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 - -------------------------------------------------------------------------------- (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 July 31, 2001 there were 80,124,146 shares of common stock outstanding.
FLUOR CORPORATION FORM 10-Q June 30, 2001 <TABLE> <CAPTION> TABLE OF CONTENTS PAGE - --------------------------------------------------------------------------------------------- <S> <C> 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 </TABLE> 1
Part I: Financial Information FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended June 30, 2001 and July 31, 2000 UNAUDITED <TABLE> <CAPTION> In thousands, except per share amounts 2001 2000 - ------------------------------------------------------------------------------------------------ <S> <C> <C> 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 ========================================== </TABLE> See Accompanying Notes 2
FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF EARNINGS Six Months Ended June 30, 2001 and July 31, 2000 UNAUDITED <TABLE> <CAPTION> In thousands, except per share amounts 2001 2000 - ------------------------------------------------------------------------------------------------ <S> <C> 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 ========================================== </TABLE> See Accompanying Notes 3
FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET June 30, 2001 and December 31, 2000 UNAUDITED <TABLE> <CAPTION> June 30, December 31, $ in thousands 2001 2000 - --------------------------------------------------------------------------------------------------- <S> <C> <C> 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 ======================================== </TABLE> (Continued On Next Page) 4
FLUOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET June 30, 2001 and December 31, 2000 UNAUDITED <TABLE> <CAPTION> June 30, December 31, $ in thousands 2001 2000 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> 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 =========================================== </TABLE> See Accompanying Notes 5
FLUOR CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended June 30, 2001 and July 31, 2000 UNAUDITED <TABLE> <CAPTION> $ in thousands 2001 2000 - ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> 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 ======================================== </TABLE> 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: <TABLE> <CAPTION> June 30, December 31, $ in thousands 2001 2000 ----------------------------------------------------------------------------------------------- <S> <C> <C> Equipment for sale/rental $ 69,325 $ 81,511 Supplies and other 34,473 35,053 ------------------------------------------- $ 103,798 $ 116,564 =========================================== </TABLE> (3) Short-term debt comprises the following: <TABLE> <CAPTION> June 30, December 31, $ in thousands 2001 2000 ---------------------------------------------------------------------------------------------- <S> <C> <C> Commercial paper $ --- $ 191,720 Notes payable to banks 38,010 35,091 Trade notes payable 405 982 ------------------------------------------- $ 38,415 $ 227,793 =========================================== </TABLE> (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: <TABLE> <CAPTION> Three Months Ended Six Months Ended -------------------------------- ---------------------------------- June 30, July 31, June 30, July 31, $ in thousands 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> 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 ================================ ================================== </TABLE> 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: <TABLE> <CAPTION> Business Asset Services $ in millions EPC Services and Other Total - ------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> 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 </TABLE> 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: <TABLE> <CAPTION> $ in millions 2001 2000 ------------------------------------------------------------------------------------------------ <S> <C> <C> 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 ======================================= </TABLE> 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: <TABLE> <CAPTION> Business Asset Services $ in millions EPC Services and Other Total ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> 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 </TABLE> A reconciliation of the segment information to consolidated amounts for the six months ended June 30, 2001 and July 31, 2000 is as follows: <TABLE> <CAPTION> $ in millions 2001 2000 ------------------------------------------------------------------------------------------------ <S> <C> <C> 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 ======================================= </TABLE> 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: <TABLE> <CAPTION> Three Months Ended Six Months Ended ---------------------------- ------------------------------ June 30, July 31, June 30, July 31, $ in millions 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Revenues $1,681.4 $1,978.9 $3,058.2 $3,710.2 Operating profit 71.4 24.3 136.4 87.5 </TABLE> 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: <TABLE> <CAPTION> June 30, December 31, July 31, $ in millions 2001 2000 2000 - ----------------------------------------------------------------------------------------------- <S> <C> <C> <C> 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 ============================================ </TABLE> 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: <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------- ------------------------------- June 30, July 31, June 30, July 31, $ in millions 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> Revenues $610.5 $593.1 $1,204.9 $1,096.2 Operating profit 28.0 31.1 54.4 57.5 </TABLE> 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