Revenues $ 46.5 $ 55.5 $ 98.1 $116.8
Operating loss (14.1) (11.7) (21.6) (16.2)
Operating losses of this segment relate primarily to New Ventures, which were
combined under a single point of oversight and accountability as part of an
organizational realignment in 2001.
16
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
OTHER
Net interest expense for the three and six months ended June 30, 2001 decreased
by $1.0 million and increased by $3.1 million compared with the three and six
months ended July 31, 2000, as the net result of higher average levels of
interest bearing obligations during 2001, offset during the second quarter by
higher cash balances.
Corporate administrative and general expense for the three and six-month periods
ended June 30, 2001 was $5.1 million and $39.4 million higher than the 2000
comparison periods as the principal result of the stock-price based compensation
charges of $2.9 million and $28.0 million pretax ($1.9 million and $18.1 million
after tax) discussed above. Additionally, expenses related to the company's
Enterprise Resource Management system, Knowledge@Work, have increased during
2001 following the implementation of the system at the beginning of the year.
For the three and six months ended June 30, 2001, the effective tax rates were
31.5 percent and 30.2 percent, respectively, compared with 26.6 percent and 30.1
percent for the 2000 comparison periods. The stock-price based compensation
charges during 2001 and the unusual items during 2000 impacted the effective tax
rates. Excluding such impacts, the effective tax rates for the 2001 three and
six-month periods were 31.7 percent and 31.6 percent, compared with 26.6 percent
and 29.5 percent during the 2000 comparison periods. The effective rates for
the 2000 periods were lower due to the utilization of prior year tax credits.
FINANCIAL POSITION AND LIQUIDITY
At June 30, 2001, the company had cash and cash equivalents of $311.0 million
and a total debt to total capitalization ratio of 6.3 percent.
Cash flows have not been restated to exclude discontinued operations, and
therefore include the Coal segment for the 2000 comparison period. Cash
provided by operating activities was $275.8 million during the six months ended
June 30, 2001, compared with $140.4 million during the six months ended July 31,
2000. A substantial decline in net operating assets and liabilities associated
with engineering and construction activities was the largest contributor to the
increase in cash provided by operating activities in the six months ended June
30, 2001 compared with the 2000 period. An increase of $231.6 million in
advances from Duke/Fluor Daniel in 2001 compared with $23.5 million in the 2000
comparison period is the largest component of this change. The level of
operating assets and liabilities is affected from period to period by the mix,
stage of completion and commercial terms of the projects.
Cash utilized by investing activities totaled $55.1 million during the 2001
period compared with $176.8 million during the 2000 period. The 2000 amount
includes $88.6 million of capital expenditures for discontinued operations.
Capital expenditures for continuing operations in the 2000 period included
Knowledge@Work, equipment purchases and facility acquisition costs. Capital
expenditures during the 2001 period included Knowledge@Work and equipment
purchases only.
17
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Cash provided by financing activities totaled $68.4 million during the six
months ended June 30, 2001 compared with cash utilized of $6.1 million for the
six months ended July 31, 2000. During 2001, the company retired all
outstanding commercial paper using the proceeds from the sale/leaseback of the
Sugar Land, Texas facility. Conversely, during the 2000 comparison period,
short-term debt increased by $57.0 million. Stock option exercises provided
$143.7 million during the 2001 period, compared with only a nominal amount
during the 2000 period. Dividends paid during the 2001 period were $12.5
million ($0.16 per share), compared with $38.0 million ($0.50 per share) during
the 2000 comparison period. An additional $0.16 per share dividend was declared
during the three months ended June 30, 2001, but had not been paid as of the end
of the quarter. In connection with a stock buyback program approved by the
Board of Directors on March 8, 2000, the company purchased 747,000 shares of its
common stock for $23.0 million during the 2000 comparison period.
The company has on-hand and access to sufficient sources of funds to meet its
anticipated operating needs for the foreseeable future. Significant short- and
long-term lines of credit are maintained with banks which, along with cash on
hand, provide adequate operating liquidity. Liquidity is also provided by the
company's commercial paper program.
FINANCIAL INSTRUMENTS
The company utilizes forward exchange contracts to hedge foreign currency
transactions entered into in the ordinary course of business and not to engage
in currency speculation. At June 30, 2001 and December 31, 2000, the company
had forward foreign exchange contracts of less than 18 months duration to
exchange principally Euros, Australian dollars, British pounds, Canadian
dollars, Dutch guilders, German marks and Spanish pesetas for U.S. dollars. The
total gross notional amount of these contracts at June 30, 2001 and December 31,
2000 was $108.8 million and $73.0 million, respectively. Forward contracts to
purchase foreign currency amounted to $108.7 million and $72.6 million and
forward contracts to sell foreign currency totaled $0.1 million and $0.4 million
at June 30, 2001 and December 31, 2000, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". These statements will be effective for
the company's calendar year 2002. Under the new rules, goodwill will no longer
be amortized but will be subject to annual impairment tests. Application of the
nonamortization provisions is expected to result in an increase in net income of
approximately $6 million ($0.07 per diluted share) per year. During 2002, the
company will perform the first of the required impairment tests of goodwill and
has not yet determined what the effect such tests will have on results of
operations or financial position of the company.
18
FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
Three and Six Months Ended June 30, 2001 and July 31, 2000
UNAUDITED
Three Months Ended
-----------------------------------
$ in millions June 30, 2001 July 31, 2000
- ----------------------------------------------------------------------------
Backlog - beginning of period $10,183.7 $ 9,188.1
New awards 2,491.5 2,217.6
Adjustments and cancellations, net 128.9 (165.2)
Work performed (2,183.5) (2,448.0)
----------------- ---------------
Backlog - end of period $10,620.6 $ 8,792.5
================= ===============
Six Months Ended
-----------------------------------
$ in millions June 30, 2001 July 31, 2000
- ----------------------------------------------------------------------------
Backlog - beginning of period $ 9,766.7 $ 9,238.7
New awards 5,025.7 3,996.5
Adjustments and cancellations, net (122.9) 109.6
Work performed (4,048.9) (4,552.3)
----------------- ---------------
Backlog - end of period $10,620.6 $ 8,792.5
================= ===============
19
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.2 Amended and Restated Bylaws of the registrant
10.1 Fluor Corporation 2001 Key Employee Performance Incentive
Plan
(b) Reports on Form 8-K.
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLUOR CORPORATION
--------------------------------------------
(Registrant)
Date: August 14, 2001 /s/ D. M. Steuert
--------------- --------------------------------------------
D. M. Steuert, Senior Vice President and
Chief Financial Officer
/s/ V. L. Prechtl
--------------------------------------------
V. L. Prechtl, Vice President and Controller
21