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 September 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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0927079
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
One Enterprise Drive, Aliso Viejo, CA 92656
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(949) 349-2000
- --------------------------------------------------------------------------------
(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 October 31, 2001 there were 80,109,012 shares of common stock outstanding.
FLUOR CORPORATION
FORM 10-Q
September 30, 2001
TABLE OF CONTENTS PAGE
- ------------------------------------------------------------------------------------------------------------------
Part I: Financial Information
Condensed Consolidated Statement of Operations for the Three Months Ended September 30,
2001 and October 31, 2000............................................................ 2
Condensed Consolidated Statement of Operations for the Nine Months Ended September 30,
2001 and October 31, 2000............................................................ 3
Condensed Consolidated Balance Sheet at September 30, 2001 and
December 31, 2000.................................................................... 4
Condensed Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2001 and October 31, 2000........................................ 6
Notes to Condensed Consolidated Financial Statements................................. 7
Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Changes in Consolidated Backlog...................................................... 22
Part II: Other Information ............................................................... 23
Signatures ................................................................................... 24
1
Part I: Financial Information
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 2001 and October 31, 2000
UNAUDITED
$ In thousands, except per share amounts 2001 2000
- ----------------------------------------------------------------------------------------------------
REVENUES $ 2,198,626 $ 2,177,022
---------------------------------------
COSTS AND EXPENSES
Cost of revenues 2,106,573 2,106,734
Corporate administrative and general expense 29,385 25,070
Interest expense 2,836 8,832
Interest income (6,184) (3,955)
---------------------------------------
Total costs and expenses 2,132,610 2,136,681
---------------------------------------
EARNINGS FROM CONTINUING 66,016 40,341
OPERATIONS BEFORE TAXES
INCOME TAX EXPENSE 21,255 12,128
---------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 44,761 28,213
LOSS FROM DISCONTINUED
OPERATIONS, NET OF TAXES (99,275) (40,896)
---------------------------------------
NET LOSS $ (54,514) $ (12,683)
=======================================
BASIC EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.57 $ 0.38
DISCONTINUED OPERATIONS (1.26) (0.55)
---------------------------------------
NET LOSS $ (0.69) $ (0.17)
=======================================
DILUTED EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.56 $ 0.37
DISCONTINUED OPERATIONS (1.24) (0.54)
---------------------------------------
NET LOSS $ (0.68) $ (0.17)
=======================================
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 78,882 75,003
=======================================
DILUTED EARNINGS PER SHARE 79,854 76,419
=======================================
See Accompanying Notes
2
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2001 and October 31, 2000
UNAUDITED
$ In thousands, except per share amounts 2001 2000
- ----------------------------------------------------------------------------------------------------------
REVENUES $ 6,337,210 $ 6,816,709
---------------------------------------------
COSTS AND EXPENSES
Cost of revenues 6,067,450 6,630,655
Special provision -- (17,919)
Corporate administrative and general expense 122,279 78,583
Interest expense 22,374 21,985
Interest income (14,371) (8,862)
---------------------------------------------
Total costs and expenses 6,197,732 6,704,442
---------------------------------------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE TAXES 139,478 112,267
INCOME TAX EXPENSE 43,114 32,835
---------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 96,364 79,432
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAXES (105,447) (7,735)
---------------------------------------------
NET EARNINGS (LOSS) $ (9,083) $ 71,697
=============================================
BASIC EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 1.24 $ 1.05
DISCONTINUED OPERATIONS (1.36) (0.10)
---------------------------------------------
NET EARNINGS (LOSS) $ (0.12) $ 0.95
=============================================
DILUTED EARNINGS (LOSS) PER SHARE
CONTINUING OPERATIONS $ 1.22 $ 1.04
DISCONTINUED OPERATIONS (1.34) (0.10)
---------------------------------------------
NET EARNINGS (LOSS) $ (0.12) $ 0.94
=============================================
SHARES USED TO CALCULATE
BASIC EARNINGS PER SHARE 77,408 75,140
=============================================
DILUTED EARNINGS PER SHARE 78,905 76,435
=============================================
See Accompanying Notes
3
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2001 and December 31, 2000
UNAUDITED
September 30, December 31,
$ in thousands 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 411,153 $ 21,850
Accounts and notes receivable 574,752 607,103
Contract work in progress 402,215 364,289
Deferred taxes 142,798 116,753
Inventory and other current assets 118,229 120,787
Assets of discontinued operations 257,518 414,344
---------------------------------------------
Total current assets 1,906,665 1,645,126
Property, plant and equipment (net of accumulated
depreciation and amortization of $303,245 and
$349,748, respectively) 498,653 573,155
Investments and goodwill, net 141,342 120,958
Deferred taxes 106,511 82,452
Other 268,413 278,870
---------------------------------------------
$ 2,921,584 $ 2,700,561
=============================================
(Continued On Next Page)
4
FLUOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2001 and December 31, 2000
UNAUDITED
September 30, December 31,
$ in thousands 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 390,887 $ 451,479
Short-term debt 37,167 227,793
Advances from affiliate 451,574 153,088
Advance billings on contracts 385,479 309,764
Accrued salaries, wages and benefit plans 244,973 283,558
Other accrued liabilities 156,526 177,676
Liabilities of discontinued operations 70,769 44,663
-------------------------------------------------
Total current liabilities 1,737,375 1,648,021
-------------------------------------------------
Long-term debt due after one year 17,590 17,576
Other noncurrent liabilities 402,427 401,887
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 -80,097,908
shares and 74,609,050 shares, respectively 801 746
Additional capital 344,788 167,869
Unamortized executive stock plan expense (24,571) (32,411)
Accumulated other comprehensive loss (49,239) (42,719)
Retained earnings 492,413 539,592
-------------------------------------------------
Total shareholders' equity 764,192 633,077
-------------------------------------------------
$ 2,921,584 $ 2,700,561
=================================================
See Accompanying Notes
5
FLUOR CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2001 and October 31, 2000
UNAUDITED
$ in thousands 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (9,083) $ 71,697
Adjustments to reconcile net earnings (loss) to cash
provided by operating activities:
Depreciation and amortization -
(non-coal operations) 91,759 109,173
Depreciation, depletion and amortization -
Coal operations -- 128,710
Deferred taxes (15,036) (5,991)
Special provision, net of cash paid (3,868) (32,048)
Provision for impairment of assets and loss on
discontinued operations 131,623 64,555
Changes in operating assets and liabilities, exclud-
ing effects of business acquisitions/dispositions 267,197 (120,299)
Equity in (earnings) losses of investees (19,683) 18,594
Other, net (16,149) (33)
------------------------------------------
Cash provided by operating activities 426,760 234,358
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - non-coal operations (161,078) (218,623)
Capital expenditures - Coal operations -- (144,814)
Proceeds from sale of property, plant and equipment 47,943 71,643
Investments, net 13,220 41,429
Other, net 9,074 (13,915)
------------------------------------------
Cash utilized by investing activities (90,841) (264,280)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (25,274) (56,963)
(Decrease) increase in short-term borrowings (190,049) 35,302
Proceeds from sale/leaseback transaction 127,000 --
Stock options exercised 144,337 18
Purchases of common stock (1,407) (23,003)
Other, net (1,223) (4,136)
------------------------------------------
Cash provided (utilized) by financing activities 53,384 (48,782)
------------------------------------------
Increase (decrease) in cash and cash equivalents 389,303 (78,704)
Cash and cash equivalents at beginning of period 21,850 148,130
------------------------------------------
Cash and cash equivalents at end of period $ 411,153 $ 69,426
==========================================
See Accompanying Notes
6
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(1) In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" (FAS 144). Under FAS
144 a component of a business that is held for sale is reported in
discontinued operations if (i) the operations and cash flows will be,
or have been, eliminated from the on-going operations of the company
and, (ii) the company will not have any significant continuing
involvement in such operations. In the quarter ended September 30,
2001, the company adopted the provisions of FAS 144 effective January
1, 2001. See note 10 below for a discussion of the impact of adoption.
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 also 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 September
30 (the three and nine months ended October 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 nine months ended September 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 September 30,
2001 and its consolidated results of operations and cash flows for the
three and nine months ended September 30, 2001 and October 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:
September 30, December 31,
$ in thousands 2001 2000
---------------------------------------------------------------------------
Equipment for sale/rental $ 31,651 $ 39,420
Supplies and other 17,429 18,394
----------------------------
$ 49,080 $ 57,814
============================
(3) Short-term debt comprises the following:
September 30, December 31,
$ in thousands 2001 2000
---------------------------------------------------------------------------
Commercial paper $ -- $ 191,720
Notes payable to banks 36,900 35,091
Trade notes payable 267 982
----------------------------
$ 37,167 $ 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) The components of comprehensive income (loss), net of related tax, are as
follows:
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 30, October 31, September 30, October 31,
$ in thousands 2001 2000 2001 2000
-------------------------------------------------------------- -----------------------------
Net earnings (loss) $ (54,514) $ (12,683) $ (9,083) $ 71,697
Foreign currency translation
adjustment (2,901) (6,030) (6,520) (13,513)
---------------------------- ----------------------------
Comprehensive income
(loss) $ (57,415) $ (18,713) $ (15,603) $ 58,184
============================ ============================
8
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(6) Cash paid for interest was $27.7 million and $51.6 million for the nine-
month periods ended September 30, 2001 and October 31, 2000, respectively.
Income tax payments, net of receipts, were $40.2 million and $46.7 million
during the nine-month periods ended September 30, 2001 and October 31,
2000, respectively.
(7) During the first quarter of 2001, Fluor reorganized its business units to
facilitate its leadership as a single, highly focused company. The business
units comprising continuing operations 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: AMECO, 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.
Previously reported amounts have been restated to conform to the current
organization structure and to eliminate discontinued operations (see note
10.)
Total assets for the Business Services and Other segment were $330.3
million at September 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. The company's obligations for
minimum rentals under the lease are as follows (in thousands):
Year ended December 31,
------------------------------------------
2001 $ 4,943
2002 9,725
2003 9,725
2004 9,725
2005 9,725
Thereafter $165,818
9
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(7) (continued)
Operating information by segment for the company's continuing operations
are as follows for the three months ended September 30, 2001 and October
31, 2000:
Business
Asset Services
$ in millions EPC Services and Other Total
----------------------------------------------------------------------------------------------------------
2001
External revenues $1,750.5 $443.3 $ 4.8 $2,198.6
Operating profit 66.4 19.9 5.7 92.0
2000
External revenues $1,674.4 $494.3 $ 8.3 $2,177.0
Operating profit (loss) 57.1 19.0 (5.8) 70.3
A reconciliation of the segment information to consolidated amounts for the
three months ended September 30, 2001 and October 31, 2000 is as follows:
$ in millions 2001 2000
----------------------------------------------------------------------------------------------------------
Total segment operating profit $ 92.0 $ 70.3
Corporate administrative and general expense (29.4) (25.1)
Interest income (expense), net 3.4 (4.9)
------------------------------------------
Earnings from continuing operations before taxes $ 66.0 $ 40.3
==========================================
Operating information by segment for the company's continuing operations
are as follows for the nine months ended September 30, 2001 and October 31,
2000:
Business
Asset Services
$ in millions EPC Services and Other Total
----------------------------------------------------------------------------------------------------------
2001
External revenues $4,808.7 $1,502.6 $25.9 $6,337.2
Operating profit (loss) 202.8 74.8 (7.8) 269.8
2000
External revenues $5,384.6 $1,409.4 $22.7 $6,816.7
Operating profit (loss) 144.6 82.9 (22.1) 205.4
10
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(7) (continued)
A reconciliation of the segment information to consolidated amounts for the
nine months ended September 30, 2001 and October 31, 2000 is as follows:
$ in millions 2001 2000
------------------------------------------------------------------------------------------------------------
Total segment operating profit $ 269.8 $ 205.4
Loss on business disposition not allocated to a segment -- (19.3)
Special provision -- 17.9
Corporate administrative and general expense (122.3) (78.6)
Interest expense, net (8.0) (13.1)
-----------------------------------------
Earnings from continuing operations before taxes $ 139.5 $ 112.3
=========================================
(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 September
30, 2001, the company had no significant embedded derivatives in any of its
contracts.
11
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(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 earnings from continuing operations of
approximately $3.9 million ($0.05 per diluted share) per year. During 2002,
the company will perform the first of the required impairment tests of
goodwill associated with continuing operations and has not yet determined
what the effect such tests will have on its results of operations or
financial position.
(10) In September 2001, in connection with the company's continued strategic
focus on its core engineering, procurement and construction and asset
services businesses, the company's Board of Directors approved a plan to
dispose of certain non-core operations of the Asset Services and Business
Services and Other segments. An active program to consummate such disposal
has been initiated and is expected to be completed within one year. The
operations to be disposed of include the following:
. Asset Services
- Dealership operations of AMECO
- AMECO subsidiaries in Peru and Argentina
. Business Services and Other
- All operations of TRS, except for the onsite recruiting
services business that support Fluor projects in the U.S.
and U.K.
- GlobEquip, LLC
These operations will be disposed of by sale of the operating unit or of
the related assets. The aggregate losses recognized to write down these
entities to fair value less cost to sell approximated $98.0 million, net of
tax of $33.7 million, for the quarter ended September 30, 2001 and are
included in the loss from discontinued operations in the consolidated
statements of earnings.
12
FLUOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
UNAUDITED
(10) (continued)
The revenues and earnings (loss) from discontinued operations related to the
disposal groups and the coal segment for the three and nine months ended
September 30, 2001 and October 31, 2000 are as follows (in thousands):
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, October 31, September 30, October 31,
2001 2000 2001 2000
------------ ----------- ------------- -----------
Revenue
AMECO $ 68,805 $ 85,347 $ 214,401 $ 266,476
TRS 35,210 46,192 112,249 148,582
GlobEquip, LLC -- -- 30 --
Coal -- 288,488 -- 825,701
------------ ----------- ------------- -----------
Total $ 104,015 $ 420,027 $ 326,680 $ 1,240,759
============ =========== ============= ===========
Earnings (loss) from Discontinued Operations
AMECO $ (210) $ $(17,724) $ (628) $ (24,143)
TRS (574) 1,482 (3,801) 1,956
GlobEquip, LLC (926) (200) (5,699) (500)
Coal -- (8,393) -- 46,174
------------ ----------- ------------- -----------
Earnings (loss) from operations before tax (1,710) (24,835) (10,128) 23,487
Loss on disposition before tax (131,623) (24,215) (131,623) (24,215)
Provision (benefit) for taxes (34,058) (8,154) (36,304) 7,007
------------ ----------- ------------- -----------
Loss from Discontinued Operations $ (99,275) $ (40,896) $ (105,447) $ (7,735)
============ =========== ============= ===========
The net assets of the disposal groups consisted of the following at
September 30, 2001 (in thousands):
AMECO TRS Other Total
-------- ------- ------- --------
Accounts & Notes Receivable $ 44,299 $17,145 -- $ 61,444
Inventories & Other Assets 64,636 10,570 -- 75,206
Property, Plant & Equipment 119,871 997 -- 120,868
-------- ------- ------- --------
Total Assets of
Discontinued Operations $228,806 $28,712 -- $257,518
======== ======= ======= ========
Accounts and Notes Payable $ 30,040 $6,098 -- $ 36,138
Accrued and other Liabilities 23,484 9,000 $ 2,147 34,631
-------- ------- ------- --------
Total Liabilities of
Discontinued Operations $ 53,524 $15,098 $ 2,147 $ 70,769
======== ======= ======= ========
13
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 September 30 (the three and nine months ended October 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 disposition of non-core businesses; 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 5. Other Events -
Factors and Trends Affecting Fluor and its Business - Forward-Looking
Statements" in the company's Form 8-K filed September 25, 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.
14
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF CONTINUING OPERATIONS
In September 2001, the company adopted a plan as approved by the Board of
Directors that will enhance focus on its core engineering, procurement,
construction and maintenance (EPCM) business through the disposition of certain
non-strategic businesses. The company is pursuing the sale of its AMECO
dealerships and the non-EPCM portions of TRS, its temporary staffing business.
In addition, the company will exit certain AMECO markets in South America and
GlobEquip, LLC, a web-based business established to sell surplus heavy
equipment. In accordance with the provisions of Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the results of operations and the provisions to adjust the
assets of the disposal groups to fair value have been reported as discontinued
operations. See Discontinued Operations below.
Revenues from continuing operations for the three and nine-month periods ended
September 30, 2001 were $2,198.6 million and $6,337.2 million, respectively,
compared with $2,177.0 million and $6,816.7 million, respectively, for the three
and nine months ended October 31, 2000. Earnings from continuing operations for
the three and nine months ended September 30, 2001 were $44.8 million and $96.4
million, compared with $28.2 million and $79.4 million, respectively, for the
2000 comparison periods. Because of significant fluctuations in the trading
price of the company's common stock during 2001, operating results for the three
and nine months ended September 30, 2001 were impacted by stock-price based
compensation (credits) charges of $(2.9) million after tax ($0.04 per diluted
share) and $15.2 million after tax ($0.19 per diluted share), respectively.
Operating results for the nine months ended October 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 nine months ended September 30, 2001
decreased 11 percent and increased 9 percent to $2.9 billion and $7.9 billion
from $3.3 billion and $7.3 billion in the 2000 comparison periods. Consolidated
backlog at September 30, 2001 was $11.0 billion, an increase of 9 percent over
the October 31, 2000 backlog of $10.0 billion. Approximately 11 percent and 17
percent of consolidated new awards for the three and nine months ended September
30, 2001 were for projects located outside of the United States. As of September
30, 2001, approximately 33 percent of consolidated backlog relates to
international projects, compared with 43 percent at October 31, 2000.
15
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 Nine Months Ended
--------------------------- --------------------------
September 30, October 31, September 30, October 31,
$ in millions 2001 2000 2001 2000
- -------------------------------------------------------------------------------
Revenues $ 1,750.5 $ 1,674.4 $ 4,808.7 $ 5,384.6
Operating profit 66.4 57.1 202.8 144.6
Revenues declined during the 2001 nine-month period relative to the 2000
comparison period, 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
contributed to the reduced volume of contract execution in the nine months ended
September 30, 2001.
Operating profit has increased significantly during 2001. Expressed as
percentages of revenues, the operating profit margin was 3.8 percent and 4.2
percent for the three and nine months ended September 30, 2001, reflecting
improvements over the 3.4 percent and 2.7 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.
The Dearborn project was impacted by a number of adverse factors, including
labor productivity and substantial scope of work changes. Duke/Fluor Daniel is a
joint-venture partnership between Duke Energy and the company.
New awards for the EPC segment in the three and nine months ended September 30,
2001 were $1,891.5 million and $6,032.8 million, respectively, compared with
$1,980.8 million and $5,335.8 million for the 2000 comparison periods. The 2000
amounts included an $800 million award for the Hamaca crude oil upgrader project
in Venezuela. The increase in new awards during the 2001 nine-month period
resulted primarily from strong demand for new power-generating facilities.
16
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:
September 30, December 31, October 31,
$ in millions 2001 2000 2000
- --------------------------------------------------------------------------------
Energy & Chemicals $ 3,232.0 $ 3,350.8 $ 3,110.5
Duke / Fluor Daniel 2,539.7 1,315.2 1,224.9
Manufacturing & Life Sciences 1,383.5 1,039.0 1,077.7
Telecommunications 329.3 883.8 946.0
Mining 372.4 694.3 964.0
Transportation 355.6 302.8 332.2
---------------------------------------------
Total EPC backlog $ 8,212.5 $ 7,585.9 $ 7,655.3
=============================================
The overall increase in backlog for the EPC segment at September 30, 2001
compared with October 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. During the third
quarter of 2001, the indefinite delay of a mining project resulted in an
approximately $250 million reduction of that business unit's backlog. During the
first quarter of 2001, the backlog for the Telecommunications business unit was
adjusted downward by $400 million for a reduction in scope on one project.
ASSET SERVICES
Revenues and operating profit for the Asset Services segment are summarized as
follows:
Three Months Ended Nine Months Ended
--------------------------- --------------------------
September 30, October 31, September 30, October 31,
$ in millions 2001 2000 2001 2000
- --------------------------------------------------- --------------------------
Revenues $ 443.3 $ 494.3 $ 1,502.6 $ 1,409.4
Operating profit 19.9 19.0 74.8 82.9
Revenues declined during the 2001 three-month period, due to weaknesses in the
Operations and Maintenance business unit, reflecting the slowing economic
environment primarily in the manufacturing sector. For the nine-month period of
2001, improved performance from the Federal Services business unit more than
offset the Operations and Maintenance revenue decline. During the three months
ended October 31, 2000, the segment recorded a $4 million charge relating to
excess equipment at certain of AMECO'S non-U.S. locations. Excluding this
charge, the operating profit percentage declined to 4.5 percent and 5.0 percent
during the three and nine months ended September 30, 2001 compared with 4.6
percent and 6.2 percent during the
17
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
respective 2000 comparison periods. These declines have resulted primarily from
growth in renewable, ongoing maintenance contracts, which have lower risk and
therefore lower margins partially offset by improved performance in Federal
Services.
New awards for the Asset Services segment in the three and nine months ended
September 30, 2001 were $1,021.6 million and $1,905.9 million, respectively,
compared with $1,303.0 million and $1,944.5 million for the 2000 comparison
periods. Reduced awards in the Operations and Maintenance business unit due to
the slowing economy contributed to the quarterly decline. The nature and size of
Asset Services projects can also result in variability in new award levels from
period to period.
The AMECO business unit does not generate activity that is included in backlog.
The following table sets forth backlog for the segment's other business units:
September 30, December 31, October 31,
$ in millions 2001 2000 2000
- --------------------------------------------------------------------------------
Operations and Maintenance $ 1,943.1 $ 1,578.7 $ 1,591.5
Fluor Federal Services 795.5 602.1 765.4
-------------------------------------------
Total Asset Services backlog $ 2,738.6 $ 2,180.8 $ 2,356.9
===========================================
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 profit (loss) for the Business Services and Other segment
are summarized as follows:
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, October 31, September 30, October 31,
$ in millions 2001 2000 2001 2000
- ---------------------------------------------------- --------------------------
Revenues $ 4.8 $ 8.3 $ 25.9 $ 22.7
Operating profit (loss) 5.7 (5.8) (7.8) (22.1)
Revenues of this segment reflected above include only those amounts that are
realized from sales to unrelated third parties. Sales to other Fluor segments,
which are not included in the revenue amounts above, include a profit component.
Previous operating losses of this segment relate primarily to New Ventures,
which were combined under a single point of oversight and
18
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
accountability as part of an organizational realignment in 2001. Activities in
New Ventures was substantially curtailed during the three months ended September
30, 2001.
OTHER
Net interest income for the three months ended September 30, 2001 was $3.4
million, compared with net interest expense of $4.9 million for the 2000
comparison period. For the nine-month period ended September 30, 2001, net
interest expense declined $5.1 million relative to the 2000 comparison period.
These improvements were the combined result of lower average levels of interest
bearing obligations during 2001 and higher cash balances.
Corporate administrative and general expense for the three and nine-month
periods ended September 30, 2001 was $4.3 million and $43.7 million higher than
during the 2000 comparison periods as the principal result of the stock-price
based compensation (credits) charges of $(4.5) million and $23.4 million pretax
($(2.9) million and $15.2 million after tax) discussed above. 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.
The effective tax rates for the three and nine months ended September 30, 2001,
were 32.2 percent and 30.9 percent, respectively, compared with 30.1 percent and
29.2 percent for the 2000 comparison periods. The stock-price based compensation
adjustments 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 nine-month periods were 32.0 percent and 31.5 percent, compared with 30.5
percent and 29.1 percent during the 2000 comparison periods. The effective rates
for the 2001 periods were higher due to increased profits in certain high tax
jurisdictions. In addition, the lower rates for the 2000 periods reflect the
utilization of prior year tax credits.
RESULTS OF DISCONTINUED OPERATIONS
Discontinued operations for the three and nine months ended September 30, 2001
reported losses of $99.3 million and $105.4 million, respectively, compared with
losses of $40.9 million and $7.7 million for the comparison periods of 2000. The
2000 amounts include after-tax losses from the operations and disposal of the
Coal business of $29.6 million for the three-month comparison period and an
after-tax profit of $8.9 million for the nine-month comparison period.
Operating results for the businesses which have been discontinued during 2001
were after-tax losses of $1.3 million and $7.5 million for the three and nine
months ended September 30, 2001, compared with after-tax losses of $11.3 million
and $16.7 million for the 2000 comparison periods. The 2000 losses included a
$21 million pretax charge that related to accounts receivable, equipment
inventory and certain other assets of AMECO's dealership operations. Also
included in discontinued operations for the 2001 three and nine-month periods is
an after-tax impairment
19
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
charge of $98.0 million, which represents the company's current estimate of the
difference between the book and fair values of the assets which are being held
for sale or disposal.
FINANCIAL POSITION AND LIQUIDITY
At September 30, 2001, the company had cash and cash equivalents of $411.2
million and a total debt to total capitalization ratio of 6.7 percent.
Cash flows include the Coal segment for the 2000 comparison period and other
discontinued operations for both years. Cash provided by operating activities
was $426.8 million during the nine months ended September 30, 2001, compared
with $234.4 million during the nine months ended October 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 nine months ended September 30, 2001
compared with the 2000 period. An increase of $298.5 million in advances from
Duke/Fluor Daniel in 2001 compared with $65.9 million in the 2000 comparison
period is the largest component of this change. The increase in advances from
Duke/Fluor Daniel is attributable to the increase in advances from DFD clients
on projects awarded during the nine months ended September 30, 2001. All DFD
funds in excess of current operating needs is advanced to and managed by the
partners. 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 $90.8 million during the 2001
period compared with $264.3 million during the 2000 period. The 2000 amount
includes $144.8 million of capital expenditures for the discontinued Coal
operations. Capital expenditures for other 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.
Cash provided by financing activities totaled $53.4 million during the nine
months ended September 30, 2001 compared with cash utilized of $48.8 million for
the nine months ended October 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 $35.3 million. Stock option exercises provided
$144.3 million during the 2001 period, compared with only a nominal amount
during the 2000 period. Dividends paid during the 2001 period were $25.3 million
($0.32 per share), compared with $57.0 million ($0.75 per share) during the 2000
comparison period. An additional $0.16 per share dividend was declared during
the three months ended September 30, 2001, but had not been paid as of the end
of the quarter. During the third quarter of 2001, the company initiated a modest
share repurchase program to offset the dilution that has occurred over the past
year from stock option exercises. This program does not include any specific
price targets or timetables and may be suspended at any time. As of September
30, 2001, 39,100 shares had been purchased for $1.4 million. In connection with
a stock buyback program approved by the Board of Directors on
20
FLUOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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 September 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 September 30, 2001 and
December 31, 2000 was $17.3 million and $73.0 million, respectively,
representing forward contracts to purchase foreign currency.
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 earnings from
continuing operations of approximately $3.9 million ($0.05 per diluted share)
per year. During 2002, the company will perform the first of the required
impairment tests of goodwill associated with continuing operations and has not
yet determined what the effect such tests will have on results of operations or
financial position.
21
FLUOR CORPORATION
CHANGES IN CONSOLIDATED BACKLOG
Three and Nine Months Ended September
30, 2001 and October 31, 2000
UNAUDITED
Three Months Ended
------------------
September 30, October 31,
$ in millions 2001 2000
- ------------------------------------------------------------------------------
Backlog - beginning of period $ 10,620.6 $ 8,792.5
New awards 2,913.1 3,283.8
Adjustments and cancellations, net (420.5) 56.3
Work performed (2,162.1) (2,120.4)
----------- ----------
Backlog - end of period $ 10,951.1 $ 10,012.2
=========== ==========
Nine Months Ended
-----------------
September 30, October 31,
$ in millions 2001 2000
- ------------------------------------------------------------------------------
Backlog - beginning of period $ 9,766.7 $ 9,238.7
New awards 7,938.7 7,280.3
Adjustments and cancellations, net (543.3) 165.8
Work performed (6,211.0) (6,672.6)
----------- ----------
Backlog - end of period $ 10,951.1 $ 10,012.2
=========== ==========
22
PART II: Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
On September 25, 2001, the company filed a Form 8-K relating to
its forward-looking statements.
23
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: November 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
24